[Senate Hearing 106-1069]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 106-1069
 
                  LOCAL COMPETITION IN THE VOICE AND 
                            DATA MARKETPLACE
=======================================================================



                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION
                               __________

                            NOVEMBER 4, 1999
                               __________

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





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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington             JOHN D. ROCKEFELLER IV, West 
TRENT LOTT, Mississippi                  Virginia
KAY BAILEY HUTCHISON, Texas          JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine              JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri              RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee                BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan            RON WYDEN, Oregon
SAM BROWNBACK, Kansas                MAX CLELAND, Georgia
                       Mark Buse, Staff Director
                  Martha P. Allbright, General Counsel
     Ivan A. Schlager, Democratic Chief Counsel and Staff Director
               Kevin D. Kayes, Democratic General Counsel











                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held November 4, 1999....................................     1
Statement of Senator Ashcroft....................................    22
Statement of Senator Breaux......................................    66
Statement of Senator Brownback...................................     8
Statement of Senator Burns.......................................     1
Statement of Senator Cleland.....................................    25
Statement of Senator Dorgan......................................     7
Statement of Senator Gorton......................................     6
Statement of Senator Hollings....................................     3
  Submittals for the record:
    Communications Act of 1934, Section 271, Competitive 
      Checklist..................................................    52
    Additional materials pp..............................54,57,61,71-75
Statement of Senator Rockefeller.................................     4
Statement of Senator Stevens.....................................     4

                               Witnesses

Holland, Royce J., Chairman and CEO, Allegiance Telecom, Inc.....    25
    Prepared statement...........................................    28
    Submittals for the record:
    John Windhausen, Jr., President, letter dated June 23, 1999, 
      and the testimony of US West CEO Sol Trujillo to Hon. John 
      McCain and Hon. Ernest F. Hollings.........................    83
Houser, Charles S., Chairman and CEO, TriVergent.................    37
    Prepared statement...........................................    40
Neel, Roy, President and CEO, United States Telecom Association..    10
    Prepared statement...........................................    13
Pegg, Daniel O., Senior Vice President, Leap Wireless 
  International, Inc.............................................    23
    Prepared statement...........................................    23
Tidwell, Rick, Vice President, Birch Telecom.....................    46
    Prepared statement...........................................    47

                                Appendix

Sloan, Catherine R., letter dated November 15, 1999 and Chart on 
  Long Distance Rates, to Hon. John McCain.......................    89


          LOCAL COMPETITION IN THE VOICE AND DATA MARKETPLACE

                              ----------                              


                       THURSDAY, NOVEMBER 4, 1999

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m. in room 
SR-253, Russell Senate Office Building, Hon. Conrad Burns 
presiding.
    Staff members assigned to this hearing: Lauren Belvin, 
Republican senior counsel; Paula Ford, Democratic senior 
counsel; and Al Mottur, Democratic counsel.

            OPENING STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. I call the hearing to order, and good 
morning everybody, and thank you for coming this morning. The 
purpose of today's hearing is to learn more about the current 
progress of implementing the Telecommunications Act of 1996 as 
it pertains to local competition.
    It is, of course, almost 4 years since Congress adopted 
that Act. While all of us on this committee would like to have 
seen faster progress made in the first 3 years, I doubt if any 
of us believe that it was going to happen overnight. The task 
of this committee is to ensure the transition to a fully 
competitive telecommunications marketplace as quickly as 
possible.
    In a State like mine, a State where we have got quite a lot 
of dirt between light bulbs, we do not have any urban areas in 
our State, so we haven't seen much in the way of investment in 
wire line networks. However, we have seen an increase in 
consumer choice by local services, by wireless providers, and I 
look forward to the prospect of the local telephone competition 
through the AT&T and TCI cable systems in our State.
    Since the Act passed, there has been significant activity 
in the telecommunications industry. Incoming local carriers 
have been forced to consider new ways of doing business. That 
might mean an erosion of their local market share in order to 
venture out into new business opportunities. Mergers and 
acquisitions have resulted in a new way of thinking for 
traditional telephone companies.
    New technologies have allowed companies to think outside of 
the box in ways never contemplated before the 1996 Act. New 
entrants have been initially drawn to more profitable business 
markets. Federal and State court litigation over the Act has 
resulted in significant delays, though, that took time and 
injected some uncertainty in the process. Even while the 
lawyers were fighting, some innovative new firms were beginning 
to take advantage of the opportunities made possible under the 
act.
    The FCC issued the latest local competition report in 
August 1999 and it contains some encouraging information. The 
number of competitive local carriers increased from 94 so-
called CLEC's in 1996 to 355 in 1998. Some of these competitive 
carriers resell the services of the incumbent local carriers 
under section 251 of the Act. Others are building their 
facilities, and the number of fiber miles deployed is 
staggering, 3.1 million fiber miles by 1998, up 72 percent from 
just a year before.
    Still, though, the basic f Act remains that incumbent local 
exchange carriers continue to retain 96 percent of the local 
telephone market. Properly implementing the interconnection 
requirements of the Act is critical to ensuring not only a 
choice of local telephone providers but also a choice of 
broadband service providers. I look forward to the day when 
there is true broadband service in both directions, upstream 
and downstream.
    I am heartened by the rapid pace of DSL deployment over the 
past year, which from where I sit looks to be almost entirely 
driven by competition. In fact, last March, GTE and the RBOC's 
announced that they would deploy the long-awaited ADSL 
technology to about 25 million lines by the end of this year.
    By September, GTE and the RBOC's had accelerated their 
deployment projections to 45 million lines by the year's end. 
While I am still far from satisfied at the pace of broadband 
build-out, these numbers are, nonetheless, encouraging.
    The FCC generally or recently gave GTE and the RBOC's some 
relief that they had argued that they needed to deploy 
broadband. I am referring to the FCC decision not to require 
them to make their advance equipment available to competitors 
as unbundled network elements to deliver high speed DSL service 
CLEC's and DLEC's, which have to do--has already been done by 
their own advanced equipment and connected to the incumbent's 
loop in colocated space.
    This is a good example of the FCC employing the flexibility 
built into the 1996 Act to respond to the evolution of the 
market. In light of the FCC decision, we will be working for 
even more rapid GTE and RBOC deployment. It is clear that 
everyone should play by the same rule book. When that happens, 
competition does flourish, and consumers benefit from the new 
service.
    In short, though, the pace of change may frustrate many. It 
is clear that the Act is indeed working to open up historically 
closed markets and provide an increased consumer choice. I am 
convinced that the Act has been critical to generating the 
explosion of the economic growth that we have seen recently in 
the overall economy. The task we face as policymakers is how 
best to unleash market forces to make sure that the intent of 
the Act is fulfilled without further delay, and I thank you for 
coming this morning and would yield to my good friend from 
South Carolina, Senator Hollings.

             STATEMENT OF HON. ERNEST F. HOLLINGS, 
                U.S. SENATOR FROM SOUTH CAROLINA

    Senator Hollings. I thank you, Mr. Chairman. The chairman 
has really keynoted our situation. Chairman Burns has just 
stated what we all know, that the Bell Companies control 96 
percent, actually the stock market says 3.4, so it is really 
96.6 percent of that last line going into the business of going 
into the home. And so to have a hearing, most respectfully, Mr. 
Chairman, on local competition, and not have the Bell Companies 
up here to tell us why they still squat on their monopolies, 
makes it difficult to get to the source of the problem perhaps 
they know out there that we really have got an unconstitutional 
situation.
    That was one of their first pleas, that the Act--which they 
helped write--was unconstitutional. Then they tried to use 
subterfuge with respect to how they were opening up. Then they 
went before the locals and later all the way up to the Supreme 
Court, where it was made clear that no, they were not 
complying. Again most recently where we had hope where by I 
know that the distinguished chairman, I and others on this 
committee were looking with favor on Bell Atlantic's initiative 
there in the New York area, and yet we find the Justice 
Department has said already that there is not enough 
unbundling, and certainly that the FCC should not approve this 
application unless it is conditioned that there is sufficient 
unbundling.
    Namely, we know at the national level in long distance that 
they have 50 million switches a year at least. That is almost a 
million a week. Now, you go into the New York market, Mr. 
Chairman, without a sufficient switch arrangement, what you 
have really visited upon the people themselves is gridlock and, 
of course, loss of life and total chaos and everything else of 
that kind, and so it is not a question of politically whether 
we like it or we do not like it or whatever. It is, we are on 
the spot.
    We constantly hear the caterwauling all over the Congress 
that it is not adequate. The Act has got to be amended. We have 
got to get into data services, or namely long distance, because 
we did not contemplate technology, such nonsense as that. All 
we talked about for 4 years was technological advance.
    To the credit of the competitive local exchange carriers 
they have been nibbling. They have got some 54 million in 
business, and my hat is off to them, and we have got some 
wonderful witnesses here coming with respect to that. But to 
have a hearing without the people controlling the monopoly to 
come and give their complaints openly to us, rather than around 
the corner, and trying to introduce side bills and takeovers 
and complain that the Act is a bad one, really complicates the 
ability to get to the bottom of this issue. I ask why don't 
they come up here and tell us about the local competition? The 
fact is that they are not here. They are not here.
    So in reality, with respect to you and all the colleagues 
on the committee itself, this hearing is over. What we are 
going to hear about are the nibblers, the 3.4 percent, and we 
will give it a lot of adjectives and adverbs and gusto and 
everything else like that, like, ooh, we have got really local 
competition. You have adjourned the hearing in essence by way 
of fact, because we do not have--and were invited, I take it, 
Mr. Chairman.
    Senator Burns. They were.
    Senator Hollings. They refused?
    Senator Burns. They are not here.
    Senator Hollings. Thank you a lot.
    Senator Burns. Senator Stevens.

                STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    Senator Stevens. I will try to be brief and not take on my 
friend from South Carolina too much. I am pleased you are 
holding the hearing. I think you are right that the progress so 
far proves that the Act could work, should work.
    Local competition has lagged. I am certain some local 
exchanges are making inroads in embracing competition, but some 
have used the powers they have to frustrate reform. I am 
pleased to hear--and I hope others have heard that Bell 
Atlantic is coming closer to meeting the checklist under 
section 271 of the Act, and with their help we could prove that 
that series of standards could work for everybody.
    The path to competition really is through the Act, and I am 
hopeful that those who come before us will give us some idea of 
what we might be able to do to strengthen it, but we made no 
distinctions between voice and data in the 1996 Act. Some want 
to have the checklist apply only to voice-based telephony. That 
would make what we did into just a hollow vessel and 
meaningless.
    I think data is really going to be the dominant player in 
this whole system, and if we are going to make a really, truly 
competitive situation on the local level, data and voice must 
be governed by the same rules.
    So I look forward to working with you. Unfortunately, I 
cannot stay for the whole hearing, but I do thank you for 
holding it, and I am sorry, as my friend from South Carolina 
is, that some of those who could explain why this competition 
is not truly taking hold are not here.
    Senator Burns: Thank you, Senator Stevens. You go back and 
sit next to the safe, would you? You are watching the money 
here these last 2 or 3 days.
    [Laughter.]
    Senator Burns. Senator Rockefeller.
    Senator Stevens. If you would just give me a little more 
competition, that spectrum would be worth even more.
    Senator Burns. How many times have we got to sell it?
    [Laughter.]

           STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA.

    Senator Rockefeller. Mr. Chairman, I am going to make a 
statement. I have to go back to my office for about 20 minutes, 
then I will be back, which I know you will want to hear.
    [Laughter.]
    Senator Burns. Silence is golden at this point.
    [Laughter.]
    Senator Rockefeller. The first thing I want to say is, I 
have a tremendously deep sense of disappointment that we have 
not had a hearing, in spite of many requests on my part and 
others, on the confirmation of Susan Ness. I just wanted to put 
that on the record.
    She has served longer on the FCC than anybody else. She is 
extremely valuable and she will be there. When the Commerce 
Committee fails to have a hearing to renominate somebody, or to 
give her the chance to be renominated, it is not good in 
telecommunications, and all the things they have to do. It is 
particularly not good, in view of what we are discussing this 
morning and in view of fairness to individuals like Susan Ness 
it is not good.
    So we need her expertise, we need her hard work, and she I 
think deserves to be a commissioner, and I regret the f Act 
that we did not have that chance for this year, and hope that 
we will do it the very first thing next year, or even in the 
waning days of this year.
    Then I want to say the following. The purpose of the Act 
was to promote competition, and I was born in Manhattan, and my 
jurisdiction is McDowell County in West Virginia, one of the 
poorest counties in the Nation, and I think they should both be 
equal in terms of access to all forms of technology, and at 
affordable prices.
    There are examples of increased competition, and that is 
good, and that includes the long distance market, wireless 
services, Internet backbone, electronic commerce sales. 
Internet and broadband services continue to be more accessible.
    Importantly, competition in local phone service is 
beginning to appear. CLEC's already serve business customers 
across the country, and beginning the possibility for 
residential consumers. Now, therein lies my concern. Local 
rates for businesses are drastically lower, and let us hope 
that rates for residential users will also benefit from 
competition.
    We have a very long way to go. Byron Dorgan and I would say 
that until this reaches rural America and residential users 
everywhere, we do not have a choice in North Dakota, in 
Montana, in South Carolina, any place. This has to improve. We 
cannot abandon the promise that all Americans will have 
comparable services. So far, the telecommunications industry is 
not meeting that requirement. The chairman said it will take 
time, but movement is very, very slow.
    The broadband services are not yet available in most rural 
areas. That hurts West Virginia and other rural States. Most of 
America is rural. This has to change. I hope the FCC will 
closely monitor whether the same critical broadband services 
are available in all parts of the country equally.
    It is important to note that the Act is working with 
respect to advanced services. Section 706 of the Act wisely 
requires the FCC to constantly monitor the availability of 
these services, and it gives the Commission the power to Act if 
necessary to encourage further deployment. I applaud Bill 
Kennard's recent commitments to opening a new proceeding on 
this issue.
    We also have to ensure, and I digress a little bit here, 
but this is a point that I want to make very strongly. We have 
to make sure that consumers know what they are paying for, and 
that they can take advantage of competition because they have 
the knowledge with which to do that. Most residential consumers 
are enormously confused by the telephone bills that they get. 
They do not understand how to find the best deal for them and 
their families. They are confronted with dozens of pages of 
information, confusing rate plans, and it includes charges, 
slamming, which they did not sign up for, which I would think 
would be fraud.
    AT&T's recent attempt to increase their universal service 
line by 50 percent is a good example of why we need truth in 
billing legislation, which I have introduced. AT&T tried to 
justify this 50 percent increase, but their justifications come 
up very short. I will explain.
    They claim that the recent Fifth Circuit ruling on the 
universal service funding base resulted in increased universal 
service contributions. That is what they said. But they fail to 
tell consumers in their bills or anywhere else that they will 
receive almost $400 million in access reduction almost 
simultaneously, or that this reduction is part of about a $5 
billion in access reduction amount since 1996, reductions that 
they should pass through to residential consumers.
    Too, they claim that last month's well-founded FCC decision 
to help carriers provide local service to rural States under 
the universal service program would also increase their 
universal service payments, they claim. But they wanted to bill 
consumers several months before they started paying the FCC.
    Now, how does that work? Why is that legal? They would have 
been receiving money without paying it to the universal service 
fund. They would have been making interest on that money, 
gaining advantage from that money, from consumers, residential 
consumers. This is not acceptable. It is not acceptable.
    They also argue they needed to increase charges to 
consumers because they cannot, as they said, collect on 8 
percent of their customers' bills. I severely doubt that. If 
so, they are way out of sync with the rest of the long distance 
market.
    They propose to have paying customers cover for their 
inability to collect 8 percent from their customers when States 
like New York say it is only around 2 percent of bills are 
uncollectible. Do customers know that this is occurring? Of 
course not. Of course they do not.
    Luckily, the FCC stopped the AT&T dead in its tracks, and I 
commend Bill Kennard for that very good decision. These types 
of situations confuse consumers. They create great distress in 
Commerce Committee members like myself, and I think we have to 
work to reduce this confusion and if any of my colleagues want 
to sign up for my truth in billing legislation, we will do ex 
actly that.
    I thank the chairman for allowing me to wander onto that 
subject, and I will be back shortly.
    Senator Burns. Thank you. Senator Gorton.

                STATEMENT OF HON. SLADE GORTON, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Gorton. Well, Mr. Chairman, the divisions that 
became evident during the debate in leading up to the 1996 Act 
seem to remain here today. This is an interesting hearing. It 
is too bad it is not a little bit more extensive, but I think 
we are probably fairly close to seeing how the 1996 Act can, in 
fact, work, with the imminence, I think, at least of one major 
Bell Operating Company meeting the requirements of the 1996 
Act, and I think it may be wise to see how that works and to 
determine whether or not any changes are needed.
    In any event, this is a controversial issue, because it is 
such an important issue, because so much is at stake both for 
many large companies and for many small companies attempting to 
make the field competitive, but even more for the people of the 
United States who are the customers of these companies and the 
beneficiaries of competition.
    Senator Burns. Senator Dorgan.

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, thank you very much. Let me 
add my voice to that of Senator Rockefeller, encouraging the 
committee to consider the confirmation of Susan Ness. She has 
been a particularly strong voice for rural America on the 
Commission, and this commission has a lot of challenges and a 
lot of difficulties trying to find its way through the fog, and 
they need predictability and certainty of membership. I would 
encourage the committee to proceed with that nomination.
    First of all, I should say that last evening I had two 
telephone calls, one during dinner, trying to sell me long 
distance services, one of them attached to a credit card 
service, so there is some competition out there that is 
unabated, especially around dinner time, and especially in the 
long distance area. They are aggressive.
    The hearing is about competition in local exchanges, and we 
know, I think all of us, that there is not the kind of 
competition that we want at this point. It has been slow 
coming. Those who have had monopoly positions have been very 
stubborn in resisting changes. I understand that. That is a 
behavior that obviously all of us could have predicted.
    Has the Act worked as well as we would have hoped? No, I do 
not think so. The Act was billed as something that would foster 
competition. There is less competition than I would like to 
see, and there is substantially more concentration than one 
would have anticipated, but that ought not persuade anyone at 
this point to rush in to try to change the Act itself.
    There are ways, it seems to me, to meet these challenges. 
The Senator from Alaska, and I think my colleague just 
indicated from Washington, that one of the Bell Systems might 
likely meet the checklist soon, perhaps another. You know, it 
seems to me that we ought to proceed down this road and do what 
we can to make certain that we make progress in opening these 
local exchanges to competition, and we also have the challenge, 
in addition to promoting more competition, of building out the 
advanced services, and that is very important.
    What kind of model will we follow? Will we follow the model 
of electricity and telephone service, and requiring it to be 
service to all parts of this country? In order to do that, when 
the market system does not provide it, and it will not in many 
areas of the country, with respect to the build-out of advanced 
services, then we have to have the assistance of the FCC 
following the Act, which attaches advanced services to 
universal service.
    That attachment exists in law, in the Act, and what we 
really require at this point is a set of actions on behalf of 
the FCC that are bold, rather than timid. The FCC has to be 
bold in pursuing some of these policy objectives, and I might 
also say I suppose it is gratuitous to say that when this Act 
was passed, en acted, and the FCC first got a hold of it, they 
made some horrible mistakes in judgment, in my judgment, on how 
they began to construct universal service and some other 
issues, but they are trying very hard now with the new 
commission to reconstruct and redo some of that.
    They need now to be bold in these areas, and I regret--I 
was asking Senator Hollings what word he used for the 
witnesses. What word was that again?
    Senator Hollings. Nibblers. You know, small fish, not the 
big ones.
    Senator Dorgan. I think we should say that he would not 
mean that personally to any of you who are about to testify. 
That was a figure of speech.
    Senator Hollings. Well, I would say they made up for $54 
million worth of business, and they are in there struggling, 
and more power to them.
    Senator Dorgan. Well, we are happy you are all here. More 
power to all of you, and I agree with Senator Hollings that for 
the hearing to be productive it should have had the Bell 
Systems here, and should have had all the players at this table 
talking about what this market is and what is happening in the 
market, and why, because there are very serious questions about 
why there is so little competition in local exchanges.
    Senator Burns. Senator Brownback.

               STATEMENT OF HON. SAM BROWNBACK, 
                    U.S. SENATOR FROM KANSAS

    Senator Brownback. Two points I would like to make. One is, 
I think competition is occurring in the local telephone 
service, and I have got some f actual numbers I want to put 
forward to back that up, and it is following a very logical 
progression along the market development. I think it will 
follow more as the market develops more.
    Then a second point that I want to make quickly is, I think 
if we look on broadband services for advanced services, 
deregulating some of those will not hurt the broadband 
competition. I think it will actually expand services across 
the country, including into rural areas.
    Now, let me just put forward some f acts. I think probably 
the chairman cited to some items here, but by the end of June 
facility-based CLEC's were in every State and in all but 18 of 
the United States, 193 local access and transportation areas. 
We were in virtually all of those.
    The number of ILEC lines resold by competitors doubled from 
1997 to 1998. That is a f Act. The number of loops used by 
CLEC's to provide service tripled over that same 1-year time 
period. In f Act, there are only four States in which loops are 
not used as an entrance strategy right now.
    By the end of last year, CLEC's were reported to have 
operational colocation arrangements in switching centers 
serving almost half of all ILEC customer lines, representing a 
67-percent increase over the number of such arrangements that 
existed at the end of 1997. That is a f Act, that that is the 
case.
    In terms of the types of customers these switching centers 
serve an approximately 40 percent of ILEC residential lines, 
but 60 percent of ILEC business in Government lines. I think 
they are just following the marketplace that is most developed 
the earliest on.
    Then we go on, there is other f actual basis that the 
competition is occurring. It is occurring logically. It is 
occurring as the market would develop. It is occurring where 
there is reward for that, and I think it will continue to occur 
as we let that market develop.
    The second point I want to make is that I think we need to 
look at, in the broadband services--and I put forward a bill on 
this--some minor deregulation to actually increase the 
broadband services being available to all, and particularly to 
places like my State, Kansas, that has a lot of rural areas.
    I think we need to look at that as a way of getting at more 
of these broadband services, and the notion that we should go 
back in and force more regulation or not provide the 
deregulatory atmosphere to encourage the investment to be able 
to get the capital into some of these expensive equipments and 
technology would be the wrong strategy to pursue, so I would 
hope we could actually provide some minor relief there, 
particularly in the broadband area, so we can get that out to 
rural customers as well, and I think that will be the most 
logical way it will happen so that they can get access to 
capital to develop those markets.
    I know that is not in agreement with everybody on this 
committee, those comments, but the one is a set of f acts, and 
the other I believe is the way it will actually, logically 
develop.
    Mr. Chairman, thanks for holding the hearing.
    Senator Burns. Thank you.
    Senator Hollings. Would the chairman yield just for a 
second?
    Senator Burns. You want some time for clarification here?
    Senator Hollings. Please.
    Senator Burns. OK.
    Senator Hollings. One, with respect to our overall 
chairman, he has committed to holding a hearing on Susan Ness 
at the beginning of next year. You and I, all of us have been 
very vitally interested in her reappointment and, as has been 
stated, she has done an outstanding job.
    Second, when I talk about nibblers, let's look at the big 
fish. I will never forget MCI spent $800 million, and British 
Telecom said that is a waste of money. If you have got to 
resell something, or a product that is controlled by the amount 
of supply and the price itself, you cannot make money because 
if you are making money, then the original entity will start 
selling it itself.
    So they lost $800 million. AT&T, the big fish, went after 
it, and they spent $3.2 billion. Now they have gone totally 
round, and into cable TV to try to get into the local market, 
bust in the back door, and they are even trying to stop them 
there, at the local city councils, saying that monopoly, 
monopoly, we ought to have access.
    Let us get it clear. You and I, we built these taxpayer 
monopolies the seven Bell Companies. They came in and they 
said, it is a competitive thing. We want one-stop shopping. 
That is what the public wants, that is what we are going to 
provide, and everything else like that, and then they 
immediately went instead to the constitutionality of it and 
tried to go around and not comply and try to bust up the 
accounting system at the FCC.
    They have had an onslaught from every particular direction 
with all kinds of bills and what-have-you, and attempts to do 
what, to hold onto their monopoly. More power to them, if we 
are going to let them do it. If I ran Bell South, I would do 
the same thing, because they are making one heck of a big 
profit, and they are a well-run company, so it is just the sort 
of breach of faith on behalf of the Bells who came in for 4 
years saying they want to compete, compete, instead of 
combining.
    Now, these cable lines, they are investor entities. They 
are not taxpayer monopolies. You and I, all of us paid in for 
these public monopolies, and we said we want to break up the 
monopolies. We wanted competition, and you are not going to get 
competition in the local market. You are going to cut some 
CLEC's, and they are nibbling, but with all of their 4 years of 
nibbling they have gotten less than 4 percent into the local 
market. That is my point, and we ought to find out, with these 
Bell Companies, where are they?
    Senator Burns. Well, I suspect we will probably find out. 
Do not wish for too much. You might get it.
    The first panel, and I am looking forward to hearing their 
testimony, Roy Neel, president and CEO of United States Telecom 
Association, Dan Pegg of Leap Wireless, Royce Holland with 
Allegiance Telecom, Charles Houser with Trivergent, and Rick 
Tidwell, who is with Birch Telecom.
    I am always reminded, you know, my folks when they had 
their 50th wedding anniversary we had more people drop by the 
house than we had chairs for, and my mother was hollering and 
says, we don't have enough chairs, and dad said, we've got 
enough chairs, we've got too damn much company.
    [Laughter.]
    That is the way an old farmer looks at things, you know, 
but Mr. Neel, thank you for coming this morning. We look 
forward to your statement.

           STATEMENT OF ROY NEEL, PRESIDENT AND CEO, 
               UNITED STATES TELECOM ASSOCIATION

    Mr. Neel. Thank you, Mr. Chairman, Senator Hollings. It is 
always a pleasure to come back in this room. I do not know 
whether the United States Telecom Association is a nibbler or a 
big fish, but I can tell you, I am here to represent all the 
local exchange companies, the Bell Companies, GTE, and about a 
thousand small companies. I don't really know where to start in 
taking exception with Senator Hollings in terms of the degree 
of openness in this market, because who are we going to 
believe?
    The so-called new competitors have reached nearly 10,000 
agreements with the local companies to offer local service. 
They go to Wall Street and tout their ability to compete, that 
they are well-financed, that they have the markets open.
    You know, Senator Hollings, our good mutual friend John 
Windhausen, who is here with us today, testified here not long 
ago about what would represent a test for local competition. He 
has studied this and was one of the real driving forces behind 
the 1996 Act. He said that the realistic choice test is really 
more like a yellow pages test.
    In other words, can a consumer open the yellow pages, find 
another local phone company willing and able to offer service, 
and then sign up with that carrier? When a consumer can do 
this, then the market would be considered open.
    Well, I have the Charleston phone book here, where you and 
I both have homes. On the first page of the Charleston phone 
book is a listing for local service providers, and there are 15 
of them here. Now, we called every one of them yesterday, and 
13 of them will offer local residential service.
    Now, these folks believe that the market is open, and they 
can get into the business, and this is repeated throughout the 
country. It is really important to look at what the real issue 
is here. When you say that the Bell Companies control 96.5 
percent of the local market, that is really, really not the 
story. They may serve 96 percent of the local residential 
customers, but they have been losing massive revenues from the 
business market. They are also losing millions of local 
residential customers every month.
    These are important statistics. In urban areas, the 
business markets are open and critically the data markets have 
been extremely competitive. In the first quarter of 1999 alone, 
a million CLEC access lines were installed. This goes on and 
on. As I said, nearly 10,000 certification, 5,500 signed 
agreements, nearly 3 million resold lines.
    The Washington Post business section has had dozens of 
local service providers listed in the last few days. 
Facilities-based competitive local exchange companies are in 
all but 18 of the country's 193 local area markets. They are in 
every State. They believe the markets are open and they can do 
business. They go to Wall Street and they talk about how strong 
they are going to be. So who is telling the truth here.
    I think it is absolutely critical that everyone on this 
panel represents rural markets, and everyone wants to get new 
enhanced services out to rural customers. Everyone says that is 
what they want to do.
    Well, how are we going to do it? The so-called new 
competitive providers are not going to do it. They will tell 
Wall Street they are staying away from that market because they 
cannot make any money at it. They go into the business market. 
It is like the famous old bank robber said, when he was asked 
why he robbed banks and he said, that is because that is where 
the money is. Well, that is where they are going to go. 
Competitive providers are going to go into the urban market.
    So how are you going to get those services out to rural 
markets? One of the impediments is the FCC's stubborn refusal 
to follow the law and deregulate these markets to let these 
companies get out and serve rural areas, and everyone else.
    We have had a lot of attention to this current debate 
between the cable modem and the digital subscriber line service 
as a way to really push out service into rural areas. Mr. 
Chairman, I would like to ask the members of the committee to 
look at simple chart we have here. There are about 15 or 20 
issues or services or functions in this data market that are 
provided either through DSL service by local providers or by 
cable operators.
    If you look at this chart, this gives you a sense of what 
is regulated and what is not. In every case, the local service 
provider providing DSL service has these components heavily 
regulated. The company providing the same service by cable 
modem has no regulation whatsoever.
    Further complicating this is that the two main providers 
now of Internet interstate backbone services will serve more 
than 75 percent of this market. Now, that is a massive duopoly, 
so where is the competition here? The goal should be to let the 
local phone companies get out there and build these data 
services to the last mile to every consumer, whether they are 
in Missoula or some of your smallest towns, whether they are in 
Charleston or some of your smallest towns in South Carolina. 
That is the reality, and that is what they have to do.
    You can go through example and example, there is 
competition out there. The business marketplace is extremely 
competitive, and the FCC is simply not following the law. You 
are going to hear anecdotes about abuses in the interconnection 
process, and about how companies cannot compete. But that is 
not what they are telling Wall Street. For every anecdote about 
a problem that a competitor is having interconnecting or 
getting lines provided, there are literally tens of thousands, 
if not millions of examples where those customers are 
transferred easily, quickly, and to the competitor's satisf 
action.
    It is no secret a competitor is going to want to have the 
rules go their way. It used to be said MCI was really not a 
telecom company, it was a law firm with an antenna. 
Competitions are trying to get competitive advantage anywhere 
they can, and the point here is that you have got to be 
discriminating about these complaints.
    We look at what has been done as opposed to the few 
examples where it is not working. The critical issue is how 
these companies are meeting their obligations under the 1996 
Act, under section 251. Not a single enforcement proceedings 
has gone against any of the local exchange providers for 
failure to comply, Senator, with the Act, not a single one. If 
complaints have been made, they have been dismissed by the 
commission, or they do not exist, so that is a very critical f 
actor here as we go forward.
    It is really important that the FCC get on with the process 
of deregulation, and not simply holding back one of the real 
engines of force in the local telecom economy, the local 
exchange providers. The FCC needs to let the local exchange 
companies get out and compete with the likes of this huge AT&T 
megalopoly that is coming together, and now this Worldcom-
Sprint monster that is coming together. The way to really get 
competition out there is to let local exchange companies get 
out there and compete.
    So I appreciate your time. We have asked that our statement 
be included in full in the record.
    Senator Burns. Your full statement will be included in the 
record.
    [The prepared statement of Mr. Neel follows:]
   Prepared Statement of Roy Neel, President and CEO, United States 
                          Telecom Association
    Thank you very much, Mr. Chairman, for giving me the opportunity to 
testify at this hearing. The hearing is timely and an important one. As 
the President and CEO of the United States Telecom Association, I am 
here on behalf of the over 1100 local telephone companies that we 
represent throughout the United States. Our members are at the front 
lines of local competition and the thrust of my testimony today will be 
that if you are a business in a large urban market you have many 
competitive opportunities. In contrast, if you are a residential 
customer in a rural market you will have very limited competitive 
options. We also expect that cable operators who are today providing 
telephone service in some markets will greatly expand that service to 
other markets.
    Let me begin by quoting a recent remark made by the Chairman of the 
Federal Communications Commission, William E. Kennard with respect to 
local competition. Chairman Kennard made the following statement at a 
hearing before the House Commerce Committee's Subcommittee on 
Telecommunications, Trade and Consumer Protection on October 26, 1999.

        In the local phone sector, we are starting to see the fruits of 
        our pro-competitive policies. There are now at least 20 
        publicly traded CLEC with a total market cap of 33 billion 
        (dollars). That compares with only 6 CLECs with a market cap of 
        $1.3 billion at the time of the passage of the 1996 Act. In the 
        first quarter of 1999 alone, almost a million CLEC access lines 
        were installed. (Emphasis Added)

The Local Market Is Open 

    As a starting point, let me share with you some summary information 
on the state of local competition that USTA provided to the House 
Commerce last December (1998):


            Demonstrate Competitive activity with: LEC Total
PSC CLEC Certifications...................                         9,762
Signed Agreements with Competitors........                         5,475
PSC Approved Agreements...................                         2,881
Unbundled Loops...........................                       285,402
Resold Lines..............................                     2,849,469
    Resold Business Lines.................                     1,650,092
    Resold Residential Lines..............                     1,260,751
    Resold Coin...........................                        35,226
  Resold Private Lines/Data CKTs..........                        78,756
Minutes of Use (MOUs) Exchanged (Since                     307.1 Billion
 1995)....................................
Interconnection Trunks in Operation (Local                     1,801,977
 Only)....................................
Collocation Arrangement ( activity).......
        Physical..........................                         2,385
        Virtual...........................                         2,220
Wire Centers with Collocation.............                         4,956
Number of Lines in Offices with One or                        44,593,956
 More Collocators.........................
NXX Codes Assigned to CLECs...............                        11,413
Total CLEC-Provided Local Exchange Service                     3,510,476
 Lines....................................


    The above information was compiled by our local telephone companies 
and its shows that there are a lot of competitive entrants. This 
original research done by USTA has been validated by subsequent studies 
done by both us and others. I also intend to demonstrate to you that, 
as Chairman Kennard noted, the competitive situation has become much 
more competitive in just this last year of 1999. 
    In May of this year, USTA submitted to the FCC (CC Docket No. 96-
98) a report prepared by Peter Huber and Evan Leo for the Bell 
operating companies and GTE entitled the UNE FACT REPORT. The report 
was done in contemplation of the UNE remand proceeding at the FCC so it 
emphasized network elements, such as switches which are a key component 
to facilities-based local competition. This extensive research 
confirmed our earlier (December 1998) assessment regarding the state of 
local competition. This report showed, for instance, that 167 CLECs had 
deployed 724 switches in 320 cities as of March 1999. A chart showing 
the locations of the switches is attached to my testimony, and it 
graphically corroborates my earlier statement about where the 
competition is going. What leaps off the page of the attached chart is 
that competitors have business plans that target urban areas. In 
Washington, D.C. , for instance, 14 CLECs operate 23 switches in the 
Washington Metropolitan Statistical Area.
    The UNE FACT REPORTS econdly looked at 3 categories of RBOC/GTE 
Wire Centers those with 40,000 lines or more, those with 30,000 lines 
or more and those with 20,000 lines or more (see attached charts). The 
research showed dispositively that wire centers with the greatest 
density have the greatest degree of competition, thus providing 
probative evidence that the CLEC business plans place their emphasis on 
business customers, as it is within the reach of these dense wire 
centers that the great preponderance of business locate. Drive around 
Washington today, for instance, and observe where the streets are being 
torn up to install fiber optic cable and this point will be made. As 
our UNE FACT REPORT further observes, there is more local competition 
three and a half years after passage of the 1996 Act than there was 
three and a half years after EXCUNET II opened up the long distance 
market to competition in 1978, by requiring AT&T to interconnect with 
long distance competitors.
    In the advanced service market, the UNE FACT REPORT points out that 
the competitive situation is even more pronounced. CLECs already lead 
incumbent local exchange carriers (ILECs) in providing advanced 
services over ILEC loops. CLECs offer advanced services to over 5 
million homes and ALTS, the CLEC trade association, predicts that 
number will quadruple in 1999, with data constituting 20 percent of 
CLEC revenue by 1999.
    Our two studies on local competition have been confirmed by the 
Local Competition: August 1999 report of the FCC's Common Carrier 
Bureau. This report indicates that by the end of June 1999, facilities-
based CLECs were in every state and in all but 18 of the nations 193 
LATAs. Furthermore, this report's assessment of where competition is 
developing corresponds precisely with our own analysis. The report 
says:

        One such assertion, made by virtually all analysts is that 
        competition is emerging most rapidly in urban business 
        districts. This observation meets with prior expectations, 
        which are based on historical telephone cost and usage 
        patterns. For example, a large body of literature describing 
        the cost structure of the telephone network supports the 
        conclusion that local telephone companies incur greater costs 
        by serving rural customers than by serving urban customers. 
        Furthermore, business customers, which are often concentrated 
        in urban areas, have historically used the network more 
        intensively than residential customers. Consequently, local 
        telephone companies have historically collected a 
        disproportionate share of their local telephone revenue from 
        business customers. In concert, these f actors indicate that 
        the high-volume, low-cost customers in urban business districts 
        are more attr active to new entrants than either rural or 
        residential customers. (Emphasis Added)

    The business plans of CLECs reflect the economic realities of the 
marketplace. There is considerable profit to be made in serving 
business customers, but there is less in serving the overwhelming 
majority of residential customers. US West in its territory has, for 
instance, lost to competitors 70% of its high capacity traffic. For 
most residential customers in most states, local residential telephone 
service is still highly subsidized by a 50 year old system of implicit 
subsidies. Investors behind CLECs know this and well over 95% of all 
capital flowing to CLECs is targeted at business customers, even though 
these customers represent only 35% of the total U.S. telecommunications 
market. CLECs are also no longer small companies as their market 
capitalization in 1999 is larger than the United States airline 
industry.
    The competition situation is changing and growing everyday. Just 
yesterday, for instance, Bell South announced that Network One will 
spend $500 million with Bell South's unbundled network element 
combinations or so-called UNE-P. This is the largest such deal reached 
to date in the telecommunications industry.
  CRITICAL IMPEDIMENTS TO THE FURTHER DEVELOPMENT OF LOCAL TELEPHONE 
                              COMPETITION 
          1. lack of comprehensive universal service reform. 
    In March 1994, USTA submitted to this Committee its universal 
service amendments to Senator Hollings' bill, S. 1822. We had been, by 
this time in 1994, internally assessing and developing for 3 years our 
policy recommendations to preserve universal service in an era of local 
competition. USTA's evaluation concluded that the system of implicit 
subsidies could not survive in a competitive era; that subsidies need 
to be explicit; that all providers of telecommunications services 
needed to contribute to universal service preservation; and that local 
telephone rates had to be rebalanced. The USTA amendments proposed four 
basic universal service proposals for a competitive era:

    1--eliminate implicit universal service subsidies
    2--require all providers of telecommunications service to 
contribute to the preservation of universal service
    3--establish explicit subsidies to provide adequate and sustainable 
support for universal service
    4--authorize ILECs to rebalance their local telephone rates

    During deliberations on the 1996 Act, several highly motivated 
Senators formed a coalition that became known as the ``Farm Team'' to 
protect telephone services, especially in rural areas. Senators, 
including Dorgan, Exon, Pressler, Rockefeller, Kerrey (Nebraska) and 
Stevens made this objective the centerpiece in the debate on 
legislation that ultimately became the 1996 Act. By August 1994, the 
``Farm Team'' had embraced three of these four USTA principles. 
Elimination of implicit subsidies was not adopted by the ``Farm Team,'' 
but rate rebalancing was. (See, Rural Area Amendments ``Farm Team'' 
Draft III -- August 1, 1994.) 
    I am emphasizing the Senate and the ``Farm Team'' deliberations, 
because it was the Senate's universal service provisions that were 
adopted by the 1996 Act. The 1996 Act embraced three of the four USTA 
universal service principles or at least that is what we thought on 
February 8, 1996 when President Clinton signed the Telecommunications 
Act of 1996. The 1996 Act did quite clearly rejected our rate 
rebalancing proposal. Had it been adopted local competition in my 
judgment would be much further along, especially with respect to local 
residential competition. Most states are reluctant to rebalance rates, 
because rebalancing rates results in local residential telephone rate 
increases and local business telephone rate decreases. Some states, 
such as Nebraska have rebalanced rates and created a state universal 
telephone service fund, and it has proven successful. In our March 1994 
submission to you, we emphasized how important rate rebalancing is and 
we said: ``The universal service provisions of this legislation do not 
permit the adjustment of prices for telecommunications services, 
especially in light of the competition that it fosters.'' In other 
words, if you want local residential telephone competition to flourish 
you must rebalance local telephone rates.
    The FCC was required by Section 254 of the 1996 Act to complete 
action on universal service reform by May 8, 1997. To date, the FCC has 
failed to do so. This failure in combination with the Congress' 
rejection of rate rebalancing in the 1996 the Act has perpetuated the 
economic distortions that existed at the time of the 1996 act's passage 
and that work against the competitive goals of the Act. I am talking 
here about the f Act that local residential service is supported by a 
vast array of implicit subsidies mechanisms which include: interstate 
access charges, vertical services (e.g., call waiting and caller ID), 
local business service, intrastate toll services and urban to rural 
support. These subsidy pr actices which began in 1949 and which 
continue unabated today result in ILEC provision of residential service 
in many areas at below cost rates.
    Without rate rebalancing and/or complete universal service reform, 
local residential service, except in low cost urban or similarly 
densely populated areas or provided by means of alternative technology 
or resale, will be uneconomical for competitors to provide. 
Consequently, there is a dearth of local residential competition, but 
there is significant local business telephone competition. As the 
Department of Justice observed in its recent Evaluation of Bell 
Atlantic's New York interLATA application, loops in Manhattan are 2000 
times more dense than in upstate New York. Such density will 
economically support both competitive business and residential service, 
but low density in rural areas, for instance, will not.
    The 1996 Act has, as we have seen, accelerated the trend towards 
competition in the provision of local telephone service. Competitors, 
however, are immediately drawn to the business customers of the ILEC, 
because the CLEC realizes that the ILEC in most states is still 
required to price local telephone service to the business customer 
above cost in order to subsidize local telephone service. Quite 
obviously, this regulatory scheme is one that could exist in the 
monopoly telephone era, but not the competitive. Neither the states nor 
the FCC have eliminated implicit subsidies, which seemed to be one of 
the clarion calls of the 1996 Act, even if rate rebalancing was not.
    2. Section 271 Relief.-- A second critical impediment to local 
competition is the failure to date to authorize a single RBOC to 
provide interLATA telecommunications service in their regions. I doubt 
seriously if any of you who were on the Committee in 1995 and 1996 
would have ever envisioned that statement being made at the end of 1999 
-- 3 years and 9 months after the 1996 act's signing. One of the 
principal goals of the 1996 Act was to get BOCs into the long distance 
market in order to enhance competition in that telecommunications 
market segment as well. The watchword during the consideration of the 
1996 Act was simultaneity, meaning that BOCs should be authorized to 
provide long distance through Section 271 simultaneous with the opening 
up of the local market through Section 251. Simultaneity was abandoned 
within six months of the 1996 act's passage. Chairman Pressler, for 
instance, opined on the Senate floor during debate on S. 652 that the 
Competitive Checklist would be easy for BOCs to pass, because it was 
simply an amalgam of extant state regulatory requirements.
    The 1996 act's requirements for RBOC entry were pretty 
straightforward. If a BOC had a facilities-based or predominantly 
facility-based competing provider of telephone exchange service to 
businesses and residences and if the RBOC met the 14-point checklist, 
the RBOC should be approved for long distance service if the FCC 
determined that entry was in the public interest. As Solomon Trujillo 
Chairman and CEO of US West testified before this Committee in April of 
this year, and reinforced in his letter of May 7, 1999 to Senators 
McCain and Hollings, the FCC has made this entry very much more 
complicated. In his letter, Mr. Trujillo pointed out that the 14-point 
statutory checklist has been, by US West's fully documented count, 
increased to a 690-point checklist. Section 271(d)(4) of the 1996 Act 
prohibited the FCC from expanding the checklist. In 1999, to find out 
what requirements a BOC must meet for interLATA authority forget about 
the 1996 Act. The only place to find the state of the law at any one 
point is to look at all of the FCC orders and rules. As Mr. Trujillo 
pointed out, however, in his letter:

        Over the three years since passage of the Act, the FCC has 
        conducted at least ten rule making proceedings creating Section 
        271 compliance obligations and has rejected each of the Section 
        271 applications filed by three different BOCs. A consistent 
        pattern has emerged where each rulemaking and decision adds to 
        or alters the compliance requirements, sometimes very 
        significantly. (Emphasis Added)
        The continually evolving nature of these requirements points up 
        the difficulties that BOCs face in their effort to obtain long 
        distance relief within their regions. In performing the 
        analysis necessary to identify these regulatory accretions to 
        the statutory scheme en acted by the Congress, a number of 
        regulatory approaches adopted by the FCC are so noteworthy that 
        they require brief, separate discussion. (Emphasis Added)
        All told, the existing or proposed FCC requirements enumerated 
        in the Study levy enormous operational, administrative and 
        economic burdens on BOCs in their effort to gain Section 271 
        relief. The costs associated with meeting these requirements 
        constitute a significant barrier to BOC entry into the 
        interLATA market. Insofar as these requirements are extended to 
        BOC provision of advanced data services, as proposed by the 
        FCC, they could also delay, if not foreclose, rapid, wide-scale 
        entry by BOC's into the broadband service market. (Emphasis 
        Added)

    Even the Department of Justice agrees that the compliance 
requirements for Section 271 have expanded. In its recent evaluation of 
Bell Atlantic's New York application, the Department of Justice refers 
to the ``ever receding finish line for meeting the requirements for 
entry into the long distance market.''
    Despite all of this, I am advised by the Bell operating companies 
that there are three very promising Section 271 applications in the 
pipeline: Bell Atlantic for New York; Bell South for Georgia; and SBC 
for Texas. These, I am advised, will even meet the 690-point 
checklist--if the goalpost is not moved even further. Bell Atlantic's 
application is currently before the FCC for its 90-day review, after 
having received the endorsement of the New York Public Service 
Commission following a lengthy and rigorous analysis by that state. The 
Department of Justice has even concluded that the FCC ``... may be able 
to approve Bell Atlantic's application at the culmination of these 
proceedings.'' 
    All three of these states (New York, Texas, Georgia) have 
facilities-based competition for both residential and business 
customers. An abbreviated snapshot of the competitive situation in 
these 3 states would be as described in the below chart:


----------------------------------------------------------------------------------------------------------------
                         STATE                                NEW YORK            TEXAS             GEORGIA
----------------------------------------------------------------------------------------------------------------
CLEC Certifications....................................           Over 500                294                138
Operational CLECs......................................                100                162                 61
CLEC...................................................
Provided Access Lines..................................        1.3 million        1.3 million            305,000
----------------------------------------------------------------------------------------------------------------


    Today, long distance carriers have a very real incentive to keep 
the BOCs out of the in-Region interLATA business as they will surely 
lose some of their long distance market share to the BOCs. 
Consequently, they are not significantly entering the local telephone 
market for residential customers. This business customer oriented 
business plan will end in a hurry once the BOCs are given in-Region 
interLATA authority. A good example of this occurred in Connecticut 
where SNET, prior to being acquired by SBC, was allowed to offer a 
package of local and long distance services. Both AT&T and MCI lowered 
their intrastate long distance rates and offered a bundled package of 
local and long distance services to compete with SNET.The failure to 
provide BOCs with interLATA relief is one of the most critical 
impediments to local competition. Once Section 271 relief is 
authorized, competitors will no longer purposely avoid serving 
residential subscribers. Today, if competitors provided wireline 
facilities-based services to both businesses and residences, this would 
unquestionably show that the local market is open, thus enabling BOCs 
to obtain Section 271 relief. Once BOCs are permitted to offer long 
distance, the long distance companies will find it necessary to enter 
the local market.
                    DEPLOYMENT OF ADVANCED SERVICES 
    The 1996 Act requires the FCC take steps in ensure rapid deployment 
of advanced telecommunications services as mandated in Section 706(b). 
There is no company that possesses market power in provision of 
advanced telecommunications service; hence, there is no reason for 
ILECs to be regulated differently than any other provider of advanced 
services. USTA agrees with AT&T CEO Michael Armstrong, who recently 
stated: ``No company will invest billions of dollars to become a 
facilities-base broadband services provider if competitors who have not 
invested a penny of capital nor taken an ounce of risk can come along 
and get a free ride on the investments and risks of others.'' All 
providers, CLECs, ILECs, and cable providers should receive the same 
regulatory treatment that is no regulation of advanced services 
regardless of who the provider is. Second, BOCs should be given 
immediate authority to provide interLATA data services in order to 
enhance the Internet backbone and provide high speed Internet access 
throughout the country. Many, even relatively large cities and some 
states, have no Internet Point of Presence (POP).
    There is no reason, for instance, why DSL which is an interstate 
telecommunications service should be regulated differently from Cable 
Modem Service, a cable service, but it is! DSL is pervasively regulated 
as a telecommunications service, but cable modem service is virtually 
unregulated as a cable service. Chairman Kennard just last week 
testified at the earlier cited House hearing that these two services, 
cable modem provided by cable operators and DSL services provided by 
ILECs are functionally equivalent. Look, however, at the regulatory 
differences between these two functionally equivalent services:







    The Internet is changing the world in ways never contemplated. Data 
and high speed access to the Internet are the important competitive 
matters of today and tomorrow and this is no David/Goliath story. ILECs 
have as their principal competitors in advanced services such companies 
as AT&T, which when its Media One merger is complete, will be not only 
one of the nation's largest long distance telephone carrier, but also 
the #1 cable television company. In the area of cable-based, high-speed 
Internet access, AT&T would own 78% of @Home (330,000 customers) as 
well as nearly 40% of Road Runner (75,000 subscribers) -- bringing AT&T 
one step closer to offering a nationwide, all-in-one Internet, video 
and voice communications service. AT&T will have direct access to at 
least 60% of U.S. homes. Moreover, AT&T will also have significant 
chunks of:

        --Three of the top four cable firms
        --The two largest high-speed Internet companies, and
        --A share of virtually every major cable TV network

                              CONCLUSION 
    To summarize, there is certainly competition for business 
subscribers. Residential competition has been frustrated by the failure 
of most states to rebalance local phone rates, and the failure of the 
FCC and most states to reform universal service to eliminate implicit 
universal service subsidies. Third, we need regulatory parity in the 
provision of advanced services -- cable modem service and DSL service 
are functionally equivalent and neither should be regulated.






    Senator Ashcroft has joined us. Do you have a statement, or 
anything that you would like to say?

               STATEMENT OF HON. JOHN ASHCROFT, 
                   U.S. SENATOR FROM MISSOURI

    Senator Burns. We thank you for your attendance.
    Mr. Dan Pegg, senior vice president, Leap Wireless, San 
Diego, California. Welcome.

      STATEMENT OF DANIEL O. PEGG, SENIOR VICE PRESIDENT, 
               LEAP WIRELESS INTERNATIONAL, INC.

    Mr. Pegg. Thank you, Mr. Chairman. I, too, have some 
remarks that I would request be made a part of the record.
    Senator Burns. Your full statement will be made a part of 
the record.
    Mr. Pegg. Thank you. Leap Wireless International is a 
wireless service provider. We have international properties in 
Mexico and Chile, but what I am here today to talk about is our 
U.S. operating company, which is called Cricket. We have been 
in business for 1 year now. We are an independent publicly 
traded company, but we are different than the traditional 
wireless services that most of us are used to.
    We offer our customers unlimited use for $29.95 a month. We 
do not have any contr acts. There are no hidden costs, and 
there are no credit checks. It is quite like your cable 
company. You give us $29.95 at the first of the month, call all 
you want, inbound, outbound, then at the end of the month we 
will ask you for another $29.95 if you want to continue the 
service. If you do not, that is fine, too.
    We truly do, I think, fulfill the intent of the 1996 Act 
for those communities that we operate in. We take the freedom 
of wireless to the mass market within the local loop, but we do 
it, as I said, in a very different way.
    The offer has been so compelling in our first market, 
Chattanooga, which we operate under a management agreement, 
that in just 6 short months we were able to achieve 4 percent 
penetration, which is quite high for any other type of wireless 
service.
    In addition, market surveys would indicate that of all the 
new subscribers within that market to both cellular and PCS 62 
percent are opting for this Cricket opportunity, because again, 
it is simple, it is trouble-free, you can talk all you want 
where you live, work, and play, and there are no contr acts or 
obligations.
    Of the 62 percent new subscribers that came to Cricket, 61 
percent had never used wireless before, which I think tells you 
that there is a pent-up demand there for this product at the 
right price and under the right conditions.
    We currently have licenses for 50 markets -- excuse me, 50 
licenses that comprise about 20 markets. We think that Cricket 
is bringing competition to the local loop by using technology 
in a unique way. We think it provides the customers with a very 
strong value at $29.95. We would certainly like to have more 
spectrum. We would just like to keep nibbling, Senator, because 
with more spectrum we could take this value to more people and 
with that, as Senator Burns says, silence is golden, so I will 
quiet down.
    [The prepared statement of Mr. Pegg follows:]
     Prepared Statement of Daniel O. Pegg, Senior Vice President, 
                   Leap Wireless International, Inc.
    Mr. Chairman and members of the Committee, my name is Dan Pegg. I 
am Senior Vice President of Leap Wireless International and I 
appreciate the opportunity to be before you today.
    Leap Wireless International, Inc. (``Leap'') is a wireless carrier 
that deploys, owns and operates networks in domestic and international 
markets with strong growth potential. Through its operating companies, 
Leap has launched or is in the process of launching all-digital 
wireless networks in Mexico, Chile, and the United States. We are 
dedicated to bringing the economic benefits of reliable, cost-effective 
and high-quality voice and data services to domestic and emerging 
markets. Leap was spun off from Qualcomm Incorporated as an independent 
company in September 1998. The company is listed on the Nasdaq National 
Market under the symbol LWIN and had approximately 80,000 shareholders 
and 18.2 million shares outstanding as of July 1, 1999.
    Leap is working to expand the wireless world by providing need-
based, value-priced, quality services to underserved market segments. 
Common synergies of Leap operating companies include high-quality, 100 
percent digital voice systems, dedicated local management, innovative 
service offerings, strong marketing and distribution channels, and 
premium customer care.
    In the United States, Leap's operating concept, is called Cricket 
Sm and that will be the focus of my remarks today. Cricket 
is designed to change the way wireless telephones are used by offering 
a unique service that meets the needs of the mass consumer market. 
Cricket's flat-rate service is designed to make wireless communications 
a simple, worry-free, and affordable alternative for local calling. For 
$29.95 per month our customers can use their Cricket phones as much as 
they wish. By offering a compelling value and customer-friendly 
product, Cricket is capturing a previously underserved market segment 
and achieving remarkable market penetration. In f Act, the vast 
majority of Cricket customers are completely new to wireless. Just as 
Southwest Airlines created a new value standard and expanded the market 
for airline travel, Cricket is seeking to change the way consumers 
think about and use wireless.
    The Cricket service model was introduced in March 1999 in 
Chattanooga, Tennessee by Chase Telecommunications working together 
with Leap. The Cricket service lets customers make and receive all the 
calls they want within the local service area for one low, flat rate. 
While roaming is not available, full mobility exists within the local 
area in which people live, work and play. As of August 31, 1999, 
approximately 12,400 subscribers had chosen Cricket as their service 
provider, bringing Cricket's total penetration of the Chattanooga 
market to 4 percent of covered POPs after only two quarters of 
operation--a remarkable achievement for a wireless company.
    In total, Leap has licenses or rights to acquire licenses to offer 
the Cricket service to approximately 24 million potential subscribers 
(1998 POPs). Leap will be launching Cricket in cities across middle 
America through the next 24 months. Through the introduction of 
Cricket, Leap believes that it will change not only the way telephones 
are used, but also provide a viable, affordable alternative to the 
current wireless service for consumers. Leap will achieve this goal 
because we are new and innovative, allowing us to take the full 
advantage of both technology and efficiency that comes with change. As 
an example, Leap believes that Cricket's customer acquisition costs 
will be significantly lower than those of a typical PCS company due to 
our simple and straightforward product. Cricket's planned simple 
billing, lower customer care cost, lower distribution cost, and lower 
bad debt cost from a pay-in-advance system are designed to re-shape the 
economic models of wireless and virtually all telephone service 
delivery.
    Cricket brings wireless communications to the mass market in the 
same way Ford created affordable automobiles, Wal-Mart created an 
affordable retail shopping destination, or, as I mentioned, Southwest 
Airlines created affordable air travel. Cricket is striving to deliver 
on the promise of the 1996 Telecommunications Act, which was intended 
to create competition in the local loop and increase accessibility and 
affordability so that everyone can enjoy the benefits of improved 
communications. Our service isn't like traditional wireless service, 
because customers can call without worrying about paying by the minute. 
It's not like a home (landline) phone, because it works well beyond the 
range of home cordless phones.
    Unlike many communications companies, Cricket differentiates itself 
by starting with the needs of the consumer, and using technology to 
deliver what they want and need. Every aspect of Cricket service is 
considered from the consumer point of view before it is fully 
developed. Many current newer communications alternatives are aimed at 
the business customers, along with most of the incumbents that compete 
both in the local loop and for communications services in general. 
Cricket does not target the business user or the current wireless user. 
Most of them have different needs, like roaming outside the local area 
(which Cricket does not offer), or the ability to connect to the office 
computer to check e-mail or access the Internet. Neither of these 
capabilities is a priority for Cricket's target, the non-wireless user 
who lives, works and plays in the local area.
    The convenience of making and receiving phone calls away from the 
home provides many benefits to these people at costs close to landline 
is overwhelming given the increasing demands on consumers time. Staying 
in touch with friends, family, business cont acts is still important, 
but there is less time available to do this. Wireless service allows 
people to use ``down time''--time spent going from place to place, 
standing in line, running errands, as productive time, or communication 
time. The usefulness of a landline phone as a voice communication tool 
is diminishing. More and more often the landline telephone jack in the 
wall is being used for Internet access, e-mail, etc. and less for voice 
conversations. Being ``tethered'' to the home is becoming more of a 
constraint as lifestyles continue to become more active and on the 
move.
    Research indicates that two main concerns are keeping interested 
non-users from going wireless:
    First, they realize they will use a wireless phone frequently, and 
are afraid of what it will cost. That's because available wireless 
services are ``open-ended.'' The total bill depends on minutes of use, 
regardless of whether a big bucket of minutes are included in a rate 
plan (large monthly fee) or whether additional minutes beyond the 
bucket amount are used. They would be afraid to give out their number 
because they pay by the minute for incoming calls, too. Moving towards 
wireless requires consumers to move out of the billing experience that 
they have become accustomed to with their fixed local loop service.
    Second, they are confused by wireless offerings and don't trust 
wireless providers, who sometimes have used sales tricks and gimmicks 
in the past to lure, then surprise, subscribers. They've heard the 
horror stories from wireless users. These include:

        Poor voice quality
        Phones for free (what's the catch?)
        Long term contr acts that require a stiff cancellation fee 
        (that's the catch!)
        Confusing and complicated rate plans which cause anxiety about 
        choosing the right one
        Hidden charges, like landline interconnect, roaming, peak/off 
        peak pricing, activation fees
        Fine print
        Poor customer service
        Misleading advertising
        Prepay offerings, which penalize credit-challenged people with 
        high ``per-minute'' rates.

    In contrast to these pitfalls, the Cricket offering has been so 
well received that in Chattanooga, 62% of all new PCS/Cellular 
additions have been Cricket. The Cricket service has achieved an 
amazing 4% penetration in less than six months. And, based on market 
research, 61% of Cricket subscribers use Cricket service as their 
primary service for personal calls. At $29.95 per month, with no hidden 
costs or credit checks, Cricket not only brings wireless telephony to 
the mass market--it brings true competition to the local loop.

    Senator Burns. Thank you. I must apologize to my friend 
from Georgia. He and Senator Ashcroft came about the same time. 
Senator Cleland, do you have a statement you want to make? How 
can we accommodate you?

                STATEMENT OF HON. MAX CLELAND, 
                   U.S. SENATOR FROM GEORGIA

    Senator Cleland. Mr. Chairman, I am just here to listen and 
learn, but we thank our panelists for coming, and thank you for 
having the hearing. Thank you.

    Senator Burns. We have with us Royce Holland, chairman and 
CEO of Allegiance Telecom, Dallas, Texas. Thank you for coming 
this morning.

       STATEMENT OF ROYCE J. HOLLAND, CHAIRMAN AND CEO, 
                    ALLEGIANCE TELECOM, INC.

    Mr. Holland. Thank you very much, Mr. Chairman, and Senator 
Hollings and members of the committee. In addition to being 
chairman and CEO of Allegiance Telecom, which is a competitive 
local exchange carrier, I am also here representing the CLEC 
industry as a whole through my post as chairman of the ALTS 
organization, which is our industry trade group.
    In f Act, the president of that trade group is one Mr. John 
Windhausen, who used to be a member of your staff, and he is 
doing a great job. You all trained him well.
    Since ALTS does represent facilities-based carriers, I 
guess I am a spokesman for the nibblers today.
    I really wanted to make four points today. First, we are 
for competition. We are not an RBOC. We are not a long distance 
carrier. We are for opening the local market to competition, 
and number 2, like a lot of you, we are sick and tired of 
seeing so many of the big fish competing in the halls of 
Congress, competing at the FCC, and clogging up the court 
dockets rather than getting out there and competing in the 
market.
    I see the battles between the Bell Companies and the long 
distance carriers, the cable TV companies and the Bell 
Companies, and mainly what they are trying to do is avoid 
competition. They are trying to protect legacy markets and keep 
those from being open to competition. Well, in my opinion they 
ought to be complying with the Act and we ought to get the 
market opened.
    I feel that the Telecom Act of 1996, which many of you 
gentlemen on the committee had a big hand in, and my good 
friend and fellow Texan, former Congressman Jack Fields, along 
with Congressman Markey, your counterparts in the House, 
developed, I think that is one of the most significant pieces 
of commercial legislation to come out of this town in 50 years, 
and it has really provided a foundation for America's 
continuing increasing competitiveness in the global economy.
    The Telecom Act does not need fixing. The enforcement 
process is what needs fixing, and I would also say, a corollary 
to that is, do not treat these Bell Companies monolithically. 
They may all have been hatched along with AT&T in 1984, but you 
have got to reward the good behavior, and you have got to 
severely penalize the bad behavior. The message ought to be 
very clear, comply with the competitive checklist and you are 
in long distance. Compliance with the Act, though, is not 
optional. If you do not comply, we need self-executing 
penalties that will kick in and make you comply.
    Now, in elaborating on this, we have heard a lot of 
statistics about whether the market is competitive, or the 
market is not competitive, and certainly Mr. Neel mentioned the 
yellow pages test. Well, merely offering competition does not 
get it done.
    The key is, can you deliver in a quality manner 
competition, and I call it the 13-year-old kid test. My son 
David is 13 years old, and he plays ice hockey, and he can tell 
you if a goal is scored or not. Does it cross the line and go 
in the net, or does it not?
    Likewise, he can tell you if there is true, effective local 
competition by a simple test. That simple test is, can you, as 
a customer, change your local carrier as seamlessly and easily 
as you can change your long distance carrier? Well, I will tell 
you today you cannot, though it is improving with some of the 
RBOC's, most notably Bell Atlantic in New York.
    By and large it takes you 2 to 3 days to change your long 
distance carrier. 9 months ago it was taking 30 to 60 days on 
average to change your local carrier, with a 40 percent 
service-effecting outage rate at the time of cutover using the 
unbundled elements.
    Allegiance Telecom serves 18 markets today. We are working 
with Bell Atlantic, Southwestern Bell, and PAC Bell on 
implementing the electronic bonding of OSS and putting in 
procedures to do this. Customer cutover intervals are down in 
some of these States, notably New York and Texas, to probably 
10 to 15 days now, and our bad cut rate is down to 10 to 15 
percent. That is still nowhere near where it needs to be.
    Well, the key to fixing that is compliance with the 
competitive checklist. Really, I think the three keys to 
success are:
    Number 1, we have got to force compliance with the 
checklist. It is not an option to obey the law or not. You 
know, I would love to have an option to pay my income tax or 
not. I do not have that option, and there are quick, self-
executing penalties that hit me if I do try to choose that.
    Number 2 is, when they comply, you have got to let them 
into long distance when they comply but not before, and you 
will see a lot of players out there in this industry objecting 
till hell freezes over about letting them in. I will tell you, 
the nibblers here, the CLEC group, we are willing to give the 
carrot when they do perform.
    Number 3, do not let them bypass the Telecom Act. We have 
got to not treat them monolithically. A lot of these ruses like 
this thing, well, we have got to be in for data, we do not have 
to comply with the competitive checklist for data, that makes 
no sense at all. That is rewarding the bad players as well as 
the good.
    Let me just give you an example of who I think is a bad 
player and who is a good, because I will start the trend and 
not treat them monolithically. Bell Atlantic in New York, we 
are supporting their 271 application, Allegiance Telecom is. 
They will get in. It is not a matter of if, it is when. It will 
be by the end of this year or early next year. We have worked 
with them since June of last year to make it a reality.
    On the other side of the coin, U.S. West ought to be 
punished. I mean, our members in the ALTS Association have seen 
what we feel is one willful Act after another throughout their 
region not to comply with the checklist. So when it gets right 
down to it, I think Senator Hollings' bill, S. 1312, is moving 
in the right direction with self-executing penalties. We see 
howls of protest against it. I will tell you who is protesting 
the loudest are those that are most guilty. The guilty dog 
barks first.
    Thank you very much for the oportunity to testify, and I am 
really looking forward to seeing the continued movement toward 
competition so that the Telecom Act will be a reality in the 
marketplace.
    Senator Burns. Thank you very much, Mr. Holland.
    [The prepared statement of Mr. Holland follows:]
       Prepared Statement of Royce J. Holland, Chairman and CEO, 
                        Allegiance Telecom, Inc.
    Good Morning, Chairman Burns, Senator Hollings, and Members of the 
Committee. I am pleased to testify this morning on the state of 
competition in the local telecommunications marketplace.
    I am Chairman and CEO of Allegiance Telecom, a competitive local 
exchange carder (CLEC) that is headquartered in Dallas, Texas. 
Allegiance is a nationwide provider of competitive voice and data 
services in 16 markets across the country. Allegiance was formed in 
1996, after passage of the Telecommunications Act of 1996. In f Act, 
Allegiance is one of over one hundred companies whose founding and 
growth is directly attributable to the passage of that landmark1996 
Act.
    I also appear before you today as the Chairman of the Association 
for Local Telecommunications Services, or ALTS. ALTS is the leading 
trade association representing the facilities-based CLECs, the 
competitors to the incumbent local telephone companies. ALTS does not 
represent any of the "big three" (soon to be big two) long distance 
companies, and ALTS also does not represent the Regional Bell Operating 
Companies (RBOCs). ALTS' membership includes only the CLECs that are 
deploying their own facilities (switches, fiber optic cables, 
wirelessantennas, etc.) to provide competitive local telecommunications 
service. ALTS' membership has grown substantially since passage of the 
1996 Act, and now claims almost 200 members, 88 of whom are CLECs. I am 
also pleased to note that the President of ALTS is John Windhausen, who 
served for many years as a staff member to this Committee.
    Mr. Chairman, I have a long history of experience in the local 
telecommunications industry. Prior to founding Allegiance Telecom, I 
founded MFS Communications, one of the first competitive providers of 
local service in the late 1980's and early 1990's. MFS first operated 
in the local market as a competitive access provider, or CAP. At the 
time, MFS was allowed to compete with the incumbent telecommunications 
companies in the provision of access services to long distance 
companies, but many states prohibited the provision of local exchange 
service to end user consumers in competition with the incumbent 
telecommunications company. MFS was purchased by WorldCom in 1996.
    In short, I have been at the business of trying to break open the 
monopoly owned by the Bell Companies and GTE for many, many years, and 
I am happy to report that the we are making great progress in turning 
that former monopoly market into a competitive one. Most of the 
progress we have made over the last three and one-half years is 
directly attributable to the passage of the Telecommunications Act of 
1996. Congress should be congratulated for its foresight in opening up 
the local telecommunications marketplace to competition. But, despite 
our progress, local competitors continue to encounter substantial 
roadblocks that impede the growth of local telephone competition. These 
roadblocks fall into three categories: (1) the failure of the local 
telephone companies to open their networks to competition; (2) 
excessive regulation and delays by municipal regulators; and (3) 
unwillingness of building owners to grant competitors the same rights 
of access to buildings that they have granted to the incumbent 
telephone companies. Because of these continuing impediments, consumers 
in many regions of the country are being denied the lower prices and 
advanced services that competitors are bringing to the marketplace. I 
will expound upon each of these types of difficulties later in my 
testimony.
    But first, I would like to share with you some basic f acts about 
the progress we have made in making the local telecommunications 
marketplace more competitive since passage of the 1996 act:

          in 1996, there were approximately 15 companies 
        competing for local telecommunications service; today there are 
        over 200 companies earning revenue in the market, and there are 
        several hundred more companies that have received state 
        approval to offer competitive service;
          in 1996, the CLECs' market share was approximately 
        one-half of one percent (0.5%); today, the CLECs take in 
        approximately 6-7% of the local market revenues; CLECs have 
        more than doubled their market share each of the three years 
        since passage of the 1996 act;
          in 1996, CLECs had deployed approximately 60 
        switches; today, CLECs have deployed over 700 switches to 
        provide competitive local exchange service;
          The CLECs that have gone public currently have a 
        market capitalization of more than $54 billion. In other words, 
        the 1996 Telecom Act has created more than $54 billion in new 
        wealth for investors and the American economy.

    There is no doubt that competition has brought significant price 
reductions. Competitive companies generally offer prices that are 
anywhere from 10 to 30% lower than the prices offered by the incumbent 
telephone companies.
    Perhaps even more important, however, is that competition is 
brining advanced broadband services to American consumers more quickly 
than ever before. CLECs are leading the deployment of advanced 
broadband services. The introduction of broadband services by the CLECs 
has forced the incumbents to shelve outmoded technology and pricing 
regimes and replace two thousand dollar analog T-1 lines with hundred 
dollar digital subscriber lines -offering the same services at a fr 
action of the price. In other words, the growth of local 
telecommunications competition is transforming the local 
telecommunications marketplace from a sleepy, slow-growth, basic 
telephone business to an innovative, high-speed, entrepreneurial 
battleground. The emergence of innovative, competitive 
telecommunications companies has brought, not only price competition, 
but new options to consumers, services and technologies that Americans 
otherwise may not have seen- at least not for years to come. Now, where 
CLECs begin deploying new technologies, ILECs are forced to follow 
suit, offering similar services at comparable prices. (Unfortunately, 
where competition does not yet exist, monopolists are still free to 
overcharge or not deploy broadband services.) There is no doubt, that 
CLECs are leading the way in the rollout of new services.
    Witness the following examples of innovations in the local 
telecommunications marketplace:
                digital subscriber line (dsl) services:
    CLECs are leading the deployment of Digital Subscribe Line (DSL) 
technology. DSL, which stands for digital subscriber line, provides 
consumers with an always-on, high-speed connection to the internet 
using basic copper wire that already runs into every consumer's home or 
business. DSL provides high-speed data communications to provide 
connectivity on a wholesale basis to Internet Service Providers (ISPs) 
or on a retail basis to consumers. The so-called data competitive local 
exchange carders (Data CLECs) offer these high-speed local access 
services by leasing the copper lines of the telecommunications company 
and connecting those lines to their own equipment, called DSLAMs. They 
purchase "conditioned" (free of load coils and bridge taps) unbundled 
copper loops from incumbent local exchange carders (ILECs),collocate 
their own DSL equipment in the central office, and backhaul the traffic 
through leased transport. Some companies have plans to build their own 
backbone network in the future, but for the most part, these service 
providers are dependent on ILECs for the connection to the customer.
    DSL technology provides several advantages over competing 
technologies. DSL offers a dedicated connection, increased security and 
guaranteed bandwidth. Service is consistent, irrespective of the number 
of users in a geographic location, unlike cable modems, where all 
residential subscribers on a coaxial connection contend for bandwidth. 
Also, DSL simultaneously supports multiple sessions, so that multiple 
PCs can be connected at the same tune. The connection is always on.
    A study from Communications Industry Researchers Inc. of 
Charlottesville, Va., indicates that by 2003 there will be more than 
31.7 million households in North America using data connections that 
feature transmission speeds of at least 1.5 Mbps, up from just 1.6 
million households using such connections currently. CIR includes both 
DSL-modem and cable-modem deployments in its study, as well as wireless 
and satellite access technologies.
    Allegiance is rapidly deploying these new digital technologies. In 
June of this year, Allegiance rolled out DSL services from 24 central 
offices in seven of our 16 markets nationwide. For small and medium- 
sized business customers, we are deploying what we believe to be the 
first commercial application of HDSL2, the new symmetric DSL standard 
that requires the use of only one unbundled loop to achieve T-1 
capacity (1.544 Mbps). We plan to collocate our DSL equipment in 110 
central offices by year-end. We believe that DSL is one of the best 
enabling technologies to hit the CLEC space in a number of years, 
especially for the medium and small business market. In addition to 
improving our gross margins, DSL should allow our customers to 
significantly upgrade their data transmission and Internet connections 
on a cost-effective basis.
    As the DSL deployment progresses, Allegiance is accelerating the 
acquisition of local fiber networks to replace the leased bandwidth we 
have relied upon through the company's startup phase. For instance, 
earlier this year, Allegiance completed the deployment of high- 
capacity SONET networks in New York City and Dallas using fiber 
acquired from Metromedia Fiber Networks. Construction also has begun in 
Houston on a similar network using fiber acquired from Metromedia. The 
company is negotiating the acquisition of fiber in several additional 
markets. The Telecom Act knocked down the barriers, and now we're 
seeing all the forces that have driven the computer and software 
industries for the last 20 years moving into telecom.
    Allegiance is not alone in deploying this high-speed technology. 
Perhaps the first three companies to identify the value of the DSL 
technology and announce nationwide rollout plans were Covad, NorthPoint 
and Rhythms NetConnections. Their reach extends to residential, as well 
as business customers. For instance, Covad just announced that it would 
extend its DSL services to 40% of residential consumers and 45% of 
business consumers by the end of the year 2000. Many of the companies 
that have traditionally provided voice services have jumped on the DSL 
bandwagon and have announced their own DSL offerings, including 
McLeodUSA,FirstWorld, and MGC, just to name a few.
    In addition, newer companies are already entering the DSL market to 
serve smaller Tier 2 and Tier 3 cities. Companies such as New 
EdgeNetworks, @Link, HarvardNet, Network Access Solutions (NAS), 
BlueStar, and many others are rapidly deploying DSL service to smaller 
communities. These technologies are also being deployed in some rural 
areas as well, although progress in rural areas is slower because many 
of the rural telecommunications companies do nothave the same 
obligations or incentives to open their networks to competitors.
    Because of the CLECs' rapid deployment of DSL services, all the 
RBOCs and GTE are now planning their own roll-out of these services. U 
S WEST and SBC currently appear to be the leading RBOC providers of DSL 
services. U S WEST has already deployed roughly 80,000 DSL lines 
(projected to be 100,000 by the end of the year. SBC has about 100,000 
DSL lines (projected to be 200,000 by year end. Additionally, SBC just 
announced plans to deploy to invest some $6 billion dollars for 
broadband deployment over the next few years. The other Bell Companies 
and GTE have also announced similar plans.
    In short, the passage of the 1996 Telecommunications Act, and the 
growth of competition for local telecommunications services, has 
dramatically increased the deployment of high-speed internet access to 
all consumers.
                    broadband wireless technologies:
    A number of companies are rapidly deploying fixed wireless services 
to small business and residential consumers in multi-tenant buildings. 
These companies, such as Teligent, WinStar, NEXTLINK, Advanced Radio 
Telecom, OpTel and others, beam high-speed communications from a 
central antenna to the rooftops of buildings in metropolitan areas. The 
company then connects the antenna with the inside wire in the building 
to reach the consumer. Fixed wireless service is similar to cellular 
telecommunications service, except its users stay in one place. 
Conventional wiring and telecommunications apparatus is used inside the 
building. But an antenna bolted to the building's roof transmits calls 
to a base station. The base stations ends the signals, via fiber link 
or wireless transmission, to a switch operation, where calls arerouted 
locally, to long-distance networks or to the Internet.
    This technology can deliver high-bandwidth services more 
efficiently and at lower cost than the dominant fiber-based carders. 
Unlike their fiber counterparts, wireless carders do not have to dig up 
streets to access buildings and can start services within a matter of 
days, not weeks. About two-thirds of the nation's 55 million business 
lines are in buildings where it's uneconomical to extend fiber optic 
lines, according to a recent Salomon Smith Barney report. That adds up 
to a potential $57 billion "niche" for wireless providers.
    Teligent teams are working in 30 markets, including San Francisco, 
San Jose, Dallas, Houston, Austin, San Antonio, Chicago, Washington, 
D.C., New York, Orlando, Jacksonville, Miami, and Denver. The company 
plans to launch another 25 markets in 1999 and 34 markets in 2001. 
WinStar recently announced that it is offering data and Internet 
services in the top 60 U.S. markets, one year ahead of schedule. The 
company also announced plans to construct data centers in every WinStar 
central office across the country. WinStar operates one of the most 
widely available broadband networks in the country. Through its 
agreements with Metromedia Fiber and Williams Communications, WinStar 
has acquired more than 16,000 long-haul route miles of fiber and nearly 
6,000 intra-city route miles of fiber that are already being delivered. 
In addition, the company has deployed more than 100 data switches 
across the nation. The combination of fixed wireless broadband 
technology and local and long haul fiber, allows WinStar to route 
traffic at a local level across the country, improving network 
efficiency, speed and quality of service.
                           electric utilities
    The ability of electric utilities to use their infrastructure to 
provide telecommunications services also holds a great deal of promise. 
In the 1990's, electric utilities owned the third largest 
telecommunications system in the U.S.--created originally for internal 
use. By the mid 1990's, however, many utilities' fiber-based 
communications systems had been overbuilt, and in some cases only 2 
percent of the fiber capacity was in use. Consequently, utilities began 
investigating the possibility of utilizing their facilities for 
commercial telecommunications services. By 1998, more than 40 electric 
and gas utilities were engaged in some form of telecommunications. 
While most of the utilities' telecom subsidiaries sell transmission 
capacity to other telecom carriers, several have become CLECs 
themselves, such as Conectiv communications and Electric Lightwave, 
while others have engaged in joint ventures with CLECs, such as 
Hyperion Telecommunications and PEPCO's partnership with RCN in the 
Washington, D.C. area.
                   rural telecommunications companies
    Several independent incumbent local exchange carriers serving rural 
areas have also begun to establish their own CLECs to attack markets of 
their larger RBOC brethren. For instance, AllTel, an ILEC headquartered 
in Little Rock, Arkansas, has begun to provide CLEC services in other 
parts of the southeast. Several rural ILECs in North Dakota have formed 
a CLEC called IdeaOne to compete against US West. I expect these small 
ILECs will expand once the large ILECs complete the job of opening 
their markets to competition.
                        cable company affiliates
    Several cable companies have entered the local telephony market by 
targeting the residential customers that they already serve through 
their existing cable plant. The cable plant, which was designed for 
one-way transmission of video programming, must be upgraded at a 
substantial costs to carry two-way voice and data telephone services. 
Nevertheless, Cox Cable, MediaOne, Cablevision Lightpath, and Time 
Warner Telecom have made substantial progress in entering the local 
telephone marketplace since 1996.
    Cox operates local telephone services in Orange County, CA, Omaha, 
Merieen, CT, San Diego and Phoenix and Hampton Roads, VA. Cox's prices 
average 10% lower than the incumbent for the consumers' first line, and 
50% below the incumbent's price for the second telephone line. MediaOne 
offers Digital Telephone service to residential consumers in Atlanta, 
Los Angeles, Jacksonville and Pompano Beach, FL, Boston and Richmond, 
VA. Time Warner Telecom, by contrast, has focused its efforts on mid-
size and large business customers, using its own fiber optic cable 
network in approximately 20 cities nationwide.
    As the above summary indicates, the market for local 
telecommunications service is attr acting several kinds of new entrants 
and technologies. Nevertheless, several consumer organizations, the 
media, and some Members of Congress have expressed disappointment in 
the pace of local competition since passage of the 1996 Act. Of course, 
it should be expected that competition cannot begin overnight, and 
policymakers should understand that it takes time to raise capital, 
deploy networks, develop marketing plans, and serve customers.
    Perhaps most important, however, is that competitors still face a 
number of significant roadblocks that make it exceptionally difficult 
to compete on even terms with the incumbent telecommunications company. 
Even in those areas that have attr acted the most intense interest 
among local telecommunications competitors, the CLECs still face a 
competitive disadvantage when it comes to competing with the Bell 
Companies and GTE. If Congress wants to help speed the growth of more 
local telecommunications competition, it should address the following 
three impediments to local telecommunications competition:

    1. The ILECs' failure to open their networks to competition. 

    Three and one-half years after passage of the 1996 Telecom Act, not 
a single ILEC has complied with Congress' directive to open its network 
to competitors. CLECs continue to face enormous service provisioning 
difficulties when interconnecting with the incumbent. The 
Telecommunications Act correctly requires the ILECs to give the CLECs 
the same quality of service that it provides to itself. Only when this 
principle of nondiscrimination is enforced will the local market truly 
be able to compete on the same terms as the incumbent. To date, 
however, CLECs face a number of discriminatory pr actices by the ILECs, 
including the following:
                a. access to unbundled network elements
    The 1996 Telecom Act requires the ILECs to provide 
nondiscriminatory access to the piece parts of their networks to 
competitors at cost- based rates. The telephone companies agreed to 
open their network to competition as part of the bargain that would 
allow them to enter the long distance market. Further, this requirement 
that the ILECs provide unbundled network elements (UNEs) is essential 
to the development of facilities-based competition. Most competitors 
can purchase some of their own equipment (switches, fiber optic cables, 
wireless antennas, etc.) but they must interconnect their own equipment 
with the ILEC network in order to complete calls. These facilities-
based CLECs must purchase, or lease, the piece parts of the network to 
supplement the components of the network that they cannot yet provide 
on their own.
    To date, however, the ILECs have not made these components 
available to competitors on the same terms and conditions that they 
provide these components to themselves. In particular, the ILECs have 
consistently failed to provide nondiscriminatory access to unbundled 
local loops that connect the customer to the CLEC network equipment. 
The ILEC often fails to connect the customer properly, causing the 
consumer to lose service altogether. Often the ILEC does not provide 
the UNE on the proper date and time, causing delay and confusion on the 
part of the consumer. Further, the ILEC often does not provide 
directory listings of consumers who take service from a CLEC, a severe 
competitive disadvantage. In other cases, the ILEC fails to repair or 
maintain loops that are connected to the CLEC network.
    Service provisioning difficulties are not limited to provisioning 
loops. The ILECs also have difficulty in providing high-capacity trunks 
on a timely and efficient manner, and they have often resisted allowing 
the CLECs to obtain collocation space in the ILEC central office. Even 
though the FCC issued an order earlier this year to require the ILECs 
to provide such collocation, in too many cases, the ILEC claims that 
there is no space available, or attempts to charge an outrageous sum of 
money (sometimes hundreds of thousands of dollars) to allow the CLEC 
equipment into the central office.
                     b. operations support systems
    In addition, several ILECs have had great difficulty in providing 
operations support systems (OSS). As the Department of Justice noted in 
its comments on the Bell Atlantic-New York application, too often the 
ILEC must rely upon manual procedures to process CLEC service orders. 
Manual procedures are simply more prone to error and delay than 
electronic procedures. The ILECs should move to an electronic bonding 
approach as soon as possible to ensure that service is provided 
efficiently. Allegiance has recently had some promising experiences 
with Bell Atlantic's OSS in New York and with SBC's OSS process in 
Texas. I believe our experience demonstrates that the ILEC can ``get it 
right'' if it puts its mind to it. I understand, however, that other 
CLECs have not had the same positive experience as Allegiance. I hope 
that the ILECs and CLECs can follow the example that Bell Atlantic and 
SBC have set with Allegiance so that the ordering process can operate 
in a smooth, seamless manner that is transparent to the customer. 
(Although the ILECs complain that OSS does not appear in the 1996 
Telecom Act, that is not the case. OSS is the process by which the ILEC 
receives and fulfills orders to provide service to the CLEC. In other 
words, the ILEC must provide a transparent OSS in order to fulfill its 
obligation under the Act to provide ``nondiscriminatory'' service to 
CLECs.)
          c. performance measures and self-executing penalties
    Finally, most of the ILECs have yet to establish adequate 
performance measures and to abide by such measures (including the 
enforcement of such measures through penalties/damages) The rationale 
behind the Commission's ``self-executing remedy'' requirement is to 
promote the rapid development of local exchange competition by 
preventing competitors from being driven out of business by being 
forced to litigate operational issues with the ILEC each time such 
issues arise. To operate properly, this ``self-executing'' remedy must 
have well- defined and properly implemented performance measures of 
ILEC pr actices in regard to relations with CLEC. There also must be 
swift resolution of problems with sufficiently severe penalties to 
deter further abuses. To date, while ILECs have implemented part of 
this requirement, they still fall short of establishing the self-
executing commercial type relationships that ILECs have, for instance, 
with their own customers.
    Much attention has been focused in the last few months on Bell 
Atlantic in New York and SBC in Texas. Bell Atlantic filed its 
application to enter the long distance market in New York under section 
271 last month; SBC is expected to be the next RBOC to file a long 
distance application before the end of this year. Without going into 
all the details of those efforts, I would like to note briefly that 
both Bell Atlantic and SBC have made significant improvements in 
opening their networks to competition. At the moment, however, neither 
Bell Atlantic nor SBC is currently ready to provide long distance 
service. ALTS and Allegiance have no objection to allowing the RBOCs 
into the long distance market after they have opened their local 
markets to competition. Bell Atlantic, however, is still encountering 
major difficulty in providing loops to CLECs at the same rate and 
quality as it provides these loops to itself. While Allegiance's 
experience may be better on this front than some other ALTS members, it 
is clear from the data submitted to the FCC that consumers are 
suffering unacceptable numbers of service cut-offs when they try to 
switch to a competitor. As for SBC, the major impediment to its 
application is that SBC has not implemented a fully transparent process 
for processing orders from CLECs for interconnection. The Texas Public 
Utilities Commission recently found that the independent, third-party 
tests of SBC's operations support systems (OSS) continues to find 
errors that hamper CLECs' performance. Allegiance and ALTS hope that 
these problems can be addressed as soon as possible, as these loop 
provisioning and OSS problems run to the heart of the CLECs' 
businesses. Once these problems are fixed, ALTS and Allegiance will be 
pleased to supportthese companies' applications under section 271.

    2. Excessive regulation by municipal governments. 

    The members of ALTS have found that in many circumstances their 
ability to provide service in a timely, efficient and cost effective 
manner has been hampered by municipal ordinances (and, sometimes, state 
laws) that make it difficult, time consuming, and costly to use the 
municipal rights-of-way for the provisioning of facilities. Three years 
after the passage of theTelecommunications Act of 1996 and after many 
negotiations with numerous municipal governments, the members of ALTS 
find that the vast majority of municipalities are not managing their 
rights-of-way in an efficient, competitively neutral manner.
    Rather, the members of ALTS have found that significant numbers of 
municipalities have been very wary of CLECs and/or have seen them as a 
potential new source of revenue. These attitudes have resulted in 
hundreds (and possibly thousands) of municipalities considering and 
often adopting regulations or ordinances that have had a chilling 
effect upon competition. In addition to exorbitant fees, some 
municipalities have imposed a broad range of regulations that are often 
duplicative of the state's regulatory role and encroach upon the 
states' role of regulating intrastate communications. Even though the 
carriers (including CLECs and ILECs) have sometimes prevailed upon the 
local governments not to adopt the more onerous provisions considered, 
significant resources have been expended by the entire industry simply 
attempting to hold back the flood of new ordinances.
    In addition, of course, carriers often have not been successful in 
convincing the municipalities to en Act reasonable ordinances. In those 
cases, carders are left with three undesirable choices: agreeing to 
onerous terms (that often place them at a competitive disadvantage visa 
vis the incumbent) just to be able to provide service, engaging in 
expensive,protr acted litigation, or simply abandoning plans to provide 
service in the particular community.
    States have an interest in ensuring that municipal regulation of 
the use of public rights-of way is relatively uniform, does not burden 
telecommunications carders, and does not duplicate the states' 
regulatory role. Therefore, there has been movement in some state 
legislatures in the past three years for the adoption of state statutes 
that would ensure that access to public rights-of way is administered 
in a reasonable, predictable and non-discriminatory manner. While there 
has been progress made in this area and a number of state statutes 
improve on the pre-existing status quo, far fewer than half the states 
have managed to pass legislation and there has not been uniformity in 
the statutes that have been passed. In addition, some state statutes 
that have been passed in the past several years have significant 
discriminatory provisions in them. And, in some states that have passed 
legislation limiting the ability of local governments to unreasonably 
manage their rights-of-way, cities have disregarded the legislation and 
passed ordinances that violate state law.
    In addition to state legislatures, there have been some state 
public utility commissions that have taken actions to address the 
rights-of- way issues. For example, in California the PUC in Docket 98-
10-058, when faced with complaints from carriers about excessive fees, 
held that while municipalities have an interest in managing local 
rights- of-way, the State has ``an interest in removing barriers to 
open and competitive markets and in ensuring that there is recourse for 
actions which may violate state and federal laws regarding 
nondiscriminatory access and fair and reasonable compensation.'' 
Therefore, the California PUC decided that it could intervene in 
disputes over municipal rights-of-way access ``when a party seeking ROW 
access contends that local action impedes statewide goals, or when 
local agencies contend that a carrier's actions are frustrating local 
interests.'' Some state statutes specifically give the state regulatory 
commissions jurisdiction over rights-of-way issues, but others either 
deny the commission authority or are silent or ambiguous as to the 
commission's authority.
    In addition to the time and effort expanded in negotiating with 
individual municipalities and working with state legislators, there 
have been several instances in which carriers have decided that their 
only recourse is to file suit against a municipality. These decisions 
are not made lightly; it is always preferable to work out differences 
in an amicable manner with the municipalities with whom the carder 
clearly needs to have a long-term relationship. Nonetheless, in a 
number of municipalities across the country carriers have felt that 
there is no alternative left to them and have filed suit against the 
municipality.
    The members of ALTS understand that if they (or any other carrier) 
construct facilities in public rights-of-way they should repair the 
rights-of-way. Enforcement of the cities' right to insist that streets 
are returned to a state close to what it was prior to the construction 
is not at issue. In addition, the members of ALTS would not challenge a 
permitting fee that is administered in a nondiscriminatory manner and 
is directly related to the costs incurred to manage the public rights-
of-way. No carrier, however, should be subject to different standards 
or requirements than other carriers, thus putting some carders at a 
significant competitive disadvantage vis-a-vis the other carriers. And 
no carrier should be subject to fees or requirements that are wholly 
unrelated to reasonable regulation of the public rights-of-way.
    The members of ALTS who are spending significant resources and time 
negotiating with cities believe that this is one of the biggest 
bottlenecks preventing the rapid growth of facilities based 
competition. Although the FCC and the courts have several times 
articulated what they believe are the limits of the municipalities' 
police powers to manage the rights-of-way and some state legislatures 
have attempted to pass legislation that would make municipal 
regulations more consistent throughout a state, new ordinances are 
being proposed all the time. And, it appears that the drafters of the 
new ordinances are either unaware of the Commission and court precedent 
in this area or simply do not care what that precedent teaches.

    3. Inability to obtain access to buildings. 

    Telecommunications carrier access to tenants in multi-tenant 
buildings is essential to the development of local competition. In 
order to provide facilities-based service to a tenant in a multi-tenant 
building, a local telecommunications carrier must install its 
facilities on or within the building, sometimes to the individual 
tenant's premises (such as their office or apartment). In some cases, 
the carrier's facilities extend only from the building owner's property 
line to the basement telephone equipment room. For example, the 
carrier's line extends from the curb, across the parking lot to the 
building. Although this distance may be very short, it is impenetrable 
without the building owner's consent--the operation of state property 
laws generally requires that a telecommunications carrier obtain the 
permission of the building owner prior to installing facilities within 
and on top of that owner's building.
    However, building owners can and do exclude telecommunications 
carriers from buildings in many different ways. For example, absent a 
landlord-tenant lease to the contrary--which is very uncommon--the 
landlord can eliminate a tenant's choice in telecommunications carriers 
simply by refusing carrier access to the building. Other landlords 
impose such unreasonable conditions and demand such high rates for 
access that competitive telecommunications service in those buildings 
becomes an uneconomic enterprise. Consequently, landlords can 
perpetuate the monopoly local telephone environment--the bottleneck--
that the 1996 Telecommunications Act sought to dismantle.
    To give you an idea of the problems that ALTS members confront, I 
offer you a sampling of examples. This is by no means an exhaustive 
list of the problems that competitive carriers face, but it does 
provide some concrete understanding of the unreasonable barriers to 
competition that some landlords are erecting.

          The manager of one large Florida property has 
        demanded from a CLEC a rooftop access fee of $1,000 per month 
        and a $100 per month fee for each hook up in the building. The 
        company estimates that this fee structure would cost it about 
        $300,000 per year--just to service one building.
          The management company for another Florida building 
        demands that a telecommunications carrier pay the management 
        company $700 per customer for access to the building, in 
        addition to a sizable deposit, a separate monthly rooftop fee, 
        and a substantial monthly fee for access to the building's 
        risers which are the dedicated, horizontal and vertical spaces 
        within a building that contain utility facilities. Taken 
        together, these fees preclude the company from providing 
        tenants in that building a choice of telecommunications 
        carriers.
          In one Arizona building, a CLEC had pulled its fiber 
        cable into the building, had access to the telephone closet and 
        building risers, and had begun providing service to customers 
        in the building with the landlord's permission. However, one of 
        the CLEC's customers in that building recently requested 
        expanded service from the CLEC, requiting an expansion of 
        facilities. The building owner informed the CLEC that it could 
        no longer have access to the telephone closet--that it was the 
        property of the incumbent LEC. Moreover, the building owner 
        informed the CLEC that the building was now under exclusive 
        contr Act to another carder and that the CLEC would have to 
        obtain permission from that carder to service the equipment 
        that the CLEC had already installed in the building. As a 
        result, the customer in the building is experiencing delays in 
        receiving expanded service while the CLEC negotiates with the 
        building owner and the ``exclusive'' telecommunications carrier 
        for access. Moreover, the CLEC's relationship withthe customer 
        is at risk and the CLEC's facilities that were installed in the 
        building several years ago are in jeopardy of becoming stranded 
        assets.
          One CLEC sought a building access agreement with a 
        large property holding and management company with properties 
        nationwide. This company required an agreement fee of $2,500 
        per building in addition to space rental of approximately $800 
        to $1,500 per month per building. Moreover, the company refused 
        to negotiate an agreement for fewer than 50 buildings. Finally, 
        as a condition of entering into the agreement, the company 
        insisted that the CLEC agree to refrain from making any 
        regulatory filings concerning the building access issue.
          Another large property owner and management company 
        demanded $10,000 per month per building just for access rights 
        to building risers.
          In an Arizona property, the incumbent and one 
        competitive provider had installed facilities. Four additional 
        CLECs requested access. The property owner demanded that the 
        four new CLECs provide conduit, fiber connectivity between 
        buildings, and dark fiber to the property owner free of charge 
        -- approximately $200,000 of in-kind contributed facilities. 
        The property owner also seeks to charge a $750 per month access 
        fee for access to the property even though the access will not 
        deprive the property owner of leasable space to tenants. This 
        situation places the four new CLECs at a competitive 
        disadvantage to the two providers already inside the building.
          A large number of building owners and managers do not 
        want a second telecommunications carder in the building because 
        of revenue sharing arrangements with the first carrier and many 
        have entered into exclusive access contr acts with a single 
        carder; indeed, one building management company told a CLEC not 
        to solicit its tenants.
          In Washington state, the owner of a new building put 
        the provision of telecommunications services to the tenants out 
        to bid. The winning bidder would gain exclusive access to 
        provide telecommunications service to the tenants in the 
        building. The incumbent provider was able to outbid all other 
        providers, offering to pay $10,000 every year to the building 
        owner. The incumbent was thereby able to shut its competitors 
        out of the building entirely.
          Management companies for many other buildings demand 
        revenue sharing arrangements in exchange for access.
          Some owners of newly constructed buildings are 
        installing ``central distribution systems'' (``CDS'') in their 
        buildings--an intra-building telecommunications network. Rather 
        than allowing carders to install their own facilities all the 
        way to the customer, the building owner requires the carders to 
        utilize the CDS. However, some of these facilities are not 
        advanced enough to carry adequately the traffic of more 
        advanced carriers. Moreover, the building owners will not 
        guarantee the reliability of these CDS intra-building networks. 
        In addition, building owners often seek to charge excessive 
        rates for use of a CDS that many carders would rather not use. 
        Finally, some building owners are requiting telecommunications 
        carriers to sign agreements that once a CDS system is 
        installed, it must be used--forcing CLECs to promise to strand 
        their installed investments within buildings. This creates a 
        tremendous disincentive to serving customers in these 
        buildings.

    The tenants in these buildings often are without recourse and 
cannot obtain access to telecommunications options. Building owner 
interests sometimes say that the market will take care of the problem -
- that landlords have the incentive to keep their tenants happy and to 
allow them access to the telecommunications carders of their choice. 
They say that tenants will move out of the building if they are unhappy 
with their telecommunications options. These arguments are simply 
wrong.
    The building access problem exists, suggesting that these ``market 
incentives'' are not working. Of course, in some instances, the market 
may provide competitive choices, but not until tenants are legally and 
financially able and willing to move their residence or business for 
the sake of competitive telecommunications choices. Tenants would be 
required to incur the substantial expense and inconvenience of breaking 
their leases and moving locations. Moreover, they may often confront 
higher leases, given the strength of the real estate markets and the 
economy generally. This is an unreasonable pre-condition to the 
enjoyment of the competition envisioned by the 1996 Telecommunications 
Act. In f Act, may of these tenants--particularly individuals and small 
and medium-sized businesses (those who have the least power when 
dealing with landlords)--have never had the opportunity to experience 
the benefits of telecommunications competition. This is largely a 
theoretical phenomenon to them. The notion that these tenants would 
break a lease and incur all of the other identified expenses for this 
unknown benefit is unrealistic.
    The 1996 Telecommunications Act represents a laudable effort to 
open local telephone markets to competition. A good deal of work went 
into the construction of the statute to eliminate barriers to 
competitive entry. However, to a large degree, the 1996 
Telecommunications Act assumes that once the incumbent LEC-imposed 
barriers are removed,competition will be able to flourish. It does not 
contemplate that even after incumbent LEC barriers are dismantled, 
telecommunications carders may still be prevented from reaching and 
serving consumers. In short, the 1996 Telecommunications Act assumes 
that building access is available. Unfortunately, that assumption has 
proven incorrect. Building access remains a formidable barrier to the 
accomplishment of local competition.
                           Universal Service 
    In addition to these explicit barriers to competition, there are 
several other impediments that hamper the growth of local 
telecommunications competition.
    For instance, neither the FCC nor the states have made universal 
service subsidies accessible to competitive providers of local 
telecommunications service. It is unfair and uneconomic for CLECs to 
compete with rural telecommunications companies that receive subsidies 
from the government that the CLECs cannot receive. Further, many rural 
telecommunications companies are under no obligation to open their 
networks to competition because of the extensive "rural exemptions" in 
the 1996 Telecommunications Act. ALTS believes that the rural exemption 
harms citizens of rural areas by making it less likely that 
competition, and high-speed communications will be delivered to rural 
consumers as soon as they are being deployed in urban areas. If 
Congress is concerned about the so-called ``Digital Divide,'' it should 
immediately open the rural telecommunications markets to competition as 
it opened the urban markets.
                       The Need for Enforcement 
    The most important role that Congress could take to spur the 
development of competition can be summarized in one word--enforcement. 
In short, we do not need changes to the 1996 Telecommunications Act, we 
need enforcement of the existing Act. 
    On this point, I must congratulate Senator Hollings for the 
introduction of his legislation, S. 1312. Senator Hollings' bill would 
require the RBOCs to complete opening their networks according to the 
14-point competitive checklist or face severe penalties. The RBOCs 
would face penalties of $100,000 per day for every day after 2001, or 
would require divestiture of the RBOCs into wholesale and retail units 
if they fail to comply with the checklist by the 2003. While this 
legislation would certainly impose a drastic remedy, there are other 
efforts that the FCC could undertake under the current law, with the 
support of Congress, to spur local competition. These actions include 
the following:

    a. Anti-backsliding measures.

    ALTS submits that prior to the grant of Bell Atlantic's 
Application, the Commission must adopt mechanisms to ensure that Bell 
Atlantic does not backslide on its obligations pursuant to section 271 
of the Act. As Allegiance Telecom indicated in its Petition for 
Expedited Rulemaking,\1\  a BOC's statutory obligation to provide each 
element of the competitive checklist continues even after a it has 
obtained in-region interLATA relief. However, as evidenced by the three 
year long process in New York, compliance with key procompetitive 
provisions of the Act has been slow in coming, and advances have 
largely resulted from pressure imposed by regulators and competitors. 
Therefore, ALTS submits that backsliding framework be in place prior to 
the grant of 271 authority to Bell Atlantic.
---------------------------------------------------------------------------
    \1\ See Allegiance Petition. 

---------------------------------------------------------------------------
    b. Fresh Look provisions.

    In order to foster and ensure the development of an open, robust 
market for local telecommunications, the FCC should provide ``flesh 
look'' opportunities for consumers immediately upon the grant of any 
authority to enter the long distance market under section 271. This 
would eliminate the anti-competitive imp Act created by the termination 
penalties contained in an RBOC's tariffs and customer contr acts, terms 
that clearly discourage RBOC customers from purchasing the same or 
similar services from a CLEC. To facilitate the goals of open local 
markets and increased competition in such markets, customers should be 
allowed to re-examine existing service arrangements where circumstances 
have changed significantly, as when competitors enter a historically 
monopoly market. The FCC should allow customers with existing long term 
contr actual termination penalties the ability to ``opt out'' of those 
provisions where the contr acts were entered into prior to the RBOC's 
receipt of 271 authority. Such customers should be permitted to 
terminate their contr acts without the imposition of harsh (usually the 
full contr Act price) penalties, at least for a reasonable period of 
time following the grant of 271 approval. To the extent the FCC is 
unwilling to completely eliminate termination liabilities for an RBOC's 
customers, customers' termination penalties could be limited to a 
reasonable time period, e.g., six months.
                              Conclusion 
    Mr. Chairman, Allegiance and ALTS look forward to the day when the 
local telecommunications market is truly and``irreversibly'' open to 
competition. ALTS' goal is that the CLECs should have 25% of the local 
telecommunications market by the 2003. I believe that this goal is 
readily attainable. Once the local market is truly competitive, with a 
variety of facilities deployed, then policymakers would be wise to 
deregulate the incumbent local telecommunications companies altogether, 
allow the RBOCs into the long distance market, and rely upon market 
forces to protect the interests of the consumer and the information 
economy.
    Unfortunately, we are not yet at that point, and we have much work 
to do for that vision to become a reality. As mentioned at the 
beginning of my testimony, CLECs have only about 6% of the local 
telecommunications market today in revenues. The local 
telecommunications market cannot be considered competitive when the 
incumbent carders retain 94% of all the local telecommunications 
revenues. If local competition is truly to take hold and become 
entrenched, we must have your help in opening up that local market.
    I suggest that policymakers use one simple metric to judge whether 
or not the local market is truly open: when it is as easy for consumers 
to switch local telecommunications companies as it is to switch long 
distance companies, then we will know that the market is truly and 
irreversibly open. Today, however, it takes consumers only three days 
to switch long distance companies, it can take 30 to 90 days to switch 
local companies. Until this competitive disparity is addressed, we 
cannot determine that the market is open. I urge you to encourage the 
FCC, the states, the courts, and everyone involved in the process to 
keep the pressure on and make the Telecommunications Act of 1996 a 
reality.

Thank you.

    Senator Burns. We have Charles Houser, chairman and CEO of 
Trivergent.

                STATEMENT OF CHARLES S. HOUSER, 
                  CHAIRMAN AND CEO, TRIVERGENT

    Mr. Houser. Thank you, Mr. Chairman, Senator Hollings, and 
members of the Committee. My name is Charlie Houser, and since 
1982 I have been an investor, executive board member, and a CEO 
of several telecommunications companies. I have served as 
chairman of the Telecommunications Resellers Association that 
represents 800 companies. I have been on the board of directors 
of CompTel, that represents over 400 competitive telephone 
companies. In short, you are looking at a guy with a lot of 
battle scars.
    Today, I serve as chairman and CEO of Trivergent in 
Greenville, South Carolina. We are a privately held, integrated 
service communications provider serving small businesses and 
residential customers with a wide range of products that 
includes DSL, high-speed Internet, Web hosting and design, 
local services, and long distance.
    We are attempting to build an 18-switch, ATM backbone, high 
speed voice and data network that will cover 26 Southeastern 
markets, many, in f Act most, in second and third-tier markets 
with capital expenditure budget of $350 million. We owe our 
very existence to the Telecom Act of 1996.
    Now, over 20 years ago, obviously Federal policymakers 
ended AT&T's monopoly in the provision of long distance 
services, and under the watchful eye of Judge Green and the 
guidance of the FCC things worked. Prices dropped dramatically, 
new services came to market, over 800 new competitors came to 
market, and huge amounts of capital were spent on the latest 
technologies. For the life of me, I do not understand why we 
cannot open the local markets to competition in the same 
manner.
    Now, as far as the status, I guess there is good news in 
that there are over 250 competitive local exchange companies in 
business today. True, they serve a little over 3 percent of the 
market today. We and other CLEC's are making progress in 
deploying advanced broadband technologies, but the bad news is, 
is that Bell South and the other RBOC's and ILEC's have fought 
the process tooth and nail. You know it, I know it, and 
everyone knows it.
    In our case there are several reasons why the local markets 
still fall short of being competitive. We and our customers 
still encounter latent discriminatory and anticompetitive 
treatment from Bell South through delays and unethical and in 
some cases illegal t actics. They have hampered our efforts to 
compete.
    Let me be clear on this one point. The most oppressive 
obstacle to local competition in our area is Bell South's 
refusal to really open their markets to competition, not just 
in word but in deed, and believe me, I have dozens of specific 
documented examples.
    In our case in 1998 we started out to provide local and 
long distance services primarily to residential customers. We 
were one of the largest CLEC's in the country and, in f Act, 
enrolled over 100,000 customers to our service in a seven-State 
area, including every small hamlet that you can name.
    The bad news is, is that we have virtually abandoned that 
market. We have abandoned our efforts for resale of local 
services to residential customers after investing and losing 
about $18 million. Now, for me, that is still a lot of money.
    Look, the primary reason is, we do not have acceptable 
wholesale discounts, and we do not have support from Bell 
South, and we have discriminatory secondary charges that have 
cost us an extra $2 million. We did prove three things, though. 
One is, the customers want an alternative to Bell South. We 
also proved that we could attr Act huge numbers of customers 
and provision those customers.
    3. Bell South's reluctance to open and support its markets 
really prevented resale from being a viable plan of entry into 
the market.
    Now, in addition to inadequate discounts in working with 
Bell South, let me list some specific things that have happened 
to us. We have discriminatory nonrecurring charges and fees, we 
have a failure to meet firm order confirmations, we have a 
totally inadequate and incomplete customer support system, we 
have disconnections and interruptions in service, we have 
severe, severe provisioning difficulties and delays, we have 
totally inadequate invoice dispute policies and procedures, and 
last but surely not least, we have illegal inter action by Bell 
South employees with our customers.
    Let me be clear. The primary f actors, certainly not the 
only ones, in explaining why resale is not a viable option, but 
is a dismal failure, is a lack of wholesale discounts and 
discriminatory charges that we have to eat.
    It is for these and other reasons we have reevaluated our 
marketing plan in favor of deploying our own network with the 
objective of moving our customers over to that network. 
Unfortunately, we still continue to experience the ex Act same 
problems with Bell South as we did before. Let me just give you 
one example.
    Regarding the colocation process, under section 2.1 of our 
agreement, Bell South is obligated to respond to colocation 
space requests within 10 days of our request. Responses on our 
162 requests have ranged from 19 to 86 working days, with an 
average time of 50 days. Now, these are the type issues that I 
think the committee should make a priority.
    Now, as far as fostering competition, I think it is really 
only two things, and it is fairly simple.
    1. Preserve the integrity of the Act. Despite the RBOC's 
failure to live up to the obligations now they have the goal to 
ask for regulatory relief. Any decision to give them regulatory 
relief from the terms and conditions of the Act could really 
delay competition even further. As long as they hold a monopoly 
over the loop and other facilities new market entrants continue 
to rely on the FCC and the other regulatory agencies for 
survival.
    Now, second, support the FCC and its procompetitive efforts 
for the same competition to develop in the local sector we have 
had in the long distance area. We need the same framework and 
oversight. The continued need for regulatory oversight in the 
local market cannot be overstated. We have to have it. Give the 
FCC the resources and encourage them to enforce the rules.
    Expand their legal authority to impose real, meaningful 
penalties for failing to live up to open up the local networks, 
and support their efforts to promote fair terms and their 
efforts to promote full implementation of the interconnection, 
colocation, unbundling, and resale provisions of the act.
    In conclusion, national policy guidance has been and will 
be an essential element of the regulatory scheme designed to 
promote competition. That is unfortunate, but that is the case. 
Despite delay brought about by the reluctance of the ILEC's and 
the RBOC's to comply, the 1996 Act is beginning to produce 
benefits, but if there are amendments to the Act, it is simply 
going to delay all of us getting competitive.
    It is not complicated. We have the 1996 Act in place. Let 
us enforce it. We have a regulatory agency in place, the FCC, 
that can administer the Act. Let us support them.
    Thank you.
    [The prepared statement of Mr. Houser follows:]

 Prepared Statement of Charles S. Houser, Chairman and Ceo, TriVergent

    Good morning Mr. Chairman and members of the Committee. My 
name is Charlie Houser. Since 1982, I have been involved in the 
telecommunications industry as an entrepreneur, investor, 
executive, board member, and/or CEO of several successful 
telecommunications companies. I have served as Chairman of the 
Telecommunications Resellers Association, an organization that 
represents 800 companies involved in the resale of 
telecommunications services--a multi billion-dollar industry 
led by an estimated $13 billion long distance resale segment. I 
have also served on the board of directors of CompTel, an 
association representing over 300 competitive 
telecommunications companies. During this time I have been 
fortunate to see huge positive changes in the long distance 
market and the initial positive changes in the local services 
market.
    Today, I serve as the Chairman and Chief Executive Officer 
of TriVergent Communications, Inc. (``TriVergent''). TriVergent 
is a privately held Integrated Communications Provider. 
TriVergent provides business and residential consumers with a 
wide range of communications products and services, including 
DSL, high-speed Internet, Web hosting and design, local 
exchange, long-distance, and data-integration products. The 
company is building an 18-switch ATM-backbone, high-speed data 
network that will cover 26 southeastern metropolitan areas, 
including many second and third tier markets. TriVergent, with 
a capital expenses budget of $350,000,000, owes its existence 
to the Telecommunications Act of 1996 (``1996 act'' or `` 
act'') and is making huge economic investment and employing the 
efforts of hundreds of partners to bring about the changes to 
the local telecommunications landscape that Congress intended 
by the en actment of the 1996 Act.

A. INTRODUCTION 

    Thank you for the opportunity to discuss the challenges 
facing the development of local competition. To explain the 
position of TriVergent Communications further, let me provide 
the Committee with some additional background. I think we can 
all agree that, generally speaking, monopolies do not best 
serve the public interest. Monopolies do not adequately respond 
to or meet customer demand; they offer few service choices; 
they generally do not innovate; they do not price 
competitively; and they have a history of using their market 
power to squash new entrants. Over 20 years ago, federal policy 
makers ended AT&T's monopoly in the provision of long distance 
services and the manuf acturing of telecommunications 
equipment. Under the watchful eye of Judge Greene and the 
guidance of the FCC, the results speak for themselves: over 800 
new competitors have entered the long distance market, prices 
have dropped dramatically, new services constantly come to 
market, and huge amounts of capital are being expended to 
upgrade plant with the latest technologies. For the life of me, 
I don't understand why the opening of the local markets to 
competition can't be handled in the same way.
    The 1996 Act, which many of you worked hard to bring about, 
was designed to bring the same benefits of competition to the 
local telephone marketplace. The act's passage was supported 
equally by the RBOCs and other ILECs, the long distance 
companies, and by the new entrants into local markets, the 
competitive local exchange carriers (``CLEC'')--companies like 
TriVergent.
    The 1996 Act focused on turning a sector of the economy 
serviced by monopolies, the local telephone markets for voice, 
data, and video services, into a competitive market. 
Accordingly, the 1996 Act requires the RBOCs to open the local 
market to competition first, and after the local market is 
opened, then--and only then--do they have the right to enter 
the long distance market. At the time of the passage of the 
Act, Congress in its wisdom recognized that if the RBOCs were 
allowed into long distance first, they would have no incentive 
to open their local networks to competitors and the legislation 
would not achieve its purpose.

B. THE STATUS OF LOCAL TELECOMMUNICATIONS COMPETITION 

    Three and a half years after its passage, there is evidence 
of the development of competition envisioned by the Act. The 
good news is that well over one hundred and fifty CLECs have 
entered the local market since the passage of the Act. Many of 
these companies, like TriVergent, are rapidly building high-
speed voice and data networks to serve residential and business 
customers. Collectively, CLECs have increased their market 
share each of the past two years, and now provide services to 
approximately 3% of the local services market. Furthermore, 
CLECs have already deployed approximately 20% of the fiber 
optic cable capacity available in the United States. The bad 
news is that the RBOCs and ILECs have fought the process tooth 
and nail and have prevented vibrant, open competition.
    TriVergent and other CLECs offering local services are also 
making particular progress in deploying advanced, broadband 
technologies. Along with its local, long distance and internet 
service offerings, TriVergent will deploy advanced DSL service 
throughout the southeastern United States over the next two 
years. When combined with the efforts of other like-minded 
CLECs, over two-thirds of the nation's population will be able 
to take advantage of this remarkable service in the next two to 
three years.
    The Act is beginning to work, but I repeat it is only 
beginning to work. CLECs are just beginning to establish a 
presence in the market and bring local service to business and 
residential customers for lower prices. Additionally, CLECs are 
bundling local service with other offerings including long 
distance, internet, and DSL services. Because of the threat of 
competition, RBOCs and ILECs are being forced to develop better 
products and offer these products for better prices. Despite 
these gains, let me make certain that you understand that we 
are still a long way from the robustly competitive local 
telecom marketplace that Congress envisioned at the time of the 
Passage of the 1996 Act. As I said earlier, after three years, 
CLECs serve only 3% of all the nation's local telephone service 
customers. As is apparent by this figure, while competition is 
growing, the market is far from a fully competitive model 
today.
    There are several major reasons why the local 
telecommunications market still falls short of being fully 
competitive. CLECs and, more importantly, their customers, 
still encounter discriminatory and anti-competitive treatment 
from RBOCs and ILECs. RBOCs and ILECs, through delay tactics 
and other frustrating and, in some cases, illegal tactics, 
hamper efforts of CLECs to install their own facilities or 
interconnect these facilities with those of the RBOC or ILEC. 
Let me be clear on this one point--the most oppressive obstacle 
to local telephone competition is the RBOCs' and ILECs' refusal 
to really open their markets to competition, not just in word, 
but in deed. With adequate time I can site dozens of examples.
    In an effort to add a face to this message, consider the 
story of TriVergent. We began offering local and long distance 
services as a reseller in April of 1998 under the name of State 
Communications. In order to prevent any undo confusion, I will 
refer to the company as TriVergent. TriVergent set out to 
provide local and long distance telecommunications service to 
residential and small business customers, primarily through 
resale, in Kentucky, Tennessee, Louisiana, Alabama, South 
Carolina, Mississippi and Georgia. We were one of the largest 
CLECs in the country (in terms of number of residential 
customers) and one of the few alternative telephone companies 
targeting primarily the residential market. By March of 1999, 
TriVergent had enrolled over 100,000 customers on its local and 
long distance service. It is important to note that over 90% of 
TriVergent' customer base were of the residential consumer 
flavor. Our projections had us enrolling an additional 150,000 
customers over the course of 1999. The bad news is that we have 
virtually abandoned our efforts in resale of local services to 
residential and small business customers after investing over 
$18,000,000 to that effort.
    During the eleven months from April of 1998 until March of 
1999, we proved three things: (1) customers wanted an 
alternative to BellSouth; (2) TriVergent could attr Act and 
provision huge numbers of customers; and (3) that BellSouth' 
reluctance to open and support its markets prevented resale 
from being a viable alternative to facility deployment for 
successful entry into the local services market. Unlike long 
distance, local resale as an entry strategy into the local 
services market is a dismal failure. In addition to totally 
inadequate discounts, in working with BellSouth we encountered 
the following difficulties:
NONRECURRING CHARGES AND FEES\1\

    \1\ NONRECURRING CHARGES AND FEES: Anytime a customer made a change 
to his/her account, BellSouth charged TriVergent a Secondary Service 
Charge. These charges were incurred when a customer added or deleted an 
ancillary service such as call waiting and in almost every situation in 
which a customer altered his/her account. This cost TriVergent 
literally millions of dollars and hampered its ability to make an 
acceptable gross margin.
    The charges BellSouth imposed on TriVergent varied from state to 
state despite the f Act that all work performed by BellSouth to make 
the customer requested change was made in a single central office in 
Atlanta or Birmingham. The following list includes a breakdown of 
Secondary Service Charges on a state-by state basis:

    Tennessee - $17.00
    Louisiana - $13.94
    Georgia - $9.72
    SC - $4.51
    Kentucky - $12.55
    NC - $4.25
    Florida - $7.87
    Alabama - $6.80
    Mississippi - $7.65

    Additionally, if BellSouth' OSS interfaces are electronic and user 
friendly as described by BellSouth, why does BellSouth charge the CLECs 
these amounts to make a change that should only require a software 
load?
    To date, TriVergent has paid over $2,000,000 in disputed Secondary 
Service charges that, generally speaking, BellSouth would and do waive 
for its own retail customers.
    Monthly Minimum
    When a customer signs up with TriVergent, we are forced to pay 
BellSouth a monthly minimum for all services ordered by that customer 
through TriVergent. The issues involved with these charges are more 
easily identified by way of the following example:

    Customer A signs up with TriVergent on February 1, 1999. After a 
call from BellSouth, that customer makes a change back to BellSouth on 
February 15, 1999. Rather than bill TriVergent for the 15 days for 
which the customer was serviced through TriVergent, BellSouth bills 
TriVergent for a full month of service.
    Realize that 95% of TriVergent' customers have been with BellSouth 
and are simply requesting a ``change as is'' order and all of these 
customers have already paid the initial one-month minimum. By making 
the change to TriVergent they are asked to pay an additional one-month 
minimum not by TriVergent, but by BellSouth. Additionally, when and if 
the customer switches back to BellSouth, they are asked to pay a third 
monthly minimum charge. By way of example, please review documents 
included in ATTACHMENT A.

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FAILURE TO MEET FIRM ORDER CONFIRMATIONS\2\

    \2\ FAILURE TO MEET FIRM ORDER CONFIRMATIONS: BellSouth regularly 
ignored Firm Order Confirmations (``FOC'') in provisioning orders for 
TriVergent customers. BellSouth's inability to complete the orders on 
time, if at all, severely crippled the company's ability to deliver 
quality customer service to our customers. Without this notification 
TriVergent had no record of order completion, requiring the Company to 
place a call to BellSouth after the due date. More importantly, the 
company lost the ability to complete the order on the due date and was 
forced to request a new, much later due date for the order, delaying 
provisioning for days. By way of example, please review documents 
included in ATTACHMENT B.

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DISCONNECTIONS AND INTERRUPTIONS IN SERVICE\3\

    \3\ DISCONNECTIONS AND INTERRUPTIONS IN SERVICE: Consumers that 
chose to switch to TriVergent and who, after signing up with 
TriVergent, cont acted BellSouth for one reason or another--to request 
a final bill, ask about credits, or pay final invoices--reported that 
they lost service before TriVergent had provisioned the order through 
BellSouth. By way of example, please review documents included in 
ATTACHMENT C.

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PROVISIONING DIFFICULTIES AND DELAYS\4\

    \4\ PROVISIONING DIFFICULTIES AND DELAYS: BellSouth commonly 
delayed - sometimes for days on end--in provisioning orders for 
TriVergent customers while BellSouth representatives cont acted those 
same individuals and promised that BellSouth would have the customer's 
service up and running as soon as possible. This type of discriminatory 
treatment significantly injured TriVergent's business. By way of 
example, please review documents included in ATTACHMENT D.

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INVOICE DISPUTES\5\

    \5\ INVOICE DISPUTES: The mechanisms in place for the resolution of 
disputes are inadequate. TriVergent issues a notice to BellSouth 
disputing specific charges included by BellSouth on the latest 
BellSouth invoice. In every instance it takes BellSouth months to issue 
a credit to TriVergent even though BellSouth has acknowledged the 
billing error when disputed. If TriVergent refuses to pay portions of 
its invoice, BellSouth threatens to stop provisioning TriVergent 
orders. Therefore, TriVergent is forced to pay out amounts that are not 
due to BellSouth and, in doing so, lose the ability to put these 
resources to better use for the Company while BellSouth hangs onto the 
funds for months until it issues a credit. BellSouth's failure to 
promptly credit TriVergent's account directly and negatively imp acts 
TriVergent's business plan and financials. By way of example, please 
review documents included in ATTACHMENT E.

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ILLEGAL INTERACTION BY BELLSOUTH WITH TRIVERGENT CUSTOMERS\6\

    \6\ ILLEGAL INTERACTION BY BELLSOUTH WITH TRIVERGENT COMMUNICATIONS 
CUSTOMERS: Reports from TriVergent customers and TriVergent customer 
service representatives indicate that (1) BellSouth continues to engage 
in improper activity with regard to provisioning TriVergent's orders 
and (2) BellSouth operators and representatives continue to make 
erroneous and inflammatory statements to TriVergent customers. By way 
of example, please review documents included in ATTACHMENT F.

    However, if you don't remember anything else about my presentation, 
please realize this: The most important f actor in explaining why 
resale is not a viable option, but in f Act a dismal failure, as a 
means of entry into the local services market is the lack of an 
adequate wholesale discount and the refusal of the RBOCs to offer 
alternative pricing structures. That is, there remain consistent 
shortfalls between the wholesale discounts on local phone service and 
the minimum discounts needed to make local service resale a feasible 
long-term business.\7\ Again, resale of local phone service simply is 
not feasible as a stand-alone, long-term business strategy, especially 
for companies targeting residential customers. The proof is evident by 
the f Act that we don't know of a single company successfully deploying 
resale of local service as a viable business strategy. The situation is 
insidious for two reasons. First, it nearly eliminates a key market 
entry channel for small business service providers. Unfortunately, we 
have witnessed several business failures in this arena. Second, it 
denies consumers the benefits of a healthy resale market--competition, 
innovation, and choice. Even when TriVergent approached BellSouth on 
numerous occasions to request more reasonable discounts in exchange for 
volume and term commitments, BellSouth would not work with TriVergent 
or respond to proposals.\8\ The losers in this game are the residential 
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and small business customers.

    \7\ The Telecommunications Resellers Association study consists of 
a state-by-state analysis of two different business strategies over a 
five-year startup period: one solely using resale and one employing the 
UNE-platform approach. While the models utilizing the UNE-platform 
consistently generated revenues and margins, this was not the case with 
resale. The report determined that not a single state-authorized 
wholesale discount was capable of producing positive cash flow after 
five years. The findings prompted TRA to go a step further with the 
study and determine on a state-by-state basis the minimum discounts 
required by resellers to reach the breakpoint after five years of 
utilizing local resale as a stand alone business. The results found 
consistently large gaps between state-approved wholesale discounts and 
those needed to break even.

    \8\ By way of example, please review documents included in 
ATTACHMENT G.

    Space Availability Response Interval 

    BellSouth is required to provide a response to an application for 
collocation space within 10 business days as to whether space is 
available within a BellSouth central office premise. [Exhibit 2, 
Amendment to the Agreement between State Communications and BellSouth, 
Dated April 20, 1999, Page 4, Section 2.1, Availability of Space, 
Signed 7/28/99].
    Below is a breakdown of BellSouth's average response interval per 
market:

    Greenville - 37 days
    Atlanta - 57-65 days
    Greensboro - 37 days
    Jacksonville - 49-69 days
    Miami - 49-86 days
    Charlotte - 19 days
    Charleston - 37 days
    Louisville - 40 days
    Nashville - 35 days
    Birmingham - 19 days
    New Orleans - 42-49 days
    Jackson - 30 days
    Wilmington - 37 days

    It is for these reasons that TriVergent has reevaluated its 
marketing plan in favor of deploying its own facilities with the 
objective of migrating its customers to these facilities. 
Unfortunately, we are experiencing similar problems interfacing with 
BellSouth. In short, the antics of the ILECs and RBOCs severely 
constrain the CLEC's ability to bring consumers the products, services, 
better prices, and choices that are being promised them. Further, the 
RBOCs' and ILECs' efforts to persistently and continually litigate 
against the policies of the Federal Communications Commission (FCC) and 
state regulators, rather than work fairly with new market entrants has 
severely hampered the development of competitors and the competitive 
process. The continuing failure by ILECs to provide nondiscriminatory 
access to their networks and OSS functionalities stands as a major 
impediment of local service competition.
    As a result, TriVergent and other CLECs continue to encounter 
obstacles when ordering loops, collocating in central offices\9\, and 
achieving number portability necessary to allow consumers to switch 
seamlessly to a CLEC. For example, under the section 2.1 of our 
interconnection agreement with BellSouth, BellSouth is obligated to 
respond to collocation space requests within 10 days of receipt of the 
request. We have 162 applications on file with BellSouth. Responses to 
the applications have ranged from 19 to 86 days with the average 
response time being approximately 50 days. These are issues the 
Committee should make a priority. The Committee should remedy these 
problems so that we achieve a fully competitive environment.

    \9\ COLLOCATION: The following are some examples of situations 
TriVergent has run into in attempting to collocate with BellSouth and 
complete build out of its own facilities.

    Application Cancellation 

    TriVergent submitted New Orleans collocation applications 6/17/99. 
BellSouth provided comprehensive responses, including price quotes on 
8/17/99 and 8/25/99. TriVergent submitted Firm Orders 8/20/99 & 8/27/
99. TriVergent notified BellSouth to cancel these applications 9/10/99 
and requested a refund of any unused funds. TriVergent requested status 
of the cancellation and refund and was informed by Eddie Trant that no 
monies would be refunded. TriVergent escalated to the BellSouth Account 
Team 9/17/99 for resolution. BellSouth informed TriVergent 9/17/99 that 
the issue was under review. TriVergent requested resolution of this 
issue 9/24/99. TriVergent again requested BellSouth position 9/30/99. 
BellSouth responded to previous status inquiries 10/13/99 with the 
following ``I feel nothing [sic]. It is like it has gone to the black 
hole of collo [sic]. Even Duane don't know [sic].''" Eddie Trant, 
Regional Collocation manager. BellSouth offered to refund prepayments 
10/14/99 or allow TriVergent to proceed with applications when 
cancelled if additional application fees were provided. 10/29/99 
TriVergent resubmitted applications with fees totaling $63,830.

    Collocation Cage Construction Fees 

    BellSouth erroneously charged TriVergent for cage construction when 
it was clearly indicated on the collocation applications that 
TriVergent intended to construct its own cage. TriVergent requested a 
refund of these incorrect charges 9/13/99 totaling $ 326,250. Despite 
several requests to BellSouth for a response to our refund request none 
has been received to date.

    Power Feed Fees 

    Despite having charged an average of $30,000 for power at 
collocation sites throughout Florida (38 collocation sites), BellSouth 
claims that TriVergent must provide its own power feeder cables from 
BellSouth' power distribution frame. Clearly BellSouth has included the 
provision of these services in the costs it has assessed TriVergent. 
TriVergent requested a clarification and/or refund of this incorrect 
assumption by BellSouth on 10/19/99 and has received no response other 
than they are looking into the issue.

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C. KEY COMPONENTS FOR FOSTERING COMPETITION 

    1. PRESERVE THE INTEGRITY OF THE 1996 ACT 

    For many years prior to the passage of the 1996 Act, RBOCs and 
ILECs worked with Congress to pass the legislation like the '96 Act. 
The RBOCs and ILECs were proponents of the Act and accepted its 
provisions. Despite their failure to live up to their obligations under 
the 1996 Act and open their networks to competition, several of the 
RBOCs and ILECs now propose that they be granted exemptions from the 
act's market-opening requirements. The RBOCs and ILECs are now arguing 
that they must be deregulated in order to encourage broadband 
deployment. In reality, the RBOCs and ILECs don't want to meet their 
obligations under the Act but want the ability to tilt the playing 
field in their favor by lobbying for ``Regulatory Relief''.
    The ILECs' and RBOCs' argument that without such relief they do not 
have sufficient incentives to deploy advanced broadband services is 
preposterous. Contrary to their claims, the pace of broadband 
deployment is accelerating faster than ever before because of the 
passage of the Act. Companies like TriVergent are deploying broadband 
data services throughout the United States. These competitors are 
meeting consumer's demands by offering consumers access to technologies 
that the RBOCs and ILECs have long ignored.The small but steady 
progress made by CLECs and other new market entrants has forced the 
RBOCs' and ILECs' hand. Only after competitors offered new services, 
the RBOCs and ILECs have been forced to offer new services to keep from 
losing customers. However, any decision to allow RBOCs Regulatory 
Relief regarding data services could crush competitive efforts in the 
data services arena and negatively imp Act competition in the local 
services arena, as well. As long as the ILECs and RBOCs hold a monopoly 
over the loop and other local network facilities used to carry voice, 
video and data calls, new market entrants must rely on pro-competitive 
legislation, regulation and the oversight of the FCC in order to 
survive. Allowing the ILEC or RBOC to exempt the parts of their 
networks from the unbundling requirements will destroy voice and data 
competition because competitors need collocation, access to the loop 
and other network facilities to provide competitive data services.
    The balanced approach laid out by the Act has opened the door to 
hundreds of small businesses to compete in the local telecommunications 
marketplace. Three years of RBOC litigation and non-compliance with the 
Act is standing in the way of the growth of competition. Don't reward 
anti-competitive behavior with a change of the ground rules under which 
the ILECs and RBOCs must operate.

    2. KEEP THE PRO-COMPETITIVE REGULATORY FRAMEWORK 

    The 1996 Act gives great impetus for investment in 
telecommunications facilities because it opens markets to competitors. 
In three years, the Act has produced tens of billions of dollars of new 
investment. Facilities-based CLECs are rapidly building new, 
sophisticated networks, and ILECs are upgrading their old ones. The 
beneficiaries of these facilities build-outs will be customers, who 
finally have suppliers who want to meet their demands, and equipment 
vendors, who are bringing out new products every day. So long as 
competition is allowed to develop and gain steam, this investment is 
sure to continue. However, the opposite is also true. Any legislative 
activity to alter the Act, especially to roll back pro-competitive 
rules, could freeze this investment activity. Deregulation the ILECs 
and RBOCs claim as an entitlement under the Act was to be a product of 
the local competition the statute was intended to engender. The 
continued need for regulatory oversight of the local market cannot be 
overstated. The burdens associated with such oversight flow directly 
from the ILECs' and RBOCs' failure to have met their statutory 
responsibilities more than three years following en actment of the 1996 
Act.

    3. SUPPORT THE FCC AND ITS PRO-COMPETITIVE EFFORTS 

    With the proper framework and oversight, competition in the long 
distance market has become a reality. For the same robust competition 
to develop in the local arena, the same framework and, more 
importantly, oversight mechanisms, must be in place. Give the FCC the 
resources to enforce its rules. Expand the FCC's legal authority to 
impose penalties on the ILECs and RBOCs for failing to open up their 
local networks and/or impede CLECs' progress. Urge the FCC to complete 
its universal service proceeding; without subsidies that are explicit 
and available to competitors, it will be virtually impossible to bring 
competition to rural areas. Support the FCC's efforts to promote 
reasonable rates and fair terms and conditions for collocation as 
excessive rates and unreasonable terms have become important barriers 
to competitive entry into data service markets. Support the FCC's 
efforts to promote full implementation of the interconnection, 
collocation, unbundling and resale provisions of the act.
    Regulatory efforts should be focused on eliminating the many 
remaining obstacles to the competitive provision of local exchange 
service, such as inadequate discounts. As we all know, competition 
promotes innovation and the efficient deployment and use of 
telecommunications facilities, which generates increased research and 
development and positively imp acts the growth of the market for 
telecommunications services.

D. CONCLUSION 

    National policy guidance will be an essential element of any 
regulatory scheme designed to promote local services competition for 
the foreseeable future. By the passage of the 1996 Act, Congress ``en 
acted...sweeping reforms'' to ``open local telecommunications markets 
to previously precluded competitors.'' After much delay brought about 
by the reluctance of the ILECs and RBOCs to comply with its terms, the 
1996 Act is only beginning to produce significant benefits. While CLECs 
have driven the increasing availability of local exchange and advanced 
services, RBOC and ILEC obstructionist t actics in this regard are 
hampering CLEC efforts. Strict adherence to, support for and 
enforcement of the Act will foster the development of competition. 
Support for the FCC, the regulatory body charged with enforcement of 
the Act, will foster development of competition. We can then rely on 
competition to drive investment and innovation. If, however, there are 
amendments to the Act in the form of Regulatory Relief for ILECs and 
RBOCs, there could be a significant cost: capital could dry up and 
competition in the local exchange and advanced services arena might not 
develop. It's not complicated. We have the 1996 Telecommunications Act 
in place. Let's enforce it. We have a regulatory agency, the FCC, to 
administer the Act. Let's support them.

    Senator Burns. Thank you, Mr. Houser.
    We have Mr. Tidwell, Rick Tidwell, vice president, Birch 
Telecom, Emporia, Kansas.

          STATEMENT OF RICK TIDWELL, VICE PRESIDENT, 
                         BIRCH TELECOM

    Mr. Tidwell: Thank you, Mr. Chairman. I would like to thank 
you for allowing me to speak this morning. Birch Telecom is a 
small but growing competitive local exchange provider with our 
headquarters in Kansas City, Missouri, and our operations 
center in Emporia, Kansas.
    We started doing business in resale in Southwestern Bell 
territory in Kansas in 1997. We have since grown into Missouri, 
and we are also now doing business in the State of Texas.
    We began, as I said, doing business as a resale provider 
using Southwestern Bell telephone services. We expanded to 
switch-based services and now our switching systems are located 
in the St. Louis, Missouri, Metropolitan Area, the Kansas City 
Metropolitan Area, and Wichita Metropolitan Area, Kansas. Most 
recently, but we began serving customers using the unbundled 
network element platform, or UNE-P, as we call it in the 
business.
    What I am here today to talk about is the primary concern 
of Birch Telecom, and that is our concern that as we are 
expanding our toehold into local competition in the 
Southwestern Bell territory, it appears that Southwestern Bell 
is failing to provide the adequate resources to its wholesale 
account provider teams and operations groups.
    Birch is both a competitor of the Southwestern Bell and 
also a customer. We need Southwestern Bell's cooperation to get 
Southwestern Bell to open up their market and open up the 
bottled network of facilities that they have access to. 
Although Southwestern Bell was mandated in 1996 to cooperate 
with Birch, it has strong financial incentives to continue not 
to cooperate wherever possible.
    As reflected in Senator Hollings' bill, S. 1312, 
Southwestern Bell has long paid lip service in opening up its 
markets to competition, but continues to resist providing the 
resources and meaningful cooperation required to make 
competition work.
    A couple of examples that I can outline for you. We have 
numbers of customers that are losing dial tone upon conversion 
to Birch from Southwestern Bell. We have a number of customers 
that have lost their directory listings in the local telephone 
book or 411 upon conversion to Birch from Southwestern Bell. I 
do not have to tell you what it is like for a residential or a 
business subscriber to lose those types of services, and by the 
way, we do provide service in both the rural and metropolitan 
areas in all of our territory, and we provide service in a 
variety of ways to those customers.
    We are at the point in Texas where we have had to file a 
complaint because of the operational issues and problems that 
are occurring, and we have a complaint in front of the Texas 
Public Utility Commission at this time. Southwestern Bell has 
agreed on paper to take steps to solve a lot of our problems, 
but we have yet to see the real resources being put forth to be 
able to make this work.
    It does not appear that the operational people that we work 
with are causing all of the problem. There are some people in 
Southwestern Bell we work with directly that appear to be 
trying to get the job done, but from a corporate standpoint it 
certainly appears that the resources are simply not being 
devoted to providing services to CLEC's at this point in time.
    Southwestern Bell, even when they have an ongoing 
relationship with the Texas PUC and are trying to get into the 
long distance business in Texas continue to stall every step of 
the way at providing us parity service, which I believe the 
1996 Act required.
    If, in fact, Southwestern Bell does not promptly match its 
promises with action and, most importantly, provide these 
greater resources necessary for competition, and absent any 
immediate commitment, we may well need Senator Hollings' bill, 
1312, to provide relief so we can continue to move forward.
    What we need is for Southwestern Bell to get into the long 
distance business, but to get in with an A on the 14-point 
checklist. Right now, I feel like they are trying to pass the 
class on the 14-point checklist with a D minus, and we cannot 
let that happen. If we cannot continue to get better at what we 
are doing and create a better working relationship with the 
incumbent telephone companies, competition very likely will not 
flourish, but in f Act we may be backsliding a couple of years 
from now, and we might truly have just one or two providers in 
an area, and I do not think that is what the 1996 Act ever was 
to provide for.
    Thank you. I appreciate your time.
    [The prepared statement of Mr. Tidwell follows:]

   Prepared Statement of Rick Tidwell, Vice President, Birch Telecom
    Senator Burns and members of the Committee, I am Rick Tidwell, Vice 
President of Regulatory and Industry Relations for Birch Telecom, Inc, 
a small but growing competitive local exchange carrier with principal 
offices in Kansas City, Missouri and Emporia, Kansas. Birch is a member 
of the Competitive Telecommunications Association, also known as 
CompTel.
    Thank you for inviting me to testify before the Committee today on 
the state of local competition in our nation. I will focus my remarks 
on issues influencing the development of competition in the states 
where Birch currently operates - Kansas, Missouri and Texas. All three 
states fall within Southwestern Bell's territory.
    Before I turn to the specific issues affecting the development of 
local telecommunications competition and the availability of consumer 
choice in this region of the country, it may be helpful if I provide 
you with a brief description of Birch.

About Birch

    Birch currently serves approximately 90,000 access lines. We employ 
850 people, including 250 at our headquarters in Kansas City, and 250 
employees in Emporia, Kansas where our customer service and call center 
is located.
    In early 1997, Birch began operations in Kansas as a reseller of 
Southwestern Bell's local exchange services. Resale operations were 
later expanded to Missouri. In 1998 Birch began switch based operations 
in some Missouri markets. In 1999, Birch began service in Texas through 
the use of the unbundled network element platform (``UNE-P'') service.
    In Missouri, we operate switches in Kansas City and St. Louis. We 
have customers located throughout the state, including Carthage, 
Chillicothe, St. Joseph and Springfield. In Kansas, we have customers 
in every county of the state, and we have substantial operations in 
Dodge City, Emporia, Lawrence, Manhattan, Salina, Topeka and Wichita 
(where we also operate a switch). In Texas, we recently began 
operations in Austin, Beaumont, Corpus Christi, Dallas/Fort Worth, 
Houston, Lubbock, Tyler/Longview and Waco.
    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.
    We provide our services through our own switching equipment and, 
pursuant to provisions of the Telecommunications Act of 1996, 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 competitive local exchange carriers 
(``CLECs'') in the territory served by Southwestern Bell.
    That's who we are today. Tomorrow, if we continue to work harder 
and smarter than Southwestern Bell and our other competitors, we expect 
to emerge as a major regional provider of telecommunications services 
to small and mid-sized businesses and residential customers. However, 
unless Southwestern Bell has the incentives to cooperate actively in 
complying fully with its duties under the 1996 Act, the development of 
competition and the benefits it brings to consumers will be seriously 
retarded.

Southwestern Bell's Duties And Incentives Under The 1996 act

    The duties and incentives of Southwestern Bell and other incumbent 
carriers to open their local exchange markets to competition were set 
by the 1996 Act, a law which several of you on the Committee were 
instrumental in fashioning. Overall, Birch believes 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 incumbent carriers 
have strong economic motives to maintain their de f acto control of 
essential bottleneck facilities, and that a combination of duties and 
incentives would be required to open the local exchange market.
    Sections 251 and 252 of the Act set forth the duties of incumbents 
to open their markets to new entrants by mandating interconnection, 
access to unbundled network elements and resale on just, reasonable and 
nondiscriminatory terms. Access to such facilities and services is 
absolutely essential to CLECs such as Birch.
    The incumbent Bell Companies' incentive is contained in Section 271 
of the Act which allows a Bell Company into in-region long distance 
markets once it has opened its monopoly local markets to competition. 
Until recently, the Bell Companies did not appear to have been strongly 
incented by the prospect of offering 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.
    More recently, however, Bell Companies' behavior evidences somewhat 
stronger interest in entering the interLATA market. Birch believes that 
apparent stronger interest stems from the Bells' desire to enter the 
rapidly growing market for interLATA data services and their desire to 
become the complete provider of services for customers, including 
everything from local wireline and wireless service to broadband 
internet and data services.

Southwestern Bell's Incentives Under Its Proposed Merger with Ameritech 


    Another incentive for Southwestern Bell to open its local exchange 
market to competition stems from its proposed merger with Ameritech. 
The Federal Communications Commission (``FCC''), in approving the 
transfer of control of licenses triggered by the proposed merger, 
imposed a variety of conditions, including conditions designed to push 
Southwestern Bell toward opening its local markets.
    These conditions, coupled with the performance standards and 
remedies that Southwestern Bell has agreed to in Section 271 
proceedings in Texas, are encouraging steps. They lay out a plan that 
leads toward the opening of Southwestern Bell's local markets. However, 
to implement the plan, Southwestern Bell will have to dedicate adequate 
resources to correct the many deficiencies in its current methods of 
providing CLECs interconnection, UNE and resale services. Moreover, 
Southwestern Bell requires a fundamental change its mindset in its 
dealings with CLECs such as Birch.

Birch's Experience To Date With Southwestern Bell

    Even with the duties 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 frustrating. The following is a list of some of the Southwestern 
Bell t actics Birch has encountered.:

        Unreasonable ``UNE-P'' charges: ``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 recombination 
        charges. Additionally in Texas, when converting existing 
        service Birch must only pay the conversion charges. In Kansas 
        and Missouri Southwestern Bell requires Birch to pay the non-
        recurring charges for new installation of the service even 
        though all the facilities are in place and working. These 
        charges are unecessary and unreasonable yet, in order to do 
        business Birch has no choice but to pay them. This is 
        especially disconcerting in the rural areas as there is little 
        chance that a secondary network such as a cable TV sytem or 
        fiber provider will enter the smaller markets due to the 
        limited total market size. As a result, Ssouthwestern Bell will 
        most likley remain the only provider of outside plant 
        facilities for many of these markets for years to come.

        Resale Restrictions: Southwestern Bell refuses to allow Birch 
        to resell customer specific arrangements or contr Act 
        arrangements at the standard resale discount. In f Act, 
        Southwestern Bell even refuses to allow birch to assume the 
        liability on those contr acts 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 contr 
        Act requires the customer to pay large termination fees to 
        Southwestern Bell. The only exception to this is Texas in which 
        Southwestern Bell was ordered to allow assumption of existing 
        contr acts.

        Inadequate 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. One of the major 
        issues in Texas in the Southwestern Bell 271 proceeding is the 
        issue of OSS systems and their current ``state of readiness'' 
        and scalability. In September, Birch filed a complaint in Texas 
        regarding a number of OSS issues. In subsequent meetings and 
        conference calls Birch has found that there are many flaws in 
        Southwestern Bell's provisioning systems. One problem in 
        particular is that of coordination of orders. When a CLEC 
        places an order for the conversion of a service under UNE-P, 
        Southwestern Bell's back-office systems actually generate 3 
        orders, a Disconnect order, a New order, and a Change order. 
        Not all orders are generated by the same system and the orders 
        do not appear to be coordinated in any way. As a result, many 
        customers converting to Birch are experiencing loss of dialtone 
        at conversion. To make matters worse, Southwestern Bell has not 
        provided an expedited method for restoring service and 
        consequently customers have lost dial-tone for days at a time.

        Omitted Directory Listings: 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. Yet omissions still 
        occur. This issue continues to haunt CLECs. Birch first 
        reported the problem almost two years ago, and Southwestern 
        Bell still has not completely eliminated the problem.

        Premature 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, leaving 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. This continues to occur for both our UNE-P and switch 
        based customers and is related to inadequate OSS identified 
        above.

        Untimely and Inaccurate Billing: Southwestern Bell ignores due 
        dates and deadlines. Over the last year Southwestern Bell has 
        repeatedly failed to deliver timely and accurate billing 
        information which Birch must have in order to bill our 
        customers. Southwestern Bell's failure to provide the billing 
        records in the proper manner forced Birch to suspend its own 
        billing, bringing Birch's cash flow to a halt. Yet, 
        Southwestern Bell demands prompt payments.

    There are many other examples of Southwestern Bell's deficiencies. 
Upon request, I will be glad to furnish the Committee a more detailed 
list of Birch's grievances. I will end this discussion by highlighting 
one of Southwestern Bell's most effective t actics for frustrating the 
development of competition--under-resourcing its CLEC account teams.

Inadequate CLEC Account Team Resources. 

    For years, interexchange carrier account teams have been assigned a 
technical representative to deal with the many operational issues that 
arise. We understand Southwestern Bell CLEC account teams have 
requested this technical support and yet Southwestern Bell management 
has not allocated the required resources. The results are unnecessary 
service disruptions and delays in providing services for companies like 
Birch, all of which serves to protect Southwestern Bell's monopoly 
market from competitive incursions. Southwestern Bell's Local Service 
Center (LSC) and Local Operations Center (LOC) also are understaffed. 
Here is a recent example. A few weeks ago, Birch personnel had three 
trouble reports to work with Southwestern Bell. Three separate Birch 
employees called Southwestern Bell's CAST center where Birch has been 
instructed to call. One of the calls was answered. The other two calls 
rolled into a recording advising the caller to stay on the line until 
someone answered. The call that was answered lasted 45 minutes. During 
this time the other calls were left on hold. Birch escalated the 
problem to Southwestern Bell's LOC management. The report back to Birch 
indicated that only one person was available at the time of the calls. 
I want to emphasize that this Southwestern Bell group is not a group 
dedicated to Birch but is used by many CLECs. Birch has no idea how 
many other trouble calls went unanswered during that time.

The Need for an ``Attitude Adjustment.'' 

    In a meeting in May 1998, the Texas Public Utility Commission was 
char acterized as saying that Southwestern Bell needs an ``attitude 
adjustment.'' At Birch we don't feel that Southwestern Bell has taken 
this advice to heart. It ``talks the talk'' but has yet to ``walk the 
walk.'' Without a genuine change of attitude and a commitment of the 
necessary resources by Southwestern Bell, Birch and other CLECs will 
continue to be frustrated in their efforts to bring consumers choice in 
local telecommunications services in Southwestern Bell's territories.
    Birch would welcome tangible evidence that Southwestern Bell has 
experienced such an adjustment without the need for further 
legislation. Absent such evidence, the types of penalties contemplated 
in Senator Hollings' Bill, S. 1312, may be necessary.
    That concludes my testimony. Thank you for your time and attention 
to this important matter.

    Senator Burns. Thank you, Mr. Tidwell.
    I have just got a couple of questions here. The RBOC's had 
to make some kind of investment to facilitate a switchover. I 
have asked some for those figures just recently, and they have 
not responded yet.
    Mr. Neel, do you have any idea on what the cost has been to 
facilitate the switch for conversion?
    Mr. Neel. Well, Mr. Chairman, the number is into the 
multiple billions. US West informs me that it alone has spent 
$1.2 billion on its systems and operation network to facilitate 
local competition. SBC's numbers are even higher, and then it 
goes all through the system that way.
    Let me make a point here that these companies, the Bell 
Operating Companies, have every incentive to comply with the 
checklist. These are the companies that want the relief from 
the FCC and the States and they are forced to do this.
    Now, it is a voluntary proceeding if they want to get into 
the long distance business, but they have every incentive to 
comply with the checklist and enter the long distance market. 
They have no incentive to minder these new competitors, 
frankly, for local residential service, because they want to 
get into a very important long distance and data markets.
    These companies have an obligation to serve everyone in the 
country, everyone in each of your States. These competitors 
have no such obligation. They have an opportunity that is made 
possible by the Act and the thousands of interconnection 
agreements that have been signed. They have no regulation. They 
have no obligation to provide service to everyone, but the Bell 
Companies and the thousand other local companies do have that 
obligation. It is a very important consideration here.----
    Senator Burns. Now, let us take that one step further, 
then. How come we hear all the complaints that it is not 
happening? In other words, we have got a 60 to a 90-day 
complaint here. Where do the competitors go to file or to get 
relief if a conversion is not made?
    Mr. Neel. Mr. Chairman, there is a very clear procedure for 
doing that with State regulators and with the FCC, and as I 
pointed out earlier, the FCC has not held in favor of a single 
CLEC filing a complaint under the 251 requirements. Remember, 
the requirements under 271 are to get into the long distance 
business. It would be patently unfair to sanction these 
companies for not meeting the checklist requirements for long 
distance if they are not even filing an application. It does 
not make any sense, so do not confuse the checklist to get into 
the long distance business against the requirements in section 
251.
    On interconnection they are required to meet those rules 
under section 251 and the CLEC's aren't going to the FCC, or 
the FCC is turning them down in any complaints on meeting 
section 251 requirements, but on section 271, this is a 
voluntary proceeding to give them the benefit of entry into the 
long distance business, and that is an important consideration.
    But in terms of anecdotal issues, I am sure there are 
hundreds of these all through the country, but there are 
millions of cases where these customers have been transferred 
and serviced smoothly. Every financial statement and every 
statement of Wall Street of all of these companies says ex 
actly that case, so it is working. It is working. It can always 
work better, but I would also submit that some of these CLEC's 
are not doing their part of it.
    The local exchange companies are providing training 
assistance on things as simple as how to fill out these 
customer transfer forms, and one of the companies informs me 
that the vast majority of these delays are often related to the 
new provider failing to fill out the form correctly. It is a 
new business, so we understand that, and they should understand 
on the other side that there are going to be difficulties.
    But it is a new Act. These are new procedures, but they are 
working, and they will continue to work, because the local 
companies, the Bell Companies have every incentive to comply 
with the Act, every incentive.
    Senator Burns. Mr. Houser, I know you want to make a 
comment. I saw that.
    Mr. Houser. I sure do. I cannot sit still much longer. That 
response is just ex actly typical of what the RBOC's and ILEC's 
want us to do. They want us to have to go to the PSC. We have 
to go to the FCC. We have to go to court to fight all of this. 
They know it is going to take forever for us to do that. 
Instead of complying with the orders, all they want to do is 
delay, delay, delay.
    This is a perfect example right here. Sure, there is a 
procedure. Go to the FCC and complain, and how long will it 
take? We are talking about months and months and months, as 
with the PSC's and in the courts. All they have to do is go 
ahead and comply with the rules, and we can get on with 
business.
    In the area of resale--I want you to think about this. In 
the area of resale, for the Bell Operating Company to change 
from a residential customer to our billing, it is all software. 
It can be done in a matter of minutes, but in f Act it takes 
days and weeks, and then half the time it is not correct.
    So they just simply have not put the resources where it is 
needed to be put, and I said earlier that we attr acted 100,000 
residential customers, but what I did not tell you is, we lost 
over half of them because the Bell Operating Companies would 
intercede. In the process of us getting the customer they would 
call the customer and say, gee, you know, if you changed to 
Trivergent you are probably going to lose dial tone, and sure 
enough, sometimes they did, and that is the ex Act type thing 
we have had to fight.
    Senator Burns. Senator Hollings.
    Senator Hollings. I take back the original observation that 
the hearing was over because we did not have the Bell companies 
here, with their chance to talk about local competition and be 
properly cross-examined. I take that back, because I am glad we 
have got Mr. Holland, Mr. Houser and Mr. Tidwell to testify so 
that Mr. Neel can hear it. He sounds like he never has heard 
this before.
    Now, let me get right to some of these points here. No. 1, 
Section 271, the 14-point checklist, Mr. Chairman, I ask we 
include this in the record at this particular point.
    Senator Burns. Without objection.
    [The information referred to follows:]

                 COMMUNICATIONS ACT OF 1934, Sect. 271
    COMPETITIVE CHECKLIST.--Access or interconnection provided or 
generally offered by a Bell operating company to other 
telecommunications carriers meets the requirements of this subparagraph 
if such access and interconnection includes each of the following:
        (i) Interconnection in accordance with the requirements of 
        sections 251(c)(2) and 252(d)(1).
        (ii) Nondiscriminatory access to network elements in accordance 
        with the requirements of sections 251(c)(3) and 252(d)(1).
        (iii) Nondiscriminatory access to the poles, ducts, conduits, 
        and rights-of-way owned or controlled by the Bell operating 
        company at just and reasonable rates in accordance with the 
        requirements of section 224.
        (iv) Local loop transmission from the central office to the 
        customer's premises, unbundled from local switching or other 
        services.
        (v) Local transport from the trunk side of a wireline local 
        exchange carrier switch unbundled from switching or other 
        services.
        (vi) Local switching unbundled from transport, local loop 
        transmission, or other services.
        (vii) Nondiscriminatory access to--
                (I) 911 and E911 services;
                (II) directory assistance services to allow the other 
                carrier's customers to obtain telephone numbers; and
                (III) operator call completion services.
        (viii) White pages directory listings for customers of the 
        other carrier's telephone exchange service.
        (ix) Until the date by which telecommunications numbering 
        administration guidelines, plan, or rules are established, 
        nondiscriminatory access to telephone numbers for assignment to 
        the other carrier's telephone exchange service customers. After 
        that date, compliance with such guidelines, plan, or rules.
        (x) Nondiscriminatory access to databases and associated 
        signaling necessary for call routing and completion.
        (xi) Until the date by which the Commission issues regulations 
        pursuant to section 251 to require number portability, interim 
        telecommunications number portability through remote call 
        forwarding, direct inward dialing trunks, or other comparable 
        arrangements, with as little impairment of functioning, 
        quality, reliability, and convenience as possible. After that 
        date, full compliance with such regulations.
        (xii) Nondiscriminatory access to such services or information 
        as are necessary to allow the requesting carrier to implement 
        local dialing parity in accordance with the requirements of 
        section 251(b)(3).
        (xiii) Reciprocal compensation arrangements in accordance with 
        the requirements of section 252(d)(2).
        (xiv) Telecommunications services are available for resale in 
        accordance with the requirements of sections 251(c)(4) and 
        252(d)(3).

    Senator Hollings. Now, this is a list of 14 things. And 
this Senator worked for 4 years with all the lawyers. This town 
has got 60,000 lawyers registered to pr actice in the District 
of Columbia. I think 59,000 are communications lawyers and I 
have met every one of them.
    [Laughter.]
    I have met every one of them. And they are expert and they 
know all the things, Mr. Houser, Mr. Holland and Mr. Tidwell, 
that you all rare talking about. And it is not too complicated, 
but it is complicated. So they had to hammer this out. They 
wrote this. Their lawyers wrote this, Mr. Neel. They wanted to 
comply, they said.
    Let me read this to you. On March the 5th, Bell South said 
the Telecommunications Act now means that consumers--this is 
back in 1996--will have more choices. We are going full speed 
ahead. And within a year, we can offer long distance to our 
residential and business wiring customers. They are not doing 
it in 4 years. Do not give me no 15 people in the telephone 
book in Charleston.
    They have not gotten a CLEC down to your house in Kiawah, 
and they will not have one down there because it will not pay. 
In fact, by gosh, the co-ops have got the telephone down there. 
I used to be their lawyer on Kiawah and Seabrook Islands. 
Because why? Because the Bell telephones, it did not pay.
    Let me read this. On February the 8th, 1996, US West: The 
interLATA long distance potential is a tremendous business 
opportunity for US West. Customers have made it clear they want 
one-stop shopping. They went on to predict that US West would 
meet the 14-point checklist in a majority of its States within 
12 to 18 months. They did not do that at all. They have not met 
any of it.
    In fact, I have got the testimony in a book here, when they 
talk about we did not even consider--this is back in 1994--the 
contention is now, Mr. Chairman, that we did not consider data. 
Here is Mr. McCormick, Richard McCormick, of US West, quote: I 
want to touch briefly on US West's business plan. We have 
embarked on an aggressive program both within our 14-State 
region and outside to deploy broadband. We want to be the 
leader in providing inter active--that is, two-way--multimedia 
services, voice, data, video. We see a tremendous potential for 
multimedia, and blah, blah, blah, right on down the line.
    They were into data, they said, but let us put this one in 
the record, too.
    [The information referred to follows:]

                            s. hrg. 103-599
           HEARING ON S. 1822, THE COMMUNICATIONS ACT OF 1994
                               before the
          COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 
                          UNITED STATES SENATE
                             march 17, 1994
               PREPARED STATEMENT OF RICHARD D. MCCORMICK
    Mr. Chairman, members of the Senate Commerce Committee, I'm Dick 
McCormick, Chairman and Chief Executive Officer of US WEST. I 
appreciate the opportunity to appear here today to testify on S. 1822.
    By way of background, let me mention that I served in a variety of 
assignments in the Bell System prior to divestiture, including 
positions at both the operating telephone company level and at AT&T. I 
began my telecommunications career in 1961.
    My understanding is I'm to confine my remarks to provisions of the 
bill that address the manuf acturing restriction of the Modification of 
Final Judgment. As you've heard in previous hearings and will probably 
hear in future proceedings, the Regional Bell Operating Companies have 
serious concerns about a number of provisions of S. 1822. But the manuf 
acturing section, on the whole, is something we enthusiastically 
support. I'm convinced that lifting the manuf acturing prohibition 
offers real opportunity for job growth, increased innovation and for 
enhancing this country's global competitiveness.
    Unfortunately, we should have been able to exercise that 
opportunity three years ago. Thanks to your leadership, Senator 
Hollings, the Senate, in the 102nd Congress, overwhelmingly passed S. 
173, legislation to permit Bell entry into manuf acturing. A companion 
measure in the House had 138 co-sponsors. But despite our best effort, 
even though we pushed the matter aggressively, the House refused to 
take up manuf acturing as a stand-alone issue. Because a federal court 
had lifted the MFJ restriction on Bell provision of information 
services, there was some sentiment in the House that the price for 
manuf acturing freedom should be that we give back some of our court-
won freedom to offer information services. We were unable to resolve 
that matter before Congress adjourned.
    So American consumers have been denied for another three years, 10 
total, the benefits the half million RBOC employees could bring to 
communications design and development. The result has been fewer jobs, 
decreased innovation and needless frustration. Let me be specific.
    After the break up of the Bell System, US WEST decided to build a 
world class research and development facility. Because we saw the 
communications business becoming increasingly competitive and because 
the communications needs of the sparsely-populated geography we serve 
tend to be different than the communications needs of customers in more 
densely-populated areas, we saw research and development as both a 
competitive advantage and as necessary to addressing the unique needs 
of our customers.
    So we committed to building a state-of-the-art laboratory to house 
some 1,500 scientific and technical people, with plans to expand as 
demand warranted. But, as they say, ``a funny thing happened'' on the 
way to site selection. In December 1987, Judge Greene ruled that the 
manuf acturing restriction extended beyond metal-bending or fabrication 
to design and development as well.
    In the wake of the Judge's decision, we went ahead with our plans, 
but those plans were scaled back significantly. Instead of employing 
1,500 scientists, researchers, engineers, technical and support 
personnel, we employ 600. And instead of having free rein to use their 
imaginations--to think, to dream, to innovate--the work activity of 
those 600 people is very tightly restricted.
    I think it's fair to say that in the early days of adjusting to 
Judge Greene's expanded definition of what constitutes manuf acturing, 
our people struggled mightily to find that unknown line between what is 
and is not permissible under the MFJ. That's the needless frustration 
referred to. Whenever one of our people has a good idea, that 
individual must share that idea with a battery of attorneys who make 
their best judgment as to whether carrying that idea forward would 
violate the MFJ. As you might appreciate, scientific and technical 
people would rather spend their time with science and technology than 
with unknown legal issues. And so, regrettably, they find ways to work 
around the legal morass. They don't let their imaginations run as 
freely. They're not as creative. They're more disappointed than 
entrepreneurial.
    And something is lost as a result. It would be interesting, but 
probably impossible to try to quantify how many new products and 
services, how many new ideas for doing something better, cheaper, 
faster, died on the innovation table, And to what end? What possible 
good is served by keeping in excess of 50 percent of the domestic 
communications capacity of this country on the design and development 
sideline?
    I want to touch briefly on US WEST's business plan. We have 
embarked on an aggressive program--both within our 14-state region and 
outside--to deploy broadband. We want to be the leader in providing 
inter active--that is, two-way--multi-media services--voice, data, 
video. We see a tremendous potential for multimedia--in health care 
,education, telecommuting and entertainment.
    But we're largely sailing in uncharted waters. The set-box and 
video servers it will take to make multi-media a reality aren't 
available from ``off the shelf.'' They're still in the laboratory where 
engineers are trying to get the bugs out of them. The restriction 
severely compromises our ability to engage in design discussions with 
manuf acturers. We can talk in generalities. We can say ``no'' to this 
and ``yes'' to that, but we can't talk in specifics. We cannot fully 
take advantage of our technical expertise, of our knowledge of our 
customers and of what they want and don't want. And so, instead of 
better, faster, cheaper, we do things adequately, slower and maybe a 
little more expensively. That's a prescription for the past, not the 
future. We cannot be leading edge if we're not free to follow through 
on our ideas.
    Curiously, we are free to do this offshore, just not in this 
country. So opportunity will migrate to Europe and Asia where we are 
free to invest, innovate, design, develop and manuf acture. Yet under 
the current restriction, consumers in this country are denied the 
benefits of our experience elsewhere.
    And we're denied a return on our intellectual property. If a US 
WEST scientist invents and patents a communications solution, the MFJ 
does not permit us to share in the royalties from that invention. At 
least not according to a recent court of appeals ruling.
    The manufacturing provisions of S. 1822 largely address those 
issues. As you did in 1991, Mr. Chairman, you've again demonstrated 
that the manuf acturing restriction can be set aside without harm to 
customers or competitors. There are adequate safeguards in the 
legislation to quiet any concern about anti-competitive behavior, while 
at the same time, sufficient flexibility to enable the RBOCs to use 
their expertise to the benefit of the economy, the marketplace and 
international competitiveness.
    The seven Regional Bell Operating Companies support provisions in 
S. 1822 dealing with lifting the manuf acturing restriction.
    Thank you, Senator Hollings, for your leadership on this issue and 
the opportunity to testify. I'd be glad to try to answer any questions 
members of the committee might have.

    Senator Hollings. The title of one is the Seattle Post 
Intelligence Reporter: Two sentences made public yesterday in a 
US West document that the company fought to keep secret for 
more than a year may cause MCI-Metro to reopen legal 
proceedings against US West. The sentences appear to show that 
US West, based in Denver, pursued a corporate policy of 
declining to reconfigure its equipment to allow use by 
competitive local carriers like MCI-Metro. The sentences read, 
quote:
    At the time of this CPD's distribution, corporate policy 
dictates that we will not privately engineer for CLEC 
interconnections. However, the continued policy of actually 
honoring orders for CLEC interconnection will cause DTC port 
shortages in these offices.
    These sentences are contained in confidential documents 
that served as evidence in the proceeding in 1997, by MCI-Metro 
against US West, verifying, Mr. Houser, what you said about 
punishing them.
    Now, let us get on to some of these other things that they 
want to talk about. Mr. Chairman, they say they are not making 
money. That there is really bothersome. The third quarter of 
this year, how much they have spent and everything else like 
that. Bell Atlantic profit in the third quarter of this year, 
just reported, rose 10 percent, to $1.2 billion. Bell South, in 
this third quarter, just reported profit rose 19 percent, to 
$972 million. SBC Communications, profit rose 22.5 percent, to 
$1.28 billion. US West, profit rose 11.1 percent, to $421 
million. And they are paying the chairmen of these entities a 
million dollars a month. I ran for the wrong job.
    [Laughter.]
    Senator Hollings: I know the board members at Bell South. 
They are good friends. I think I can get their vote. Yes. Yes. 
This here little 130,000 or whatever this is, hah. Man, come 
on.
    [Laughter.]
    Senator Hollings [continuing]. I tell you right now they 
are guaranteed a profit. Obligation, just feed the obligation 
to me. Talking about the rest of these folks here at the table 
do not have an obligation, give me some more of that 
obligation. You cannot lose. You have got a monopoly. You are 
guaranteed a profit. You have got a hearing and they will make 
it profitable for you.
    Let me get on to some other parts of this thing here. 
Deregulate, yes. Mr. Neel now says to deregulate. Well, we have 
got a deregulation bill, S. 1312. That will deregulate you. 
That is where, by gosh, you have gotten your monopoly. And you 
said you wanted to compete.
    We have put the record in here and everywhere else in the 
world. And you do not compete, you combine. You are buying up 
each other. We had seven; now you have only got four left. And 
they are trying to merge even more of them, with long distance 
and everything else to go around in from the 271 of the 
checklist that they wrote and said they wanted to comply with, 
knew it at the time and failed to comply.
    And I am glad, Mr. Holland, that you have testified here 
and stated just ex actly what is going on. Because that is why 
I put in S. 1312. Just like the Dutch boy at the dike, you say 
they are trying to change the accounting system. They say, we 
never got into data, to try to get into long distance. They 
come from every direction around here. They come into town. 
They put on these puff pieces at the policy committees, and 
with the leadership in the back room and everything else of 
that kind. And communications is very complicated. And the next 
thing you know, I find out that we are getting the bum's rush.
    And, right to the point, deregulate, what I would like to 
do is deregulate. Give them, by the year 2001, and then, 
thereafter, $100,000 a day if they do not comply with the 
checklist that they wrote themselves. That is what they said 
they wanted to do. And they refuse to do it. They squat on 
their monopolies, making these exorbitant profits, paying these 
million-dollars-a-month chairmen and everything else, and 
sending a very smart, attr active lawyer up here to give us 
these charts and 15--let me put that in the record--let us get 
in the 15 people. We have got the full-time record right here 
from Merrill Lynch.
    Mr. Chairman, this is dated September of this year. I ask 
consent to put this chart in here from Merrill Lynch.
    Senator Burns. Without objection.
    [The information referred to follows:]

    
    

    Senator Hollings. It is the local telephone revenue loss to 
CLEC's. It has got every CLEC, including AT&T and Sprint. Total 
lines and service, 161 million. The total estimated U.S. access 
lines, let me correct that, 161 million, and the total lines in 
service of the CLEC's is 6,175,417. The local competitor's 
share is 3.4 percent.
    So you can run around with your telephone books and your 15 
and the millions, how you are spending and everything else. You 
are not telling the people the millions that you are making and 
buying up down in Argentina, Mexico, all the countries, buying 
each other up around here, refusing to appear and sending a 
smart lawyer up here to cover for them. They ought to be 
ashamed of themselves. This is the record. This is the market. 
And these are the f acts.
    I thank you, Mr. Chairman.
    Senator Burns. Thank you.
    Senator Brownback.
    Senator Brownback. Thank you, Mr. Chairman.
    Thank you to the panelists, too. I have found it a very 
interesting and informative panel. When you pass acts and then 
you get to hear how people see it being implemented--because I 
hear most of you saying you agree with the Act, you are having 
some questions on the implementation.
    Mr. Tidwell, first, welcome to a fellow Kansan. I am 
delighted to have you here. Your service is doing quite well in 
Topeka, where I live. My next door neighbor is in Birch now. 
And I am going to go home and look at it. And I hope Cricket 
comes to Kansas soon. You may get Senator Ashcroft and I, both, 
at 29.95. That is an awfully good service.
    Mr. Tidwell, your competition, at least in my community of 
Topeka, is doing quite well. You have got great billboard 
advertising, 100 percent of our customers fired Southwestern 
Bell. It is real effective. Where have you gone in the 
marketplace? You stated, I think, that you started in 1997. And 
I would just be curious, even in Topeka if you could, where 
have you gone for market penetration in that period of time 
that you have been in?
    Mr. Tidwell. Are you looking for numbers, percentages?
    Senator Brownback. Yes, please.
    Mr. Tidwell. I do not have those with me. I believe our 
markets in Kansas are some of our oldest markets, so they would 
be where some of our penetration is highest.
    Senator Brownback. When did you start there?
    Mr. Tidwell. We actually started providing local resale 
service in 1997, probably May 1997.
    Senator Brownback. Can you give me any estimates or any 
specifics on markets that you are in, that you have been in 2 
years now?
    Mr. Tidwell. I did not bring that information with me that 
is city specific, but we do have, I think, approximately 40,000 
to 45,000 lines up in Kansas as a whole. They are primarily in 
what we would refer to here as the secondary or third tier 
markets. Quite a bit of business. And it is all in resale right 
now, by the way, except for the Wichita metropolitan area. We 
have customers in Dodge City, Hayes, Salina, and a fairly good 
concentration in the Topeka area.
    In the last 12 months, we have increased our market share 
in the Kansas City metropolitan area, in the Kansas and 
Missouri side both of course, and are starting to provide 
facility-based services there. But much of what we are doing in 
Kansas to this date is resale operations.
    Senator Brownback. Do you have a percentage of penetration 
in the Kansas City market that you could share with us?
    Mr. Tidwell. I do not. I believe we are still under 1.5 
percent.
    Senator Brownback. And how long have you been in it?
    Mr. Tidwell. Approximately a year.
    Senator Brownback. When you started in these markets, you 
had projections for how far you would be how soon. Are you 
reaching those projections that you had established for your 
company?
    Mr. Tidwell. We are under resale. Resale proved to be the 
simplest way to get into this business, but it is not very----
    Senator Brownback. Just to go in and start advertising?
    Mr. Tidwell. Right.
    Senator Brownback. And then using the current----
    Mr. Tidwell. Resell the incumbents' telephone service, in 
effect. It is still Southwestern Bell service for reselling 
their service. We buy it at wholesale and sell it to our 
customers at a retail price.
    Senator Brownback. And that has proved to be the most 
effective way for you to penetrate into these markets 
initially?
    Mr. Tidwell. Really, in Kansas, that has been almost the 
only way. Our problem in Kansas with moving to the next step is 
that Southwestern Bell has been in active or very negative 
toward trying to provide-- getting them to provide anything to 
us to make that next step. From a facility-based standpoint, we 
paid almost $250,000 to collocate in one central office in 
Wichita, Kansas. And with numbers that high, it is pretty hard 
for us to make a business case to go to a Salina or Topeka, or 
especially a Dodge City or an Emporia, and be able to afford to 
go in and collocate and provide true facility-based services.
    Senator Brownback. What do you think that number should 
have been in Wichita? I presume there was a negotiation that 
took place for you on that $250,000.
    Mr. Tidwell. What we are seeing in Texas--and maybe Mr. 
Holland can help me a little bit here--some of the collocation 
prices that we see in Texas I believe are in the $40,000 to 
$70,000 range. And we do not understand how there could be so 
much disparity between States. Because the equipment and the 
real estate we feel is somewhat the same, at least. So those 
numbers need to come down significantly, at least down under 
six figures.
    Senator Brownback. I want to get right into the specifics 
if I can. Because actually I am very encouraged that you all 
are here. I think this is a good process. I am encouraged with 
the competition I see at home when I go there. And I hope 
Godspeed. I hope you keep growing well and doing well. But as I 
hear you talk, particularly you, Mr. Tidwell, you are saying, 
OK, Southwestern Bell is trying to slip in just barely to 
passing.
    I think the actual thing you said is they are not providing 
the resources that you think they need to, to allow others to 
get in to the field. Did I take your testimony correct? And if 
that is correct, what is it that they should be providing? 
Because apparently you are working OK with the guy right there 
next to you at the plant at Southwestern Bell, but you think, 
on up the system, there is some blockage.
    Mr. Tidwell. Well, what we are seeing is as we turn on more 
and more lines and as we grow and start to really, as we call 
it sometimes, turn on the tap and start really sending larger 
numbers of orders to Southwestern Bell, they do not seem to be 
able to keep up with the number of orders. Orders are sitting. 
Orders are not being handled expediently.
    And as we start to turn on the tap and as more CLEC's come 
on board, we are hearing from the Southwestern Bell line people 
that they simply do not have the staff, the manpower and the 
system resources to be able to process all the orders. We also 
have a situation -- when I read the report the other evening 
the report from the Department of Justice on Bell Atlantic, 
something that it made quite an issue of was the manual 
processes and intervention that are still required in the 
ordering process. And we are seeing the ex Act same thing with 
Southwestern Bell's territory.
    I will have to give Bell a little bit of a break here. I am 
not sure anyone anticipated how involved some of this would be. 
But the other side of the coin is Southwestern Bell has clearly 
been told they are the ones that have to provide the resources 
to make this work. And these manual processes are causing 
significant delays to occur, were causing significant losses of 
dial tone of our customers when they convert. And they need to 
provide the resources to be able to process orders and maintain 
the service in parity with what they are doing at retail.
    We have had cases where customers have lost dial tone. They 
have been very frustrated. And they have actually called the 
Southwestern Bell business office for the retail side, and 
Southwestern Bell has explained to the customer that if they 
would be willing to change back, they would get the dial tone 
back on for them that day. Yet it has taken us 24 to 36 hours 
more to get it done through the wholesale side because of 
supposedly system or manpower limitations.
    Senator Brownback. And I think that is clearly something 
that--and I am glad that is coming to the attention of people 
on the dial tone issue if that is occurring.
    How many CLEC's are you competing against, or do you 
anticipate competing against in the markets you are going into?
    Mr. Tidwell. On a daily basis our main competitor is still 
Southwestern Bell. CLEC's that we compete against, we are 
seeing, in the State of Texas, there are probably a half a 
dozen that seem to be relatively active.
    In Kansas, frankly, there are only two others that I know 
of that are very active at all, that are doing much of anything 
in Kansas.
    Senator Brownback. Thank you, Mr. Chairman.
    And thank you for coming here and sharing with us both the 
specifics and also kind of the state of the dynamic capitalism 
that is happening in the marketplace. You are operating in a 
market that is quite dynamic, and I am glad it is moving 
forward. I hope we can fix some of the problems, but not, in 
the process, re-regulate a system that by some deregulation has 
allowed you to come into it.
    Thank you, Mr. Chairman.
    Senator Hollings. Mr. Chairman, at this particular point, 
if the distinguished chairman would permit, the Austin Business 
Report, dated November the 2nd--today is just the 4th I think--
whereby the Texas Public Utility Commission ordered sanctions 
in September against Southwestern Bell, amounting to $850,000. 
A Southwestern Bell official, in January, ordered a group of 
employees to immediately destroy certain records relevant to 
its hotly contested dispute with two competitors, whereas our 
colleague on the other side, Chairman Bliley, had tried to get 
the records and they said they did not have them. And now we 
find out they ordered the records be destroyed. That is the 
full report. Include that in the record, please.
    [The information referred to follows:]

November 2, 1999,
                       austin american-statesman
                    Records at SBC ordered destroyed
    A Southwestern Bell official in an e-mail message sent in January 
ordered a group of employees to immediately destroy certain records 
relevant to its hotly contested legal dispute with two competitors.
    That message, first disclosed on Monday, helped persuade the Texas 
Public Utility Commission to order sanctions in September against 
Southwestern Bell amounting to almost $850,000.
    The e-mail likely will be cited by critics as evidence that 
Southwestern Bell continues to resist opening its network to local 
competition, which under law it must do before it can get into the 
Texas long-distance market.
    The e-mail was released Monday by the commission after Attorney 
General John Cornyn ruled it was not protected from disclosure. The 
Austin American-Statesman had filed an open records request for a copy.
    Southwestern Bell said it decided not to contest Cornyn's decision 
in court. Spokesman Bill Maddox said the company decided to release the 
e-mail to demonstrate its ``insignificance.''
    The company had earlier rebuffed U.S. Rep. Tom Bliley, R-Va., 
chairman of the U.S. House Commerce Committee, when he asked for copies 
of the e-mail, saying it raised questions about whether Southwestern 
Bell was negotiating with competitors in good faith.
    Attorney Christopher Goodpastor of Covad Communications Inc., one 
of the companies involved in the dispute, said, ``We think this e-mail 
shows a pervasive and fundamental disrespect for the proceedings before 
not only the Texas commission but also the Federal Communications 
Commission and the commissions of other states.''
    The subject of the e-mail was a new service from Southwestern Bell, 
Asymmetrical Digital Subscriber Line, which provides high-speed 
connections to the Internet using ordinary telephone lines. The 
company, which began selling ADSL in Texas this year, must also make it 
available to wholesale competitors under federal law.
    In December, Covad and Rhythms NetConnections Inc., failing to get 
access to ADSL from Southwestern Bell, took their dispute to the PUC. 
On Jan. 6 they began the legal process of disclosing to each other 
relevant internal information.
    The e-mail, sent Jan. 14 in reference to "Midwest Retail ADSL," 
said in its entirety:
    ``This is an attorney/client privileged communication. Ensure that 
all documents, including `Word', e-mail, and attachments that do not 
represent SBC's current retail plans are destroyed and/or deleted from 
the hard drive of your computer immediately.''
    Southwestern Bell agreed in September to pay about $850,000 in 
sanctions to Covad and Rhythms after PUC arbitrators ruled that 
Southwestern Bell had failed to produce numerous witnesses and 
documents as required.
    Maddox said Southwestern Bell released the e-mail so that it won't 
be used by those opposed to the company selling long-distance service. 
The PUC could decide as soon as Thursday whether to recommend to the 
FCC that Southwestern Bell be allowed into the Texas long-distance 
market.

    Senator Burns. For the Senators involved up here, Senator 
Lott is wishing that all Senators go to the floor for the 
swearing in of the son of former Senator Chafee. Anyone that 
wants to do that. I think we ought to continue with the hearing 
here and finish this hearing up without any kind of a break. Is 
that OK with the Senators?
    Senator Cleland. Mr. Chairman and members of the panel, 
hearing the back and forth here at the table and between the 
committee members and the table reminds me of an African 
proverb that when the elephants fight, the grass gets trampled. 
And I am feeling a lot like the grass this morning. And I am 
wondering if my citizens out in rural Georgia are feeling a 
little bit like the grass when the elephants are fighting, and 
if they are not getting trampled in the process. That is kind 
of my political questioning today.
    Let me just say, Mr. Holland, for all of the ranting and 
raving by my dear colleague from the great State of South 
Carolina against Bell South, headquartered in Atlanta, you are 
indeed alive and well and competing against Bell South in 
Georgia; is that not correct?
    Mr. Holland. We are competing in Atlanta, yes, sir.
    Senator Cleland. That is ex actly my point. Where are you 
competing?
    Mr. Holland. We are competing throughout the greater 
Atlanta metro area.
    Senator Cleland. Where most of the businesses are located?
    Mr. Holland. That is correct.
    Senator Cleland. Are most of your clients and customers 
businesses as opposed to residences?
    Mr. Holland. The vast majority, like 99 percent-plus, are 
medium and small businesses. Our typical customer ranges from 
like five employees up to maybe 50 employees in an office.
    Senator Cleland. So more than 90 percent of your clientele 
that you are competing against Bell South on has to do with 
businesses, is that correct, as opposed to service of 
residences?
    Mr. Holland.  actually, as I say, 99-plus percent. And it 
is medium and small businesses.
    Senator Cleland. Why did you decide to go after businesses, 
which pay more for telephone service, as opposed to residences, 
who pay less?
    Mr. Holland. The principal reason is, to play in the 
consumer market--and certainly we have some CLEC's, like RCM 
and 21st Century Group and others, and certainly all of the DSL 
providers, they are in the consumer market--the problem in the 
consumer market is if you do not have a brand name and a $500 
million a year advertising budget, it is very hard to play 
there. In the medium and small business market, which, I will 
tell you, is a far more neglected market than the consumer 
market--I mean the Bell companies do not even call on medium 
and small businesses; they are order takers there--in that 
market, we do send out people door to door. And that is the 
only way we can compete.
    I mean we are not going to get a lot of customers by 
running a few ads with a real shoestring-type budget. We cannot 
compete with Bell South in Atlanta if it comes down to a media 
war, because they have got the brand name. Frankly, we do not. 
We can beat them by going in and offering personalized service 
with people going in the door and doing it. And that is what we 
have done.
    Where you see consumer competition today is typically where 
you have sales agents. RCN is a great example. They operate all 
up and down the East Coast, as well as the California market. 
And they use the building owners, you know, the landlords, of 
multi-dwelling units as their agents. That is the way they 
overcome the lack of brand name and the lack of the advertising 
budget.
    Certainly, we are going to see robust competition in the 
consumer market. It is ultimately going to be brought by the 
people with the brand names, AT&T, MCI-WorldComm, Sprint, in a 
big way. The CLEC's, though, where we can win is where we can 
offer the personalized service.
    Now, the problem we have got and what we really need to be 
able to extend that competition to like rural Georgia--as an 
example, I am an investor in a company that is going into 
Lubbock, Texas, and Tyler, Texas, and certainly they ought to 
be able to go into a lot of areas in Georgia. If you can make 
it in Lubbock, I think you can make it anywhere.
    Senator Cleland. Well, we welcome you to Umadilla, Georgia, 
any time you want to come.
    [Laughter.]
    Senator Cleland. I think that is part of the point here, 
Mr. Chairman. In some areas they call it cherry picking. You 
come into Atlanta, you pick off the best customers, where it is 
most advantageous to you. I do not blame you. If I was in your 
business, I would do the same thing. But there are other people 
in Georgia, too. Most of my State is rural. It is not Atlanta. 
It is not medium to small businesses. It is average people out 
there that want telephone service.
    Do you feel, Mr. Holland, that you are actually prohibited 
in any way from competing in the residential market? Do you 
feel any restriction in competing there if you so chose?
    Mr. Holland. You can compete as a reseller in that market. 
But reselling is not competition. That is maybe a market entry 
strategy, but you lose money reselling, and you are not 
providing any differentiated service.
    Senator Cleland. So you are not into residential, as you 
say, consumer telephones placement, because it does not pay?
    Mr. Holland. No, it would pay if Bell South complied with 
the competitive checklist, where you could easily and 
seamlessly -- if you, as a residential customer, could change 
your local carrier within 3 business days, no one has to come 
to your home and do anything----
    Senator Cleland. But you are in the business market. Do 
those same obstacles apply to the business market? Are they 
putting up the same obstacles? You are in the business market 
and seem to be doing well.
    Mr. Holland. They put up the same obstacles everywhere. And 
competing does not necessarily mean doing as well as we should 
be. And the Bell South region is a classic example. Bell South, 
we still have to fax orders to them. We do not have electronic 
bonding. Every morning our people have to call up Bell South's 
regional service center in Birmingham, Alabama, and we have to 
reconcile what faxes were sent and what were received. I mean 
the completion rate is not up to Dan Marino's standards, I 
guarantee you, on getting those faxes.
    Senator Cleland. Maybe up to the Atlanta Falcon's 
quarterback.
    [Laughter.]
    Senator Cleland. Let me just say, Mr. Houser, you attacked 
Bell South pretty heavily here, using terms ``illegal'' and 
``unethical.'' You are competing with Bell South in South 
Carolina; is that correct?
    Mr. Houser. Yes, we compete with Bell South in seven States 
all over the States. And we have gotten our brains beat in by 
trying to compete for residential customers on a resale basis. 
It is not viable----
    Senator Cleland. Are most of your customers, like Mr. 
Holland, most of them businesses?
    Mr. Houser. No, 95 percent of ours are residential and 
very, very small is business customers. About 90 percent are 
residential today.
    Senator Cleland. So you specialize in residential 
customers?
    Mr. Houser. Well, I have been, but I cannot make it. I have 
lost $18 million fooling around with that. I cannot fight Bell 
South anymore. Let me just give you one example. Not to get off 
on a tangent, but let me just explain the economic side of it.
    For a residential customer that spends $20 or $25 a month 
on a local line, if they want to change their service to say 
call waiting or call forwarding or whatever it might be, as a 
residential customer they will not charge you to change to that 
service, back or forth. As a CLEC, I have to pay a fee every 
time there is a change in that billing record. And the strange 
thing is, even though it is done either in Birmingham, Alabama, 
or Atlanta, Georgia, electronically, on a billing system, the 
charges range from $4 to $17.
    Now, on a customer that is spending $25 a month and I am 
getting a 15 percent discount, that is $3.75.
    Senator Cleland. Is that illegal or unethical?
    Mr. Houser. Oh, I definitely think it is unethical, 
absolutely. Because what they are saying is that they have got 
different costs by State when they know they have got one 
center that does it. How can it vary by State? That makes no 
sense. If I have a computer system, why would I charge $17 in 
Kentucky and $3 in Georgia?
    The other thing is ex actly what was stated before, when we 
change a customer from Bell South to us, if in f Act the 
customer wants to change back to Bell South, because Bell South 
typically calls them and says, you know, we can give you better 
service if you will stay with us, or whatever, when they change 
back, and if it is in the middle of the month, we have to pay 
for a full month. Now, as a consumer, you would not have to do 
that.
    Senator Cleland. Do you have any plans to come into Georgia 
and offer residential service in rural areas?
    Mr. Houser. We are in Georgia today. I would take 
residential customers anywhere there is a Bell South.
    Senator Cleland. Where in Georgia are you?
    Mr. Houser. All over the State. We did massive advertising 
in seven States, and we took customers anywhere that they were.
    Senator Cleland. So you have some residential customers in 
rural Georgia?
    Mr. Houser. Absolutely. Absolutely.
    Senator Cleland. Mr. Pegg, is wireless the wave of the 
future? Is that one of the ways competition can be improved?
    Mr. Pegg. I certainly think it is one of the ways. It is 
gaining more and more strength daily, as the technology 
improves. I think the response to our offering in Chattanooga 
has been extraordinary, 4 percent. And that says there is not 
perhaps enough competition, because people gravitate to 
unlimited usage at $29.95.
    Senator Cleland. Mr. Neel, what is your evaluation of the 
two applications that maybe have the best chance of being 
approved by the FCC for the access by the regional Bell 
companies to go into long distance, the Bell Atlantic 
application and the Bell South application? What is your 
estimation of both of those applications the way they stand 
right now?
    Mr. Neel. Well, Senator, the Bell Atlantic application is 
at the Commission. And they are under a deadline to Act on that 
before the end of the year. Our best estimation is that they 
have met the checklist, they have done a fantastic job. The 
Justice Department, in its report, gives them very high marks, 
despite the f Act that the Justice Department acknowledges that 
the goal line keeps moving, that the Commission and even the 
States know that they keep moving that goal line back. I mean 
the Citadel would never win a football game if they had to play 
under these rules.
    So they are doing their job, and that application may be 
approved. We are hopeful that that will be approved and it 
could set a mark. Bell South is reported to be moving an 
application along in Georgia. It has not yet been presented to 
the FCC, but we are hopeful that will move. Texas, and SBC, as 
well. They are having to jump through hundreds of hoops.
    The CEO of US West, in communication with this committee, 
pointed out and documented it very carefully that we do not 
have a 14-point checklist anymore, we have about a 650-point 
checklist. Despite that, Bell Atlantic is meeting that in New 
York. And we suspect that the other companies, as they move 
those applications to the FCC, they will be good and solid 
ones.
    So it is a very important question and it will make a big 
difference in this market. And I would also point out that your 
question about rural service and the very CLEC's willingness to 
go into rural areas is a very critical one as it relates to 
universal service.
    One reason that these companies are not that interested in 
ordinary, plain old telephone service for ordinary customers 
that do not buy a lot of enhanced services is that that service 
is heavily subsidized. What the customer pays is only a fr 
action of what it costs that company to deliver that service. 
So it is a major issue here.
    With business, it is totally different. You can go in and 
you can undercut the local company, whether it is cherry 
picking or whatever it is, you can do that and you can make a 
lot of money. And, in fact, the earnings of the major Bell 
companies pale in comparison to what these CLEC's are making--a 
150 percent increase and so on, Sprint and so on, on and on and 
on. So the earnings of those companies is not really an issue 
here.
    And the issue of whether these new companies are willing to 
serve rural customers and residential customers everywhere 
should be a major concern of this committee. Thank you, 
Senator.
    Senator Cleland. Mr. Neel, one more question, if I may, Mr. 
Chairman.
    Under the rules of universal service, are the regional 
Bells obligated to provide that service?
    Mr. Neel. Absolutely. And they have been doing it for 100 
years. And they do it for prices well below cost, and they 
provide great value in rural areas and everywhere. If you live 
in a rural area, if you live in Lumber City, where my 
grandparents once lived, they have got to sell you telephone 
service at about the same price they are selling in an urban 
area. And if you want it, they have got to give it to you.
    Cable does not have that requirement. No one else has that. 
And certainly the competitive local exchange companies do not 
have that obligation. It is a universal service obligation. It 
is the backbone of this industry. And it will be continued. So 
the answer to that is, absolutely.
    Senator Cleland. Thank you very much, Mr. Chairman.
    Senator Burns. Senator Breaux.

               STATEMENT OF HON. JOHN B. BREAUX, 
                  U.S. SENATOR FROM LOUISIANA

    Senator Breaux. Thank you very much, Mr. Chairman. I thank 
the witnesses. I apologize that I was at another hearing and I 
did not get to hear your presentations, but I would like to ask 
just a couple of questions.
    I think, back in 1996, we were trying to sort of set the 
ground rules or the rules and regulations for what was supposed 
to be the Superbowl of telecommunications competition. And I 
think probably we made a mistake in adopting the rules. I do 
not think we hired enough referees. Because it really has been 
an absolute sight to behold as to what has happened since we 
passed that act.
    I doubt very many of us who were here then would have 
thought that, in 1999, as we moved toward the 21st century 
here, that we would still have a situation where we still do 
not have any of the people we are trying to move into long 
distance yet in--not one. I kind of thought then that basically 
what we were trying to do is to come up and said, all right, 
you can get in mine when I can get in yours. When you let us 
into long distance, we are going to let you into local service.
    And today, after all these years, we have seen litigation 
and lawsuits and everybody has been part of them and everybody 
has been hiring more lawyers than we could possibly count to 
litigate these applications and to file suit on everything that 
we could possibly sue on--and that is everybody--yet it seems 
to me that the Act really has not done what I certainly was 
hoping that it would be able to do. And that is to let 
everybody compete.
    Mr. Neel, maybe you could address this. How many of the 
regional Bell operating companies are now into long distance?
    Mr. Neel. None, Senator.
    Senator Breaux. My staff briefing memo says that they are 
now over 150 competitive local exchange carriers that are now 
in the local service market, competing. Is that the number you 
all have?
    Mr. Neel. That is about right. And they are in all 50 
States and they have signed 5,000 agreements with the local 
company to share customers and provide those services.
    Senator Breaux. The staff briefing says that that 
represents over $40 billion of new investment in local 
competition. And it also says that that amount has doubled 
every year since the passage of the 1996 Act. It seems to me 
that half of what we were trying to do has been done. There is 
one heck of a lot more competition in the local market.
    Every one of these gentleman here are out there trying and 
fighting to make a buck in the local market. So we have got 
over 
$40 billion invested in local competition, over 150 competitive 
local exchange carriers now in the market that were not there 
before, and yet not a single Bell company that we were trying 
to allow to go into long distance when people came into the 
local market, not one of them has gotten there.
    Mr. Neel. Senator, that is right. And it is even more 
dramatic than that. When the Act was passed, the first thing 
the FCC did, under Chairman Hundt, was allow CLECs, to get into 
the business, with great deals, with deep discounts for resale, 
where you do not have to build any facilities. You and I could 
go take out an ad in the newspaper and buy a computer and we 
can be in the resale business.
    Senator Breaux. How could they get in the market under the 
rules existing at that time? Were they not prohibited from 
doing so?
    Mr. Neel. What happened is the rules required the local 
companies, under Section 251, to open up their markets, provide 
these facilities, interconnection and so on and so forth. So 
that basically put them in the business.
    Senator Breaux. How could we make the argument, as some 
would, that the local market is not open when all of these 
companies are in the local market?
    Mr. Neel. We do not make that argument. We believe that 
local market is wide open. But my point is that the FCC, the 
first thing it did was blow open the local market. It dragged 
its feet on ensuring universal service. We still do not have a 
firm plan in place. It has done absolutely nothing to open up 
the long distance market for voice, although that is important, 
but also for these high-speed data services, to allow local 
phone companies to build this information superhighway into 
every part of the country. They have done nothing to advance 
that.
    And on cable, we have probably less competition now than we 
had 4 years ago. The big MSO carriers are more powerful now 
than they were then.
    Senator Breaux. Why have not your companies just gone ahead 
and provided data service? Did we prohibit that in the act?
    Mr. Neel. It is prevented by regulation, not by the Act. It 
is not prevented in the Act. It is prevented by regulation at 
the FCC that chooses to interpret the 271 restrictions as a ban 
on data. There was nothing mentioned in that Act. It was a 
switched voice network law. It made virtually no mention of the 
Internet and virtually no mention of data. But yet they have 
done nothing to deregulate the data market to allow that 
competition to exist.
    And, again, I point to this chart over here. On one side 
you have 1,000 local phone companies whose hands are tied, 
particularly the Bell companies. On the right side you have got 
AT&T/MediaOne, this monster company that is going to pass more 
than half of the homes in this country. They have no 
regulation. They can do it, but nobody else can get into that 
business.
    So it is a very critical thing. Because of the cobweb of 
regulation, the local companies cannot provide that data 
service now or in the near future, until the FCC relaxes these 
rules.
    Senator Breaux. I have maybe just one other question. You 
said something about moving the goal posts, and you quoted one 
of the companies--I am not sure which one--about there was a 
14-point checklist that we fought over and tried to come up 
with something that made sense, and you said the 14 has 
increased or multiplied to--what is your argument on that?
    Mr. Neel. Well, the chairman of US West provided this 
committee a very detailed documentation of all of the new 
requirements to meet the 271 rules.
    The Justice Department itself, as I said, has even 
acknowledged that that goalpost keeps moving. So how are you 
going to expect these companies to meet an elusive requirement 
under those conditions?
    Senator Breaux. I just go back to the point that I made 
initially. I thought that really the purpose of the Act was to 
try and set up a level playing field that said, all right, come 
get in mine when I get in yours. And it seems like half of that 
is being done, but the second half is not being done. And that 
is a real disappointment.
    Thank you, Mr. Chairman.
    Senator Burns. Mr. Pegg, you say you are offering this 
$29.95 per month unlimited service. Do you find that your 
customers are taking your service and supplanting their wired 
lines as being their primary line?
    Mr. Pegg. We do not have a long enough history to see them 
turning off their wire line. But they are using it as their 
primary means of personal communication, yes.
    Senator Burns. We just passed the E-911. How does that 
affect you?
    Mr. Pegg. We are obligated to provide it, and we do.
    Senator Burns. Just listening to this conversation, I just 
love to get these fights started at the table and we just sit 
here and listen and we learn a lot more, I will tell you that. 
And you were talking about referees, I have got 20 years of 
refereeing football, so we do not have to go very far to look 
for a fight. I am going to write a book one of these days on 
that.
    Mr. Houser, if you could change one thing in 271, one 
thing, what would you change? What would you recommend? Now, 
you all get ready to answer this, because I am going to ask 
every one of you. I thought I would let him lead off.
    Mr. Houser. I think I am going to let my friend from Texas 
go start, because that is an important question.
    [Laughter.]
    Senator Burns. Because we, as policymakers, have listened 
to this debate at that table, and if there is one thing that we 
have to mull over, what would you change in order to facilitate 
competition?
    Mr. Holland. You want me to go then?
    Senator Burns. Yes, he handed the ball off to you.
    Mr. Holland. OK. What I would do is we see huge barriers 
today to expanding competition by municipalities and by 
building owners, frankly, who throw up huge barriers to the 
competitive local exchange carriers to try to get into 
buildings, to get access to right-of-way under the same parity 
conditions as the incumbent. And the Act certainly helped in 
that regard, but it did not go near far enough.
    I really congratulate Senator Stevens and Senator Hollings 
for a bill they recently introduced, where the Federal 
Government would set a good example for everyone else by 
allowing equal access to all Federal buildings in the country 
by competitors. That is probably the biggest shortcoming.
    The only other one would be is--I know, as Mr. Neel pointed 
out a while ago, there seems to be confusion over whether the 
checklist is voluntary of mandatory. He says it is voluntary. 
That is the problem. Maybe the Act should have been drafted to 
where it said if you do not do this by X date, you are going to 
pay $100,000 a day, maybe a million a day, or something. The 
enforcement process is the problem. It is not the Act itself. 
It is a great act.
    Senator Burns. Mr. Tidwell.
    Mr. Tidwell. I would have to echo Mr. Holland's statements. 
I think enforcement is the key. Provide some key for ongoing 
enforcement of the Act and the 14-point checklist. The Act 
itself is working. I do not think any of us here at the table 
today have any grandiose plans to deliberately try to keep any 
of the Bell operating companies out of business. I think we all 
know that they are going to get into the long distance 
business.
    But we have got to have some incentive, on a long-term, 
ongoing basis, to keep them playing on an even and fair way 
with us as competitors, to get the markets truly open once the 
checklist is passed and the telephone company, or the Bell 
operating company, is allowed into the interLATA market in a 
specific area.
    I think maybe there was an assumption that irreversible 
competition has hit. I do not think that is going to be the 
case. There have to be incentives to continue to move forward 
and get better. And if there is backsliding, provide specific 
disincentives for that backslide.
    Senator Burns. Mr. Neel.
    Mr. Neel. Well, Mr. Chairman, there is a reason you had a 
14-point checklist. You wanted to create an incentive for these 
companies to do certain things before they could get into the 
long distance market. It is voluntary under 271. There are 
severe penalties at the FCC's disposal if these companies do 
not meet their 251 local competition obligations, as envisioned 
in the act.
    So, I think if anything has to be done to Section 271, it 
is to send the commissioners a strong message that you do not 
want the goalposts to move any further. You set the rules in 
1996. You want them to follow what the Congress set forward and 
not to simply keep adding to those requirements.
    Senator Burns. Mr. Pegg, would you like to comment on that? 
Or being that Mr. Houser has now had time to collect his 
thoughts, any comments on that?
    Mr. Houser. Let me just say this. I agree that I think 
enforcement is a key. But let me back up for just a minute, 
because I think there is a key point here.
    There has been a lot of talk today about the RBOC's being 
able to get into long distance and it is not fair that they 
have to open their markets and so forth. The RBOC's have been 
able to get into long distance since 1996. Not one has taken 
the opportunity. All they had to do is go outside their 
territory, like we have all had to do, and to open up for 
business. Not one has done it. They have had plenty of 
opportunity to get into long distance. They do not want any 
part of that fight.
    But I do think that the key thing is enforcement. Let me 
just give you another little example of the type of things that 
you probably will not read about. And some of these may sound 
funny, but, believe me, they are not funny when you are trying 
to compete. In the area of collocations, as you know, the Bell 
operating companies have to give us collocation space when we 
are putting in our facilities. Well, in many cases, the 
responses were coming back that we simply do not have the 
space.
    Well, fortunately, the FCC said, look, you are going to 
have the right to go and inspect in a central office whether 
there is actually space or not. Two examples.
    One example, we went into a central office in Atlanta and, 
sure enough, the first floor was full, the second floor was 
full, and we finally got up on the third floor. The third floor 
was just about empty. They said, well, this space is not 
available. And we said, well, why not? They said, well, we are 
going to put a museum up here. Again, it sounds funny, but it 
was not funny when we were trying to get that space.
    A second thing. We went into a central office where there 
was very little space. And finally we got into a room that was 
empty. We said, why is this space not available? They said, 
well, because it only has 8-foot ceilings. We said, none of our 
technicians are 
8 feet tall, so we will take the space. But that is the type of 
thing that we are talking about.
    The RBOC's need to follow the spirit of the law, right? 
They know what they are doing and we know what they are doing. 
The sad part of it is there is good people in Bell South and in 
every RBOC. But the management of these companies are not 
putting the resources where it is needed and they are not 
enforcing what is required. And they are not taking the 
initiative to make sure that they live up to the letter of the 
law.
    Senator Burns. It sounds like us trying to do business with 
Canada, in Montana, on the border up there. You do not know 
what barriers are.
    [Laughter.]
    Senator Burns [continuing]. Senator Hollings.
    Senator Hollings. Thank you, Mr. Chairman.
    Let me clarify the approach of my distinguished friend here 
from Louisiana, because he says it seems like half have been 
able to get into the local, but the local have not been 
permitted into the long distance. Absolutely false.
    We wrote the Act. I know it better than any. And getting 
right to the point, and Mr. Houser, touched on it, the local 
folks were allowed to get into long distance without any 
goalposts or anything else like that outside of where they had 
a monopoly. Now, we all sat around this same rostrum up here 
and tables where you are seated and we said, now we want to 
make sure there is competition, and we do not want to extend 
the monopoly. And they said, oh, do not worry about that, we 
are going to get into it with one-stop service.
    I do not know that the Senator from Louisiana was here, but 
that is why I put in the statements from US West, Bell South, 
Ameritech, all of them. I have got the documents in my file 
that I would like to include in the record at this time. They 
wrote the goalposts. And they have not been moved. They use 
that lawyer's talk. They went all the way to the Supreme Court 
about the goalposts being posts. They have not been moved at 
all. You can tell from the witnesses here at the table today 
that they just do not want to comply with what they wrote.
    [Documents submitted for the record by Senator Hollings 
follow:]

                         BELLSOUTH NEWS RELEASE
BELLSOUTH TO QUICKLY SEEK CLEARANCE TO OFFER CUSTOMERS LONG DISTANCE IN 
                         TOTAL TELECOM PACKAGE

                            February 1, 1996

Contact: Bill McCloskey

WASHINGTON--Congress today approved Bell entry into the long-distance 
business, and BellSouth said it is expending every effort to begin 
offering its customers the quality choice and absolute convenience of a 
full-service telecommunications company.

``We are making the last preparations in anticipation of President 
Clinton's signing the bill, and we are moving aggressively to meet all 
checklist requirements so our customers can benefit from this law as 
soon as possible'', said John L. Clendenin, Chairman and CEO of 
BellSouth. This legislation requires a checklist of steps leading to a 
fully competitive marketplace.

In addition, the legislation, which was given final approval by the 
House and Senate today, fully opens the video market to BellSouth, 
allowing the company to compete on equal terms and conditions with 
existing cable TV companies. This new law allows BellSouth to market 
its cellular and local services together and via the manufacturing 
relief, lets BellSouth participate in the research, development and 
design of telecommunications equipment to better meet our customers 
needs.

The Telecommunications Act of 1996, which President Clinton has pledged 
to sign, is an attic-to-basement rewrite of the communications law 
which opens up many competitive choices for customers and new growth-
market opportunities for BellSouth.

``It gives us the opportunity to provide all our communications 
services through all of our sales channels to all of our customers,'' 
Clendenin said. ``It allows us to grow by providing what our customers 
have asked for--the convenient availability of a range of 
communications services from a company they rely on, BellSouth.''

``BellSouth intends to aggressively compete for our customers' long-
distance business, and we have been working actively for months to meet 
the requirements of the new law so we can make all communications 
services available through one-stop shopping in the very near future,'' 
Clendenin said.

Clendenin also announced that BellSouth is establishing BellSouth Long 
Distance as a subsidiary to handle the company's entry into that 
business and that William F. Reddersen, currently senior vice 
president-broadband, will head the long distance effort. Reddersen's 
new title is group president-long distance and video services. ``Bill 
has more than 18 years experience in long distance,'' said Clendenin. 
``He has proven himself as an excellent marketer who is focused on the 
customer and delivers what they want, when they want it. He's the ideal 
person to lead our long distance and video efforts.''

``For our cellular customers, our networks are ready, our systems are 
ready and our marketing plans are in place,'' Reddersen said. ``Well 
begin selectively offering quality, cellular long-distance service to 
our customers in a matter of days after the President signs the bill.''

``We plan to aggressively market our services wherever we serve 
customers, including our new Personal Communications Service (PCS) 
wireless customers in the Carolinas and eastern Tennessee when we 
inaugurate that service at mid-year,'' he continued.

In anticipation of this legislation, BellSouth has been aggressively 
pursuing changes in the regulatory environment. ``In eight of our nine 
BellSouth states, we have price regulation and related regulatory 
structures in place which facilitates our entry into long distance. In 
addition, we are well along in negotiations of interconnection 
agreements with other service providers, especially in our largest 
states of Florida and Georgia. We believe this will allow us to 
demonstrate to the Federal Communications Commission at an early date 
that we have met the bills checklist requirements for entry,'' 
Reddersen said. ``We intend to aggressively meet all of the law 
requirements so we can serve our customers.''

``We have always been a leader in providing quality services--including 
short-haul long distance--and we intend to extend that into these new 
long-distance and video markets,'' Reddersen pledged.

BellSouth is on schedule to begin its video trial in Chamblee, Georgia, 
near Atlanta and is proceeding with franchise-approved video efforts in 
Vestavia Hills, Ala.; World Golf Village, Fla.; and Daniel Island, S.C. 
Passage of legislation will speed up the process by eliminating some of 
the regulatory hurdles BellSouth had faced.

BellSouth is a $17.9 billion communications services company. It 
provides telecommunications, wireless communications, directory 
advertising and publishing, and information services to more than 25 
million customers in 17 countries worldwide.
                                 ______
                                 
                           AMERITECH RELEASE

Feb. 01, 1996
Contact: David A. Pacholczyk

       AMERITECH APPLAUDS PASSAGE OF SWEEPING TELECOM LEGISLATION
     attribute statement to richard c. notebaert, chairman and ceo

CHICAGO--Consumers are the big winners today. The real and open 
competition this bill promotes will bring customers more choices, 
competitive prices and better quality services. In one day, this 
industry has gone from 1934 to the year 2000 and beyond. We're excited 
about a future in which customers will have real choice and competition 
will abound.

With the bill expected to help create millions of new jobs within ten 
years, it's good news for American workers, too.

But this has been a long, arduous task, and we applaud members of 
Congress for their perseverance and courage. We believe this bill will 
rank as one of the most important and far-reaching pieces of federal 
legislation passed this decade.

It offers a comprehensive communications policy, solidly grounded on 
the principles of the competitive marketplace. It's truly a framework 
for the information age. We look forward to the Pesident signing the 
bill so that we can get on with creating jobs and competition in the 
upper midwest.

For background on the Telecommunications Bill, check the Alliance for 
Competitive Communications web site.

Ameritech, one of the world's largest communications companies, helps 
more than 13 million customers keep in touch. The company provides a 
wide array of local phone, data and video services in Illinois, 
Indiana, Michigan, Ohio and Wisconsin. Ameritech is creating dozens of 
new information, entertainment and interactive services for homes, 
businesses and governments around the world.

One of the world's leading cellular companies, Ameritech serves more 
than 1.7 million cellular and 750,000 paging customers, and holds 
cellular interests in China, Norway and Poland. Ameritech owns 
interests in telephone companies in New Zealand and Hungary and in 
business directories in Germany and other countries. Nearly 1 million 
investors hold Ameritech (NYSE: AIT) shares.
                            VERIZON RELEASE
February 8, 1996

NYNEX Contact: Media Relations
            NYNEX CEO PRAISES TELECOMMUNICATIONS ACT OF 1996

NEW YORK, NY--Ivan Seidenberg, NYNEX chairman and chief executive 
officer, said after President Clinton signed the Telecommunications Act 
of 1996:

The President and Congress have done their job--now it's time for us to 
do ours.

This new law promises communications users more choice, lower prices 
and better service, and NYNEX is committed to delivering them.

The legislation is complex, but the outcome will be simplicity. NYNEX 
will offer one-stop shopping for a full array of communications 
services--local, long distance, wireline, wireless, video entertainment 
and information services--and customers will be able to package what 
they want, the way they want it.

NYNEX is moving aggressively to meet all requirements that will enable 
us to offer this full spectrum of communications to our current 
customers and to new customers, across the nation and around the globe.

NYNEX is a global communications and media company that provides a full 
range of services in the northeastern United States and high-growth 
markets around the world, including the United Kingdom, Thailand, 
Gibraltar, Greece, Indonesia, the Philippines, Poland, Slovakia and the 
Czech Republic.

The Corporation is a leader in the telecommunications, wireless 
communications, cable television, directory publishing and 
entertainment and information services.
                                 ______
                                 
                            U S WEST RELEASE

February 8, 1996

Contact: Bob Kelley, Dave Banks
    U S WEST MOVES QUICKLY FOLLOWING PASSAGE OF TELECOMMUNICATIONS 
                              LEGISLATION

         --coleman heads new u s west long distance business--
DENVER--As President Clinton signed the sweeping telecommunications 
reform bill into law today, U S WEST moved quickly to compete for 
customers' long distance business.

Richard K. Coleman, Jr., formerly a leading executive with Frontier 
Communications International, has been hired by U S WEST Communications 
to head the company's entry into the $70 billion-a-year national inter-
LATA long distance market.

As president of the newly-formed long distance business, Coleman will 
be in charge of long distance service and marketing.

``We intend to be in the inter-LATA long distance business as soon as 
we can meet the checklist requirements of the new legislation,'' said 
Coleman. ``Customers are anxious to receive the benefits of this new 
law as soon as possible.''

Coleman has extensive experience in telecommunications and with long 
distance companies. At Frontier Communications International of 
Rochester, N.Y., the fifth largest long distance company in the 
country, he was vice president of operations and network planning. He 
has also held executive positions with Sprint Communications 
Corporation, United Telephone, and Centex Telemanagement.

``The inter-LATA long distance potential is a tremendous business 
opportunity for U S WEST,'' said Coleman. ``Customers have made it 
clear they want one-stop shopping for both their local and long 
distance service. We are preparing to give them exactly what they've 
been asking for.''

Coleman estimates that U S WEST will be able to reach a reasonable 
resolution on the bill's checklist requirements in the majority of its 
states within 12-18 months. He expects to capture 15-20% of the inter-
LATA long distance market within five years of entry.

Although U S WEST's highest priority is to provide long distance 
services to its existing customers, the company is exploring a full 
range of service options and developing targeted solutions to deliver 
on the one-stop shopping promise that customers have long been asking 
for.

Industry analysts have noted that the cost of entry for the regional 
Bells from a capital standpoint is very low. They point out that the 
RBOCs have high brand recognition and are already well-positioned with 
the customer base in their operating regions.

According to industry figures, the national inter-LATA long distance 
market is between $65 and $70 billion a year. About ten percent of that 
market is in the region served by U S WEST.

U S WEST Communications provides telecommunications services to more 
than 25 million customers in 14 western and midwestern states. The 
company is one of two major groups that make up U S WEST. U S WEST is 
in the connections business, helping customers share information, 
entertainment and communications services in local markets worldwide. U 
S WEST's other major group, U S WEST Media Group, is involved in 
domestic and international cable and wireless networks, directory 
publishing and interactive multimedia services.

For 1994, U S WEST reported revenues of nearly $11 billion. The company 
has 61,000 employees.
                                 ______
                                 
                       THE ORANGE COUNTY REGISTER

February 9, 1996

By Liza McDonald, Bloomberg Business News

  STAKES ARE HUGE AS SCRAMBLE TO GAIN MARKET SHARE GEARS UP;
OUTLOOK: INVESTORS WILL HAVE TO SORT THROUGH A FRENZY OF DEAL
                    MAKING OVER THE NEXT FEW WEEKS.

Telecommunications companies wasted no time touting plans to enter one 
another's markets after President Clinton signed into law the most 
sweeping industry reform in 62 years.

``The gloves are off and we are now free to take on the monopolies 
head-on,'' said Nate Davis, chief operating officer for MCI 
Communications Corp.'s local phone unit.

As the ink on the new law was drying, MCI said it would become the 
first U.S. long-distance company to offer local phone service in 
Boston.

Not to be outdone, AT&T Corp. said it would start making moves into the 
$ 90 billion local phone market in all 50 states by March 1. ``We're 
ready to play, we're ready to win, and we don't intend to lose any time 
doing it,'' Chairman Robert Allen said.

And the largest local telephone company, GTE Corp., announced that it 
had a contract with WorldCom Inc., the fourth-largest long distance 
company, to resell long-distance service under the GTE name.

While the jockeying created a frenzy among telecommunications 
companies, investors weren't quite so euphoric.

``Who knows if they (telecom companies) will do it correctly?'' said 
Scott Vergin, portfolio manager at Lutheran Brotherhood in Minneapolis. 
``The concern, as an investor, is all the spending they are going to 
do.''

Investors will have to sort through a frenzy of deal making over the 
next few weeks. Communications companies will be trying to fill gaps in 
their service with alliances or acquisitions.

Wall Street analysts say small long-distance companies and so-called 
competitive-access providers, which let businesses bypass local 
carriers when connecting to long distance, are in great positions to 
make deals or even be acquired.

US West Inc., one of the seven local Bells, made its first overture 
into the $ 70 billion long-distance market by naming the head of its 
long-distance unit. Pacific Telesis Group said it plans to be in the 
long-distance market in 10 to 12 months.

Some companies decided to forgo the bill-signing festivities in 
Washington.

``While (Bell Atlantic Chairman) Ray Smith, Robert Allen, and other 
industry bigwigs were toasting the bill, we've been sitting in a war 
room in San Antonio planning our next offense,'' said Brian Posnanski, 
spokesman for SBC Communications Inc.

SBC said it will immediately begin offering long-distance service to 
its cellular phone customers. ``It's not a time to celebrate, it's a 
time to get down to business,'' he said.

At stake is the $ 200 billion phone and cable TV market. Not since 
before AT&T was broken up in 1984, creating the Baby Bells, has there 
been such a frenzy to stake a claim in the telecommunications market.

And not everybody's going to be a winner. ``There will have to be some 
sort of shakeout, because not everybody can get rich at everybody 
else's game just because the restrictions have been lifted,'' said 
Albert Lin, an analyst at Cowen & Co.

Consumer advocates, meanwhile, wondered what's in it for phone 
customers. They said the telecommunications overhaul may mean a rash of 
mergers that may lead to higher prices.

But Vice President Al Gore said: ``Over time, we'll all see prices come 
down significantly.''
                                 ______
                                 
                           THE NEW YORK TIMES

February 9, 1996

By Edmund L. Andrews

         COMMUNICATIONS BILL SIGNED, AND THE BATTLES BEGIN ANEW

President Clinton today signed a sweeping bill to overhaul the 
telecommunications industry, starting a new round of warfare between 
the giant media and communications companies even before the ink was 
dry.

Scores of industry executives, from Ted Turner to the chairman of AT&T, 
crowded into the signing ceremony along with politicians of both 
parties and the lobbyists, lawyers and regulators who will be the foot 
soldiers in the struggles ahead.

``Today, with the stroke of a pen, our laws will catch up with the 
future,'' Mr. Clinton said, signing a bill that knocks down regulatory 
barriers and opens up local telephone, long-distance service and cable 
television to new competition.

Within hours of the signing at the Library of Congress, however, civil 
liberties groups filed a lawsuit challenging provisions that block 
indecent sexual material from being transmitted over computer networks. 
Television broadcasters began bracing for a new battle with the Clinton 
Administration over provisions aimed at reducing violence on 
television. And top executives at local and long-distance telephone 
companies immediately vowed to start attacking each other's markets 
within the next 12 months.

Robert E. Allen, chairman and chief executive of AT&T, vowed that his 
company would try to offer local telephone service in every state and 
pledged to capture one-third of the business now controlled by the 
regional Bell companies. Elsewhere in the same room, the president of 
the Bell Atlantic Corporation all but said publicly that his company 
was actively seeking some kind of alliance or merger with the Nynex 
Corporation--a deal that would create a company that controls local 
phone service from Virginia through Maine.

The measure, passed after years of struggle and lobbying between rival 
segments of the communications industry, is expected to unleash a wave 
of mergers and acquisitions but eventually knock down traditional 
monopolies in local telephone service and cable television.

Its most immediate impact will probably be ferocious legal battles in 
the the courtroom and at the Federal Communications Commission. In 
Philadelphia, a broad range of civil liberties groups led by the 
American Civil Liberties Union immediately sought a court injunction 
against provisions that impose heavy fines and prison terms on those 
who make available pornography or indecent sexual material over 
computer networks.

In Brooklyn, abortion-rights groups went to court to block a provision 
that some say would make it illegal to transmit information about 
abortions over computer networks. But the Justice Department said the 
provision, which expanded the reach of a little-known law passed in 
1873, was clearly unconstitutional and would never be enforced.

President Clinton also put new pressure on television broadcasters to 
develop a system for rating violence on their shows. The new law 
requires manufacturers of television sets to install a special V-chip 
in every new set to allow parents to automatically block any program 
with a special code.

To be effective, however, broadcasters must develop a system for 
deciding which shows are violent and then transmit the signal. 
Commercial broadcasters are adamantly opposed to the whole idea, and 
some have threatened to challenge the law in court.

Today, Mr. Clinton announced that the White House would meet with 
representatives of the entertainment industry on Feb. 29 to discuss 
ways of reducing gratuitous violence on television and to make a plea 
for a new rating system.

``However well intentioned, legislative proposals to restrict violence 
or access to programs deemed to contain `objectionable content' mean 
government control of what people see and hear and violate the First 
Amendment,'' the National Association of Broadcasters said in a 
statement today.

Much of today's ceremony was couched in theater and hoopla, a rare 
moment of relief shared by political leaders from both parties and 
executives of most segments of industry after finally passing the huge 
bill.

To that end, Vice President Al Gore engaged in a bid of cybershtick 
with Lily Tomlin, the comedian, who reprised her famous role as 
Ernestine the telephone operator. Ms. Tomlin, who appeared over a 
voice-and-video link through the Internet, told Mr. Gore he wasn't as 
stiff as he he seemed. ``You're just a techno-nerd,'' she snorted, as 
Mr. Gore politely thanked her.

Behind the theater, however, the country's biggest telephone and media 
companies were already gearing up for a new era of unbridled 
competition. One of the biggest battles will between the local Bell 
telephone companies and long-distance carriers like AT&T, MCI 
Communications and Sprint.

Mr. Allen, AT&T's chairman, said his company would offer an 
unprecedented new range of local, long-distance and even television 
services to its customers in the near future.

Mr. Allen said his company would immediately start striking deals to 
lease local telephone capacity from both the Bells and from newer 
rivals in the local phone market, and that AT&T would also invest in 
local communication networks of its own--possibly using wireless links 
as a substitute for phone service carried over copper wires today.

Even though long-distance carriers fought adamantly against provisions 
to let the Bell companies offer long-distance service within about two 
years, Mr. Allen said the future was bright for his company.

``This legislation is good for America, it's good for the 
communications industry and, not incidentally, it's good for AT&T,'' he 
said.

James G. Cullen, president of Bell Atlantic, which provides local phone 
service in the mid-Atlantic region, said his company would start 
offering long-distance service outside its traditional region 
immediately and inside its region within a year. He also strongly 
suggested today that Bell Atlantic would team up in some fashion--
though probably not an outright merger--with Nynex, which serves New 
York and New England. ``We've got to figure out how we can offer long-
distance and local service in competition with the likes of AT&T,'' Mr. 
Cullen said as he waited for President Clinton to arrive at the signing 
ceremony. Mr. Cullen insisted he could not comment on widespread news 
reports about merger talks with Nynex, but offered a broad hint. "In 
between where we are today and something that falls short of a full 
merger, there are things that make sense," he said.

Cable television executives, who suffered a huge political defeat only 
four years ago when Congress voted to regulate cable rates, gleefully 
talked about how the new law would sweep away regulatory barriers that 
keep them from entering the local phone business and other new markets.

``The beauty of this is that there is enough new business, both 
domestically and internationally, that there won't be a war of 
attrition'' between telephone and cable companies, said Gerald M. 
Levin, the chairman and chief executive of Time Warner Inc.

Even some consumer advocates who had warned that the new law would 
raise prices for consumers and lead to a new era of media conglomerates 
said the final bill had been moderated by pressure from Mr. Gore and 
Senate Democrats and might actually be good for ordinary people.

``This bill went from being a consumer nightmare to being something 
that while it still has significant risks is dramatically improved and 
offers at least at hope of greater competition and lower prices,'' said 
Gene Kimmelman, co-director of Consumers Union.

    Yes, Mr. Neel is correct that it is voluntary. That is the 
one big mistake we made. Because we assumed, with all of their 
talk about competition, competition and deregulation, that they 
were going to get into it. After all, they knew the business, 
they had the infrastructure, they had the expertise, 
experience, and otherwise in the particular field, so they had 
every advantage. And we knew--and they are all well-run 
companies--that they would just continue and go ahead and move. 
The mistake we made is making it voluntary.
    We should have required deregulation, namely, made 271 
mandatory. They said they wanted to comply. That is how we got 
a 95 bipartisan vote in the U.S. Senate. We would have never, 
with all of their angling and pressures and representations on 
us, as Senators in that vote, we would have never gotten a 
bipartisan 95 vote if there was something wrong with the 14 
points. They all were going. But, finally, money is money and 
business is business. And as long as you can continue to hold 
your monopoly and the Federal Communications Commission cannot 
change that monopoly to force you into the thing.
    I know the long distance. I made the record earlier, 
Senator Breaux, that MCI had spent $800 million, and it caused 
them to lose British Telecom. They say, you are wasting our 
money and everything else, so they cutoff their agreement back 
4 years ago. I know that Bob Allen, in AT&T, they spent $3.2 
billion trying to get into local. They could not hardly make 
it, so they moved Mr. Allen along and got Mr. Armstrong as a 
result.
    But AT&T, the ex Act numbers, according to Merrill Lynch, 
of lines, on local lines, they got 625,000 out of the 161 
million. And Sprint, trying to get into local, has got 167,893 
lines out of 161 million. And all of the ones, the CLEC's and 
all that are testing, all of this competition and thousands of 
this and thousands of that, it is 3.4 percent local competitive 
share.
    Now, if you have still got 96 percent, you have got a 
monopoly. And let us assume I was meeting here as the board of 
Bell South, I would say, now, colleague, let us keep on going. 
We have a 
19 percent increase in profit this last quarter, $972 million. 
We have got some nibbles. I call them nibblers, these CLEC's, 
but they are not really getting anything, with 3 percent, 4 
percent. Come on.
    What we are doing, we continue to make the money and see if 
we cannot buy Qwest, see if we cannot buy Sprint. We have got a 
lot of money, so we are not interested in getting into long 
distance. We are interested in getting bigger and making more. 
That is common sense. That is markets. That is what I would say 
if I was chairman of the board of Bell South. It is working. 
Unless they change that Act and make 271 mandatory.
    And that is why I put in S. 1312. You have had enough time. 
You misled us. I do not want to say you lied to us, but I do 
not know the difference under this circumstance, because you 
definitely misled this particular Committee and this Congress, 
because they said competition, competition. We have got their 
statements. They have got no intention of doing it.
    And they can get into long distance anywhere they want in 
the country except where they have got a monopoly. And they 
cannot get in there, according to their own regulation that 
they wrote, their own goalposts, 271. And they have taken it 
all the way to the Supreme Court about moving it. The 
Commission has not moved it; they cannot get compliance.
    And we hope that our friends at Bell Atlantic get in up 
there in that New York area. Because if that breaks it--we have 
been looking for some kind of breaks. Maybe if AT&T comes 
around and buys up enough local lines through cable, that will 
break them. Something has got to break it, because it is a 
gravy train. They get 40 percent of every access charge at the 
local level for that long distance call. And that is a lot of 
good money.
    And we should not run around and wonder what is wrong with 
the Act, when common sense says continue to make the fortune. 
They are not blocked by the local people. Instead of a 12 
percent return, they are making almost double that, 24 percent 
returns. So they are happy. Everybody is getting along good. 
And we are puffing and blowing like we have really got 
something about local competition and everything else. Well, we 
did today, because Mr. Neel has had to listen to these other 
witnesses.
    Senator Burns. Senator Breaux.
    Senator Breaux. Let me ask the question with regard to, Mr. 
Houser, you talked about going up to Bell South and seeing on 
the fourth floor a museum. If you were running Bell South, you 
would have probably put in some more equipment that perhaps 
they could give to someone like you. But their decision was not 
to do that. Do you or anybody else think or feel that Section 
271 requires that a regional Bell construct facilities in 
excess of their need in order to make it available to you?
    Mr. Houser. Well, first of all, let me make clear that 
there was not a museum there. They said that that was their 
plan for that space.
    Senator Breaux. OK, but does Section 271 say that you 
cannot use it for another purpose, that you have to use it for 
making or producing equipment that you can make available to 
you?
    Mr. Houser. What it does is it says that it has to make 
space available, if there is space available, for CLEC's.
    Senator Breaux. If there is space available. But suppose 
the Bell company says we think that space in that building 
should be used for something else. Are you arguing that they 
have an affirmative obligation to build equipment to make it 
available to you, in excess of their capacity?
    Mr. Houser. Well, let us make sure we understand something, 
Senator. The space that we are talking about was empty, was not 
being used, had not been used for a long time.
    Senator Breaux. Is there anything wrong with them leaving 
it empty?
    Mr. Houser. Well, except that it does not go by the spirit 
of the law, as far as I am concerned.
    Senator Breaux. Where in the law does it say that the 
fourth floor of that building that Bell South may want to leave 
empty should not be left empty if that is their decision? Is 
there anything in the law that says, spirit or otherwise, that 
says they have to construct things that they may not need to 
run their company in order that you may come in and claim it?
    Mr. Houser. Well, wait a minute. Here is a key point. They 
are not constructing anything.
    Senator Breaux. That is right. But do they have an 
obligation to construct anything?
    Mr. Houser. Well, all I am saying is all they had to do is 
make that space available. We do the construction. We are the 
ones that spend the money. All they do is rent us that floor 
space at an exorbitant price. By the way, which there are no 
negotiations for. It is whatever price they set.
    Senator Breaux. Mr. Neel, can you comment on my question 
about any kind of an affirmative obligation that is imposed 
upon the regional Bells to construct anything that they would 
then have to make available to someone who comes in and 
requests it over and above what they need to run their own 
business?
    Mr. Neel. Senator, I think the implication of the question 
is correct: there is no such requirement. And I am not sure 
what the spirit would be. I do not think it was envisioned by 
this committee or the Congress. It is another example of adding 
to a checklist. I mean you are never going to totally please a 
competitor.
    And back to the point about unmet promises, when Senator 
Hollings talks about the Congress perhaps being misled on what 
was going to happen, there were promises made on the optimism 
that the FCC would implement this Act as the Congress intended. 
This is another example here. This industry never believed that 
we would have a situation like we have illustrated here on his 
chart, where you would have a cable provider offering 
telecommunications services totally unregulated, but the local 
phone company trying to offer the same services totally 
regulated. Now, that is not an even playing field. It is 
something totally different. And if anything, the promises are 
being unmet by the FCC.
    Senator Breaux. Can you elaborate on that? Because 
obviously I missed your testimony. What was the point you were 
making with the cable operators being able to offer services?
    Mr. Neel. Yes, Senator. There is a great deal of attention 
paid to data services. Our complaint is that the local 
companies are not allowed to be in this business on even terms 
with other providers of the services. Local phone companies are 
heavily regulated, about 15-16 items here. A competitor 
offering ex actly the same service through a cable modem has no 
such regulation whatsoever.
    Now, this regulation costs a lot of money. It creates 
delays and barriers and, in many cases, totally prohibits a 
company from offering those services. So this was never 
envisioned in the 1996 Act and, in our view, represents a real 
backtracking from not only the spirit but the letter of the 
law.
    Senator Breaux. What kind of companies are doing that?
    Mr. Neel. On the cable modem side? Well, the best example 
is MediaOne, TCI, which is about to be owned by AT&T, to make 
the biggest cable conglomerate this is, that will dominate the 
high-speed Internet access market. None of the local companies 
will have a market share even close to what that company will 
have. And they have no regulation whatsoever.
    Now, that is not a level playing field. And that was not 
envisioned in the Act. The promises that the Congress made in 
this Act that have not been followed by the FCC.
    Senator Breaux. The technology continues to change so 
rapidly, things that we never considered back in 1996 are now 
entering into the picture. And I guess that is one of the prime 
examples that tilts the playing field even further.
    I appreciate it, Mr. Chairman.
    Senator Burns. Senator Hollings.
    Senator Hollings. Mr. Chairman, let us go right to the 
reality. The reality is that Bell Atlantic has petitioned now 
that they have complied with the checklist. And the Justice 
Department says, not quite. And they have recommended, I think, 
approval subject to the compliance. And the questions by our 
distinguished colleague would infer that they are not under the 
law required to make any buildings or get into rooms or not put 
a museum or whatever. That is not the case.
    The case is that before you can get in--and we should have 
made it mandatory, but here is what the court and the Justice 
Department are saying, reading the act--they have got to have 
an interconnection in accordance with Section 251; 
nondiscriminatory access to network elements in accordance with 
Sections 251 and 252; nondiscriminatory access to the poles.
    Do the Bell companies have to give it to them? Yes, they 
have got to give them access to their poles, their ducts, their 
conduits and rights-of-way, owned or controlled by the Bell 
operating companies at just and reasonable rates. So they have 
got a chance to look at the rates.
    When they look at the rates under that paragraph 3, then 
the distinguished lawyer says, oh, no, they are moving the 
goalposts for local loop transmission from the central office 
to the customer's premises, unbundled from local switching or 
other services. That would cost money. Local transport from the 
trunk side of a wireline local exchange carrier switch, 
unbundled from the switch, they have got to pay money to do 
that. And I can go right on down the line. Switching the white 
pages directory listing for customers, they have got to pay for 
that. Adoption of a telephone numbering administration for new 
carriers, yes, they have got to pay for that.
    Why was all of this? Because we, the taxpayers of America, 
built these monopolies. We made sure they did not have any 
competition. We guaranteed them a profit. And it has worked. 
The finest telecommunications system in the world. But we are 
saying now, wait a minute, you are going to market forces. We 
do not want anybody's taxpayer-built monopoly to extend the 
monopoly. We do want competition.
    And that is why they would agree all of these are going to 
be taken care of. And they are expensive. Do not worry about 
that before the public service commissions and everything else 
of that kind. But the answer is yes, they are supposed to spend 
money in order to allow the others to compete, under the 
requirements of 251, on resale, on the requirements of getting 
into long distance. And I think the record ought to show it. It 
was intended. It was agreed upon. And it is very, very 
reasonable and understandable.
    Senator Burns. Thank you very much.
    I have one question. Because what I am trying to do is to, 
when you get down to the bottom line, we, as policymakers, we 
would like to do the right thing and we would like to keep that 
playing field level if we possibly could and have everybody 
operate out of the same rule book. I have made this speech 100 
times before. That I can go to South Carolina and referee a 
football game and I can work one in California and I can work 
one in Montana. And the reason we can do it, us poor, old fat 
guys with striped shirts have very few problems for the simple 
reason there is only one rule book, and it is all across the 
country.
    Now, pro is a little bit different than college. College is 
a little bit different than high school. I worked head linesman 
a lot, because I was the only guy on the crew who could count 
to four.
    [Laughter.]
    Senator Burns. Mr. Houser, I would just like to have your 
comment on this, and maybe a comment by Mr. Neel. You have got 
years and years in your bio of being in the capital venture 
business. What advice would you give us so that we can avoid 
damaging a competitive local carrier's ability to raise 
capital? Because I think that is where, if you are a viable 
competitor, you have to have capital. We do not want to get 
fiddling around with things and limit any competitor's ability 
for capital formation.
    Mr. Houser. Mr. Chairman, I think, from someone's 
perspective that has both invested a lot of money and had other 
people invest a lot of money, if you look at this landscape, 
the key thing that I think that we all can do, or that should 
be done, is simply to enforce the rules that are in place. We 
all spent a lot of time a few years ago working on this 1996 
Act. I was involved and almost everybody here was involved. And 
there were hundreds of us up here discussing back and forth the 
pros and cons.
    And guess what? There is a lot of things about the Act that 
I do not like. It hurts our company. But, guess what? We agreed 
to the rules. That is just what you said. We made a set of 
rules. Now let us live with it.
    If we can do that, if we will do that, venture capital 
companies can live with some risk. And there is obviously risk 
in any of us getting into business, competing with a 100-year-
old monopoly. But that is fine. As long as they know what the 
rules are and as long as we know what the rules are, we can all 
live by them. Now, I think that is the major thing that I would 
recommend.
    Senator Burns. Does anyone else want to comment, because 
that is the last question I have. Do you want to respond, Mr. 
Neel?
    Mr. Neel. Well, I think I can agree with Mr. Houser that we 
all want to know what the rules are, but we do not want them to 
keep expanding. The Act is clear. In many respects, it is the 
implementation that has been confusing and unclear. And I would 
say that if there is something that ought to be done to 
stimulate investment and to build this information superhighway 
into rural America and everywhere, it is to let the local phone 
companies compete by displaying high-speed data services, as 
the Act or just about anyone looking at that would have 
intended.
    This is a perfect example of an uneven playing field in a 
market that was not intended to be heavily regulated by the 
1996 Act. So that should be the target and the goal--not so 
much for creating sanctions, new sanctions, for services or 
issues that were entirely voluntary. If you are going to go 
back and create sanctions for 271 or make it mandatory, then 
you have got to have a commensurate release of those companies 
and deregulation of those companies.
    They would have gladly accepted an immediate level playing 
field in 1996, an immediate level playing field. Let everybody 
get in at the same time, and let the FCC oversee that 
marketplace. But that is not what happened. We ended up with a 
staggered entry, and we are still staggering toward the finish 
line on long distance entry.
    So a level playing field is what we all would want, clear 
rules. And that would get the job done. And an FCC that follows 
that law as you and the Congress intended it to be.
    Thank you.
    Senator Burns. Yes, sir, Mr. Holland.
    Mr. Holland. Yes, Mr. Chairman, I did want to make one more 
comment. I think that today, certainly Wall Street, the venture 
capital industry, there have been tens of billions of dollars 
raised since February 1996, when the Telecom Act was signed by 
President Clinton, and those dollars are going into putting in 
state-of-the-art, world-class facilities.
    The thing that would jeopardize that is if there was a 
perception that the competitive checklist was never going to be 
implemented, that the local markets are not going to be open to 
competition as the Act promised. I think it would be very, very 
dangerous to do anything that would bypass that obligation to 
open up the local market. And certainly letting the Bell 
companies into long distance services for data might reduce 
their commitment to volunteerism, if that is what it is, to 
implement the competitive checklist.
    And I would also take issue with the fact that the goal 
line is being moved. In reality, the reason the FCC clarified 
the checklist was at the request of the RBOC's. In fact, our 
ALTS organization wrote a detailed letter to this Committee 
recently, explaining in detail a response to US West's 
complaint that the checklist was expanded. And if you would 
like, I would be pleased to provide that as part of the record 
of this hearing.
    [The information referred to follows:]

                             June 23, 1999
The Honorable John McCain
Chairman
Committee on Commerce, Science, and Transportation
United States Senate
Washington, D.C. 20510

The Honorable Ernest F. Hollings
Ranking Democrat
Committee on Commerce, Science, and Transportation
United States Senate
Washington, D.C. 20510

Dear Chairman McCain and Senator Hollings:

    The Association for Local Telecommunications Services (ALTS) hereby 
provides its response to the letter and analysis submitted to you by US 
West on May 10, 1999 and the testimony of US West CEO Sol Trujillo 
before the Senate Commerce Committee on April 13 concerning the process 
under which the Regional Bell Operating Companies (RBOCs) apply to 
enter the long distance market. In his testimony, Mr. Trujillo 
expressed concern that the 14-point checklist in section 271 of the 
Communications Act had been expanded to 1014 points. In the letter, US 
West alleges that, ``[t]hese requirements [of section 271] cannot 
change over time. . . as a matter of fact, they should be reduced over 
time.''
    ALTS believes that US West's testimony and its submission grossly 
and unfairly mischaracterizes the Federal Communications Commission's 
(FCC's) enforcement of the section 271 process. Furthermore, US West's 
letter is internally inconsistent: as it asks for the rules not to 
change at the same time that it asks for the requirements to be reduced 
and to be enforced differently for rural states. As we demonstrate in 
the attached review, the FCC has, in general, taken a consistent, 
principled approach to the enforcement of section 271 that is faithful 
to both the spirit and the letter of the 1996 Telecom act.
    ALTS is the leading trade association representing facilities-based 
competitors to the incumbent local telephone companies. ALTS' 
membership currently includes over 70 companies with a market 
capitalization of over $200 billion. ALTS' membership does not include 
the traditional long distance companies (such as AT&T, MCI and Sprint).
    Nevertheless, ALTS' members have a significant business interest in 
the debate over when the RBOCs are allowed to enter the long distance 
market under section 271 for one overriding reason. We view this 
provision as the act's only incentive for the RBOCs to open their local 
markets. The interconnection and unbundling obligations included in the 
14-point competitive checklist in section 271 are the critical building 
blocks for local competition. If the RBOCs are allowed into the long 
distance market BEFORE satisfying these interconnection and unbundling 
requirements, the RBOCs will have no incentive to comply with these 
requirements, and competition for local telephone service could be 
stopped in its tracks. For this reason, ALTS supports the current 
statutory language which requires the RBOCs to open their networks to 
competition first and then receive the right to provide long distance 
service thereafter.
    US West's submission implies that the FCC has expanded the 14-point 
competitive checklist into a laundry list of items that are changing 
and are impossible to meet. ALTS strongly disagrees with this 
interpretation of the FCC's actions. While US West would prefer that 
the FCC simply accept US West's self-certification that the checklist 
has been met, the FCC has instead asked for ascertainable facts to 
prove that the checklist is being implemented. This fact-based 
determination is exactly what the statutory language requires (the RBOC 
must ``fully implement the competitive checklist'' (section 271 
(d)(3)(A)(i)).
    Furthermore, the courts have rejected the RBOCs' arguments that the 
FCC has departed from the statutory language. The RBOCs have appealed 
several FCC decisions denying their applications to enter the long 
distance market. In each case, the court has ruled in favor of the FCC 
and against the RBOC.
    Despite US West's current complaints about the level of detail in 
the FCC's orders, the RBOCs asked for this guidance. By setting forth 
in detail the types of facts that the FCC will examine to determine 
whether the RBOC has implemented the checklist, the FCC attempted to 
provide advance notice to the RBOCs of how the FCC will enforce these 
requirements. The RBOCs requested exactly this form of guidance on many 
occasions, including in testimony before this Committee one year ago. 
It is hypocritical for US West and other RBOCs now to complain about 
the FCC'S effort to provide the very guidance that the RBOCs requested.
    As the Committee considers the RBOCs' arguments for exemptions from 
the Act, ALTS encourages you to keep in mind one central fact:

        Over three years after passage of the Telecommunications Act of 
        1996, not a single telephone company has opened its network to 
        competition in compliance with that Act. 

    No state has agreed with US West's claim that it has opened its 
market to competition. In fact, the members of ALTS continue to 
encounter significant and systematic difficulties in obtaining 
nondiscriminatory access to the telephone company networks. For 
instance, the incumbent telephone companies (including US West) often 
fail to provision loops, deny competitors the right to collocate 
equipment in telephone company central offices, and fail to provide 
directory listings. Each of these obligations is essential to the 
growth of local telephone competition, and each obligation is 
specifically required by the 14-point competitive checklist in section 
271.
    Furthermore, the incumbent local exchange companies continue to 
discriminate against the competitive local exchange companies (CLECs). 
For instance, the incumbent telephone companies frequently cut off 
telephone service to customers before the service can be switched to a 
competitor, and require CLECs to fax customer change orders (which are 
often lost or misread) while they provide electronic change orders to 
themselves. As a result, CLECs simply do not yet receive the same 
quality of access to the local telephone network that the RBOCs provide 
to themselves.
    While we are disappointed that the RBOCs and other incumbent local 
exchange companies (ILECs) have not yet fully opened their markets, we 
believe progress has been made. Our members report that some of the 
RBOCs are clearly making good faith efforts to open their networks in 
some states. We are working closely with the RBOCs in a number of 
states to rectify the technical and other forms of discrimination that 
we currently face.
    Largely because of the RBOCs' reluctance or difficulties in opening 
their local networks to competition, local telephone competition is 
growing, but not as quickly as we would have hoped. According to 
several investment analysts, CLECs have grown their share of the local 
telephone market from .5% in 1996 to only about 3% today. In other 
words, the local telephone market is far from competitive. CLECs could 
make far greater progress if the 1996 Telecom Act were enforced and 
implemented as intended. Therefore, we urge the Congress and FCC to 
enforce the Act as is, and refrain from making any changes to the act.
    I hope the following review of the US West submission is 
informative and responsive. Please feel free to call me if you have any 
questions.

            Sincerely,

                                       John Windhausen, Jr.

                                                          President
                                 ______
                                 
        ALTS Review of the US West Submission of May 10, 1999 
        Concerning the FCC's Enforcement of Section 271 and the Entry 
        of the RBOCs into the Long Distance Market. 

    Below is a detailed response to the US West submission. ALTS 
believes that US West's submission grossly and unfairly 
mischaracterizes the FCC's enforcement of the section 271 process. As 
we demonstrate below, we believe the FCC has, in general, remained 
faithful to both the statutory language in section 271 and the spirit 
of the 1996 Telecom act.
    Before turning to the specific allegations, we offer some general 
observations:
    First, it is clear that Mr. Sol Trujillo overreached when he stated 
at the hearing that the FCC had expanded the 14-point checklist into a 
1014 point checklist. (Note that the US West letter of May 10, 1999 
does not even mention the ``1014-point checklist'' comment.) To attempt 
to justify his rhetoric, Mr. Trujillo asked the law firm of Verner, 
Liipfert to conduct a costly study of the FCC's requirements to try to 
justify his extreme statement -- a statement that had no basis in the 
record before Mr. Trujillo's testimony. Thus, the lawyers who put 
together this study for US West had every incentive to come up with as 
long a list as possible to make Mr. Trujillo's statement appear to be 
based in fact. Even then, Verner, Liipfert could not come up with 1014 
points, but only 690, including the statutory requirements themselves.
    More important, however, is the fact that the Verner, Liipfert 
study improperly exaggerates the FCC's interpretation of the checklist. 
Every law requires explication. Just because an opinion explicates a 
law, that does not mean that the law, itself, has been expanded. The 
FCC, in a few of the documents (specifically the five 271 orders and 
the letter to Congress detailing how a BOC can satisfy the competitive 
checklist) cited by US West, simply has interpreted and explicated, 
often at the request of a RBOC (although never at US West's request), 
what is required to satisfy the finite 14-point competitive checklist.
    US West would know this if it had participated in the FCC's 271 
collaborative process, begun in January, 1998, to foster a dialogue 
between the FCC, the RBOCs, the CLECs (including long distance 
companies) to provide guidance on the requirements of the competitive 
checklist. In March, 1998, as a result of the collaborative process, 
the FCC prepared a written summary outlining the requirements for each 
checklist item. In October, 1998, the FCC addressed all 14 checklist 
items in the BellSouth Louisiana 271 application. US West, however, did 
not participate in this collaborative process until just recently.
                            US West Letter 
    The following discussion provides a direct response to several 
claims raised in the US West letter:
US West claim: ``[W]e firmly believe that we meet the checklist''.

        ALTS Response: Just because US West asserts that it meets the 
        checklist does not make it so. No state regulatory commission 
        agrees with US West that its market is open. US West's 
        applications have been rejected, suspended, and ``voluntarily'' 
        withdrawn by US West itself. Most telling, US West has failed 
        even to submit section 271 applications in a majority of its 
        states, and has not filed any section 271 applications at the 
        FCC, which is wholly inconsistent with its claims of readiness 
        made to Congress.

        U S West Application Rejected. Last year U S West filed a 
        section 271 application with the Nebraska state commission 
        which ruled against US West in April 1999 (US West has 
        petitioned to re-open this proceeding).

        U S West Voluntarily Withdrew Applications. This year after the 
        Montana state commission sent a letter to U S West recommending 
        a New York-style independent third-party OSS test, U S West 
        withdrew its 271 state application in Montana. Similarly, 
        unable to achieve success, US West decided to ``voluntarily'' 
        withdraw its section 271 applications in both Wyoming and New 
        Mexico.

        Section 271 Proceedings Suspended for Further Investigation. 
        After initially filing only a partial 271 application with the 
        Arizona state commission in April 1998, U S West filed a more 
        complete application in February 1999. After the Arizona 
        commission reviewed the application and obtained additional 
        input from various interested parties, the commission suspended 
        its schedule in order to investigate further the fundamental 
        issue of operations support systems (OSS).

        U S West Failed to Apply in Most of Region. Notably, in the 
        remaining states in its region, U S West has failed even to 
        submit section 271 applications, apparently conceding that it 
        is not ready in the states of Washington, Oregon, Idaho, Utah, 
        Colorado, North Dakota, South Dakota, Minnesota, and Iowa.
_______________________________________________________________________
US West claim: ``The problem is that no one knows exactly what it 
ultimately will take to convince the FCC that we have met the 
checklist.'' ``[t]he checklist requirements keep changing.''
ALTS Response: Last summer, several RBOC representatives asserted to 
Congress and elsewhere that the FCC had not provided sufficient detail 
concerning the meaning of the competitive checklist in Section 271. For 
this reason, the FCC provided a lengthy ``roadmap'' in its decision 
denying BellSouth's application to enter the long distance market in 
South Carolina in December 1997. Indeed, the same dynamic of RBOC 
requests for guidance resulted in the detailed decision in August 1997 
denying Ameritech's section 271 application in Michigan, and other 
detailed orders denying section 271 applications. Responding to 
requests for clarification of section 271, the FCC also provided 
Senators McCain and Brownback a detailed document summarizing all of 
the requirements of the checklist in May of 1998. In short, the FCC has 
provided an enormous amount of information to the RBOCs to explain what 
will be necessary to meet the checklist, in response to RBOC and other 
inquiries. ALTS suggests that the real problem is that US West does not 
agree with the FCC's interpretation of the checklist, not that it is 
not ``known''. As we demonstrate below, the FCC's interpretation of the 
checklist is consistent with the statutory provisions.
_______________________________________________________________________
US West claim: ``I also believe that the 271 process should take into 
consideration the differences between states.'' ``Because the nature of 
competition differs from state to state, the requirements of Section 
271 should be interpreted in the unique context of each state.''
ALTS Response: US West is partly correct. ALTS agrees that the nature 
of competition will differ from state to state. It is appropriate that 
the FCC should be flexible to accommodate those differences within the 
context of the statutory language. Of course, the more variety and 
flexibility the FCC takes into account, the more difficult it can be to 
set forth one set of clear nationwide standards for long distance 
entry. In other words, US West cannot have it both ways. Does US West 
want a fixed, known-in-advance set of obligations? Or does it want the 
FCC have a different interpretation of the checklist which is adapted 
to fit each state?
In fact, the 1996 Telecom Act and the FCC's enforcement of the Act 
reflects the delicate balance between urban and rural states. The Act 
calls for the states to provide their views to the FCC as to whether 
the RBOC has met the checklist. But it also requires that the FCC, not 
the individual state commission, make the final decision so that there 
is some uniformity and a consistent national policy. The FCC has 
offered its viewpoint of how to meet the checklist in order to let the 
RBOCs know in advance what will be expected of them. At the same time, 
the FCC has often articulated several ways that an RBOC can meet each 
checklist item, in order to provide the RBOCs with the flexibility to 
choose different alternatives. In other words, one reason that the FCC 
has provided so much detail in its explanation of the checklist is to 
accommodate the very flexibility that US West is seeking.
_______________________________________________________________________
US West claim: ``There is no compelling reason to subject data services 
to regulation. BOCs such as US West are new entrants into the data 
business, and the data services they provide should not be subject to 
regulation solely because they are being provided by carriers that are 
incumbent voice traffic providers.
ALTS response: US West's broad claim that data services should not be 
regulated raises several issues. If US West is concerned about the 
regulation of its local data service offerings to consumers, that 
concern must be addressed to state regulatory commissions who have 
jurisdiction over intrastate services. US West may instead be 
expressing concern that the pieces of its network used for data 
services should not be provided as unbundled network elements under the 
1996 Act. The 1996 Act does not differentiate between data and voice 
services; both are treated as ``telecommunications services''--and 
rightly so. The basic telephone network has been used to provide data 
services for decades, and the local telephone companies used their 
network to maintain a monopoly over both voice and data services. For 
this reason, the 1996 Telecom Act was intended to promote competition 
for both voice and data services. Furthermore, it is simply impossible 
to differentiate between voice and data services travelling over the 
same network, especially when both services are transmitted in digital 
form. Requiring the telephone companies to make network elements 
available for voice services but not for data services is simply 
unenforceable.
Finally, US West may be expressing the view that it should be allowed 
to provide interLATA long distance services for data services 
immediately but not voice. Again, it is impossible to separate voice 
from data traffic, so this proposal is unenforceable. But even more 
important, granting the RBOCs this form of relief could stop local 
telephone competition in its tracks. Once the RBOCs are allowed into 
the interLATA data market, they will have little incentive to open 
their local networks to competition. For this reason, the RBOCs must be 
allowed into the interLATA data market only AFTER they open the local 
network to competition. The data market already surpasses voice in 
terms of traffic and is on the verge of surpassing it in terms of 
revenues. The potential revenues from this market for the RBOC is a 
significant ``carrot'' that Congress should leave in place to continue 
to entice the RBOC into complying with the Act and opening the local 
market to competition.
                        Verner, Liipfert Study 
_______________________________________________________________________

    The Verner, Liipfert study exaggerates the FCC's interpretation of 
the checklist in the following ways:
1. Mr. Trujillo testified that the FCC has expanded the 14-point 
checklist into 1014-point checklist. The Verner, Liipfert study, 
however, goes well beyond the 14-point checklist, and in fact, covers 
all the requirements of section 271 AND section 251. Thus, the list of 
690 items is not consistent with Mr. Trujillo's claim that the 
checklist itself was expanded.
2. Many of the FCC's rules and policy statements simply restate the 
statutory language, causing the same requirement to appear twice in the 
list -- once as a statutory requirement and once as an FCC rule. Thus, 
many of the items in the list are simply double counted.
3. The study frequently carves up a single requirement into several 
pieces so that it appears that the FCC has imposed numerous burdens on 
the RBOC, when in fact, several listed items are simply part and parcel 
of the same requirement.
4. While complaining about the fact that the FCC has provided detail 
explaining section 271 (at the request of the RBOCs, as discussed 
above), US West fails to indicate which of the 690 ``requirements'' it 
believes should be eliminated as unnecessary or excessive.
5. Perhaps most important, many of the items are not absolute 
requirements with which each RBOC must comply. In fact, many of the 
FCC's statements provide the RBOC with alternative ways of satisfying 
the same checklist item. In such cases, the FCC has attempted to 
respond to the RBOCs' desire for flexible enforcement. But now, having 
convinced the FCC to articulate several possible means of complying 
with one of the 14 checklist items, the RBOCs hold this flexibility 
against the FCC by claiming that each and every alternative is an 
absolute requirement. Congress should not reward this ``bait-and-
switch'' tactic.
                              Conclusion 
    The Telecommunications Act of 1996 is working, and will work even 
better once the incumbent telephone companies fully open their market 
to competition. Competitive local exchange carriers are leading the 
deployment of advanced broadband services to all Americans, largely 
because of the Act's market-opening requirements. CLECs could deploy 
even more services if the incumbent telephone companies would comply 
with the Act, the enactment of which they supported. Indeed, 
enforcement of the 1996 Act is the best way to encourage deployment of 
high-speed communications to all Americans
    ALTS urges you not to reward the RBOCs for their failure to 
implement the Act by granting them unwarranted exemptions from the 
Act's pro-competition requirements. Instead, we encourage you to 
support stronger enforcement of the Telecommunications Act of 1996 so 
that American consumers can fully enjoy the full fruits of competition, 
including more innovation, better pricing and superior service.

    Mr. Holland. The key is to stay the course. Let us get that 
checklist implemented. And Bell Atlantic, as the leader in New 
York, is setting a fine example for the rest of the country. I 
think a lot of these attempts to bypass the Telecom Act become 
moot once Bell Atlantic gets in. Because all you have got to do 
is do what they did in New York and you are in. And that is not 
moving the goalposts.
    Senator Burns. Well, we want to thank all of you for coming 
today and providing this dialog and this debate at the table. 
If there are other Senators that want to direct questions your 
way, we will do that. And we will keep the record open for 
maybe a week or so. If you will respond to those individual 
Senators and to the Committee, I would appreciate that very 
much. And I appreciate your cooperation here today. And I thank 
the panel members and Senator Hollings on this issue.
    This hearing is closed.
    Senator Hollings. Thank you, Mr. Chairman.
    [Whereupon, at 12:25 p.m., the hearing was adjourned.]
                            A P P E N D I X

November 15, 1999

The Honorable John McCain
United States Senate
241 Russell Senate Office Building
Washington, DC 20510-0303

Dear Chairman McCain:

MCI WorldCom was pleased to have the opportunity to testify before your 
committee on November 8 on the subject of mergers in the 
telecommunications industry. I thought we should follow up on your 
invitation to help clarify the situation with respect to long distance 
pricing.
FCC Chairman Kennard testified that long distance rates had fallen 35% 
since 1992. Gene Kimmelman of Consumers Union testified that if a 
consumer now makes less than 30 minutes of long distance calls, he or 
she would pay three times as much as two years ago. Since these two 
statements appear to conflict, I wanted to clarify what has been 
occurring in the marketplace for long distance services.
First, there can be no question that the long distance industry is 
vibrantly competitive, and consequently, that consumers have many 
choices of providers. As a result of the more than 600 carriers 
providing long distance service in the United States, long distance 
rates are the lowest they have ever been, consumer choice is abundant, 
and innovation is rampant.
    Today, for example, all MCI WorldCom customers, without the need 
for electing the plan, receive a rate of 5 cents per minute all day 
Sunday (``MCI 5 cents Sundays''), with no flat fee. Additionally, MCI 
WorldCom customers can now sign up for ``MCI 5 cents Everyday 
Savings,'' a rate plan that charges 5 cents per minute weekday 
evenings, nights, and weekends, and 25 cents per minute week days from 
7 a.m. to 6:59 p.m. The monthly flat fee for ``MCI 5 cents Everyday 
Savings'' is $1.95, with a $5 minimum per month usage requirement. 
However, the $1.95 flat fee is applied to the $5 minimum, reducing the 
minimum usage, in effect, to just $3.05 per month. Also, MCI WorldCom 
customers can now select ``MCI 5 cents Everyday,'' a rate plan that 
charges 5 cents per minute weekday evenings, nights, and weekends, and 
only 10 cents per minute weekdays from 7 a.m. to 6:59 p.m. The monthly 
flat fee for ``MCI 5 cents Everyday'' is $4.95, with no minimum usage 
fee. For both ``MCI 5 cents Everyday Savings'' and ``MCI 5 cents 
Everyday,'' customers are required to sign up for the plans because 
flat fees do apply.
    In addition to the above-mentioned presubscribed or dial-1 calling 
plans, MCI WorldCom has led the industry in developing and promoting 
dial-around (or 10-10) services, with products such as 10-10321 and 10-
10220. Dial around products, such as 10-10321 and 10-10220, are ideal 
for low-volume users. These dial around products allow consumers to buy 
one call at a time. They are easy to try, easy to use, can be used as 
often, or as little, as desired, and include no additional fees or 
charges. With dial around products the consumer is completely in 
control of his or her long distance usage. 10-10321 offers customers a 
low per minute rate of 8 cents per minute for calls over ten minutes, 
and 16 cents per minute for calls under ten minutes. 10-10220 offers 
customers up to 20 minutes for 99 cents, an effective rate of less than 
5 cents per minute, and 9 cents for every additional minute.
    Contrary to Mr. Kimmelman's sweeping assertion that consumers 
making less than 30 minutes of long distance calls today pay three 
times as much as two years ago, the facts demonstrate that while many 
carriers now offer long distance rates significantly lower than two 
years ago (for example, the attached table shows carriers offering 
rates as low as 3.5 cents per minute, with no minimums), and while many 
new products and dialing plans (such as ``dial around'') exist today 
that were not available several years ago, whether a customer's long 
distance costs have increased, decreased, or remained the same over the 
last few years depends largely on that customer's unique calling 
patterns, and his or her carrier, plan and product selections. Of 
course, with cheaper rates, many people are calling more and staying on 
the phone longer.
    As background, beginning in January of 1998, observers of long 
distance pricing witnessed unique changes in the long distance 
industry, reflecting not only actual and anticipated access reductions 
and strong competitive forces, but a change in long distance access 
charge structure paid by the carriers (i.e., a shift from a per minute 
cost structure to a flat-rated and per minute cost structure). Long 
distance carriers began offering calling plans with flat fees and per 
minute rates to reflect their two part cost structure. While this move 
to two part pricing represents rational pricing and more efficient 
recovery of local exchange costs collected from long distance carriers, 
it also benefits consumers through significantly lower long distance 
rates. Wall Street analysts recently have noted that long distance end 
users are benefitting from competition and lower access charges:
        As costs come down to provision long distance service, 
        customers are benefitting from lower retail rates.'
                    David Barden, JP Morgan, 8/10/99
        ``In the long distance business, revenue per minute has 
        declined in real terms by 80% in the last 15 years... as access 
        charges declined, pricing has followed.''
              Jack Grubman, Salomon Smith Barney, 8/20/99
        ``...it is striking how quickly long-distance rates have 
        fallen. It was just in 1996 that AT&T introduced one of the 
        first flat-rate pricing plans for 15 cents a minute, 24 hours a 
        day.''
                    The Wall Street Journal, 8/9/99
If a customer was presubscribed to MCI two years ago, was not on a 
calling plan, and made all long distance calls on weekdays, he or she 
would have been billed $5.20 for 20 minutes of long distance usage (20 
minutes time 26 cents per minute). If that customer made no changes, 
today he or she would be billed $7.14 ($5.20 for per minute long 
distance charges, $1.46 for the National Access Fee (NAF) designed to 
recover the presubscribed interexchange carrier charge (PICC) local 
carriers charge long distance carriers for access, and 48 cents for the 
Federal Universal Service Fee (FUSF). But today, that customer has 
available many new products, plans, and carriers from which to choose.
If that same customer made 20 minutes of long distance phone calls on 
Sunday and was presubscribed to MCI WorldCom, today he or she would be 
billed just $4.78 ( 5 cents per minute, plus $2 to reach $3 minimum 
usage, plus $1.46 NAF, plus 32 cents FUSF), saving that customer 
42 cents or 8% compared to charges incurred two years previously on 
basic rates. On the other hand, if that customer prefers not to be 
presubscribed to a long distance carrier and instead uses 10-10321 to 
make long distance calls, the customer would be billed $1.60 in long 
distance charges and $1.04 PICC from the local exchange carrier. In 
that case, the customer would now be paying $2.64 for 20 minutes of 
long distance calls, saving $2.56 or over 49% compared to the 20 minute 
presubscribed call two years previously.
The fundamental point is that long distance savings, and long distance 
bills, vary significantly depending on a customer's calling patterns 
and whether that customer selects the calling plan which best fits his 
or her needs. MCI WorldCom, and many other long distance carriers offer 
a range of products to customers based on their diverse needs. There 
can be no question that the long distance industry is vibrantly 
competitive, and that consumers have many choices of providers. Long 
distance providers understand that, in order to maintain and grow their 
customer base in this competitive marketplace, they must provide 
consumers with information through advertising, marketing and other 
educational sources, necessary to make informed decisions. Plans and 
products now exist to serve all types of long distance customers. There 
can be no question that long distance competition and access reform is 
benefitting all Americans, that customer choice for long distance 
services has never been greater, and that long distance rates are lower 
than ever.

            Sincerely,

Catherine R. Sloan



                                
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