[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



       THE INTERNET FREEDOM AND BROADBAND DEPLOYMENT ACT OF 2001

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

                                HEARING

                               before the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                                   on

                               H.R. 1542

                               __________

                             APRIL 12, 2001

                               __________

                           Serial No. 107-24

                               __________

       Printed for the use of the Committee on Energy and Commerce


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

                               __________

                   U.S. GOVERNMENT PRINTING OFFICE
72-829                     WASHINGTON : 2001

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                    COMMITTEE ON ENERGY AND COMMERCE

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

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma              BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa                    ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia             BART STUPAK, Michigan
BARBARA CUBIN, Wyoming               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING,          KAREN McCARTHY, Missouri
Mississippi                          TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
ROY BLUNT, Missouri                  THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia                  BILL LUTHER, Minnesota
ED BRYANT, Tennessee                 LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland     MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana                 CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California        JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

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

                                  (ii)

  


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Ashton, Douglas C., Managing Director, Communications 
      Technologies Equity Research, Bear Stearns and Company.....    33
    Cicconi, James W., General Counsel and Executive Vice 
      President, AT&T Corporation................................    38
    Gregori, Joseph, CEO, Infohighway Communications Corporation.    45
    Henry, James H., Managing General Partner, Greenfield Hill 
      Capital, LLP...............................................    49
    Hills, Gordon, Executive Director, Economic Opportunity 
      Program of Elmira New York, on behalf of the National 
      Association of Community Action Agencies...................    52
    Mancini, Paul K., Vice President and Assistant General 
      Counsel, SBC Management Services, Incorporated.............    55
    McLeod, Clark, Chairman and Co-CEO, McLeodUSA................    63
    McMinn, Charles J., Chairman of the Board, Covad 
      Communications.............................................    69
    Pitsch, Peter, Communications Policy Director, Intel 
      Government Affairs.........................................    74
    Regan, Timothy J., Senior Vice President, Corning 
      Incorporated...............................................    78
    Tauke, Thomas J., Senior Vice President for Public Policy and 
      External Affairs, Verizon Communications...................    85

                                 (iii)

  

 
       THE INTERNET FREEDOM AND BROADBAND DEPLOYMENT ACT OF 2001

                              ----------                              


                       WEDNESDAY, APRIL 25, 2001

                          House of Representatives,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:08 a.m., in 
room 2123, Rayburn House Office Building, Hon. W.J. ``Billy'' 
Tauzin, (chairman) presiding.
    Members present: Representatives Tauzin, Bilirakis, Upton, 
Stearns, Gilmor, Cox, Deal, Largent, Ganske, Norwood, Cubin, 
Shimkus, Wilson, Shadegg, Pickering, Fossella, Blunt, Davis, 
Bryant, Ehrlich, Buyer, Radanovich, Pitts, Walden, Terry, Bass, 
Dingell, Waxman, Markey, Hall, Boucher, Brown, Gordon, Deutsch, 
Rush, Eshoo, Stupak, Engel, Sawyer, Wynn, Green, McCarthy, 
Strickland, DeGette, Barrett, Luther, Doyle, John, and Harman.
    Staff present: Howard Waltzman, majority counsel; Brendan 
Kelsay, professional staff member; Hollyn Kidd, legislative 
clerk; and Andrew W. Levin, minority counsel.
    Chairman Tauzin. The committee will please come to order. 
This will be a very crowded session today, and so I would ask 
our guests to take their seats and get comfortable. We have a 
very large and illustrious panel of witnesses, and this 
obviously is going to be a long day of hearing, and the sooner 
we can get settle down and get started the better.
    Good morning. I would first like to welcome our guests this 
morning and thank the members for attending this important 
hearing. Today the committee will hear testimony regarding the 
Internet Freedom and Broadband Deployment Act, legislation that 
I introduced yesterday, along with my colleague, the ranking 
member of this committee, Mr. Dingell, and many of our 
colleagues.
    I am delighted that we are conducting this hearing today so 
that all of the members of the committee may participate in the 
discussion again of the bill's merit. I am also delighted that 
Chairman Upton will mark this bill up in his subcommittee 
tomorrow, and I want to thank the chairman for his expeditious 
consideration of the measure.
    Mr. Dingell and I worked with many of our colleagues for 
the past 2 years attempting to finish the deregulation begun by 
the Telecommunications Act of 1996. In 1999, we introduced H.R. 
2420, which was the identical bill that we refiled again 
yesterday, a bill to deregulate the provisions of high speed 
data and Internet access services.
    That bill in the last Congress gathered nearly 240 co-
sponsors, indicating very broad and very deep support among the 
members, our colleagues, of the House. Yesterday, we 
reintroduced the bill and the hearing will mark the beginning 
of the process to which the 107th Congress will consider the 
legislation.
    Broadband services offer consumers new ways to communicate, 
to learn, to do business, and to entertain themselves. I am 
often asked at home to explain broadband, and I like to use the 
refrigerator and beer analogy.
    Today if we want to use the Internet, and we have got to 
dial it up, and wait for it to warm up, and depending upon the 
speed of our PC, and the speed of our connections, it may take 
a while for us to chill the beer down.
    It is like going to the refrigerator and finding the darn 
gone thing shut down and having to turn it on and wait for it 
to chill the beer. Broadband is where you turn up in the 
kitchen and find a refrigerator that is always on, and when you 
open the door not only is the beer chilled, but there are 
20,000 varieties of beer in that refrigerator with rich 
content.
    For television consumers who may not be as keenly aware of 
Internet services yet, as we move television into the age of 
digital communications, television will be the broadband portal 
by which many Americans will experience Internet services. Rich 
content, that refrigerator full of 20,000 varieties of 
communications.
    The broadband services are not nearly as available as their 
slower dial up counterparts. While broadband deployment has 
begun to speed up in urban and densely populated suburban 
areas, broadband deployment is almost nonexistent in most of 
the rural areas of our country.
    Many of the reasons for the disparity in the deployment of 
broadband services are economic. Broadband is a capital 
intensive investment, the cost of which can be recovered more 
rapidly if it is being spread over more and more lucrative 
customers.
    But that does not mean that Congress should not be 
concerned about the disparity in deployment. Areas in which 
broadband services are not available are in jeopardy. They are 
in jeopardy of being left out of the new information age.
    And Internet dependent businesses simply will not locate in 
rural areas if broadband is unavailable, and those that are 
there may find themselves required to move to go to those parts 
of the country where in fact these services are abundantly 
available.
    To give carriers a greater economic incentive to deploy 
broadband services more rapidly everywhere and anywhere in the 
United States, Congress needs to complete the deregulation 
begin by the Telecom Act by deregulating broadband services.
    Currently, there are regulations imposed upon broadband 
services and facilities provided by the incumbent local 
exchange carrier that are not imposed upon any of the broadband 
carriers. ILECs must provide their facilities, even brand new 
facilities, on an unbundled basis to competitors at regulated 
prices.
    ILECs must resell their broadband services to competitors 
at wholesale rates, which no other carrier is required to do. 
In addition, the ILECs, and the Bells, are prohibited from 
offering long distance data services, which then deprives them 
of the efficiencies that can be gained from offering end-to-end 
services.
    These restrictions give the ILECs little incentive to 
deploy new services or facilities. Why spend the money to roll 
out broadband when your competitors can then use your network 
to take away your broadband customers. Even worse, to take away 
your old customers, your telephone customers, while they are 
doing it.
    These types of rules might have made sense for basic 
telephone service, but cable companies now control 75 percent 
of the broadband market, and so the ILECs cannot be considered 
dominant by any stretch of the imagination.
    In fact, the fact that cable is deregulated says a lot 
about deployment. The fact that cable is so actively deploying 
broadband in a deregulated governmental relationship says a lot 
about the need for this bill.
    And I am not suggesting that we rather subject the cable 
companies to the same rules that are currently applied to the 
ILECs. To the contrary, I applaud the cable companies for 
aggressively rolling out broadband services and frankly I hope 
the government continues to stay out of the way so that cable 
companies can continue to do so.
    But what it means is that ILECs should have the 
deregulatory parity with cable companies in the broadband 
market. Those that are worried about cable rates for television 
services ought to think about cable rates for broadband 
services if there are no real competitors out there contesting 
for those same customers.
    Broadband is a national market that does not need 
regulation. What it needs is the ability to thrive, similarly 
to what happened when the wireless industry was given its 
chance and government stayed out of the way. Wireless thrived 
in the absence of regulation, and broadband will just as well.
    But broadband needs to be deregulated, and we have 
introduced a bill to accomplish that goal. The bill provides a 
right amount of deregulation for broadband services, and 
rejects the application of antiquated telephone rules to the 
new market like broadband, and it seeks to maximize investment 
and innovation of new facilities.
    After many strong years of growth the tech sector is 
experiencing some very difficult times. How can we stimulate 
the high tech sector of our economy? If we deregulate the 
broadband market, we will witness indeed the acceleration of 
broadband deployment.
    As we will hear today from witnesses like Peter Pitsch of 
Intel, and Tim Regan of Corning, an acceleration of broadband 
deployment is exactly what the tech sector needs to get back on 
its feet, and get the dot.com companies coming again, 
functioning again, surviving and growing.
    And broadband services will bring new opportunities for 
many of our constituents. It will bring them choice, and it 
will bring them new services, and it will bring them all those 
products of all those high tech companies. And the deployment 
of broadband facilities will hopefully restore what has become 
one of the most important sectors of our economy.
    I look forward to the witnesses today, and I certainly look 
forward to my colleagues' participation in this extremely 
important debate, and the Chair now yields to the ranking minor 
member of the committee, my friend and co-sponsor of this 
legislation from Michigan, Mr. Dingell.
    Mr. Dingell. Thank you, Mr. Chairman, and I commend you for 
holding this hearing today, which I note is our fifth hearing 
on this matter. And I am pleased to joined you in co-
sponsorship of the reintroduced Internet Freedom and Broadband 
Deployment Act.
    I am happy to have worked with you on the drafting of this 
legislation, because I believe that the legislation is right, 
and I believe it is fair, and I believe it will provide great 
benefits to the public and to the American economy as a whole. 
The bill will make sure that competition for broadband and 
Internet services is strong, and that high speed Internet 
connections are delivered quickly, something not happening now.
    And above all else that no single sector of the industry is 
given de facto monopoly when it comes to providing consumers 
with broadband Internet access as is now the case. Today's 
hearing marks the fifth time that we have held hearings on this 
broadband development in less than 2 years.
    The first four hearings were heard in the 
Telecommunications Subcommittee on legislation substantially 
identical to that upon which we proceed today. It has been 
before this committee in at least two Congresses, and I want to 
comment you for calling today's session before the full 
committee.
    This is an important legislative issue which for many 
reasons demands the addressing of the committee, and it is 
crucial that all members have the opportunity to learn 
firsthand about the strong need for regulatory reform in this 
area.
    Five years ago you will recall, Mr. Chairman, the Congress 
passed the most substantial rewrite of the nation's 
telecommunications laws since 1934. The Act was an 
extraordinary achievement. Unfortunately, not all of our hopes 
have been materialized.
    Like all legislation the Telecom Act simply reflected the 
Congress' best policy judgment based on the facts as we knew 
them at that time or anticipated they might change. But now in 
this information age facts change more rapidly than ever before 
and those who operate on Internet time the last 5 years seems 
to be an eternity.
    For the benefit of 20-20 hindsight, perhaps the most 
glaring oversight of the Telecom Act was the failure to create 
with certainty a proper regulatory environment for Internet. As 
a result, with its explosive growth, the Internet is still in 
many ways grinding along in low gear.
    While we hear a great deal about the benefits of the 
information super highway, the truth is that most Americans are 
relegated to the slow lane and the expensive lane. It is 
astounding to me that only 5 percent of Americans today have 
broadband.
    Only 5 percent for high speed Internet service today, and 
95 percent of our people's Internet users are stuck with low 
speed dial up service. The Internet users are not being 
permitted to participate in the progress made in this area.
    If there is any realistic hope that the new economy will be 
resuscitated, these numbers must change dramatically and fast 
and I believe that the legislation before us will make that 
possible. What is even more astounding is how the 5 percent 
number breaks down.
    Let's look at what you have to do to get in under the 
benefits of getting these kinds of new services. First, you 
have to live in an area where broadband service is offered, and 
that is a matter of pure luck.
    Second, you must be fortunate enough to be able to afford 
it. Third, if you surmount these hurdles, you are three times 
more likely to subscribe to cable modem service than to DSL. 
The troubling fact is that cable companies now have a fine 
monopoly of their own.
    They control more than 70 percent of the broadband Internet 
market, and we will be asking some questions about this this 
morning, Mr. Chairman. One must also ask why there is a major 
discrepancy in market shares. Is it because the cable companies 
provide vastly superior service?
    That is the most unlikely question since most technical 
reports say that service qualities of modern cable modems 
versus DSL are largely comparable. It is much more likely that 
the discrepancy in market share is due to the tremendous 
competitive advantage that cable companies enjoy in the 
broadband marketplace.
    Since the Telecom Act removed virtually all Federal 
regulation of cable companies, these companies are not free to 
invest in advanced broadband services without any requirement 
whatsoever that new broadband facilities be shared with 
competitors. They also have no constraints going from 
regulation.
    When it comes to cable the law contains no interconnection 
requirements, no resale requirements, no requirements to lease 
proprietary network facilities to competitors at cost based 
rates. I am quite certain that if in fact cable companies are 
required to share their property with competitors that AT&T 
would not have spent more than $100 billion to require 
broadband facilities.
    No bank would have lent them the money, and their 
shareholders would have staged a revolt, and the investment 
simply would not have and could not have been recovered. 
However, that is precisely the situation that the nation's 
local telephone service companies find themselves confronting.
    I would note that they are best positioned and most likely 
competitors to cable, willing and able to provide effective 
competition for broadband Internet services, and in so doing 
they will stimulate the cable people to provide better service 
at lower costs.
    But they remain saddled with common carrier regulations 
designed for another time and quite different purposes. While 
these regulations continue to be necessary to open telephone 
networks to competition, there are an absolute impediment to 
realizing healthy competition in the broadband Internet market.
    The simple truth is that the Tauzin-Dingell bill will do 
nothing--and I repeat--will do nothing to roll back market 
opening provisions contained now in the law. What the bill will 
do is simply to remove regulatory obstacles that substantially 
hinder investment in broadband technologies.
    It my view that is the single best way to get the new 
economy back on track and to give the American public a real 
choice when it comes to faster and better, and cheaper Internet 
access. Mr. Chairman, I would urge my colleagues to support 
this legislation and I thank you for this hearing.
    Chairman Tauzin. Thank you, my friend, and the Chair is now 
pleased to recognize the chairman of the Telecommunications and 
Internet Subcommittee of this fine committee, Mr. Fred Upton of 
Michigan.
    Mr. Upton. Well, thank you, Mr. Chairman, and as the 
subcommittee chairman, I am pleased that we are able to open up 
this hearing to all full committee members to ensure that 
everyone has the opportunity to participate, and I commend both 
you and Ranking Member Dingell for helping to hold it this 
morning.
    This hearing will compliment the four hearings held in the 
subcommittee last Congress, including the legislative hearing 
on an identical bill last July. Last month, I had the 
opportunity to chat with the head of the Southwestern Michigan 
Association of Realtors.
    The No. 1 question on the minds of prospective buyers in 
Baring County these days is not about property taxes or local 
schools, or hospitals, but whether or not there is high speed 
Internet access in the neighborhoods.
    I am told that the potential buyers are willing to commute 
more than 30 minutes, and sometimes even across State lines, 
just to live in communities which have this services.
    Our businesses report similar competitive disadvantages. 
Regrettably, high speed Internet access is not available to 
most consumers in Southwest Michigan like it is in more 
populated areas of the country, and it is having a negative 
impact on economic growth and the quality of life.
    I compared high speed Internet access to the interstate 
highway system and the railroads from days ago, and as I 
crisscross my district I can see the population's economic 
growth which has occurred in those communities along the 
interstate highways, and some would say that the towns which 
don't have access have remained in a time capsule; nice towns, 
nice people, but they virtually stood still in terms of 
economic growth.
    That is what I fear will happen in Southwest Michigan if we 
fail to move to get these communities connected to the high 
speed Internet highway. That's why we need to provide 
deregulatory parity for high speed Internet access, regardless 
of the platform by which it is delivered, be it by telephone 
wires, cable, wireless, or satellite.
    By doing this we can undo the enormous regulatory shackles 
which prevent telephone companies from providing DSL the last 
mile. That said, as Chairman of the Telecommunications and 
Internet Subcommittee, I have done a lot of thinking about this 
bill lately.
    Since becoming Chairman several months ago, my door has 
been open to virtually all comers, whether they be ILEC, CLEC, 
DLEC, IXCs, PUCs, and yes, MCs, Members of Congress, to discuss 
their support or opposition, whatever the case may be.
    It is a matter of public record that I was not a co-sponsor 
of H.R. 2420 last Congress, and I am not a co-sponsor of H.R. 
1542, the bill before us today. I have always stated that I 
would seek to make some constructive and positive changes to 
the bill, and this will happen.
    I listened intently to Chairman Powell when he testified 
before our subcommittee on March 29, and in his testimony he 
said this. ``You have to have a response to consumer harm and 
dangers of marketplace failure. I believe that response is 
enforcement. I might give you the benefit of the doubt, but you 
cheat, and I am going to hurt you, and hurt you bad, hard, and 
that is what enforcement means. And I think to do this 
seriously, we will need the help of Congress. I believe the 
enforcement tools made available to us are inadequate, with 
billion dollar industries. Our fines are trivial, and they are 
the cost of doing business to many of the companies.''
    I would note that the FCC's fines for phone companies' 
violations of the law are up to $100,000 per violation, and 
capped at a million. I think that this is what Chairman Powell 
was referring to, was inadequate, trivial, and the cost of 
doing business to many companies.
    As H.R. 1542 moves through the legislative process I will 
seek to significantly increase those fines and enhance other 
FCC enforcement tools to make sure that Chairman Powell and his 
colleagues at the FCC will be able to hurt, and hurt hard those 
who violate the law.
    It is my hope that the threat of such fines would compel 
companies to make sure that they are doing right by the Telecom 
Act of 1996, and by the consumers who the law seeks to benefit 
through robust competition in the marketplace for local 
telephone service.
    Moreover, I believe that there are ways that we can improve 
the State PUCs process of resolving disputes over terms 
contained in interconnection agreements. Mr. Chairman, I look 
forward to working with you to move this bill along the way. 
Thank you.
    Chairman Tauzin. I thank my friend, and the Chair is now 
pleased to welcome and recognize the gentleman from California, 
Mr. Waxman, for an opening statement.
    Mr. Waxman. Well, thank you very much, Mr. Chairman. I am 
committed to a policy that leads to more competition, lower 
prices, better service, and marketplace conditions that 
encourage the greatest possible technological advancements.
    As the debate on this issue has developed, I have been 
careful not to rush to judgment on how we can best achieve that 
goal. I have tried the best I can to keep an open mind on 
legislative proposals, including the Internet Freedom and 
Broadband Deployment Act.
    Depending on who you talk to, the Tauzin-Dingell bill is 
either going to speed broadband deployment throughout the 
country, and allow competition to flourish, or it is going to 
destroy the very life blood of competition, ruin competitive 
carriers, and hurt residential and business consumers.
    At this point, my view is that H.R. 1542 will do more harm 
than good, and I want to raise some specific competitive 
concerns that I have about this legislation. First, I believe 
that there is some confusion about the role of DSL in this 
debate.
    DSL is a high speed broadband service that is being 
deployed today. It is a local service that the incumbent ILECs 
can offer anywhere they choose under current law and in 
competition with other DSL providers. And they do offer it. In 
short, the ILECs do not need long distance relief to offer DSL.
    The CLECs currently serve only about 3 percent of the local 
lines that go to residences and small businesses, and about 17 
percent of the local lines that go to big businesses. 
Facilities-based competition is currently limited to about 2 
percent of the market. I believe that the dominant position the 
ILECs hold in their service areas is a critical part of this 
debate.
    Under the requirements of the 1996 Telecommunications Act, 
ILECs must meet a 14 point competitive checklist before they 
can gain entry into the long distance markets in their service 
areas. They have gained entry in five States, and a number of 
other 271 petitions are pending, including one before the 
California PUC, which is expected to be considered in June.
    I am concerned, however, that the Tauzin-Dingell bill would 
allow the ILECs into long distance data service, without having 
to meet the checklist requirements, or make any demonstration 
that their own markets are open to competition. I urge today's 
witnesses to specifically address this point so that the 
committee can evaluate this concern.
    According to the bill's proponents, data and traditional 
voice services are different forms of communication, and so it 
only makes sense that they be regulated differently. That 
sidesteps what I believe to be the core issue. Both forms of 
communication are transmitted on the same wire and the final 
mile of that wire for almost every residential and business 
customer is still under the control of the ILECs.
    At the same time the legislation would eliminate the 
competitive checklist requirements on ILECs, it would make it 
more difficult for CLECs to compete against them in their 
service areas. The 1996 Act required the ILECs to offer 
unbundled access network elements and resale to their 
competitors.
    But the Tauzin-Dingell bill would eliminate these 
competitive requirements for high speed data service. We 
learned firsthand with the divestiture of AT&T how effectively 
strong market opening requirements work to bring competition 
and huge savings to customers.
    Finally, this legislation gives the ILECs unregulated entry 
into long distance data service without including a performance 
standard or any other provision to make sure that they actually 
deploy broadband service in undeserved areas. So the ILECs get 
their reward up front, but there is no guarantee they will ever 
provide the public policy service that Congress is expecting.
    The communications industry is now about one-seventh of our 
economy. Any legislative changes that we make that could lead 
to less competition would reverberate throughout our economy 
for years to come.
    It is imperative that we move deliberately and wisely, and 
I look forward to hearing from our witnesses on these and other 
important issues today. Thank you, Mr. Chairman.
    Chairman Tauzin. The Chair thanks the gentleman. The Chair 
is now pleased to recognize the chairman of the Commerce 
Consumer Trade Protection Subcommittee, Mr. Cliff Stearns.
    Mr. Stearns. Good morning, and thank you, Mr. Chairman. I 
look out in the audience and see these 11 distinguished senior 
vice presidents or CEOs, and so I welcome this hearing. This 
is, as many of us know, is not the first introduction of your 
bill.
    Last year it had a number of co-sponsors that made it 
appear that it would pass the House easily. However, I think as 
you move forward there is going to be quite a bit of concern, 
and I think having this hearing this morning is the right step 
forward.
    The bill is centered upon the belief that present 
regulatory conditions of both interLATA prohibitions and 
network unbundling, and resale requirements imposed on the 
RBOCs adversely affects an RBOC's ability to offer high speed 
data service.
    In other words, Mr. Chairman, is the present environment 
for RBOCs an incentive for them to participate, and they don't 
think so, and your bill is giving or lining up the incentives.
    They are pressing for this legislation because the 
unbundling and resale requirements they argue, when applied to 
advance services, provide a disincentive for them to upgrade 
their networks.
    Furthermore, by lifting the interLATA restrictions, the 
Bells claim they still have an incentive for seeking relief for 
interLATA voice services due to the demand for bundle services, 
including long distance voice.
    Now, conversely, those opposing the legislation do so 
because they believe that such relief would undermine the 
unbundling and resale safeguards for competitors and their 
ability to compete with the incumbent phone company for 
customers.
    Additionally, they claim the means for such regulatory 
relief is spelled out simply in Section 271 of the Telecom Act, 
and granting regulatory relief to the RBOCs prior to such 
clearance would result in financial ruin for competitors.
    I would add, Mr. Chairman, in Congress Daily this morning 
that we had four distinguished key Senators have written to the 
FCC, and speaking against the bill, and they have one sentence 
in their letter which says, ``If present trends continue, local 
markets will not be open to competition and incumbent companies 
will leverage their monopolies as they enter new service 
areas.''
    So we see both sides of the argument. And while I generally 
support increased competition and less regulation, there is a 
lot of complexities in this. I am not a co-sponsor, Mr. 
Chairman, as you know of your bill, but I am sympathetic to the 
fact that we need something to jump start this whole area of 
bringing broadband to this country.
    And so I am very interested in a thorough examination of 
the facts, having an exchange of ideas with these 11 
distinguished witnesses, and hearing public debate. So I 
commend you for having this hearing. I would follow up on the 
chairman of the Subcommittee on Telecommunications, Mr. Upton, 
when he had talked about enforcement.
    Chairman Powell has called for increased enforcement 
through the FCC, and he wants those powers to do so, and I 
intend to work with Mr. Upton and the chairman, and my 
colleagues in crafting language that will deter companies from 
simply saying, okay, we will just pay these fines when we have 
violations, and just consider that as a cost of doing business.
    Only when we have the fines that are strong enough so that 
the industry does not think, well, it is just a cost of doing 
business, will we have real enforcement by the FCC, and I would 
like to give them that power. So I look forward to the mark-up 
tomorrow, and Mr. Chairman, I again commend you for this 
hearing today.
    Chairman Tauzin. I thank my friend, and assure him that I 
intend to work with him on exactly that type of strategy. The 
Chair now recognizes the gentleman from Massachusetts, the 
ranking minority member of the Telecommunications and Internet 
Subcommittee, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman. Mr. Chairman, the 
legislation that we are now considering is highly flawed for 
three reasons. It is undigital, and it is unnecessary, and it 
is unfair.
    It is undigital because it fails to recognize the 
fundamental truth about going digital. By converging all 
information into a series of zeros and ones, digital helps to 
create a technological esperanto.
    All media can speak all forms of information; videos, 
photos, e-mail, faxes, music, everything can be expressed 
technologically as zeros and ones. Conversely, this legislation 
creates a technological land of make believe, where bips 
traveling through networks can be magically separated into 
voice and data, and rather than learning what technology 
teaches us and getting in sync with convergence, this bill 
represents a digital divergence.
    Ripping certain bips out of the network to be treated by 
regulators differently turns back the clock, and presents once 
again the problem of trying to force certain services into 
particular regulatory boxes even as technology renders such 
classification antiquated and meaningless.
    This bill is also unnecessary. The Bells don't need 
legislation in order to provide digital services. They can and 
do offer DSL services today. The Bells don't need legislation 
to offer Internet access. Again, they offer such services 
today.
    Moreover, the Telecom Act allows the Bells into long 
distance after they have met the requirements of a competitive 
checklist in a State. They have done this in five States, 
including Massachusetts. We are the beneficiaries of all of 
that additional competition.
    In other words, the key to entering the long distance 
market is in their own hands. In addition to being undigital 
and unnecessary, this bill is also unfair. In the aftermath of 
the enactment of the Telecommunications Act of 1996, several 
new commercial enterprises were launched, and they began to win 
customers, and provide new services, and invest in 
infrastructure.
    In fact, they poured about $60 billion into new 
infrastructure. They delivered on the promise of the Act by 
deploying new digital services, prompting the Bells to finally 
get around to offering such services themselves, and finally 
spending 10's of billions of dollars to go digital, that they 
should have been spending all along.
    And this is the thanks that new companies get. They get a 
bill that drops a boulder of uncertainty into the marketplace 
and in a proposal that eliminates market opening provisions of 
the Telecom Act and frees the Bells into the long distance 
marketplace before they have met the competitive checklist in a 
State. It is a Bell protection program, plain and simple.
    It shields the Bell companies, while emptying a six-shooter 
into the heart of the new economy companies, the NASDAQ, and 
that is what the NASDAQ is. It is what happened to the 
information economy after 1996, and this bill shoots right at 
the heart of that revolution.
    That's because in order to benefit these four corporate 
behemoths thousands of companies will suffer the consequences. 
Beyond raising the specter of monopoly providers in certain 
regions and markets throughout the country, the bill 
accelerates the trend toward monopsony, where there will be 
only one buyer the way it was until 1984.
    And rather than dozens of companies building networks, and 
buying equipment, we will have one major purchaser of 
manufactured goods and software for the network over vast 
regions of the country and that will stultify economic growth 
and innovation.
    Our national economic interests is furthered by a policy 
that reinvigorates telecommunications competition, and 
encourages America's hi-tech equipment manufacturers to become 
the worldwide arms merchants of the information revolution.
    Consumers benefit when warring parties fight for their 
loyalty in the telecom marketplace. They lose when the 
government blesses detente for the Bells. Now, a word about the 
process by which we are considering this legislation.
    Going right from a full committee hearing today into a 
subcommittee mark-up is a disservice, not only to the members 
of the subcommittee who will have little time to reflect and 
benefit from today's proceedings, but also to our witnesses who 
are talking time out of their lives to inform and educate us.
    Given the importance of the bill to our economy, it is 
unfortunate that more time was not allocated at this 
particularly precarious time in the capital markets, and in our 
national economy to better examine the proposal in that light.
    Moreover, while many of us on the committee have spent 
years working on these issues, many members are new to the 
committee, our new members of the Telecommunications 
Subcommittee this session. I think it is disrespectful to the 
issues at stake not to afford members a full set of hearings 
this year, and to engage in discussions with the conditions of 
this year with information that comes to light.
    It is only April 25. What is the rush. The announced 
scheduled is for a mark-up tomorrow. I would have preferred 
additional hearings or at least moving the mark-up back until 
last week.
    If we proceed tomorrow, then I will offer amendments 
tomorrow and we will have votes on amendments. I thank you, and 
I yield back the balance of my time.
    Chairman Tauzin. The gentleman looks forward to the 
gentleman's amendments tomorrow. And the Chair recognizes the 
gentleman from California, Mr. Cox, for an opening statement.
    Mr. Cox. Thank you, Mr. Chairman, I actually want to 
commend Mr. Markey for his statement, inasmuch as much of what 
he said is what I was going to say, although I am not sure that 
the hearing today or the mark-up tomorrow should necessarily 
require us to pick sides the way seemingly we are about to do.
    A thoughtful process ought to permit us to reconcile the 
views that are being expressed, the competitive claims that are 
being made in a policy that doesn't necessarily shortchange the 
local exchange carriers, or chill their willingness to invest--
but at the same time does not put the thumb on the scale in 
favor of the local exchange carriers over cable providers, or 
satellite providers, or fixed-wireless providers, or any other 
potential competitors.
    It is for that reason that I do agree with Mr. Markey that 
we are being deprived by the process of the opportunity to 
think about what we are going to hear from 11 distinguished 
panelists today in a process that requires us to submit 
amendments today on a bill that we have just received for a 
mark-up tomorrow.
    In order to not just listen and pick sides, but to try and 
listen, and rationalize, and harmonize, and synthesize what we 
are hearing, I think at least 24 hours might be necessary. I 
support the goal of this legislation to jump start the 
deployment of broadband access.
    And I also think that Mr. Markey hit the nail on the head 
when he focused on the fact that in a technological world there 
simply is no distinction worth making between voice and data. I 
don't think any of the local exchange carriers in their 
competitive plans sees a real distinction between voice and 
data.
    Hopefully they want to get into all of these markets, and I 
am concerned that the legislation before this committee might 
unintentionally provide an incentive for competitors to create 
and maintain that distinction, simply because the regulatory 
model requires it.
    There is nothing in the technological world that requires 
it, and there really is a convergence that if it is not already 
fully under way, it is surely possible if regulation doesn't 
get in the way of it, convergence between the Internet 
services, telephony, broadcast video, and just about everything 
else that you can think of that is transportable in digital 
form.
    So the challenge to this committee is to look beyond the 
urgent competitive pressures of the moment to the marketplace 
that can be in the not too distant future, if distorting 
government regulations don't prevent it from materializing.
    And I hope, Mr. Chairman, that we do give every 
consideration to the thoughtful presentations that we are about 
to hear from these 11 distinguished panelists, who undoubtedly 
spent a good deal of time, energy, and intellectual effort in 
formalizing their comments for us today, and I yield back.
    Chairman Tauzin. The Chair thanks the gentleman, and would 
assure him that that is the reason that we are having a hearing 
today, is that we want to inform the whole committee, as well 
as the subcommittee, on various view points on the legislation. 
The Chair recognizes the gentleman from Virginia, Mr. Boucher, 
for an opening statement.
    Mr. Boucher. Thank you very much, Mr. Chairman, and I want 
to commend you for the leadership that you have taken in the 
effort to stimulate broadband deployment, which is currently 
the greatest challenge that confronts the continued growth and 
development of the Internet.
    I am pleased, Mr. Chairman, to be listed among the co-
sponsors of the legislation that is the subject of the hearing 
this morning, and I will use my time to make three brief points 
in support of the need for its approval by this committee.
    First, the legislation accomplishes a long needed 
deregulation of DSL services, which will dramatically 
strengthen the financial case for the deployment of this 
broadband offering to homes and to businesses.
    The major reason that the cable industry has captured more 
than 70 percent of the last mile of broadband market is that 
cable is essentially unregulated, while DSL services are 
burdened with extensive regulations that dampen the willingness 
of telephone companies to invest in their deployment.
    The legislation that is before this committee largely 
resolves that regulatory disparity. Second, the measure will 
ensure greater competition and greater investment in the 
offering of Internet backbone services by permitting Bell 
operating companies to offer data across LATA boundaries, while 
reserving to the Section 271 process the permission for the 
Bell companies to offer voice-based long distance on a 
nationwide basis.
    This provision is essential to ensure adequate Internet 
backbone services in many rural areas of the Nation, to promote 
competition and backbone service offerings with consequence 
benefits for end-user pricing, and to ensure an adequate level 
of investment in the Internet backbone in order to handle the 
ever growing volume of Internet traffic.
    Third, the freedom to become Internet backbone providers 
will further incent the Bell companies to deploy DSL services 
over the last mile, since they will be able to maximize the 
return on their DSL investment, when they can carry the traffic 
from the originating user through the Internet backbone, and 
perhaps even to the user on the terminating side.
    For all of these reasons, Mr. Chairman, the legislation 
makes much needed reforms. I am pleased to be serving as one of 
the co-sponsors and to encourage the approval of the 
legislation by the subcommittee tomorrow as an essential step 
in the promotion of the greater growth and development of the 
Internet. Thank you, Mr. Chairman. I yield back.
    Chairman Tauzin. The Chair thanks the gentleman 
particularly for his co-sponsorship and support, and I wish to 
inform the members that Mr. Goodlatte, who has introduced 
several legislation which Mr. Boucher has also joined as an 
original co-sponsor of the bill. The Chair is now pleased to 
welcome for an opening statement the gentleman from Oklahoma, 
Mr. Largent.
    Mr. Largent. Thank you, Mr. Chairman. In the interest of 
time, I want to submit my entire statement for the record. I 
have served on this subcommittee now for over 4 years, and 
during this time I have learned that regarding this particular 
piece of legislation that we are having a hearing on today that 
members are characterized as either pro-Bell, pro-long 
distance, or pro-CLEC.
    And I have tried to have my position in the record reflect 
that I am none of those. I am pro-competition. I voted for the 
1996 Act because I thought that it would enhance competition in 
all sectors of the telecommunications industry, and I am proud 
of the vote that I cast in support of the 1996 Act.
    Mr. Chairman, I would also like to submit for the record an 
article that was published on April 23, just 2 days ago, in 
Business Week, and read the opening paragraph. The title says, 
``Don't Let Telecom Competition Vanish.'' ``And the winner in 
this great telecom consolidation sweepstakes is monopoly. That 
appears to be the most likely outcome as the giant 
telecommunications industry works its way through the current 
meltdown. The promise of competition and lower prices provided 
by the entry of new players is quickly fading. With hundreds of 
new telecom startups hugely in debt, and facing bankruptcy, 
only those companies with deep pockets will survive to pick up 
the remaining assets on the cheek. These appear to be none 
other than the old baby Bells, which may well wind up 
controlling not only the telephone and data services, but also 
the all important broadband market. Newly appointed Federal 
Communications Commissioner Chairman Michael Powell should take 
note. Competition is being threatened more than ever in 
telecom.'' Mr. Chairman, I know that when the debate was raging 
in 1996 before the Telecommunications Act was passed that the 
mantra that was sounded by all players at the table was create 
a level playing field.
    We heard it over, and over, and over again. Mr. Chairman, I 
would just tell you that the bill that we are considering and 
about to hear testimony, I believe, tips that level playing 
field in a way that may be irreversible, and is why I am deeply 
concerned and very interested to hear the testimony of the 
witnesses that we have at the table today, because as I said, I 
am pro-competition, and my fear is that the bill that we are 
considering and will mark up tomorrow tips that level playing 
field in a way that will damage the competitive nature of the 
telecommunications industry in a way that will be irreversible. 
I yield back the balance of my time.
    Chairman Tauzin. I thank the gentleman, and by unanimous 
consent the gentleman's full statement is a part of the record, 
along with the attached article, and by unanimous consent, all 
members written statements with attachments are made part of 
the written record of this proceeding without objection, and it 
is so ordered.
    The Chair now recognizes the gentleman from Tennessee, Mr. 
Gordon. Let me announce for the record that the Chair has asked 
the staff to prepare a list of the members present at the 
dropping of the gavel and under our rules, members are called 
in order of their appearance at the drop of the gavel, and then 
other members as they have appeared at the hearing.
    So that is the reason that we are going to depart from the 
normal seniority line in some cases. The gentleman from 
Tennessee, Mr. Gordon, is recognized.
    Mr. Gordon. Thank you, Mr. Chairman, and I, too, would like 
for my full statement to be placed in the record, and I want to 
add my welcome to this distinguished panel today. You bring a 
lot of expertise and we appreciate your time for us.
    I, too, was one that voted for the 1996 Telecommunications 
Act, and hoping that it would bring us more investment, more 
competition, and in turn more services and lower prices for 
consumers.
    And I think in some areas that we were successful with 
competition, and in some other areas I think we have seen more 
consolidation. And I hope that we can use some of the lessons 
from that 1996 Act as we proceed today.
    Also let me say that although the essence of this bill has 
been before us since the last Congress, and we should be up to 
speed on it, the fact of the matter is that because of the 
competition for our time, and energy, and interest here, I 
think that many of us do have more questions and more to learn.
    But it is upon us, and so let's try to learn all that we 
can today, and I hope that we will have a little time to 
discuss this balance as we go forward. As I can see, a part of 
the purpose of the bill is to allow the Bells, and to 
interLATA, or long distance data transmission, to bring 
additional investment and competition into that area.
    And one of the things that I want to learn more about is 
how this bill is going to impact additional competition and 
investment into the DSL area, and I hope that we can learn more 
about that today, and I want to hear from that from you. Thank 
you very much.
    Chairman Tauzin. The Chair thanks the gentleman, and the 
Chair now recognizes Mr. Ganske for an opening statement.
    Mr. Ganske. Thank you, Mr. Chairman. The decision that we 
are confronted with is how to best create an environment where 
Internet service will rapidly expand. There are diverse 
opinions as to how we can accomplish that goal.
    Do we need to open electronic data transfer markets, or 
will opening these markets without first requiring the Bells to 
meet the Section 271 requirements reverse the accomplishments 
of the Telecom Act of 1996. I am looking forward to receiving 
the advice and suggestions of the distinguished panel.
    I am pleased that two of those testifying are Iowans; 
former Congressman and member of this committee, Tom Tauke, who 
now represents Verizon; and Clark McLeod, the founder and CEO 
of McLeodUSA, one of America's most successful competitive 
global exchange companies.
    Mr. Tauke and Mr. McLeod possess a tremendous wealth of 
knowledge and experience in the telecommunications field, and I 
believe that they will offer some very different visions of the 
future for this essential industry, and I look forward to their 
testimony, and thank you, Mr. Chairman.
    Chairman Tauzin. I thank the gentleman, and by the way, I 
want to thank the cooperation of the minority in assembling 
such a distinguished panel. We are going to get to you as far 
as I can, I promise you. The Chair now recognizes the 
gentleman, Mr. Sawyer, for an opening statement.
    Mr. Sawyer. Thank you, Mr. Chairman. With your permission, 
I will include my full text in the record, but let me just 
simply make four fundamental points. I am less interested in 
the great turf wars among competitors than I am in how their 
fair competition benefits consumers.
    I am interested in whether it will ensure broadband to 
those who do not have it now, and will it encourage carriers to 
build out their infrastructure to the undeserved. Finally, I 
hope that we will be able to heed the wishes of Chairman 
Powell, who asked us so eloquently to give him the means to 
enforce laws, and to bring meaningful sanctions to those who 
violate Section 251 and Section 271.
    There are a lot of consumer angles to this bill that I am 
not sure that we have sufficiently explored, and I am hopeful 
that we will be able to do so today. Thank you, and I yield 
back.
    Chairman Tauzin. I thank the gentleman, and the Chair 
recognizes Mr. Shimkus for an opening statement.
    Mr. Shimkus. Thank you, Mr. Chairman. I initially thought 
that we would get to multiple pipes and multiple choices in the 
competitive scheme. I do not think that consumers are going to 
have multiple choices, but I do believe that they are going to 
be by set deliverable methods; by cable, direct satellite, 
basic telephone lines.
    I think we need to move to competition and DSL. I applaud 
the chairman, and this is a similar bill that a lot of us co-
sponsored last year. I am not a co-sponsor this year, but it is 
a method to get to a means, which is Internet DSL service to 
our citizens who really don't have it right now.
    So I applaud the chairman, and I look forward to the 
hearing, and I yield back my time.
    Chairman Tauzin. Thank you, my friend, and the Chair 
recognizes the gentleman from Louisiana, Mr. John, for an 
opening statement.
    Mr. John. I will be very brief, Mr. Chairman. I really 
believe that the economic future and educational future of 
America rests upon our ability and corporate America's ability 
to deliver high speed broadband access not only to corporate 
America, but to all residents, rural, urban, and suburban.
    And I think the question before us today is what has 
happened since 1996 with the deregulation of the telecom 
industry. I think that started the ball rolling toward 
broadband development, but how fast do we get there?
    I have heard arguments the whole way, and being a new 
member of the Energy and Commerce Committee, I have had to 
educate myself very quickly on this issue. But I have heard 
many comments that we need to, at all costs, get this broadband 
deployed into all sectors so that everyone will have access.
    But I also believe that there is a balance and a risk that 
we take if we go into it at all costs. So I am anxious to hear 
from the witnesses about the move toward deployment, because I 
think it is very, very important, and there must be a balance 
that we reach, and it must be deployed as soon as possible.
    But at the risk of what? And that is what I am interested 
in hearing today from some of the panelists. So, I thank the 
chairman.
    Chairman Tauzin. I think the gentleman, and the Chair 
recognizes the gentlelady, Ms. Wilson, for an opening 
statement.
    Mrs. Wilson. Thank you, Mr. Chairman, and thank you for 
holding this hearing, particular as so much has changed since 
last year when we were looking at this before. I believe that 
the sponsors of this bill have been straightforward, and very 
persuasive, and passionate, and believe very much that this is 
the right thing to do.
    And I am convinced that your support for this bill is very 
straightforward and honest, but I am still unsure about whether 
you are right, and whether this is the right way to go, 
particularly in the state of very rapid change in the 
telecommunications industry.
    And in just looking back over the last year since we 
considered this bill before, so much has changed, and I do 
believe that competition, whether it is long distance, or data, 
or local service, improves service and improves options for 
consumers.
    And it pushes innovation and without the 1996 Act, many of 
the innovations and the services, and the companies that we are 
talking about today would not even exist. In New Mexico just in 
the last year, U.S. West was acquired by a competitive 
telecommunications company, Qwest, that came into the business 
as a high speed, broadband, network, and they now own our local 
telephone company.
    They are rapidly moving toward 271 application, which we 
hope will happen this summer or fall, and they agreed to make 
huge investments in the State of New Mexico, and service 
quality is beginning to improve. All of those were very good 
signs, and they wouldn't have happened if it weren't for the 
competition in the 1996 Act.
    But we have also seen other things happen over the last 
year. We have seen since the 1996 Act the consolidation of the 
Bells from 8 to 4, and we have seen fierce regional and 
national backbone competition with 40 providers, and about 17 
long distance players, and the Bells now wanting to get in to 
compete in that market as well.
    But what we haven't seen is the independent or the 
incumbent local telephone companies competing against each 
other, and we haven't see competitive local service. The CLECs 
are in trouble across the country. Northpoint went dark on 
April 2, and Advanced Radio Telecom, Winstar, Espire, go down 
the list.
    All of the CLECs in general are in trouble. So the real 
fundamental question for me is how do we promote local 
competition, and how do we prevent the remonopolization of the 
industry, not horizontally, but vertically, so that in the end 
what we don't end up with is a very small number of companies 
serving me from my home in Albuquerque through all of the long 
distance and international calling, and I only have one choice.
    That to me is the fundamental question of how do we promote 
local competition. Thank you, Mr. Chairman.
    Chairman Tauzin. I thank the gentlelady, and the Chair now 
recognizes Ms. Harman for an opening statement.
    Ms. Harman. Thank you, Mr. Chairman. This subject is of 
intense interest to my constituents who occupy what is called 
the digital cost of Southern California. I voted for the 1996 
Telecom Act, and I believe that it was Congress' intent then 
that the Act apply to voice and data services.
    On the House floor the chairman of this committee said, 
quote, today in a bipartisan way, we unleashed the spirit of 
competition in all forms of communication services, from 
telephones to computers, to services dealing with video 
programming and data services.
    That was February 1, 1996, and it took us many, many months 
to carefully balance the interests at stake in that Act, and I 
think we realigned the forces of that act 5 years later at our 
peril. So it would be my preference to let that Act stand, and 
even if it does not directly cover everything in this bill, I 
think to use a Supreme Court term, the penumbra of that Act 
does cover everything in this bill.
    I would leave my remarks at this point and ask for 
unanimous consent to insert a more complete version of them in 
the record, and yield back the balance of my time.
    Chairman Tauzin. Unanimous consent has been granted.
    The gentleman from Virginia, Mr. Davis, is recognized for 
an opening statement.
    Mr. Davis. Thank you, Mr. Chairman. We are now at a 
critical juncture in our economy. New technologies and 
innovation in services and service delivery are promising to 
improve telecommunications for individuals and small businesses 
alike.
    Consumer expectations are evolving with the anticipation of 
widespread broadband deployment, and thousands of high skilled, 
high paying jobs have been created nationwide. Yet the telecom 
industry, which has fueled our Nation's economic expansion, is 
struggling to maintain its momentum.
    Competitive carriers following the promises of the 1996 
Telecommunications Act invested over $50 billion in new telecom 
networks. For the past 2 years, they have committed over a 
billion dollars per month for DSL-type broadband connectivity 
alone.
    But we have all witnessed over the past 6 to 9 months the 
rapid downturn in the economic viability of the competitive 
industry and the impact it has had on our economy, particularly 
in terms of consumer confidence and employment.
    Mr. Chairman, this hearing today serves an important 
objective for our committee. Our discussion gives us an 
opportunity to measure the extent to which the 
Telecommunications Act of 1996 has achieved its ultimate 
purpose, to unleash competition in all forms of 
telecommunications services in order to increase the quality 
and lower the prices of those services for American consumers.
    While judicial action brought competition in the long 
distance market, the passage of the 1996 Act hailed Congress' 
recognition that to achieve network wide competition, we had to 
prescribe a recipe that would similarly bring competition to 
the local telecom market.
    Like in any market only then would consumers benefit from 
lower prices, advanced services, technological innovation, and 
increased investment in information infrastructure.
    The strategy is simple. Offer the RBOCs an incentive to 
open their local monopolies so that conditions for market 
competition in the local loop will flourish. I commend you, Mr. 
Chairman, and the ranking member for your commitment to 
consumers. But I strongly disagree with the path taken in H.R. 
1542.
    I think it would irrevocably defeat the purpose of the Act 
by destroying the efforts made over the last 5 years to bring 
competition to the local loop. By eliminating the applicability 
of Section 271 to in region interLATA data and eliminating the 
requirement that the ILECs provide their network elements to 
competitors on an unbundled basis, this legislation will 
destroy any incentive for the ILECs to open up their local loop 
to competition. At this time the ILECs possess monopolistic 
control over 90 percent of their markets nationwide.
    In my home State of Virginia, Verizon controls 96 percent 
of the phone lines. Clearly competition in the local markets 
targeted by the 1996 Act has not yet arrived. Furthermore, this 
bill would ultimately retard speedy deployment of broadband 
technologies to consumers.
    With little competition in a State that brings wired 
digital services into homes and businesses, there will be no 
competitors or market forces to push their wide spread 
provision of broadband markets.
    Indeed, I disagree with the notion that broadband 
deployment is not moving at a market induced pace, and as a 
result the RBOCs are the only entities capable of delivering 
the service in the wire market. Statistics show that broadband 
deployment is indeed moving forward.
    At the end of 2000 the DSL market had 2,429,000 lines in 
service, a 389 percent increase from year end 1999. ILECs 
accounted for 78 percent of the total, followed by the CLECs 
with 21 percent.
    SBC had almost 10 times as many subscribers as of March 
2001 as in the fourth quarter of 1999, increasing from 115,000 
subscribers to 954,000 subscribers, and at the same time 
raising the price of that service by 25 percent.
    Over the same period, SBC's DSL availability has doubled 
from 10.2 million customer locations to 21.7 million customer 
locations. Furthermore, the Act in no way prohibits the ILECs 
from offering interLATA voice over data service in out of 
region areas. But to date no RBOC has invested in the 
infrastructure to move in those areas.
    Finally, the proposition that the RBOCs are the only 
entities capable of bringing broadband to the rural corners of 
America is seriously undermined by the fact that rural 
interregion access lines are being sold by the millions. The 
RBOCs have already divested 10 million rural lines.
    As well, Qwest CEO Joe Nacchio has publicly discussed the 
idea of selling off rural in-region access lines, including 
possibly the operation of some entire States, leaving Qwest 
free to focus on the 8 to 12 metropolitan areas that it 
considers strategically important.
    GTE, now part of Horizon, has sold 393,000 rural lines 
since last summer. I want to note that several large employers 
in my district have had enormous problems with special access 
provisions by the ILECs that have significant impact on the 
businesses, and I would like to include the statements of one 
of them in record.
    I agree that deregulation is always preferable for 
encouraging market forces, but the 1996 Act also provides for 
deregulation so long as there is competition. A monopoly will 
never voluntarily welcome competition, and of course it makes 
rational business sense that they would not.
    Deregulation for deregulation's sake is bad for consumers, 
and it is bad for our economy, and to remove the carrot that is 
embodied in Section 271 would allow ILECs to close off access 
to the local loop and simply obliterate the Act's ultimate goal 
to foster competition in the local telecom markets. I look 
forward to hearing our witnesses perspective on this complex 
issue.
    Chairman Tauzin. Thank you, gentleman. The Chair now 
recognizes the gentlelady from California, Ms. Eshoo, for an 
opening statement.
    Mr. Eshoo. Thank you, Mr. Chairman. The issue of waiving 
the important competition and enhancing requirements of the 
Telecom Act has been brought before this committee on numerous 
occasions since the Act's passage in 1996, and in my view it 
has never been less necessary than it is today.
    CLECs have lost 90 percent of their stock values in the 
past year. Some have filed for bankruptcy. Conversely, the 
Bells are having more Section 271 applications granted by the 
FCC and still own more than 90 percent of the market.
    And the Bells continue to have fines levied against them 
repeatedly for violating their contractual and statutory 
obligations to allow for interconnection to their networks. And 
yet instead of finding ways to protect competition by assuring 
that some of the CLECs survive, this bill in my view drives the 
last nail into their coffins.
    Many CLECs rely heavily on line sharing to improve DSL 
service delivery, and bring broadband service to more American 
consumers. This bill again in my view eliminates that practice 
and effectively eliminates those competitors.
    Those companies who are born out of the Act and who have 
solid business plans are likely to struggle through this 
downturn, but are also more likely to survive the end. Failure 
appears inevitable for those who base their strategies on less 
sturdy ground, and those companies who have the benefit of the 
historical monopoly position have steadily moved forward and 
are far more likely to not only survive, but also to acquire 
some of the weakened players.
    This, I suppose, is competition at work. Finally, this bill 
has the one hook that I think will get its undeserved support, 
and that hook is the promise that rural areas will magically 
receive access to advanced data services if we pass the bill. 
No one that I know of is against upgrading service to rural 
areas.
    But where is the evidence that the Bells have any desire 
and demonstrated ability to do that. The evidence suggests 
otherwise. U.S. West has sold off many of its rural exchanges, 
and I would be curious to know of Verizon's efforts to bring 
service to upstate New York since the FCC's approval of its New 
York application.
    Moreover, the smaller independent companies seem to be 
doing far more in getting broadband to undeserved areas. I 
fully appreciate that less revenue can be derived from rural 
areas, and that it is more economical to serve business 
customers, but that's exactly the point.
    An important part of the public policy that we have tried 
to create in the Act was to provide residential competition for 
our constituents. This bill removes valuable incentives that we 
crafted to bring that service to them. Without the protections 
of the Act, and the enhanced enforcement provisions, I fear 
that we are going to fail in that objective.
    So thank you, Mr. Chairman, for holding the hearing, and I 
look forward to what our witnesses will provide, in terms of 
information to us on that, and I look forward to hearing from 
them.
    Chairman Tauzin. I thank the gentlelady, and the Chair now 
recognizes Mr. Bryant for an opening statement.
    Mr. Bryant. Thank you, Mr. Chairman. I also would like to 
thank you for holding this important hearing today, and for 
your leadership on this issue of broadband deployment. The dial 
up Internet service is operating at a maximum speed of 56 
kilobytes per second, and with the high speed data services 
having the capacity to transmit the information at the rate of 
no less than 384 kilobytes per second, the benefits of 
broadband technology are numerous and undeniable.
    However, with the creation of this technology, we have seen 
the deployment of broadband, and it has been slow to say the 
least. Our Telecommunications Act of 1996 was a good bill, and 
I voted for it, but when this bill passed the house on August 
4, 1995, I don't believe we foresaw the role that the Internet 
was going to have in our Nation and in our world's economy.
    When considering this bill in 1995, our concern was voice 
service and not data. The 1996 Act dealt with opening the local 
telephone market to competition under the Act, and the FCC must 
agree that the incumbent local exchange carrier has opened the 
local telephone market to competition.
    I believe that the intent of the 1996 Act was misunderstood 
when the FCC concluded from the Act that the ILECs could not 
provide broadband Internet access because the services are long 
distance.
    As a result of this ruling the deployment of broadband 
services has been stifled. The 1996 Act dealt with opening the 
local telephone market to competition, and this legislation 
leaves the rule relating to local telephone service intact.
    Despite the benefits of high speed Internet access, 88 
percent of all Internet connections in the United States are 
dial up. I realize that broadband deployment is expensive and 
it makes sense that companies would deploy broadband where the 
majority of customers live, which is in the urban and densely 
populated suburban areas.
    This business practice really excludes the more rural 
areas, and I am afraid that as a result the Internet revolution 
could pass by rural America, and rural America includes a large 
part of my district and other parts of Tennessee.
    The ILECs have the capacity and capability to provide the 
broadband technology to rural and urban areas alike, and I 
don't think it is right for the government to hamstring these 
companies with regulations or red tape.
    Other high speed Internet providers like cable, wireless, 
and satellite companies, have been able to operate in this 
market uninhibited by FCC regulations, and I believe that 
broadband companies should also be allowed to operate without 
government interference.
    I would like to thank the witnesses today for coming, and 
for your patience with all of us in making these statements. I 
look forward to hearing from you on the details of broadband 
deployment, and the importance of speeding timely deployment, 
and ubiquitous performance of broadband services, and the 
details as to how this bill would help achieve this goal.
    I am particularly interested to hear from what the 
witnesses have to say about rural areas, and how they will be 
better served under this legislation. Last, I would also like 
to--I think it is important that we hear about what is going to 
be done or what is being done currently to deploy broad band 
services by businesses, and the extent to which in providing 
these services are hindered by government regulation. Thank 
you, Mr. Chairman.
    Chairman Tauzin. I thank the gentleman. The Chair will now 
recognize the gentleman from Minnesota, Mr. Luther, for an 
opening statement.
    Mr. Luther. Thank you, Mr. Chairman. I will be brief, and I 
will submit my entire opening statement for the record. But 
just one concern that I did want to touch on, and that is a 
concern that I have with the bill, and that the bill would 
eliminate the line sharing requirement that has been in place 
for a little over a year now.
    My home State of Minnesota was the first State in the 
Nation to require its incumbent dominant carrier to lease its 
existing loop line to competitors providing broadband DSL 
service.
    This is simply common sense. Why would one require 
customers to pay for an extra loop line. I am interested to 
hear the rationale for the elimination of the line sharing 
requirement, and in particular how it would affect consumers if 
this bill were to pass.
    So that is the one point that I wanted to particularly 
raise and certainly would welcome input from members of the 
panel. And thank you, Mr. Chairman, and I will yield back the 
balance of my time.
    Chairman Tauzin. I thank the gentleman, and the Chair 
recognizes Mr. Walden for an opening statement.
    Mr. Walden. Thank you, Mr. Chairman. I have an opening 
statement that I will submit for the record, and the biggest 
issue I have is how you are going to get down in rural areas 
with broadband.
    And I wish there were actually some requirement in this 
legislation or some other that would in effect mandate that, 
and I am not talking about rural areas and communities of 30- 
or 40,000. I am talking down to the small communities like in 
the district of my own.
    So, Mr. Chairman, I will submit my testimony for the record 
and look forward to the witnesses' comments.
    [The prepared statement of Hon. Greg Walden follows:]
 Prepared Statement of Hon. Greg Walden, a Representative in Congress 
                        from the State of Oregon
    Mr. Chairman, thank you for your and the Committee's attention to 
the need to improve broadband access in America.
    The issue of high-speed Internet access is an important one to my 
constituents in central, eastern and southern Oregon. Our congressional 
district, the most rural district on this Committee, is geographically 
larger than 33 states. In the extremely rural parts of the district, 
unemployment is as high as 19 percent, property values are low and many 
young folks leave as soon as they can for jobs in Portland, Seattle or 
Boise.
    In these areas that have been hit hard by reduced timber harvests, 
a depressed agriculture economy and limited transportation 
infrastructure, the Internet holds great promise. The Internet 
eliminates that great enemy of rural economies everywhere--distance 
from urban commercial centers--and provides a pipeline of prosperity 
and learning to far-flung areas. It also allows companies to locate in 
rural areas to take advantage of the outstanding quality of life there.
    This is the potential of the Internet.
    But while the Internet itself makes distance irrelevant, the cost 
and practicality of providing high-speed Internet has everything to do 
with distance. It costs a great deal of money to string wires between 
households miles apart. And, not surprisingly, high-speed Internet has 
not found its way into many parts of rural Oregon. The resulting 
situation is troubling: those Americans who could most benefit from the 
distance-eliminating effects of the Internet, i.e. those who live in 
rural areas, are perhaps least likely to have reliable, high-speed 
access.
    While the federal government cannot completely eliminate this 
problem--the laws of economics will always apply, after all--Congress 
must make certain that everything is being done to give rural Americans 
the best chance possible to receive high-speed Internet access. If 
there are regulations that stand in the way, we should change them. If 
there are tax incentives that would spur real investment in rural 
telecommunications, we should consider enacting them. And if rural loan 
programs through the U.S. Department of Agriculture and other agencies 
need additional funding, we should look at that too.
    We simply cannot stand by while the Internet passes by rural 
Americans.
    Mr. Chairman, I appreciate the opportunity today to examine the 
regulatory factors affecting Internet communications. I look forward to 
hearing our witnesses explain what changes could be made to the 
regulatory framework to give my constituents and other Americans the 
best possible opportunity to gain access to the ``information 
superhighway.''
    Thank you again, Mr. Chairman.

    Chairman Tauzin. I thank the gentleman, and the Chair 
recognizes the gentleman from Wisconsin, Mr. Barrett, for an 
opening statement.
    Mr. Barrett. Thank you, Mr. Chairman. I will be brief as 
well. My perception in this area is that people love 
competition when they are going into someone else's back yard 
to compete. They are not so keen about competition when someone 
is coming into their back yard to compete.
    And what concerns me about this legislation is not that we 
would be opening new areas for the Bells to have broadband. I 
think that competition is good. What concerns me is that I am 
still waiting. After 5 years, I am still waiting for local 
competition.
    And during the course of this hearing I will be asking 
witnesses and listening to testimony, because I think that the 
promise that everybody here heard in 1996 that there would be 
competition, that promise is still in my mind not met, and for 
me that is a very, very important concern.
    So I appreciate you having the hearing, Mr. Chairman. I 
think this is a very, very important issue, and I do have some 
serious questions, and hope that they can be answered through 
the course of this hearing. I would yield back the balance of 
my time.
    Chairman Tauzin. Thank you, Mr. Barrett. The Chair now 
recognizes Mr. Terry for an opening statement.
    Mr. Terry. When we start rearranging ourselves in our 
chairs, I yield back my time.
    Chairman Tauzin. I thank you, my friend. We will be doing a 
lot of rearranging I think over the next few hours. The Chair 
recognizes Mr. Stupak for an opening statement. He is now 
there. So the Chair recognizes Mr. Green.
    Mr. Green. Thank you, Mr. Chairman, and I won't be as brief 
as Mr. Terry, but I will not give my full opening statement. I 
have had the opportunity during our recess periods to see the 
competition that we have in Houston, Texas, in our local phone 
service, and it is very aggressive campaign.
    So that's why I am glad to be a co-sponsor of this bill. I 
think that we can provide additional avenues for high speed 
Internet connections, with the example of the competition at 
least in Houston, and I am sure in other parts of the country 
we will see competition between both our Internet providers, 
but also between our RBOCs. And that's why, Mr. Chairman, that 
I'm glad that we are moving this bill. I will yield back my 
time.
    Chairman Tauzin. Thank you, my friend.
    I recognize my friend from New Hampshire, Mr. Bass, who is 
recognized.
    Mr. Bass. Thank you very much, Mr. Chairman. I also want to 
commend you for your willingness to have a really thorough 
examination and exchange of ideas before the full committee on 
this very important issue. You know, my district is a microcosm 
of probably the whole country.
    There is fairly good broadband service in some of the more 
populated areas, but virtually nothing in the more rural areas, 
and I hope that this discussion and further action that the 
subcommittee and the full committee, and the Congress take on 
this issue will move to bridge that huge disparity that exists, 
and continues to exist, across this country. And with that, I 
will yield back to the chairman.
    Chairman Tauzin. I thank the gentleman. The Chair 
recognizes Mr. Brown for an opening statement. He is not here. 
So, Ms. DeGette for an opening statement.
    Ms. DeGette. Thank you, Mr. Chairman. Colorado, and in 
particular the area around Denver, is one of the fastest 
growing areas in telecommunications in the country. In fact, I 
think we are now the fourth largest area.
    This is 100 percent due to the 1996 Act. Not only is Qwest, 
which Congresswoman Wilson mentioned, based in my district in 
Denver, but also the vast number of CLECs that have grown up in 
the area are completely due to the 1996 Act.
    And I am a strong supporter of competition, and I always 
have been, and so I am concerned about how this bill will 
affect competition and I am eager to hear from the witnesses. 
One thing that I would interject that I haven't heard folks 
talking about, during the recess, in a great act of luck, I 
actually had a telecommunications roundtable, not knowing that 
this hearing would be scheduled.
    One of the people who came to the roundtable was a 
representative from a group called Wild Blue, and Wild Blue is 
developing satellite transmissions for high speed data to rural 
areas.
    And I will submit to many of my colleagues from rural 
areas, particularly very small towns, that the only practical 
way we will be able to do high speed data transmission in the 
future is not through laying cable, not through laying high 
speed lines, but through other technologies that have been 
developed completely as a result of the Act.
    And that's why I want to make sure that anything that we do 
in this committee does not undermine the fundamental purpose of 
the 1996 Act, which is to foster competition in all areas of 
technology as we move forward in telecommunications, and I will 
yield back. Thank you, Mr. Chairman.
    Chairman Tauzin. I thank the gentlelady. The Chair 
recognizes Mr. Radanovich for an opening statement.
    Mr. Radanovich. Thank you, Mr. Chairman. I welcome the 
members of the panel and look forward to your testimony. I have 
a statement in the record and yield back. Thanks.
    Chairman Tauzin. The Chair thanks the gentleman, and 
recognizes Ms. McCarthy for an opening statement.
    Mr. McCarthy. Thank you, Mr. Chairman, and I will put my 
remarks in the record and just make a few comments, because I 
want to get to the panel of experts who are here today.
    Since the enactment of the Telecommunication Act, the 
deployment of broadband services has increased rapidly. 
Incumbent local exchange carriers, cable companies, competitive 
local exchange carriers, and wireless companies, are all 
offering broadband services. The second report of the FCC on 
Advanced Service Capability concluded that, ``advanced 
telecommunications capability is being deployed in a reasonable 
and timely fashion overall.'' The report states that in late 
1998 there were roughly 375,000 subscribers to advanced 
services. By the end of 1999, there were 2.8 million 
subscribers. That is an increase of 300 percent.
    The proponents of H.R. 1542 tout the bill as a means to 
spur broadband deployment more rapidly. Broadband service is 
becoming more available throughout much of the country thanks 
to the aggressive roll of services by the CLECs and the cable 
industry.
    This competition forced local phone companies to deploy 
digital subscriber lines, a technology they had for some time, 
but were slow to offer. Now all of the regional Bells are 
deploying broadband services, particularly DSL, in their home 
regions.
    Opening the Telecommunications Act to provide interLATA 
relief for data is not needed. If the ILECs meet the 
requirements of Section 271 of the Telecommunications Act, they 
can offer long distance service for voice and data. Verizon and 
SBC have met the requirements and now offer such services in 
New York and Massachusetts, and Texas, Oklahoma, and Kansas, 
respectively. SBC just recently filed a Section 271 application 
with the FCC to enter the long distance market in my home State 
of Missouri. Clearly the Act is working. In addition, in a 
statement to the Subcommittee on Telecommunications and the 
Internet this past March, FCC Chairman Powell stated that the 
FCC would speed the review of Section 271 applications. If the 
ILECs want interLATA relief, they just need to meet the fair 
and reasonable requirements set under Section 271.
    I understand my colleagues desire to spur deployment, but I 
do not agree that this legislation will do so. If enacted, it 
will likely have the consequence of reducing competition, 
increasing costs, and stifling innovation. Without access to 
incumbent facilities, competitors, such as Birch Telecom, based 
in my congressional district in Kansas City, would not be able 
to offer DSL service to its residential and small businesses.
    Last July, then FCC Chairman William Kennard in his 
testimony before the House Judiciary Committee, stated that, 
``eliminating data from Section 271 would eliminate a crucial 
incentive for incumbent BOCs to open their local monopoly 
markets. The opening of local markets is absolutely critical 
for accelerating broadband deployment.'' I agree with that 
assessment and I do hope that Congress allows the Act to work. 
Thank you, Mr. Chairman. I yield back the balance of my time.
    Chairman Tauzin. Thank you, gentlelady.
    The Chair recognizes the gentleman from Mississippi, Mr. 
Pickering, for an opening statement.
    Mr. Pickering. Thank you, Mr. Chairman. Let me begin with 
the words of Chairman Powell in the hearing that we had right 
before the recess in response to a question that I asked.
    Is now the time in a period of economic uncertainty, 
especially in the tech sector, where we are seeing the 
bankruptcies, the loss of capital, the devaluations, the 
emerging competitors, and critical condition, is now the time 
to reopen the Act and have dramatic change?
    Chairman Powell responded that ``I think that my advice, 
such that it is worth anything, is that any sort of wholesale 
rewriting of the Act to my mind is ill-advised.'' I went on to 
ask one further question.
    Given the context of the market and the capital flows right 
now in the tech and telecom sectors, and especially with the 
emerging competitors, would a dramatic policy change further 
destablize and possibly harm emerging competition.
    Chairman Powell responded that if you focus particularly on 
capital markets, you would have to say it could. Now is not the 
time given the economic conditions of the tech and telecom 
sectors to be dramatically reopening the Act.
    Moreover, the Act in the name of deployment violates the 
principles of the 1996 Act of competition, convergence, and for 
capital right now the need for certainly. In the name of 
deployment, it would kill competition, kill convergence, and 
create uncertainty.
    For those reasons, this bill should not be passed or signed 
into the law, and the reality is that in its current form it 
cannot be passed to both bodies of Congress or signed into law. 
It is fundamentally flawed, and it cannot be fixed.
    The foundation is not repairable.
    Now, if we desire to find competitive common ground, if we 
want to look at the 1996 Act, for both sides have legitimate 
concerns, and we have lessons learned over the last 5 years of 
not only how to increase deployment, increase competition in 
local and data, and cable, and in local competition, I do think 
there is another way and a better way to find that competitive 
common ground.
    Unfortunately, as I look at the bill, I have to conclude 
that it is a sham. You cannot separate digital, and you cannot 
separate voice from data. If you cannot separate voice from 
data, how can you have data relief.
    If we talk about enforcement, how can we enforce the 
opening requirements when the Act eliminates the opening 
requirements of interconnection and the unbundling once a 
network offers advanced services.
    The combination of the technological reality of not being 
able to separate voice from data, and the bill's elimination of 
interconnection and unbundling requirements to offer advanced 
services makes this a fundamentally flawed, and a bill that 
cannot be fixed or repaired, or amended with enforcements or 
any other types of amendments.
    It cannot pass the other body, and it violates the 
principles of competition, convergence, and certainty. Chairman 
Powell said it was ill-advised during a period of economic 
uncertainty, and all of these are articles in the tech sector 
of bankruptcies and devaluations, and critical conditions of 
the emerging competitors.
    I urge the committee to step back. I urge the industries 
that want to see advanced deployment into all areas of my home 
State and rural areas, and undeserved markets, to come back to 
a table that is fair and balanced, inclusive, and open just as 
we tried to do in the 1996 Act.
    There are things that we can improve in the Act. There are 
ways that we can come together and find the principled approach 
of advancing deployment, but at the same time not harming 
competition not harming convergence, and not creating 
uncertainty during a critical economic period of time. With 
that, I yield back.
    Chairman Tauzin. The Chair thanks the gentleman.
    The Chair recognizes Mr. Rush for an opening statement.
    Mr. Rush. Thank you, Mr. Chairman. I, too, join in with my 
colleagues in commending you for this indeed very, very 
important hearing. The RBOCs contend that if we give them 
interLATA relief that consumers will have more prices and more 
choices for advanced broadband services.
    On the other hand, the CLECs contend that in lifting the 
interLATA restrictions will undermine the Telecom Act, and mean 
higher prices and less choices for the consumers. They contend 
that this is true especially if RBOCs do not have to open their 
markets to competition.
    As we move forward with this legislation, I believe that we 
must tread carefully so that we do not run afoul of the 
fundamental principle of the Telecom Act, which is indeed as 
has been stated before many, many times, which is competition.
    I believe that the Telecom Act is working because of the 
competition, and we have seen real commitments by the 
competitors and incumbents alike to deploy broadband services.
    With that said, I am cognizant of the limitations that the 
RBOCs face in deploying broadband services under the current 
regulatory scheme. For the past few years, they have repeatedly 
argued that cable, satellite, and wireless providers do not 
have such regulatory burdens.
    And this, Mr. Chairman, this inequitable treatment has 
hindered them from effectively competing in this market. One 
area of concern to me, and an important area of concern to me, 
is the lack of deployment of advanced services in undeserved 
areas, such as urban and rural poor areas.
    According to the proponents of this build, if they are 
given interLATA relief, they will deploy broadband services in 
undeserved areas. I remain skeptical, for many inadequate and 
unsound reasons, these areas have been neglected by CLECs and 
incumbents alike.
    And, Mr. Chairman, I look forward to today's hearing, and 
the testimonies regarding these particular issues. Thank you 
and I yield back the balance of my time.
    Chairman Tauzin. The Chair thanks the gentleman, and the 
Chair recognizes the gentleman from Pennsylvania, Mr. Pitts, 
for an opening statement.
    Mr. Pitts. Thank you, Mr. Chairman, and thank you for 
holding this important hearing. It is 11:30, and I have enjoyed 
the members' comments, and I am looking forward to hearing the 
testimony of the distinguished panel, and so I will submit my 
opening statement for the record and yield back.
    Chairman Tauzin. The Chair thanks the gentleman.
    The Chair recognizes Mr. Hall for an opening statement.
    Mr. Hall. Mr. Chairman, I thank you, and I, too, will be 
very, very brief. I certainly want to welcome my colleague, Tom 
Tauke, who is a long time member of this committee and this 
Congress, and the very distinguished panelists here.
    I think that people want to hear them and not us, and I 
just want to very briefly say that I represent a district that 
has some rural areas in it; part of Dallas, and then it goes on 
up to the Red River and back down through the oil patch.
    We recently held a forum on the campus of Austin College in 
Sherman, Texas, and the topic of the forum was workforce 
development, and with the Internet having provided new mediums 
in communication, education, commerce, and entertainment, there 
was considerable interest in how educators, businesses, and 
government can work together in training tomorrow's workforce.
    I guess my question would be--and the gentleman from 
Mississippi succinctly set it out when he says in its current 
form he is not happy with the bill, and that is what 
subcommittees and hearings are all about--that I want to see 
what is in this bill.
    I held off as the chairman knows last year until you had 
218 or 219 signatures, because there are good people on both 
sides of this issue, and people that really made great 
contributions to the economy of this country, and people with 
whom I had voted for years and years. We came to the 
crossroads, and can't agree with both sides but hoping both 
sides will continue to negotiate, and to probe, and to try and 
work something out.
    Ms. Eshoo set it out very well when she said that we want 
to upgrade the service to rural areas, and I want to see how 
this works out in my district. I yield back my time. I thank 
you for introducing the bill, and I thank you for having this 
hearing, and we will be listening very closely as we progress.
    Chairman Tauzin. Thank you, my friend.
    The Chair now yields to Mr. Shadegg for an opening 
statement.
    Mr. Shadegg. Thank you, Mr. Chairman, and I will be brief. 
Let me commend you for holding a committee hearing, a full 
committee hearing on this extremely important topic, and for 
bringing this legislation before us.
    I think it is timely and important. In the interest of our 
witnesses and being able to hear them, I will take advantage of 
the unanimous consent and insert my full opening statement in 
the record. I do want to associate myself with the remarks of 
Mr. Cox, Mr. Davis, and Mrs. Wilson.
    I share a great deal of concern about this legislation, and 
particularly about competition at the local level, the local 
service level. And I think that before we move on legislation 
of this great significance that we ought to do so cautiously, 
and we ought to understand what we are doing, and we ought to 
understand its implications.
    I am going to be looking carefully at that issue, and 
specifically at the question of whether we have done enough to 
open up competition at the local service level, and whether or 
not this legislation advances that cause or does not do so, and 
I thank you, Mr. Chairman, and yield back the balance of my 
time.
    Chairman Tauzin. The Chair thanks the gentleman, and the 
Chair recognizes Mr. Wynn for an opening statement.
    Mr. Wynn. Thank you, Mr. Chairman. I appreciate you 
bringing this matter before the committee and convening this 
hearing. I will submit for the record, and I will note that 
this is not just a battle between LECs. There are actually 
consumers out there that are interested in this, and we clearly 
have a conflict between the advantages of deployment, versus 
the advantages of competition.
    Ultimately hopefully we will be able to decide which of 
these two approaches best benefits the consumer and make 
rational decisions with respect to legislation that will help, 
quote, the folks back home in the most efficient way. I yield 
the balance of my time.
    Chairman Tauzin. The Chair thanks the gentleman, and the 
Chair recognizes Mr. Norwood for an opening statement.
    Ms. Cubin.
    Mr. Buyer.
    Mr. Buyer. Thank you, Mr. Chairman. I want to thank you for 
introducing this legislation. The deployment of broadband goes 
beyond just my congressional district, and it is more than just 
about greater, faster, more efficient access to the Internet.
    It is about increasing the quality of life. Right now in 
America, we have what has been coined the digital divide. Those 
who have access to quality Internet service, and those who do 
not.
    For example, right now my congressional staff who work here 
in Washington, DC have greater access and more choices in 
Internet service providers than do my staff in Kokomo and in 
Monticello, Indiana. In fact, my Washington staff has perhaps a 
half-a-dozen quality providers of broadband services, and in 
Indiana, they only have one.
    My goal in supporting this bill is to provide the access 
and choice to all Americans, regardless of where they live, to 
have the same access in rural areas as they do or as those who 
live in large metropolitan areas.
    If we do not do something now to increase the competition, 
then those living in rural America will be left behind, 
economically, socially, educationally, and in so many other 
ways, not to mention the negative effect it is having on small 
businesses trying to compete in the marketplace.
    Expanding broadband to libraries, schools, and to students 
at home would be among the most important effects of our 
efforts. As I meet with students and teachers, I am constantly 
reminded of the importance of broadband improving student's 
educational experiences.
    This is true for students of all ages, including adults. 
Distance learning is a common way of life in rural communities, 
and broadband only increases the level of learning and the 
educational environment.
    Broadband, both fixed and wireless, has the ability to 
transform the way teachers teach, and the way our students 
learn. I believe that Congress has a role in making sure that 
Americans can equally participate in the digital world.
    The legislation being addressed today appears to be one of 
the better vehicles to encourage deployment of broadband, 
because it also appears that the FCC, while it has the ability, 
will not act.
    As a strong supporter of this legislation in the last 
Congress, I am still not convinced that we should limit our 
efforts to deploy broadband to this bill alone, especially with 
the reluctance of the Senate to act.
    While many in the industry have be coming in to see me 
about this legislation, I have yet to have anyone tell me that 
they will deploy broadband services in my rural communities if 
the business model does not allow it.
    Therefore, I believe that the House should also pursue 
other ways to encourage the installation of the infrastructure 
in rural and less developed communities, and therefore, I am 
open and ready to listen.
    The deployment of broadband and increasing competition has 
real effects on the quality of life of Hoosiers that I 
represent. The lack of broadband hurts our students' 
educational opportunities, hurts our businesses' ability to 
compete, and discriminates against willing participants in the 
digital age.
    Some may see the lack of services as only hurting rural 
Americans, but I submit that it hurts all of America. America 
has been great and a leader in technology because we are a 
melting pot of ideas, of goals, and of dreams. Yet, when we do 
not allow a particular sector to participate equally, then we 
lose the ingenuity of so many.
    So my goal is to erase the digital divide so that so many 
Americans can be active participants, and if I can be frank, 
the last time I was really involved in these issues was back in 
the Judiciary Committee back in 1996 and 1996. Then I sort of 
left those issues.
    So now I come back to the Commerce Committee, having left 
Armed Services, and Judiciary, and so if you have left 
something and you come back 5 years later, it is like going and 
seeing your cousins, or your are seeing your niece and nephew 
that you hadn't see for a while.
    You see, I have it all locked in my mind the way it was 
when I was a conferee back in 1995 and 1996. Over the last 3 
months, the more I am beginning to see, I don't recognize it. I 
am supposed to say how much you have grown, and how excited I 
am to see what you have become, but I can't say that.
    I am beginning to say how disappointed I am, and it is not 
looking as the way that Congress intended it, nor envisioned 
it. So I want to compliment you, Mr. Chairman, for the 
legislation, and I yield back my time. Thank you.
    Chairman Tauzin. Thanks, Steve. The Chair is now pleased to 
recognize Mr. Engel for an opening statement.
    Mr. Engel. Well, thank you, Mr. Chairman, and I, too, will 
want to compliment you for having this hearing, and I want to 
compliment the distinguished panel for having to endure all 
these opening statements.
    I am going to be brief, because a lot of good points have 
already been addressed, but I am a strong supporter of H.R. 
1542. I represent an urban district, and I am, too, very 
concerned about the digital divide in my district. And I 
believe that this legislation will help close that digital 
divide.
    And I am also concerned with the fact that small businesses 
having difficulties affording high speed Internet access and I 
believe that this legislation will help in allowing small 
business to afford this access.
    I also think that it is equitable that the wiring of high 
speed Internet access by cable companies is not regulated. And 
if that is not regulated, then we could have an approach to try 
to regulate cable companies in the wiring of high speed 
Internet access. I don't think that is the approach that we 
should take.
    I think that this approach is far preferable to regulation 
and to allow the baby Bells to have the regulations that the 
cable companies have as well. So I think that this legislation 
moves in the right direction.
    In negotiations, yes, I am always for it, and I think that 
the process works that there will be negotiations. But I think 
that it is important to move this bill forward and important to 
pass this bill, and I think that this bill will be good not 
only in urban districts, such as mine, or in rural districts 
such as Mr. Buyer said.
    But I think it will be good for all Americans, because 
again I think it will bridge or help bridge the digital divide, 
and will help make this technology more accessible to our 
constituents. I thank you, Mr. Chairman, and I yield back the 
balance of my time.
    Chairman Tauzin. I thank my friend, and the Chair yields to 
Mr. Strickland for an opening statement.
    Mr. Strickland. Mr. Chairman, I am looking forward to 
hearing from our witnesses, and so I will forego an opening 
statement. Thank you.
    Chairman Tauzin. I thank the gentleman, and I think that 
concludes the opening statements. Is there anyone who has not 
yet made an opening statement who would like to? I think we 
have got it covered.
    [Additional statement submitted for the record follows:]

   PREPARED STATEMENT OF HON. MICHAEL BILIRAKIS, A REPRESENTATIVE IN 
                   CONGRESS FROM THE STATE OF FLORIDA

    Thank you, Mr. Chairman.
    I want to commend you for scheduling today's hearing on the 
Internet Freedom Broadband Deployment Act. The Internet has grown 
dramatically during the 1990s. According to the Department of Commerce, 
over 40 percent of American households now have access to the Internet, 
while about 45 percent of all Americans have Internet access at home 
and/or outside the home.
    Today, the majority of residential Internet users access the 
Internet through the same telephone line that can be used for 
traditional voice communication. The highest speed modem used with a 
traditional line is 56 kilobits per second, which makes sending or 
receiving large data, video or graphics files difficult and time 
consuming.
    As the content on the Internet and Wold Wide Web has become more 
sophisticated, consumers have been clamoring for faster Internet 
connections. Broadband services provide consumers with the ability to 
send and receive information at much faster speeds. However, not all 
Americans have access to the faster services provided by broadband 
technologies.
    Consequently, there have been many proposals to speed up the 
deployment of broadband services. Today's hearing focuses on the 
Internet Freedom and Deployment Act, which would amend the 
Communications Act of 1934 to prohibit states or the Federal 
Communications Commission from regulating the provision of high speed 
data services. I have heard from parties on both sides of the debate on 
this legislation.
    Yesterday, I received a letter from the Florida Public Service 
Commission which raises a number of concerns about the Internet Freedom 
Broadband Development Act. First, the Commission is concerned that the 
legislation could grant a monopoly carrier the ability to enter the 
long distance data markets without any of the safeguards provided for 
in the 1996 Telecommunications Act.
    The Commission is also concerned that the bill may diminish local 
oversight of telecommunications companies and eliminate the federal 
provision which currently permits state commissions to enhance 
competition for local telephone services by requiring additional points 
of interconnection with the incumbent's local telephone company 
network. The Commission questioned whether or not the bill would reduce 
incentives for incumbent local exchange companies (ILECs) to open local 
markets to competition.
    I am hopeful that the issues raised by the Florida Commission will 
be discussed during today's hearing, and I look forward to hearing from 
our witnesses.
    Thank you, Mr. Chairman.

    Chairman Tauzin. Then the Chair is very pleased to 
recognize a very distinguished panel of witnesses today. Let me 
introduce all of you first, and then I will begin with Mr. 
Ashton as our first contributor. You know that under our rules 
we have a 5-minute rule.
    If you have not testified before the committee before, the 
little units that are sitting on the desk give you a warning, 
and when the yellow light goes on, you have got about a minute 
to wrap up. We have your written statements in our packets, and 
we can refer to them as we listen to you.
    So kindly try not to read your written statement. Just sort 
of summarize and have a conversational dialog with us about 
what you think about the status of competition in this bill.
    We will begin by introducing all of you first. Mr. Douglas 
Ashton, Managing Director, Communications Technologies Equity 
Research, Bear Stearns and Company, in Boston, Massachusetts. 
We are pleased to welcome you, Mr. Ashton.
    Mr. Jim Cicconi, the General Counsel and Executive Vice 
President of AT&T, here in Washington, DC, and, Jim, it is 
always a pleasure to see you again.
    Mr. Joseph Gregori, the CEO of InfoHighway Communications, 
on Broadway Street, in New York. Welcome, sir.
    Mr. James Henry, the Managing General Partner of Greenfield 
Hill Capital LLP, Fairfield, Connecticut. Welcome, sir.
    And also Mr. Gordon Hills, Executive Director of the 
Economic Opportunity Program of Elmira, New York, who is 
testifying on behalf of the National Association of Community 
Action Agencies, of which I was a former officer in my home 
community.
    Mr. Paul Mancini, the Vice President and Assistant General 
Counsel of SBC Management Services, Incorporated, of San 
Antonio, Texas. Mr. Mancini, welcome.
    Mr. Clark McLeod, Chairman and Co-CEO of McLeodUSA, Cedar 
Rapids, Iowa.
    Mr. Charles J. McMinn, Chairman of the Board, of Covad 
Communications, Santa Clara, California. Again, welcome, sir.
    Mr. Peter Pitsch, Communications Policy Director, Intel 
Government Affairs, here in Washington, DC. Peter, welcome.
    Mr. Timothy J. Regan, a Senior Vice President, Government 
Affairs, of Corning, Incorporated. Welcome, Tim, again.
    And the Honorable Tom Tauke, a former member of this 
committee, whom we are always delighted to welcome back, the 
Senior Vice President for Public Policy and External Affairs, 
of Verizon Communications, here in Washington, DC.
    Gentleman, thank you all for coming, and we will begin with 
the testimony of Mr. Ashton.

       STATEMENT OF DOUGLAS C. ASHTON, MANAGING DIRECTOR, 
 COMMUNICATIONS TECHNOLOGIES EQUITY RESEARCH, BEAR STEARNS AND 
                            COMPANY

    Mr. Ashton. Good morning, Mr. Chairman, and other 
distinguished members of the House Committee on Energy and 
Commerce. Thank you very much for inviting me here to discuss 
the Internet Freedom and Broadband Deployment Act of 2001.
    I am going to speak today from the perspective of the 
technology analyst, more so than a telecom analyst. I cover 
telecommunications technology vendors. But I can say in a 
recent report that we submitted to our constituencies, which 
was primarily money managers and the companies in the industry, 
we recognize that the only catalyst for a better technology in 
a telecom environment is regulatory reform.
    We called our report, ``Saving Telecommunications,'' 
because we think that that kind of dramatic title is relevant 
to the conditions that the industry is in today. I am going to 
try and limit my comments to just giving a framework, and I 
want you to think about the industry, because there are certain 
things that we would all like to see.
    But there are certain realities in the way the business has 
evolved since 1996, and really looking back even further than 
that. But in essence the word that I would like to use when I 
am speaking with investors is the word transition.
    This industry just happens to be transitioning in many 
different ways at the same time, and it has been very 
destructive to the status quo, and it has been very 
destablizing for both service providers and vendors. When you 
think about these transitions, think about them in three ways.
    We are trying to transition from a narrow band networking 
environment to a broad band networking environment, and that is 
a momentous change for this industry. Up until this point, we 
have largely been about narrow band services and primarily 
voice.
    The second, which is a microcosm of the first, because we 
have already started down the modernization path, is the idea 
of moving from core network modernization or long haul, which 
is where you here a lot about optical technology and the like, 
to access modernization, which seems to be the focus of this 
bill.
    The third transition is probably the most self-evident, but 
what I find is that people missed the importance of it, and 
that is that this industry is trying to transition from a voice 
dominated business to a data dominated business, and that is a 
very difficult transition to make.
    The risks in this business are now higher because the path 
to those services is not clear for any of the carriers or the 
vendors. Think about it this way. I always tell my investment 
clients that if I give you a company and said that 80 percent 
of your revenues come from a business that is slowing, and it 
now has more substitutes than it ever has--and the pricing of 
it is going to change because we used to do it based on 
distance, and now that is seemingly going away.
    It is priced interlastic, and so the more that we lower 
prices, we don't generate the growth that we used to when we 
lowered prices. It is not the kind of stock that you would want 
to buy. Well, that is basically our industry and getting past 
that point is going to be very difficult.
    So if we take these in turn, and I will go through them 
very quickly, think about the core access shift, because that 
is what is going on right now, and we are stopped at the door 
of access to modernization.
    And this is very problematic for all the core long haul 
players, and all the core optics vendors. Think of level three 
Williams and AT&T in Sprint, and MCI World.com and a host of 
others. They have modernized and they made one fatal mistake, 
which was that they bet on an orderly development of access 
modernization.
    Without it, and it is not here, and it doesn't look like it 
is going anywhere, those investments are kind of twisting in 
the wind. So this sector as a whole has now reached from that 
core to access modernization stage, kick starting or jump 
starting that stage of the process is really the only way to 
get us out of what I am starting to call technology malaise and 
telecom malaise, but in a different order, which is I believe 
that telecom--and particularly access--is this sphere of 
influence on which all the other technology markets will rest.
    If we don't get modernization there, we are telling 
investors that you cannot expect to see a return of the 
technology markets in general.
    We think that it is nice to think about competition, and 
see CLECs, and others, but when you think about access, think 
about it in three ways. There is three types of access 
networks, because there are three types of end-user groups.
    There is large businesses, small businesses, and 
residential or consumer customers. Our modernization and access 
is largely evolved around the large business market, but is not 
moving down. It is not moving down into the small business and 
residential markets, which you can consider the same, because 
largely the network on which they are serviced is the same if 
you think about any suburban town and all the businesses that 
lie at the end of the street.
    In getting to the access modernization path that we would 
like to see in the technology markets, we see one primary 
problem that has two subproblems, which his the companies that 
need to do this investment are having a hard time identifying 
the services that can pay for it.
    And so they are hesitant to take the risk, and they are 
looking for ways to bring that rate of return up. And clearly 
one of those ways is regulatory reform in the bill that has 
been talked about today.
    If this bill can move forward, I think it will 
substantially enhance the rate of return picture that the 
access providers can attempt and set up a competitive 
environment that is largely based on cable and the RBOCs, which 
I think will be enough to get the benefits of that.
    Thank you.
    [The prepared statement of Douglas C. Ashton follows.]

   PREPARED STATEMENT OF DOUGLAS C. ASHTON, MANAGING DIRECTOR, BEAR 
                           STEARNS & CO. INC.

                              INTRODUCTION

    Good morning, Mr. Chairman and other distinguished members of the 
House Committee on Energy and Commerce. Thank you for inviting me here 
to discuss ``The Internet Freedom and Broadband Deployment Act of 
2001.'' I am appearing today as an industry analyst whose focus is on 
telecommunications, in general and telecommunications technology, in 
particular. My views should not be attributed to Bear Stearns & Co., my 
employer, as they have not taken an institutional position on the 
legislation being introduced today.
    My views on today's topic are shaped by my experience as a equity 
analyst, since 1994 to the present time, my work experience at the 
American Enterprise Institute and specifically research conducted while 
writing a recent Bear Stearns publication, Saving Telecommunications: 
The Next Generation Access and Services Evolution. I believe that 
copies of this publication have been sent to the Chairman and other 
distinguished members of the Committee.
    I would like to offer a financial analyst's perspective on the 
topic of today's hearing. I will make my comments as general as 
possible and in doing so will seek to address just a small number of 
the many important issues the telecommunications industry is facing 
today. However, before we get into those issues, I would like to make a 
few comments on how integral I view the health of the 
telecommunications sector is to the health of the US economy, US 
competitiveness, and to technology in general.
    Over the past decade, a diverse set of advanced and widely 
available telecommunications services have become ubiquitous enough to 
become an integral part of our national fabric. They have infiltrated 
our daily lives in ways that were not so long ago unimaginable. The 
benefits are largely self-evident (through all income and age classes) 
and have been a major contributor to what economists commonly refer to 
now as a period of historic productivity gains. We do not believe it a 
stretch to say that the process, for a time, made our 
telecommunications infrastructure one of our most important and 
differentiating national assets. In fact, it has been the focal point 
of what is arguably our most important asset: our technology-based 
human capital.
    As the telecommunications sector advanced it also broadened its 
sphere of influence. Today, I believe these advances have reached the 
point where it can be accurately said that telecommunications is the 
center around which the greater technology sector revolves around, the 
straw that stirs the drink, if you will. This relationship is not only 
found here in the US. It is a global phenomenon. As such, all citizens 
now have a stake in the ongoing development of our communications 
infrastructure: those who use it, develop it and invest in it, which 
means more of us than it used to. In essence, telecommunications has a 
global constituency.
    To date, the sector's development has largely been a race to the 
top, and the end result has been a more efficient system for gathering, 
processing and disseminating information. Better yet, it has not all 
been work related: the communications revolution has changed the way we 
entertain ourselves, yet another example of its reach.
    Unfortunately, we are only part of the way there and it is clear 
that all is not well. Conditions in the sector have rapidly 
deteriorated and an industry once thought to hold so much promise now 
appears to have relatively little. The same can be said for many of its 
participants, which just a short time ago were thought to have bright 
futures, but now are considered to have little to none. These 
statements ring true for both carriers and vendors and its effect is 
destabilizing for everyone. As an analyst, it is clear that we have now 
entered into a period where bankruptcies and layoffs are as much or 
more frequently part of the news than new product and service 
initiatives. This will likely be followed by a period of restructuring 
which will then give way to a new investment cycle. The latter stages 
will be a healthy development but can only be done when the rules of 
the game are set. Because that is a prerequisite, it is imperative that 
these rules be set soon.

                   I. THE INDUSTRY'S THREE CHALLENGES

    Why are we here? We believe it is the result of the sector having 
reached a number of important cross-roads at roughly the same time, all 
of which participants are having trouble navigating through. In 
essence, today's difficulties are the result of the industry 
collectively confronting three important challenges. The first is the 
move from narrowband to broadband networking, the largest, riskiest and 
most expensive undertaking the industry could ever attempt to 
accomplish and a necessary precursor towards next generation services. 
The second is a microcosm of the first, a move from core (or long-haul) 
network modernization to access modernization, something that is well 
underway, but which has stalled due to over-investment in the core and 
lack of follow-through from the access network on which the core so 
desperately depends. The third and most important issue represents a 
shift from an industry business model historically driven by voice 
revenues and profits to one that will be more data and voice and data 
driven.
    While all are obviously secular issues, current economic conditions 
are making a bad situation worse. As such, almost all stocks associated 
with communications and technology have either been in a freefall or 
are sputtering around with little direction. This is what happens when 
visibility into future revenue and profit growth is near zero. 
Moreover, telecommunications is a capital intensive business and 
because few service providers appear to be attracting capital, moving 
forward is problematic. Yet the capital issue is not the problem, but a 
symptom of it. In essence, the market no longer wants to own the arms 
suppliers nor those who make use of their technology.
    In such conditions, the sectors' participants as well as those with 
a stake in things (basically, all of us) are largely in search of a 
catalyst. Rate cuts do not seem to have helped and neither has the 
prospect of a tax cut. In our belief, investors have made the correct 
conclusion, for the industry's problems are as much about regulation 
and new service identification and how these issues affect the all-
important rate of return equation as they are about anything else. In 
other words, the problems are secular and need, for starters, secular 
attention. Without it, the communications malaise that has quickly 
turned into technology malaise will not be a short-term problem. 
Thankfully, it does not have to be this way.
    To put it simply, the communications industry is rapidly coming to 
grips with the fact that its workhorse (voice) is getting old. Voice 
revenue growth, wireless subscriber growth, and many other voice 
metrics are indicative of slower growth. This is not a good thing: 
voice services constitute well over 80% of industry revenues and thus 
an even higher percentage of its profits. Moreover, voice services are 
no longer thought to be price elastic (i.e. lower prices do not 
stimulate more usage), voice has more, not less profitable substitutes 
than ever before (i.e. short messaging and e-mail) and in the end, it 
primary method of pricing (distance) is thought to be going away.
    Early forays into the proposed answer (advanced data services) have 
not been encouraging. Simple data transport (Internet access) and flat 
rate pricing have instead proven to be a lethal combination to the 
industry's bottom line. The most popular data service, dial-up Internet 
access, is something we prefer to categorize as communications' third 
rail, not its savior, yet it was the last great growth driver for 
technology markets in general. While a form of data access, it is 
preclusive to broadband services development because it is not fast 
enough to deliver the kind of services that could provide an answer to 
the maturity of voice revenues and the recent demise of most Internet 
mass market applications. In fact, it is these services that will be 
required to pay for it in the first place.
    Think of it this way. The networks that connect customers to the 
public switched telephone network (PSTN) and the Internet itself were 
designed to support a product catalog consisting of voice services. The 
same can be said for wireless. To extend this catalog, we thus have to 
rebuild the network. We have done so in part, but the parts in which 
this have been done are largely where it was easiest and least 
expensive. The big build is ahead of us. As our friend Tom Nolle of 
CIMI Corporation recently noted, ``while there is no consensus on what 
the future revenue engine of the market will be, there is general 
agreement that whatever it is, it will require broadband customer 
connections. Thus, the highest priority in networking is to modernize 
the access network to support broadband.''

                          II. THE WRONG ORDER

    It does not help that, in running in the direction of network 
modernization, we have gone about the task in the wrong order. We 
started the modernization process in the core of the network and are 
now only beginning to think about how it might happen at the edge 
(access). Simply put, we have modernized our highways but not our local 
roads, making it difficult to get on, go fast and go to the places we 
might want to go. Access is the platform on which broadband services 
have to ride and today it is the bottleneck. Without change here, we 
will not get much change anywhere.
    There are a number of reasons for this reverse order, although by 
now it is something more than just coincidence that capital was largely 
directed to the part of the network deregulated first (long-haul 
transport). Deregulation spurred investment, as it usually does, yet 
the investment was made based on one fatal assumption: that access 
modernization and ultimately the new services revolution would follow. 
When we had the Bell System, that would have been a natural conclusion 
to make for we would have regulated modernization in. Under the current 
framework, this has not occurred and now the core has a problem. Why? 
Because access markets are governed by a regulatory scheme that has 
served to dis-incentivize those who own and control it.
    The reason for this is simple. Our networks are a network of 
networks and the services equation means that whatever service is 
offered is done so at the lowest common denominator of the network. 
Today, that is access usually at dial-up modem speeds. Even the 
Internet itself is a best efforts network and thus cannot generally 
deliver any kind of quality of service, yet another necessity for the 
introduction of a variety of advanced services and in particular, 
video. Without access modernization, the core is helpless to get out of 
its current predicament (less spending will help), and core optics and 
transport cannot recover. The idea here being that traffic is more 
easily created from broadband customers than from dial-up customers. 
With it, things are only a little less bleak in the core, for access 
modernization will be a time consuming process under the best 
circumstances. Breaking up the RBOCs or what is sometimes called 
``structural separation,'' in our belief, would be worse, not better, 
at least from a timing perspective. This would take a long time and 
would delay spending and thus modernization and would also facilitate a 
delay in the restructuring of the industry. At least from a technical 
and global competitiveness basis, we need to take action that is more 
time sensitive.
    End to end broadband networking is a place that only the local 
exchange carriers (LECs), particularly the Regional Bell Operating 
Companies (RBOCs), the cable television multiple systems operators 
(MSOs) and wireless service providers can take us to. It is a place 
that will require an extraordinary amount of investment made on riskier 
presumptions than any of these service providers are used to. The first 
go round was about voice, which was more or less a known commodity. 
Networks could be ratcheted up to deal with the volume. It was more 
incremental anyway you look at the services equation. Modernizing 
access is much more complex and costly: we would estimate that 
modernizing our wireline access infrastructure will likely cost over 
$200 billion from start to finish. Moreover, it will be done without a 
firm grasp of what services will be demanded and at what price they 
will be purchased.

                      III. PROBLEMS AND SOLUTIONS

    The question for the industry is how to make that happen. If the 
past is any lesson, the answer is to incentivize those that can 
initiate change. In particular, we need regulation that will reward 
risk taking, e.g. one that gives those who do the risk-taking the 
incentive to garner its rewards. The three groups mentioned above are 
the only ones that can realistically be said to have such an 
opportunity and it is important that a reasonable profit picture can 
develop.
    Yet, today, two of the three major access segments are required to 
share access to their networks (in different ways), which means they 
currently have little incentive to spend because some of the potential 
benefits will go to others. In essence, they know that their own 
capital investment cannot be optimized when the benefits of investment 
potentially will flow to competitors while the risks are solely theirs. 
And as we noted earlier, we just have happened to reach a point in the 
industry's cycle where the investment to be made is a little bit more 
risky than usual. This is mainly because we are talking about designing 
a new network for services of a different type than today's network was 
designed for.
    This is true for, as we noted, the telecommunications industry is 
at a services cross-roads. Voice revenues will continue to decline 
under technological and competitive pressure, destabilizing the major 
service providers that rely on it as a source of cash flow. To offset 
this loss, we need non-voice public services. Yet, as we have noted, 
such services will require broadband access. All things narrowband have 
largely been attempted. There is no way around this reality. Think of 
it as a pre-build.
    The Telecom Act of 1996, by accident or design, had the result of 
focusing new investment on the access modernization task. 
Unfortunately, its rules set up a structure that never lent itself to 
the kind of investment that consumer broadband empowerment embodies. 
Think of it this way. The end user market can be segmented in three 
ways: multi-site businesses, single-site businesses, and residential. 
The single site market is usually thought to house either small 
businesses or mid-size businesses. The multi-site market can be divided 
into principal sites and satellite sites of large businesses. The 
multi-site market is where the focus of competitive carriers has been 
and the former two are not, for a reason. Big businesses are easier to 
target: they are a smaller in number, are located in areas that tend to 
have a high concentration, and they tend to have the highest 
willingness to pay. Conversely, the single site, small business and 
residential markets do not have these metrics, yet are virtually linked 
together based on where they are located and how they are serviced. In 
large part, it became a game of one or the other and we know what 
happened.
    In hindsight two things are apparent. First, that the changing 
nature of voice and simple data transport services in a competitive 
market ended up yielding a much lower return on capital than initially 
expected. Second, because of this, massive economies of scale became 
paramount. As this was borne out and some would argue was present since 
inception, participants were forced to focus on low-risk builds, which 
equated to a replication of the services and networks already in place 
geared towards those who would pay the most: large businesses. The 
mantra was: it's better to offer services that are known quantities 
than to offer something new and untried. The result: we now have an 
overabundance of capacity in many areas of the network, with the 
exception of access, particularly for small to medium size businesses 
and residences.
    More technically, what is needed are new rules and we are 
supportive of those proposed. With them the winners will be two-fold. 
End users would be the recipients of the benefits that come from 
advanced services offered through a modernized network. Industry 
shareholders would benefit through a revitalized technology market that 
depends on a revitalized communications network platform and broadband 
networks. The idea here: jumpstarting broadband access will jumpstart 
technology, from PCs to software to servers to storage. Finally, the US 
economy would benefit for we would have a network that is the 
competitive equal to one that will be built abroad that in many cases, 
can be done more efficiently based on better consumer densities and 
more facilitative topologies.
    We can get our telecommunications and our technology markets back 
if we take the right action on a timely basis. The alternative is a 
long-running period of technology malaise. This is a result that 
neither the global telecommunications consumer, those employed by the 
technology sector and of course, those who have a stake in 
technological advancement want to see.

    Chairman Tauzin. Mr. Upton. Thank you.
    Mr. Cicconi, welcome.

  STATEMENT OF JAMES W. CICCONI, GENERAL COUNSEL AND EXECUTIVE 
                VICE PRESIDENT, AT&T CORPORATION

    Mr. Cicconi. Thank you, Mr. Chairman. I want to thank you 
and Chairman Tauzin for inviting me here today to share AT&T's 
views. We oppose this bill because it places at risk the goal 
of the 1996 Telecom Act, bringing competition to local phone 
service in America.
    Let me make four points. First, this bill represents a 
serious threat to local competition at a time when it is 
already under severe stress. The 271 process in the 1996 Act 
allows the Bells to enter the long distance market for voice 
and data, provided they open their local monopolies.
    The Bells have been cleared to do so in five States, and 
two are pending now. They themselves predict accelerated 271 
approvals this year and next. This process provides the data 
relief they seek in this bill, but only after they meet the 
law's requirements to open their markets.
    What the Bells want though is to avoid the actual 
requirements for data, which is the bulk of the traffic on 
their networks. This bill would grant their wish, but it would 
leave little incentive for them to open their monopolies.
    Moreover, this bill would go beyond data. It will deprive 
competitors of the ability to purchase access to crucial parts 
of the monopolies network, access that is essential for 
competitors to have any chance to succeed.
    Make no mistake. This bill would undercut the most 
important provisions of the 1996 Telecom Act, and would 
preserve monopoly power over local phone service.
    Second. There is no real regulatory barrier to the bill's 
deployment of DSL. It is occurring today, and it is occurring 
faster than the deployment of any new technology in memory. The 
Bells are spending billions to deploy DSL for one reason. 
Competition.
    DSL is not a new technology. It sat on the Bell shelf for 
years. They had no incentive to roll it out until competitors 
showed up as a result of the 1996 Act. In fact, they didn't 
even face any market opening restrictions before the 1996 Act, 
and so there was actually no impediment to their deployment of 
this technology.
    The first places they deployed it is where competitors were 
most active. They are not deploying DSL because they are public 
spirited folks, though I am sure that they are. They are 
deploying it because competition forced them to do so.
    And if a big part of that competition is removed, as this 
bill would clearly do, the likelihood is that the Bells will 
slow broadband deployment and raise prices. In fact, that has 
already happened.
    You also heard that this bill will bring broadband to rural 
areas. With respect, this is a transparent effort to exploit 
digital divide concerns. There is nothing in this bill that 
would ensure that. All we get are vague promises that if 
monopolies are allowed to keep the CLECs out of their 
facilities, they would be more inclined to bring DSL to rural 
areas.
    By the time, at the same time, as it has been pointed out 
here, they are selling off rural exchanges. Which is the better 
way to get DSL to rural areas and inner cities? I would bet on 
the presence of competitors before I would bet on mere 
promises.
    Third, the monopolies argue for major changes to the 
Telecom Act in the name of regulatory parity. They say cable 
operates free of regulation. This is simply untrue. Cable faces 
significant regulatory requirements the Bells don't face.
    Cables is licensed by over 30,000 local franchising 
authorities across the Nation, and we pay them over $2 billion 
in franchise fees annually, and often most provide free service 
to local governments and schools as a condition. Bells face 
nothing similar.
    There is also a statutory limit on the number of 
subscribers that any cable operator can serve. If the Bells had 
faced a similar limit, it is possible that none of their 
mergers with each other would have been allowed.
    There are other compelling reasons why Congress regulates 
these two industries differently. The local telephone companies 
have not faced any competition to their core or local exchange 
business. Only a tiny percentage of Americans actually have a 
choice for local phone service today.
    Cable on the other hand faces ubiquitous and fast growing 
competition. Nearly everyone in America, including everyone in 
this room, has a choice if they want cable's core product, 
which is multi-channel video.
    The Bells are regulated differently precisely because 
Congress concluded correctly that their local markets are still 
closed. Finally, this hearing poses a fundamental question. 
What is the best way to accelerate the deployment of broadband 
or indeed any new technology.
    The Bells say relieve them of competitive pressures and 
they will roll out new services faster. We say competition is 
the better guarantor that new technology will reach all 
Americans.
    Theirs is a trust me approach, with all the dangers that 
entails. The other approach says to trust market forces, and 
trust competition, because time and again that has proven the 
correct course. The government trusted competition when it 
broke up the Bell system in 1984. The result is vibrant 
competition and long distance and dramatic drops in prices.
    The opposite has happened in local service. In 1996, 
Congress again decided to trust competition and it was right. 
This bill would undo that decision and would trust monopolies, 
and that is why it is wrong.
    The hope of competition in local phone services is at a 
critical juncture today. CLECs have invested heavily to compete 
in reliance on the law that Congress wrote. All of us are 
having a tough enough time getting the monopolies to do what 
the law requires.
    Billions have already been wagered and billions have been 
lost. Many CLECs have gone under and many are on the ropes. 
Simple fairness argues against Congress changing the rules it 
wrote in the middle of the game, and especially now.
    If you do, who will ever again invest to bring choices to 
consumers in the face of monopoly power. Thank you again for 
the chance to present AT&T's views.
    [The prepared statement of James W. Cicconi follows.]

 PREPARED STATEMENT OF JAMES W. CICCONI, GENERAL COUNSEL AND EXECUTIVE 
                       VICE PRESIDENT, AT&T CORP.

    Thank you, Mr. Chairman and Members of the Committee, for inviting 
me here today to share AT&T's views on the Internet Freedom and 
Broadband Deployment Act of 2001. We believe that the bill places at 
risk all of the hard work of this body to bring consumers the benefits 
of a competitive marketplace, and the private investment made by new 
entrants to bring broadband services to the American people. With the 
Bell companies gaining permission to offer long distance services 
pursuant to Section 271 of the Telecommunications Act of 1996, the main 
effect of this bill would be to protect the Bell companies from 
advanced services competition. There is no justification for doing so.
    Five years ago, this Committee crafted landmark legislation that 
was intended to end almost a century of monopoly control over the local 
telecommunications market and bring the benefits of competition to 
consumers. Foremost among the market-opening tools of the 1996 Act was 
the obligation imposed on incumbent local exchange carriers (``ILECs'') 
under Section 251(c) to share their networks with competitors. In 
return for opening their markets to competition, the Bell companies 
would be allowed into the long distance market.
    In response to the passage of the Act, AT&T and dozens of companies 
invested tens of billions of dollars in new telecommunications 
facilities and services. These companies took substantial risks in 
reliance on the regulatory framework created by the 1996 Act, under 
which they should have had a fair chance to compete with the 
established incumbents. Unfortunately, the ILECs have resisted and 
challenged nearly every attempt to implement the pro-competitive 
provisions of the Act. This strategy of resistance, delay, and 
litigation has enabled the ILECs to maintain their dominance of the 
local telephone market, while dozens of their competitors are forced to 
scale back service plans, and many others go out of business entirely.
    We are deeply concerned that the legislation before you today would 
subvert the incentive-based framework of the 1996 Act, further 
undermine competition in the provision of telecommunications services, 
and slow the deployment of advanced services. Far from promoting 
broadband deployment or bridging the ``digital divide,'' this bill 
would deprive competitors of the ability to purchase access to the 
incumbents' network in order to provide competitive advanced services 
and gain a foothold in the marketplace. Faced with even less 
competition, the incumbents will slow--and indeed have slowed--the pace 
of broadband deployment.
    The unbundling requirements in the 1996 Act were imposed because 
Congress recognized that the incumbent LECs had bottleneck control of 
local telecommunications networks and the economic incentive to use 
those networks to deter competition. The ILECs' dominant market 
position and their economic incentives to use that position to 
undermine competition have not changed in the last five years. By 
cementing the dominant position of the incumbent carriers, the bill 
will frustrate the prospects for competition in an industry already 
destabilized by the recent market downturn. Indeed, the mere 
consideration of the measure by this body would lessen the incentive of 
the Bell monopolies to comply with the market-opening requirements of 
the Act, and could deter Wall Street from providing the needed funding 
for carriers struggling to provide consumers with a meaningful 
alternative to the incumbent monopolists.
    There is simply no need to abort the promise of competition in 
exchange for broadband deployment by the incumbents. We have heard the 
incumbents complain before that overregulation was deterring them from 
rolling out advanced services and facilities. Specifically, in 1998, 
they demanded that the FCC give them the right to offer advanced 
services largely free of the requirements of Sections 251 and 271 of 
the 1996 Act, much as this legislation would shield them from those 
requirements. But before they gained the relief they sought, 
competitors began to deploy broadband services, and the incumbents 
responded with vigorous deployment of their own. Now, with the 
competitors seriously weakened and their deployment plans curtailed, 
the incumbents are back with the same untenable claims of 
overregulation. They are as unjustified now as they were two or three 
years ago. Now, as then, the incumbents' threat that they will cancel 
deployment unless the rules are changed is nothing more than a ploy to 
retain and strengthen their monopoly position.
    Indeed, despite the market-opening principles embodied in the 1996 
Act, the ILECs' market position is even more entrenched than it was 
only a year ago. The Bell companies have added almost five times the 
total number of access lines of all the competitive providers combined, 
and today they provide more than 90 percent of residential DSL 
services. Experience shows that the ILECs have deployed advanced 
services under the existing rules when faced with competition, and 
absent competition did not deploy them, even when the technology 
existed and the market-opening requirements of the 1996 Act had not yet 
been enacted. Remove the possibility of DSL competition--as this bill 
would--and the prospects for ILEC deployment of advanced services will 
be substantially reduced. And where competition to the ILECs has 
declined, the price they charge for DSL rises significantly.
    There is likewise no case for modifying the existing 271 process. 
Five years after enactment of the 1996 Act, the incumbents have been 
able to persuade the regulators to grant their requests to enter the 
long distance business without any change in the law. In five states--
including two of the largest--the Bell companies now offer 
interexchange services. There will certainly be more this year. In the 
meantime, several large companies, including several owned by the Bells 
or in which they have significant investments, are providing 
significant Internet backbone capacity to all regions of the Nation. 
The public need not be forced to pay the high cost of enacting the bill 
before you.
    I will address each of these concerns in turn.

BROAD EXEMPTIONS FROM THE UNBUNDLING AND WHOLESALE RESALE REQUIREMENTS 
            WILL DETER BROADBAND DEPLOYMENT AND COMPETITION

    In what has been described as an attempt to speed the deployment of 
high-speed Internet access services to consumers, this bill creates 
broad exemptions from the ILECs' unbundling and resale obligations for 
high speed data facilities and services. But relieving the ILECs of 
these obligations will only delay the deployment of high-speed Internet 
access by undermining the ability of competitors to offer DSL and other 
advanced services. AT&T has made a substantial commitment to providing 
competitive DSL service to residential and business customers. Earlier 
this year, AT&T committed more than $130 million to acquire the assets 
of the now-defunct NorthPoint Communications. The assets include 
collocations in 1920 locations, 3000 DSLAMs and other DSL networking 
equipment, 153 ATM switches, and the associated systems (hardware and 
software) that support provisioning, engineering, testing and 
maintenance functions. Without access to the ILECs' facilities, as 
contemplated by the 1996 Act, AT&T's ability to put these assets to use 
for consumers will be substantially diminished. Other competitive DSL 
providers would likewise see a substantial dimunition in the value and 
use of their facilities and investments if this bill were to become 
law. Worst of all, the bill would deny customers the lower prices, 
greater innovation, and broader deployment of advanced services that 
only competition can deliver.
    Specifically, this bill would deny CLECs the access to facilities 
they need to compete. Under the FCC's existing rules, ILECs already are 
generally not obligated to offer unbundled access to packet switching 
and advanced services equipment. But this bill would end access to 
those facilities under all circumstances, even when necessary to permit 
competition, and would extend this exemption even to facilities that 
are used to provide basic telecommunications services, as long as they 
are also used for the provision of advanced services. As the ILECs 
update their networks and replace more and more of their copper 
facilities with fiber optics to deliver high speed services as well as 
basic voice, an increasing portion of those networks will become 
inaccessible to competitors. Ultimately, there could be little, if 
anything, left of the statutory mandate for ILECs to give competitors 
access to unbundled network elements--even loops, which are the 
critical ``last mile'' that competitors simply cannot do without. This 
would effectively close the most significant door to competition under 
the Act, by enabling incumbent carriers to avoid the fundamental 
obligation to open up their networks to new entrants.
    The manner in which ILECs upgrade their networks exacerbates this 
problem. The copper portion of the ILECs' networks--the only portion 
that seemingly would remain accessible to competitors--more and more 
frequently does not run all the way from a subscriber's premises to the 
central office. Instead, as the incumbents push fiber further out into 
the network, copper loops terminate at so-called ``remote terminals'' 
that house the equipment for DSL service. Under the bill, however, an 
incumbent would not be required to give a competitor access to the 
equipment at the remote terminal (even for the provision of basic voice 
service) or to the customers' data communications signals at the 
central office. It leaves competitors no practical alternative for 
providing advanced services using the incumbent's loop facilities. In 
effect, in a direct reversal of the requirements of the 1996 Act, the 
bill would preserve, exclusively for the incumbent carriers, the 
economies of scale, scope and density that they have built on the backs 
of the ratepayers as the sanctioned monopoly providers of local 
services for nearly a century.
    It is clear that this price need not--and should not--be paid in 
order to encourage ILEC investment in broadband facilities. After 
sitting on DSL technology for ten years, ILECs finally deployed it only 
in response to competitive offerings of CLECs and cable companies (and 
specifically to AT&T). Verizon, for instance, will spend $18 billion 
this year on capital investment.1 SBC is spending more than 
$6 billion on its heavily-promoted ``Project Pronto,'' 2 and 
Qwest will spend $9.5 billion this year to build out its facilities. 
3 BellSouth's Duane Ackerman has stated that BellSouth 
``invested over $33 billion . . . during the 1990's,'' and that 
BellSouth expects ``total DSL revenue of approximately $225 million 
this year and $500 million in 2002.'' 4 Further, Mr. 
Ackerman acknowledged that the regulatory challenges BellSouth is 
facing ``are unlikely to slow down the momentum of the marketplace.'' 
5 Contrary to the incumbents' complaints, the facts 
demonstrate that application of the 1996 Act's unbundling requirements 
has not been a deterrent to this extraordinary level of investment.
    Further, these investments are producing significant revenue for 
the ILECs. While SBC threatens to cease deployment of advanced 
facilities in Illinois after a state regulatory decision allowing 
competitors access to SBC's fiber optic facilities, it simultaneously 
boasts to investors that ``[t]he network efficiency improvements alone 
pay for this [Project Pronto] initiative, leaving SBC with a data 
network that will be second to none.'' 6 Beyond those 
savings, of course, SBC and the other ILECs will earn substantial 
revenues from the new services made possible by the deployment of 
advanced facilities. And when SBC makes advanced facilities available 
to competitors as unbundled network elements, they earn yet another 
revenue stream from competitors who must pay the costs of these 
elements plus a profit.
    The losers in SBC's game of chicken with the Illinois regulators 
are consumers. As the Illinois Commerce Commissioner, Terry Harvill, 
aptly observed in his letter last month to Speaker Hastert, ``if the 
market were competitive, SBC/Ameritech would not be able to 
unilaterally halt the deployment of DSL infrastructure and deny these 
[Illinois] customers advanced telephony services.'' AT&T agrees with 
Commissioner Harvill that ``[w]ithout competitive guidelines like those 
[SBC] objects to, it is unlikely that millions of customers in Illinois 
will ever see the intended benefits of the Act in the form of lower 
prices, many choices for broadband services, and better customer 
service.''
    Nor is there any assurance that the incumbents would use the 
regulatory relief in the bill to deploy broadband facilities any faster 
or to historically underserved areas like rural communities or inner 
cities. Their arguments that this bill will give them the incentive to 
bring high-speed access to rural areas ring hollow when you consider 
the fact that they are selling off many of their rural exchanges, and 
there is little evidence that the ILECs have used the last five years 
to extend broadband to unserved communities. And without the 
competitive spur of new entrants, the incumbents will slow the pace of 
deployment and raise prices for advanced services. Analysts at Legg 
Mason have noted that ``with numerous DSL providers exiting the playing 
field . . . DSL pricing appears to be on the rise.'' SBC, for example, 
raised its residential DSL rates in February by approximately 25 
percent and Earthlink followed suit.
    The impact of this bill on competition would be particularly severe 
in light of current market conditions. Competitive LECs are suffering 
heavily because of the difficulties they have encountered entering 
local markets and the economic downturn. Over the past year, the CLEC 
industry has virtually collapsed. Numerous competitors, including 
Winstar, e.spire, Vectris, Jato, Prism, NETtel and many others, have 
declared bankruptcy or shut down operations. Even NorthPoint, which was 
widely considered the type of major competitive player created by the 
Act, is now defunct.
    For those that continue to struggle in operation, stock prices have 
plunged, and the capital market has virtually dried up. While 
telecommunications companies captured an average of two billion dollars 
per month in initial public offerings over the last two years, they 
raised only $76 million in IPOs last month, leading numerous companies 
to withdraw their IPO plans. 7
    The difficulty in entering local markets has also caused nearly all 
competitors to scale back their plans to offer service. Covad, 
originally another success story, is closing down over 250 central 
offices, and will suspend applications for 500 more facilities. Rhythms 
has cancelled plans to expand nationwide. Net2000 has put its plans for 
expansion on hold. Numerous other competitors have resolved to focus on 
a few core markets. Each of these decisions has been accompanied by 
hundreds of eliminated jobs. CLECs dismissed over 6000 employees in the 
last year, attempting to remain in business.
    The repercussions of these events on consumers is significant. 
CLECs reinvested most of their 2000 revenues in local network 
facilities. CLECs declaring bankruptcy in 2000 had planned to spend 
over $600 million on capital expenditures in 2001. Those competitive 
networks will not be available to consumers. Further, as CLECs leave 
the market, the incumbents raise their prices, and lose incentive to 
deploy advanced services. Indeed, we could well return to the 
environment that existed before the 1996 Act, when the Bells kept DSL 
technology on the shelf, feeling no pressure to deploy it in the 
marketplace.
    Mr. Chairman, as the ``father of program access,'' you are well 
aware that new entrants need access to the assets of incumbents in 
order to break into new markets. You took the lead in ensuring that new 
entrants to the video market would have access to the cable programming 
they needed to compete with incumbent cable operators. New entrants to 
the local exchange market need access to the facilities of the 
incumbent LECs for the same reasons. Depriving them of this access will 
deprive the public of the competitive telecommunications alternatives 
envisioned by you and the other authors of the 1996 Act.

INTERLATA DATA RELIEF IS NOT NECESSARY FOR THE DEPLOYMENT OF BROADBAND 
                        FACILITIES AND SERVICES

    The second component of the bill, interLATA data relief, also is 
not necessary to ensure adequate investment in broadband backbone 
facilities. There are ample backbone facilities throughout the United 
States from a wide variety of companies, including three--Qwest, 
Genuity, and Williams--that are affiliated with Bell companies. Other 
providers, such as Level 3, 360Networks, Global Crossing, and XO 
Communications, are currently adding fiber and deploying new 
transmission technologies to expand the capacity of existing networks. 
Qwest has deployed an 18,500 mile fiber network connecting 150 cities 
in the United States.8 Level 3's high-speed network has over 
16,000 miles of fiber optic lines and connects 50 U.S. 
cities.9 360Networks recently deployed 21,000 miles of fiber 
optic networks.10 In 1999 alone, twelve new companies began 
providing national Internet backbone services, for a total of 46 
providers in the United States.11 There is no support for 
the claim that section 271 is somehow depriving the country of needed 
backbone capacity. If anything, there is now a glut of backbone 
capacity far exceeding current demand.
    In fact, dozens of competitive providers have, in the last four 
years, blanketed the Nation with over 1,000 high-speed Internet points 
of presence (``POPs''), and today 95 percent of all Americans live 
within 50 miles of one of these competitively provided POPs. Each 
represents a DS-3 POP capable of providing customers with speeds of 45 
Mbps or more. And even this understates the level of access to the 
Internet backbone, because local ISPs aggregate onto high-speed private 
lines the demand of local communities for transport to the Internet 
backbone, regardless of the distance to the Internet POP.
    More fundamentally, this legislation is unnecessary because the 
BOCs themselves hold the key to obtaining the authority to provide any 
long distance service by opening their local markets to competitors. 
Earlier this month Verizon was granted permission under Section 271 of 
the Act to provide interLATA service in Massachusetts, in addition to 
its existing authority to provide interLATA service in New York. The 
FCC has also granted SBC approval to provide interLATA service in 
Texas, Kansas, and Oklahoma. Although AT&T believes that each of these 
Bell company applications fell short of what the Act requires in 
particular respects, it is clear that the requirements of Section 271 
of the Act are attainable and can be met, if a Bell company takes steps 
to open its local markets to competition.
    This is a particularly significant point because granting the Bell 
companies interLATA data relief would harm the very competition that 
Congress is seeking to promote. As this Committee is well aware, in 
order to foster local competition, the 1996 Act permits in-region 
interLATA authority only after a Bell company has opened its local 
market to competition. This incentive-based approach takes full 
advantage of the long distance restriction to provide the Bell 
companies with a reason to open their local markets for the benefit of 
all consumers. And the ability to provide high speed data services 
across LATA boundaries is a powerful incentive: currently, the majority 
of traffic traveling over long haul networks is data traffic, not 
voice, and analysts predict that data traffic will make up 90 percent 
of all traffic within four years.
    Nor is there any basis to conclude that, in adopting the 
Telecommunications Act of 1996, Congress intended to exclude broadband 
or advanced data services from the interLATA restriction. Even the most 
cursory review of the 1996 Act and its legislative history belies such 
an argument. For example, Section 271(g)(2) of the Act, which carves 
out incidental interLATA services that may be provided by the BOCs 
without FCC approval, specifically includes ``Internet services over 
dedicated facilities to or for elementary and secondary schools.'' 
Other Internet services provided by the Bell companies were therefore 
deliberately made subject to the interLATA restrictions.
    Too much remains to be done for Congress now to reopen the Act and 
remove or lessen the incentives provided by Section 271. The four Bell 
companies continue to dominate the local exchange market--CLECs account 
for only about 6 to 8 percent of the total local telecommunications 
market 12 and far less of the market for residential local 
telephone service. By permitting Bell companies to enter the high speed 
interLATA data market without first opening their local markets, this 
bill would substantially reduce the likelihood that this dominance will 
end.
    In particular, passage of this legislation would harm consumers in 
the more than 40 jurisdictions where the Bell companies have not yet 
sufficiently opened their local markets to obtain interLATA authority. 
SBC recently filed a Section 271 application to provide interLATA 
service in Missouri,13 and press reports indicate that other 
Section--271 applications may soon be filed.14 But if this 
legislation were enacted, the Bell companies would have less of an 
incentive to take any steps to open their local markets in these states 
to competition. Companies that lack the Section 271 incentives of the 
RBOCs have been far slower to comply with the market-opening provisions 
of the 1996 Act. For example, as the former CEO of Ameritech noted 
shortly after the Act's passage, GTE (then an independent LEC) has ``no 
incentive'' to cooperate to open its markets because it is not subject 
to Section 271.15
    Congress understood that if the Bell companies could provide long 
distance service before there were sufficient local alternatives, they 
would have the incentive and the ability to use their local networks to 
favor their long distance affiliate and discriminate against competing 
long distance providers that needed access to the Bells' local networks 
to reach consumers. Nothing has changed in the past five years that 
would alter that conclusion.
    The bill's attempt to ``limit'' interLATA relief to data 
transmissions would, moreover, be unavailing. With the growth of 
services like IP telephony, there is no longer a clear or readily 
identifiable distinction between ``voice'' and ``data'' transmissions. 
SBC, for example, has indicated an intent to move to packetized voice 
transmissions, which would essentially eliminate any distinction 
between the two services and allow SBC to characterize all 
transmissions as ``data'' transmissions. From a practical standpoint, 
even if the distinction remained clear, there is no effective way to 
determine whether the BOCs are only transmitting data services over 
their interLATA facilities. The ``data exception'' in the bill would 
essentially hand ILECs the tool they need to shut CLECs out from their 
networks completely, and would quickly and surely swallow the policies 
and rule embodied by Section 271.
    Perhaps most telling is the fact that, if there is a problem here, 
it can be addressed far more narrowly than by legislation that rejects 
the incentive-based framework of the 1996 Act. Indeed, the FCC has 
itself established an expedited process under which it will approve 
targeted LATA boundary modifications if a Bell company can demonstrate 
that such a modification is necessary for the deployment of ``advanced 
services.'' It is notable that the FCC has not received any requests 
for LATA modifications under this process.

                               CONCLUSION

    With all due deference to you, Mr. Chairman and the other co-
sponsors of this bill, there is no need for this legislation. Under the 
spur of competition--indeed, only under the spur of competition--the 
Bell companies have invested in broadband facilities and services. 
Moreover, because the Bell companies continue to dominate the local 
exchange market, this legislation would harm consumers and set back the 
cause of competition by undermining the very incentives and policies 
that Congress intended to foster local exchange competition.
    The CLEC industry is at a critical juncture. If we don't succeed 
now, it will be a long time before others are willing to invest the 
billions of dollars needed to try again. Rather than eliminate the most 
important incentive for the Bell companies to open their local markets, 
Congress should consider ways to make the process that it established 
in the 1996 Act more--and not less--effective.
    Thank you again for the chance to present our views.

                               Footnotes

    1 Id.
    2 SBC Investor Briefing, SBC Announces Sweeping 
Broadband Initiative, at 2 (Oct. 18, 1999).
    3 ``Running on Empty; Industry Trend or Event,'' 
Communications Week International (Mar. 5, 2001).
    4 Duane Ackerman, Talk Notes, Salomon Smith Barney 
Conference (Jan. 9, 2001) at 7, 15.
    5 Id. at 11.
    6 Id. at 2.
    7 Telecom Meltdown, Business Week (April 23, 2001).
    8 Qwest News Release, Qwest Communications Completes 
18,500 Mile Nationwide Network and Shifts Construction to 25 Local 
Fiber Networks, Sept. 13, 1999.
    9 ``Teligent to Buy Network Services from Level 3 
Communications,'' CNETNews.com (May 9, 2000).
    10 ``360networks Announces Record Fourth Quarter and 
2000 Revenues,'' PR Newswire (Mar. 1, 2001).
    11 Boardwatch Magazine's Directory of Internet Service 
Providers (11th ed., 1999).
    12 C.E. Unterberg, Towbin, Broadband Communications 
Providers, June 14, 2000, p. 5.
    13 ``SW Bell Seeks To Offer InterLATA Services In 
Missouri, Says It Followed Texas Model,'' TR Daily (April 9, 2001).
    14 See ``Qwest Takes a Shortcut to Re-Enter Long 
Distance,'' Hive4.com (April 15, 2001) (reporting that Qwest plans to 
file 271 applications for all 14 states in its region in late 2001).
    15 Mike Mills, ``Holding the Line on Phone Rivalry; GTE 
Keeps Potential Competitors, Regulators Price Guidelines at Bay,'' 
Washington Post, Oct. 23, 1996, at C12.

    Mr. Upton. Thank you.
    Mr. Gregori.

  STATEMENT OF JOSEPH GREGORI, CEO, INFOHIGHWAY COMMUNICATIONS 
                          CORPORATION

    Mr. Gregori. Good morning, if it is still appropriate. My 
name is Joseph Gregori, and I am the CEO of InfoHighway 
Communications Corporation. I would like to thank the chairman 
and other members of the committee for allowing me the 
opportunity to speak with you this morning.
    First, I would like to just spend a moment or two to tell 
you about InfoHighway, and what we are doing, and then share 
with you our view of this bill. InfoHighway is an integrated 
communications provider serving the needs of small to medium-
sized businesses, primarily in the northeast where we have just 
opened up several new offices in cities, and in Texas.
    We provide a full range of communication services, 
including bundled voice, high speed data through DSL, and other 
Internet offerings. We provide these services through a 
combination of our own network facilities, resale and UNIP. 
That's how we are reaching our customers.
    We are utilizing DSL technology because we think it is the 
right choice, and deploying such through a co-location strategy 
that includes both deployment in the RBOC central offices, as 
well as directly in buildings that are not currently being 
served and may be out of reach of DSL services.
    We have chosen DSL and are building our own network to 
further position ourselves in the future to deploy new 
technologies, voice-over DSL and voice-over IP. We see the 
convergence coming, and we are not ready yet to endeavor down 
that path, but we are positioning ourselves that way.
    We have deployed our equipment, primarily Cisco and Access 
Link communication devices, and DSLAMs in approximately 100 
buildings in 10 central offices, the majority of which in the 
last 6 months, since our recent funding in September 2000.
    As a service provider, we differentiate our service by 
focusing on the needs of the customer, which are primarily 
small to medium sized businesses. These customers typically 
don't have data or communications staffs, or the in-house 
expertise necessary, but rather look to service providers like 
ourselves, who offer communication solutions to their needs 
with friendly, responsive, customer service.
    Whether it is our high speed Internet access products, our 
customized voice calling plans, or total bundled communication 
services, we are delivering new creative valuated solutions to 
this market segment.
    With respect to this bill, I have several views. First, if 
passed, I believe that it will result in less incentive for the 
RBOCs to continue to open their local networks and comply with 
the 14 point checklist requirements of the 1996 Act.
    The data services segment is a huge slice of the interLATA 
traffic, and granting relief as proposed by this bill would be 
a major concession and relieve the RBOCs of a significant 
statutory requirement.
    The effect of such to me is very clear; less competition 
and less choice, especially for the small to medium-sized 
business segment. Today they are undeserved, and if this bill 
is passed, they will likely have fewer choices.
    The checklist works. In several States, 271 approval has 
been granted. Why would we consider changing that now. Second, 
I believe the RBOCs are frustrated and will continue to 
undermine competition at every juncture.
    Providing them with access to advanced data services now 
across LATA boundaries will reinforce such. Our experience is 
recently demonstrated to us that these practices will continue. 
One RBOC has recently proposed to raise wholesale rates to 
competitors that access their network, while also withdrawing 
access to advanced data services to companies like ours.
    We had access to advanced data services very briefly, and 
we made a significant investment in the product rollout, and 
then it was just as quickly withdrawn from us. And last the 
bill as drafted I believe will be interpreted very negatively 
by the capital markets.
    Wall Street and venture capitalists will perceive this as 
further support for the RBOCs and rightly so, and to the 
detriment of competition. An already tight capital market will 
further constrict. Every competitor will be impacted as 
additional capital will become scarce.
    In closure, although I believe in the intent and the spirit 
of the bill, the outcome, if passed, will not be the expected 
one. Competition will suffer. If this bill is passed, the RBOCs 
will have less incentive to comply with the 14 point checklist, 
and competition will not be served in the small to medium-sized 
business segments, and it will be perceived negatively by the 
capital markets. Thank you.
    [The prepared statement of Joseph Gregori follows.]

    PREPARED STATEMENT OF JOSEPH GREGORI, CHIEF EXECUTIVE OFFICER, 
                 INFOHIGHWAY COMMUNICATIONS CORPORATION

    Mr. Chairman and Committee Members, my name is Joseph Gregori and I 
am chief executive officer of InfoHighway Communications Corporation. 
InfoHighway is also a member of the Association of Communications 
Enterprises, better known as ASCENT, which represents entrepreneurial 
communications firms. I appreciate the opportunity to offer my 
comments, on behalf of my company as well as ASCENT, on the Internet 
Freedom and Broadband Deployment Act of 2001.
    InfoHighway Communications Corporation is a leading Integrated 
Communications Provider serving the small to medium-sized business 
market in New York, New Jersey, Pennsylvania, Massachusetts, Maryland, 
Washington, D.C., and Texas. The company offers a fully bundled package 
of services, including voice, data, and Internet offerings. We provide 
these services--appropriately enough considering the subject for 
today's hearing--through a combination of the three entry strategies 
established by the 1996 Telecommunications Act: our own facilities, 
resale and unbundled network elements. Additionally, InfoHighway is 
building an advanced data network, deploying DSL technology through 
both a building-based and central office collocation strategy. To date, 
we have deployed DSL technology in approximately 100 buildings and have 
collocated in 10 ILEC central offices.
    InfoHighway, which through its subsidiaries has been operating for 
over five years, has over 150 employees serving customers in 11 
markets. In September of 2000 we received a $150 million equity 
commitment, of which $45 million was initially invested in our first 
stage of growth and network deployment. Our Network plan calls for us 
to provide DSL in conjunction with the UNE-Platform 1 in its 
initial stages, and then converging services utilizing Voice-over-DSL 
and Voice-over-IP as these technologies mature and are commercially 
accepted.
---------------------------------------------------------------------------
    \1\ The term ``UNE-Platform'' refers to all unbundled network 
elements being combined and provisioned as a single entity.
---------------------------------------------------------------------------
    InfoHighway serves over 6,000 customers with more than 20,000 
access lines. We are adding over 2,000 new access lines per month. Our 
target market is small to medium-size businesses, a vastly under served 
audience that, in the past, has not had access to a broad range of 
services and service providers. Indeed, an important reason that 
customers do business with us is that we address their specific needs 
through innovative products and responsive service. Whether it's our 
high-speed DSL services, local and long distance voice offerings, 
custom features such as enhanced voice mail that can be accessed from a 
PC, or conference calling services, our products and services are 
designed to help small and mid-size firms.
    I applaud the efforts made by this panel to ensure that all 
Americans are given access to the current benefits and future potential 
of the Internet. Certainly, InfoHighway and other members of the 
competitive community want broadband services deployed as quickly as is 
possible. You could almost say that the success of my company depends 
on it. It is critical to note, in fact, that InfoHighway and other such 
entrepreneurial firms have been on the forefront of advancing 
technological change at a rate never before seen. Collectively we have 
raised billions of dollars in capital to invest in the necessary 
infrastructure for these new and exciting services. And, on a daily 
basis, are offering these services to thousands of new customers. This 
investment in and deployment of advanced services by InfoHighway and 
other competitive carriers simply would not have happened without 
passage of the 1996 Telecommunications Act. Unfortunately, these 
significant advances are often overshadowed by the constant criticism 
leveled at the Act by the Regional Bell Operating Companies and their 
allies.
    While I understand the intent behind the Internet Freedom and 
Broadband Deployment Act of 2001, I do not believe it would promote 
either Internet freedom or broadband deployment. Indeed, the only 
beneficiaries of the legislation's ``freedom'' would be the remaining 
Regional Bell Operating Companies, because they would be freed of their 
statutory obligation, set forth in the 1996 Act, of opening their local 
markets to competition. Conversely, the legislation provides anything 
but ``freedom'' for InfoHighway and other competitive service 
providers, as well as consumers. In fact, the bill would deny us the 
freedom to compete for consumers, as promised by the 1996 Act, and 
consumers the freedom of choice in service providers.
    The legislation, if enacted, would do tremendous harm to 
InfoHighway and our customers. It would seriously impair the ability of 
our company to effectively execute its business plan, secure additional 
funding and deliver new services to end users. By giving the RBOCs the 
ability to transmit data on an interLata basis, the bill would 
substantially reduce the incentive for the RBOC's to open their 
networks to competitors, such as InfoHighway, by complying with the 
process set forth in Section 271 of the 1996 Act. The result would be 
less competition, which is the exact opposite intent of the 1996 Act. 
Consumers, especially small to medium-sized businesses would yet again 
be denied the very benefits anticipated by the opening of local markets 
to new entrants, including technological innovation and creative 
service offerings.
    If InfoHighway's experience is an accurate reflection of what is 
occurring throughout the industry, and I believe it is, the RBOCs have 
frustrated and will continue to undermine competition at every 
opportunity. Recently, for example, one particular RBOC proposed to 
reduce by nearly half the wholesale margins for local service in 
Massachusetts and withdrew advanced data services to companies such as 
ours after we successfully launched the product in New York. Passage of 
the legislation before us today would serve only to reinforce this 
anti-competitive behavior.
    Allowing the RBOC's to transmit advanced data services across Lata 
boundaries also would further tighten the capital markets for 
entrepreneurial companies like InfoHighway. The capital markets are 
demanding performance measurements from the new service providers, 
which is a good, sensible requirement. Until the local markets are 
completely opened, however, giving the RBOC's interLata data authority 
would be viewed as support for the incumbents, not for competitors. The 
legislation, in short, would greatly hinder the ability of competitive 
service providers to secure much need funding, both today and in the 
future.
    Eliminating the RBOCs unbundling and resale obligations with 
respect to advanced services, such as DSL services, would be equally as 
harmful to InfoHighway and other competitive carriers. We believe, as 
does the U.S. Court of Appeals 2, that there is no 
distinction between these services and standard voice services. The 
RBOC's must provide access to these services, through unbundling and 
resale, as they do their other service offerings. Data, not voice, 
represents the future of communications. Denying competitors access to 
such services would set in motion their future obsolescence while, at 
the same time, handing over even greater monopoly power to the RBOCs.
---------------------------------------------------------------------------
    \2\ Association of Communications Enterprises v. FCC, 235 F.3d 662 
(D.C. Circuit January 9, 2001).
---------------------------------------------------------------------------
    The fact is Mr. Chairman the legislation before us today would do 
tremendous harm to competitive carriers while giving the RBOCs relief 
which they simply do not need. First, in the 271 process, the statutory 
scheme already exists that would effectively provide the RBOCs with the 
relief proposed by the new legislation. Verizon, for example, can today 
offer interLata data services in New York, my home state, because their 
271 application, in accordance with the 1996 Act, was approved by the 
FCC. Second, new emerging competitive service providers already are 
deploying broadband services and, I submit, would be deploying them 
substantially faster if the RBOCs were convinced that no exemptions 
from the 271 process would be forthcoming. Finally, the RBOCs 
themselves are deploying broadband high speed Internet access to their 
customers. And they are doing so not because they have been freed from 
their ``regulatory shackles,'' but because competition is forcing them 
to.
    Even the most cursory analysis of the facts will leads to the 
conclusion that any new legislation concerning broadband deployment is 
unnecessary. What is needed is time and patience. The plain fact is the 
1996 Act states in unambiguous terms that compliance with the 14-point 
checklist contained in section 271 will result in the relief from 
interLATA restrictions the RBOCs seek. This essential quid pro quo 
process can and will work, and it would be completely counterproductive 
to override the process in place by enacting the legislation before us 
today.
    I urge the members of this Committee to uphold the 1996 
Telecommunications Act and to ``stay the course'' on behalf of 
competition and American consumers. By allowing the 1996 Act to 
continue to deliver the promise of competition, enterprising 
communications providers like InfoHighway will continue bringing high 
speed Internet access and choice in service providers to consumers 
across the country.
    This concludes my prepared statement. Thank you again for the 
opportunity to testify today. I will be happy to answer any questions.

    Mr. Upton. Mr. Henry.

     STATEMENT OF JAMES H. HENRY, MANAGING GENERAL PARTNER, 
                  GREENFIELD HILL CAPITAL, LLP

    Mr. Henry. Good afternoon. I would like to thank the 
chairman and the members of the committee for inviting me to 
testify at today's hearing. Just by way of introduction, I 
manage a company called Greenfield Hill Capital, which is a 
telecommunications Investment Fund.
    Prior to founding Greenfield Hill Capital recently, I acted 
as a telecommunications research analyst on Wall Street for 
about 7 years, most recently at Bear Stearns, where I was 
responsible for following the competitive local exchange 
carriers among other competitive and resurgent business models 
across the telecom, and data services space.
    My comments today or my testimony today will provide a Wall 
Street perspective on local competition and what I perceive as 
potentially adverse implications on this legislation on local 
competition and broadband deployment.
    First, let me just state that I believe that local 
competition is in the public interest insofar as it accelerates 
the deployment of advanced broadband networks, technology, and 
services to both businesses and consumers across the country.
    Second, that it drives reduction in the prices of local 
telecom services, and, three, it creates new jobs and demand 
for technologically sophisticated networks. So I believe that 
local competition is in the public interest on that basis.
    Competition from a Wall Street perspective has historically 
been viewed as a very positive opportunity based on large 
extent on the track record of the long distance industry, the 
value, wealth, and creation that occurred there.
    The size of the local market opportunity, its 
profitability, and relatively stable growth initially attracted 
a lot of investors and a lot of capital to the space. I think 
the evidence is quite clear that in the past year investor 
sentiment has turned quite to the contrary as a result of a 
number of factors that include the legislative and regulatory 
uncertainty that overhangs the industry today.
    My second point is that the CLECs are the principal agents 
of local competition, and broadband deployment in the local 
telecom market. I would point out that the CLECs, including the 
CLECs subsidiaries in companies like AT&T and World.com have 
installed a total of 12.2 million local telephone lines 
competitively since the passage of the Telecom Act of 1996.
    Those lines represent about $7.5 billion of annual 
recurring revenue which has been generated by these competitive 
companies. By contrast, I would note that the incumbent local 
exchange carries, principally SBC and Verizon, have done very 
little outside of their respective home territories on the 
competitive front, and in fact both companies have announced 
recently pullbacks to their out of region initiatives, despite 
the commitments made under the merger agreements for Ameritech 
and GTE.
    I would also point out that the ILECs have pulled back to 
some extent their in-region broadband initiatives, particularly 
as it relates to DSL, and in fact you have seen them raise 
prices just as competition has dropped off and the other 
competitive players have died.
    The third point is that access to capital is the lifeblood 
of telecom in particular, and early stage companies like the 
CLECs in particular, and therefore access to capital is the 
lifeblood of competition in the telecommunications industry, 
particularly local.
    As a result of relatively free flowing access to capital 
from 1996 through 1999, CLECs deployed approximately $55 
billion of capital to build alternative local networks, 
broadband networks, and unfortunately as the capital markets 
have collapsed beneath the weight of great uncertainty, and 
concerns surrounding the technology in the telecom sector, CLEC 
capital spending has slowed dramatically.
    I would note in fact that CLEC capital spending in 1999 was 
$6 billion. It grew dramatically to $10 billion in the year 
2000, and is expected to contract to reduce to only $7 billion, 
and probably less, in 2001, and likely lower than that beyond.
    As far as Wall Street concerns and investor sentiment, it 
is my observation as an industry analyst that the investment 
community's willingness to fund telecom companies in general, 
and CLECs in other early stages of businesses in general, or in 
particular, is adversely impacted by legislative and regulatory 
uncertainty.
    The proposed Act that is in front of the committee is 
illustrative of that kind of legislative uncertainty that I 
think will cause investors to move to the sidelines and 
withhold capital from these companies.
    I have had numerous conversations over the past number of 
quarters with investors--public equity investors, and private 
equity investors, and high yield investors--across all the 
capital markets, who have said that they view regulatory 
uncertainty in telecommunications as a principal reason or one 
of the principal reasons that they have moved to the sidelines.
    As far as the particulars, I am troubled by this Act 
insofar as it could, one, jeopardize competition for broadband 
by exempting high speed data and Internet services, as well as 
the facilities that provide those services from regulation.
    Two, it could significantly reduce the incentives for the 
Bells to comply with 271, and to open their local markets to 
competition.
    And, three, could seriously jeopardize line sharing. So, in 
summation, I view that this bill would be negative to 
competition in the local market, and it would be negative to 
broadband deployment overall, and I would urge the committee to 
not approve the bill.
    [The prepared statement of James H. Henry follows.]

    PREPARED STATEMENT OF JAMES H. HENRY, MANAGING GENERAL PARTNER, 
                      GREENFIELD HILL CAPITAL LLP

                              INTRODUCTION

    Mr. Chairman and Members of the Committee, thank you very much for 
inviting me to testify at today's hearing on the proposed Internet 
Freedom & Broadband Deployment Act of 2001. My name is James Henry and 
I am the Managing General Partner of Greenfield Hill Capital LLP, a 
hedge fund focused on the communications sector. Prior to founding 
Greenfield Hill Capital I served as a research analyst following the 
telecommunications industry for approximately 7 years. Most recently, I 
was a Senior Managing Director at Bear, Stearns & Co. Inc. where I was 
ranked 2nd in Institutional Investor Magazine's All American Research 
Team survey for the CLEC category in 1999 and 2000. My testimony today 
will provide a ``Wall Street'' perspective on local competition and the 
implications of the proposed legislation.

                       LOCAL TELECOM COMPETITION

    I believe that competition in the local telecommunications industry 
is in the public interest insofar as it (1) accelerates the deployment 
of advanced networks, technology, and services to businesses and 
consumers, (2) drives reduction in the prices of local 
telecommunications services, and (3) creates new jobs and employment 
opportunities for technologically sophisticated workers. Competition in 
the telecommunications market has historically been viewed as a 
compelling opportunity by the investment community as a result of the 
substantial size, growth and profitability of the market coupled with 
regulatory and legislative initiatives to foster the growth and 
development of competition in the marketplace. That perception has 
clearly changed to the negative as a result of a number of factors that 
include legislative and regulatory uncertainty.

                        CLECS=LOCAL COMPETITION

    The CLECs and other non-incumbent telecommunications companies are 
the principal drivers of competition in the local market. The CLECs, 
including the CLEC subsidiaries of AT&T and WorldCom, have installed a 
total of approximately 12.2 million local access lines and achieved an 
annualized local revenue run rate of approximately $7.5 billion since 
the passage of the Telecommunications Act of 1996. By contrast, the 
ILECs, principally SBC Communications and Verizon, have done very 
little outside their respective regions on the competitive front. In 
fact, both companies announced significant pullbacks of their out-of-
region competitive initiatives in the past quarter.

                           ACCESS TO CAPITAL

    Access to capital is the lifeblood of the telecommunications 
industry in general and the CLECs in particular, given the high startup 
costs and the capital intensity of the businesses. Therefore, I submit 
that access to capital is vital to competition in the local telecom 
market to the extent that the CLECs offer the only meaningful source of 
local competition. As a result of the relatively free-flowing access to 
capital enjoyed between 1996 and 1999, the CLECs deployed approximately 
$55 billion in capital to build alternative local networks. Regrettably 
as the capital markets have collapsed beneath the weight of the broader 
market and the significant uncertainty surrounding the sector, CLEC 
capital spending has started to slow significantly. For example, CLEC 
capital spending grew from $6.0 billion in 1999 to $10.2 billion in 
2000, but is expected to contract to $7.0 billion or less in 2001.

                          WALL STREET CONCERNS

    It is my observation as an industry analyst that the investment 
community's willingness to fund telecom companies in general and CLECs 
in particular is adversely impacted by legislative and regulatory 
uncertainty. The proposed Internet Freedom & Broadband Deployment Act 
of 2001 is illustrative of the kind of legislative uncertainty that 
will cause investors to move to the sidelines and withhold capital from 
the emerging local competitors. I have had a number of conversations 
with institutional investors, including private equity investors, 
public equity investors, and high yield investors, that have cited 
regulatory uncertainty as one of the principal reasons for avoiding the 
telecommunications sector in general and the CLECs in particular.

        THE INTERNET FREEDOM & BROADBAND DEPLOYMENT ACT OF 2001

    The proposed legislation has the potential to create the following 
issues that would adversely impact the CLECs and therefore the pace of 
local competition in the United States. The principal issues that 
concern me about the proposed legislation include, but are not limited 
to, the potential that it could (1) jeopardize competition for 
broadband and voice services by exempting high-speed data and internet 
access services and facilities from regulation, (2) significantly 
reduce the incentive of the ILECs to open their local markets to 
competition in order to qualify for entry into long distance, and (3) 
jeopardize line sharing and eliminate access to unbundled loops, sub 
loops, and dark fiber on facilities that are used for both voice and 
data. Furthermore, I would submit that any legislation that views voice 
and data network facilities as separate is not prepared to follow the 
telecommunications industry into the inevitable future of unified 
packet-switched networks that will carry all traffic. In conclusion, I 
urge the committee to not pass the proposed legislation because I 
believe it will have an adverse impact on local competition, which 
would not be in the public interest.

    Mr. Upton. Mr. Hills.

    STATEMENT OF GORDON HILLS, EXECUTIVE DIRECTOR, ECONOMIC 
   OPPORTUNITY PROGRAM OF ELMIRA NEW YORK, ON BEHALF OF THE 
       NATIONAL ASSOCIATION OF COMMUNITY ACTION AGENCIES

    Mr. Hills. Good afternoon. Thank you, Mr. Chairman, for 
inviting me here, and giving me the opportunity to testify. My 
name is Gordon Hills, and I am a member of Keep America 
Connected, and also the executive director of a community 
action agency in a rural urban environment in upstate New York.
    Also, I am different from some of the members here in that 
I am going to be hopefully an end-user of the product that this 
bill will provide. So I am speaking on behalf of consumers.
    Keep America Connected, formed in February 1997, is a 
partnership between consumer organizations, labor, and local 
phone companies. This partnership represents older Americans, 
people with disabilities, rural and intercity residents, people 
of color and low income residents.
    Keep America Connected works to achieve affordable access 
to modern telecommunication services by all consumers. A major 
intent of the organization is to ensure that regulatory changes 
guiding the transition to a competitive market also preserve 
affordability and accessibility.
    We appreciate you conducting this vital hearing because our 
service populations will be the beneficiaries of your 
legislation. I joined Keep America Connected because I wanted 
to find a way to make a difference and empower many of our 
communities that are disenfranchised.
    I serve on the Keep America Connected Board of Directors, 
and on the Technology Committee for the National Association of 
Community Action Agencies or NACAA. The goal of Keep America 
Connected is to make sure that we all have access to the 
wonders of telecommunications and that policymakers remember 
that consumers are concerned with both rates and accessibility.
    The Community Action network that I work in operates in 96 
percent of the Nation's counties supporting a wide range of 
programs. Many of those agencies performs services for more 
than 34.5 million people living in poverty in the United 
States.
    And those programs represent a broad range of services. One 
of my major responsibilities are to support more than 900 
community action agencies and assist them in upgrading their 
technological capabilities. This includes equipping low income 
clients with technical skills and facilitating high speed 
Internet access.
    In short, our national network is to Keep America 
Connected's commitment toward bringing affordable broadband 
services to all Americans. While building up technology in 
individual agencies, we are focused on providing cutting edge 
training to preschoolers, troubled teens, and the elderly.
    With the held of broadband technology, we intend to use 
video and audio strictly to augment our education programs. 
Broadband access will allow the use of streaming video and 
audio in teaching and training modules.
    However, with more than 60 percent of community action 
agencies located in rural areas, the only hope of high speed 
access will be for Congress to allow income in local exchange 
carriers to build out networks.
    For all the stakeholder groups that were involved in 
affordable access to high speed telecommunications brings the 
promise of the information age closer to reality for us. Access 
to broadband means very different things to different groups, 
but the needs and interests of various stakeholders are not 
mutually exclusive.
    They share common concerns of economic development and 
quality of life issues and the wide range of benefits as a 
whole is much greater. For small businesses, greater broadband 
promotes business development and economic equality. I talk 
about this because I am also a member of the Workforce 
Development Board.
    A greater deployment of broadband will allow smaller 
businesses to compete with larger ones. For those living in 
rural areas, social applications, which includes telemedicine 
and distance learning, help to bridge the difference and 
distance of geography.
    We strongly support the Internet Freedom and Broadband 
Deployment Act of 2001. It is an important step to achieve a 
more rapid deployment of broadband technology to all consumers, 
and particularly those that right now have very limited access. 
With that, my time is up, and I will yield.
    [The prepared statement of Gordon Hills follows.]

  PREPARED STATEMENT OF GORDON HILLS, EXECUTIVE DIRECTOR OF ECONOMIC 
          OPPORTUNITY PROGRAM, MEMBER, KEEP AMERICA CONNECTED

    Thank you, Mr. Chairman, for allowing me the opportunity to 
testify. My name is Gordon Hills and I am a member of Keep America 
Connected. Keep America Connected, formed in February, 1997, is a 
partnership between consumer organizations, labor, and local phone 
companies. This partnership represents older Americans, people with 
disabilities, rural and inner city residents, people of color, and low-
income citizens. Keep America Connected works to achieve affordable 
access to modern telecommunications services by all consumers. A major 
tenet of the organization is to ensure that regulatory changes guiding 
the transition to a competitive market also preserve affordability and 
accessibility.
    We appreciate your conducting this vital hearing because our 
serviced populations will be the beneficiaries of your legislation.
    I joined Keep America Connected because I wanted to make a 
difference and empower many in our community that are disenfranchised. 
I serve on the Keep America Connected Board of Directors and on the 
Technology Committee for the National Association of Community Action 
Agencies or NACCAA.
    Keep America Connected was begun in 1997 to provide a new voice for 
consumers in the telecommunications arena. Traditionally, organizations 
that claim to speak for consumers on these issues seemed to have on one 
main concern: low rates.
    Naturally, we do not disagree that consumers should pay only just 
and reasonable rates. However, we believe that this is not the only 
interest that consumers have with respect to telecommunications. It is 
equally important that consumers have the option to choose these 
services. As the current focus on the digital divide demonstrates, 
without this legislation it is likely that some parts of this country 
will not see these benefits for some time to come.
    The goal of Keep America Connected is to make sure that we all have 
access to the wonders of modern telecommunications and that policy 
makers remember that consumers have more than one issue, rates, that 
they are concerned with. I think that my own experience illustrates the 
need for this focus.
    The Community Action Agencies with which I work were established 
under the Johnson administration to help fight the war on poverty. 
These agencies operate in 96% of the nation's counties supporting a 
wide range of programs. These agencies perform services for more than 
34.5 million people who are living in poverty in the United States. 
Programs include referrals, emergency services, education, and family 
development, to name a few.
    One of my major responsibilities is developing a program that will 
support more than 900 community action agencies upgrade their 
technology capabilities. This includes equipping low-income clients 
with technical skills and facilitating high-speed Internet access. In 
short, NACCAA shares Keep America Connected's commitment to bring 
affordable broadband services to all Americans.
    NACAA's Board of Directors has approved a strategic plan that will 
better enable the organization to bring technology to all of its member 
organizations. This will be a daunting task. We are confronted with 
traditional and non-traditional problems associated with the Digital 
Divide.
    While building up the technology in the individual agencies, we are 
focused on providing cutting edge training to pre-schoolers, troubled 
teens, and the elderly. With the help of broadband technology, we 
intend to use video and audio streaming to augment our education 
programs. Broadband access will allow the use of streaming video and 
audio in teaching and training modules. However, with more than 60 
percent of CAA's located in rural areas, the only hope of high speed 
access will be for Congress to allow Incumbent Local Exchange Carriers 
to build out networks.
    Finally, the work performed by CAA's generates a vast amount of 
data that is shared between organizations. Because we do not have 
significant resources, we will need to depend more on high-speed 
Internet access as the conduit for data sharing and transfer. Data 
relief will allow the incumbent local exchange carriers to provide high 
speed access to members of Keep America Connected, thereby allowing our 
individual organizations to provide our services in an efficient and 
affordable manner.
    For all of the stakeholder groups that I've mentioned, affordable 
access to high-speed telecommunications--broadband access--brings the 
promise of the Information Age closer to reality.
    Access to broadband means very different things to different 
groups, but the needs and interests of various stakeholders are not 
mutually exclusive. They share common concerns of economic development 
and quality-of-life issues. The wide range of benefit for the whole is 
very great.
    For example, for consumers, data relief leads to reduced costs, 
greater availability and choice of high-speed Internet service through 
increased competition. For small businesses, greater broadband promotes 
business development and economic equality. Greater deployment of 
broadband will allow smaller businesses to compete with larger ones. 
For those living in rural areas, social applications, which includes 
telemedicine and distance learning, help to bridge the distance of 
geography. For minorities, increased broadband access helps to level 
the playing field in the New Economy--this means greater educational 
and economic opportunities. For individuals with disabilities broadband 
provides an increase in independent living.
    It is our belief that the real benefits of competition will not be 
delivered until it reaches all classes of consumers. Consumers need 
more choices in local and long distance providers, not the ``cherry-
picking'' marketing strategies currently driving competition. America 
cannot and should not be divided into a society of the information 
haves and have-nots. Predictable, sufficient supports are needed to 
make sure the availability of affordable, universal telephone service.
    From my work at the community level I can clearly see the promise 
that the Internet can bring to consumers. While it can help our centers 
to manage information, it can also provide the members of these 
communities with the latest online applications in education, medicine, 
e-commerce and many other areas. But none of this will be possible 
without an acceleration of broadband deployment.
    We strongly support the Internet Freedom and Broadband Deployment 
Act of 2001. It is an important step to achieve a more rapid deployment 
of broadband technology to all consumers. The bill meets the test of a 
common sense, pro-consumer approach to do two things:
    First, it eliminates unnecessary government restrictions on who can 
offer data services, providing additional consumer choice and 
benefiting all.
    Second, it proposes to eliminate regulations that have discouraged 
deployment of advanced services to consumers.
    We feel that the Tauzin Dingell bill is an essential element in 
eliminating the digital divide and we urge the Congress to enact it 
quickly. Those Americans stuck in the digital divide have already lost 
too much time.

    Chairman Tauzin. Thank you very much, Mr. Hills, and by the 
way, I want to commend you for your work with Community Action. 
As a former officer in a local action agency, I know the work 
that you do, and I thank you for it.
    Mr. Hills. Thank you.
    Chairman Tauzin. Mr. Mancini is recognized.

   STATEMENT OF PAUL K. MANCINI, VICE PRESIDENT AND ASSISTANT 
     GENERAL COUNSEL, SBC MANAGEMENT SERVICES, INCORPORATED

    Mr. Mancini. Thank you for the opportunity to appear and 
testify before you this morning. I am Paul Mancini, Vice 
President and Assistant General Counsel of SBC Communications.
    H.R. 1452 will encourage broadband deployment to consumers 
in all areas of the country. It will balance the regulatory 
disparity that currently exists between different types of high 
speed Internet access providers, and it will help close the 
digital divide, and it will encourage competition by providing 
more customers with more choices in higher quality services at 
competitive prices.
    I would like to focus my remarks this morning primarily on 
the market for high speed Internet access services and the 
situation that we confront in Illinois, because this provides a 
compelling real life evidence of why this bill should be 
passed.
    There are two fundamental competitive principles that we 
believe should guide Congress when considering this 
legislation. First, competitive markets should be free from 
government regulation.
    Second, if there is some sound, public policy reason for 
regulating a competitive market, all service providers in that 
market should be subject to symmetrical regulatory 
requirements.
    In other words, the same services in the same competitive 
markets should be regulated in the same way, regardless of who 
is providing the services or what technology is used.
    By way of background, SBC's high speed Internet access 
services is called digital subscriber service or DSL. We 
compete directly against the local cable operator which offers 
cable modem service, as well as against wireless and satellite 
based high speed Internet access providers.
    The cable operators, including AT&T, have in excess of 75 
percent market share in this market. Moreover, you have to keep 
in mind that all versions of this Internet access are based on 
new investment, new facilities, new networks, to provide this 
capabilities. They are not based upon the old Legacy voice 
network.
    I found it very interesting when I was reading AT&T's 
written statement yesterday and listening to their opening 
remarks. You would think from hearing those that AT&T is a 
simple bi-standard or poor little DSL provider that is being 
forced out of the high speed Internet market.
    Let's be clear about this. AT&T is the Nation's largest 
cable monopoly, and they are also the Nation's largest provider 
of high speed Internet access service through a closed network 
that includes content and is completely unregulated.
    And they, along with other cable companies, are now trying 
to ask Congress to block competition in that market in which 
they are the dominant provider. I would like to talk about just 
some facts, and not allegations, and not speculation.
    So there are a few undisputed facts that should drive your 
consideration of this legislation. Notwithstanding what you 
hear from some components, this bill is not about Bell's 
company monopolizing the DSL market, because there is no such 
thing as a separate DSL market.
    Rather, the FCC and every independent analyst and economist 
who have looked at this issue have concluded that the market 
for high speed Internet access services is a separate, 
distinct, and competitive market in which there are four 
different providers using different technologies, competing 
head to head.
    The main providers are cable companies, DSL companies, 
wireless and satellite companies, all providing their own 
version of open Internet access. Moreover, it is undisputed 
there is no bottleneck in this market.
    Indeed, each of the four types of providers use their own 
facilities and do not rely on the facilities of the other three 
providers. As everyone has mentioned, cable modems clearly 
dominate the market today, and they serve 3 out of 4 customers.
    Finally, it is undisputed that telephone companies are 
heavily regulated when they provide DSL, but no similar 
regulatory requirements apply to cable modems or wireless, or 
satellite providers. Despite the fact that we are the non-
dominant player in this competitive market, we are subject to 
persuasive regulation by the FCC, by the States, and now 
recently by the Illinois Commission.
    For example, when we provide DSL service, we are faced with 
the following types of obligations. We have to interconnect 
with data competitors. We have to share the broadband spectrum. 
We have to connect with ISPs. We have to offer open access.
    We have to offer wholesale pricing obligations, and we have 
to offer resale, and we have to provide the location, and we 
have to operate through a separate structurally separate 
subsidiary.
    And I would say to Mr. Cicconi that cable companies, 
including AT&T, do not have any one of those obligations. Not a 
one. If you compare that to a franchise obligation, you can see 
the regulatory disparity that exists in this market.
    So, in contrast, there is simply no public policy 
justification for heavily regulated, the non-dominant player, 
DSL, in a competitive market. Moreover, the disparate 
regulatory treatment has consequences, and it results in 
reduced and distorted decisions, delay deployment, higher 
costs, and fewer choices. Now, let me just give you an example 
in Illinois.
    Chairman Tauzin. The gentleman's time has expired. So you 
are going to have to wrap real quick.
    Mr. Mancini. In Illinois, as a result of the decisions by 
the Illinois Commission which required us to, quote, unbundle 
our integrated line cards, we have submitted sworn affidavits 
from AlCatel's chief technology officer, that says that one is 
technically infeasible.
    In addition, it increased our costs over $500 million, and 
as a result, we had to suspend deployment of DSL in Illinois. 
This is the type of regulatory decision by State agencies which 
is going to destroy the potential for DSL to compete against 
cable modems in the future.
    [The prepared statement of Paul K. Mancini follows.]

  PREPARED STATEMENT OF PAUL K. MANCINI, VICE PRESIDENT AND ASSISTANT 
                GENERAL COUNSEL, SBC COMMUNICATIONS INC.

    Thank you for the opportunity to appear and testify before you this 
morning. I am Paul K. Mancini, Vice President and Assistant General 
Counsel of SBC Communications Inc.
    HR ____, commonly known as the Internet Freedom and Broadband 
Deployment Act of 2001 will encourage greater broadband investment and 
deployment of high-speed Internet access to consumers in all areas of 
the country. It will balance the unjustified and anticompetitive 
regulatory disparity that currently exists between different broadband 
providers, help close the Digital Divide, and encourage competition by 
providing customers with more choices and higher quality services at 
competitive prices.
    I commend Chairman Tauzin and Ranking Member Dingell for their 
leadership and for recognizing that the application of rules designed 
to regulate the legacy voice network has delayed the availability of 
high-speed Internet access for consumers, has delayed the widespread 
deployment of broadband services for consumers, and has slowed 
competition between competing providers in this market.
    There are two fundamental competitive principles that should guide 
Congress. First, competitive markets should be free from governmental 
regulation of the rates, terms and conditions under which goods and 
services are provided to the public. Second, if there is some public 
policy reason for regulating a competitive market, all service 
providers in that market should be subject to symmetrical regulatory 
requirements. In other words, the same services in the same market 
should be regulated in the same way, regardless of who is providing the 
services or what technology is utilized to deliver those services. Let 
consumers decide who to select based on competitive markets, and not on 
the result of regulations that pick winners and losers.
    Congress need look no further than to the wireless market for 
confirmation that these principles will benefit consumers and 
competition. In the early 1990s, Congress decided that a competition 
model (rather than a regulatory model) should be used for the wireless 
market. Hence, neither the FCC nor the states regulated the prices, 
terms or conditions in that market and there are no requirements for 
wirelesss providers to unbundle their networks or to assist their 
competitors entry into the market. As a result, investment in the 
wireless market has exploded, prices have fallen dramatically, and 
consumers have benefited from the robust competition in that market by 
seeing more choices, more innovation and lower prices.
    HR ____ is a step in the right direction toward fulfilling these 
fundamental principles in the market for high-speed Internet access 
services. Any legislation to promote the delivery of these services to 
the public should reduce the asymmetric regulation that currently 
exists between the cable industry, the telephone industry and other 
providers of these services, and bring about more competition and 
choices for consumers and to the marketplace. It is only through full 
and fair competition that consumers in the market for high-speed 
Internet access services can obtain the benefits of quality, choice and 
price.
    SBC strongly supports HR ____ and encourages this Committee and the 
Congress to pass this legislation. This bill is procompetitive and it 
will remove costly and unnecessary barriers to entry by lifting 
disparate regulation in the competitive high-speed Internet access 
market and the competitive high-speed data services market.
    In considering HR ____, it should be emphasized that in the market 
for high-speed broadband Internet access--all competitors, including 
SBC as well as cable, fixed wireless and satellite providers, started 
from the same starting block. In the market for high-speed data and 
Internet access services, there are certain undisputed facts that 
compel adoption of this legislation:

 First, the market for high-speed Internet access services is a 
        competitive market in which there are four different types of 
        providers (using different technologies) competing head-to-
        head--cable modems, Digital Subscriber Line or DSL, fixed 
        wireless and satellite providers.
 Second, there is no ``bottleneck'' in obtaining access to the 
        customer--none of the Internet access providers depend on the 
        facilities or networks of their competitors to reach their end 
        user customers.
 Third, all local exchange carriers (LECs) that provide DSL are 
        behind in the provision of high-speed Internet access 
        services--cable modems currently dominate this market and serve 
        three out of four customers who use such services.
 Fourth, the LECs are heavily regulated when they attempt to 
        provide competitive Internet access services (while cable and 
        the other competitors are unregulated) and the LECs (but not 
        their competitors) are required to assist their competitors in 
        entering this market.
 Fifth, SBC and the other Bell companies are at a competitive 
        disadvantage in that they cannot provide competitive high-speed 
        Internet access and data services on an interLATA basis, while 
        their cable, fixed wireless, satellite and other competitors 
        are free to do so and do not face the same restrictions.
 Finally, state regulatory commissions have unwisely asserted 
        jurisdiction over only the DSL providers in the high-speed 
        Internet access market and, to date, at least one commission 
        has required the so-called ``unbundling'' of the high-speed 
        Internet access and data networks of the incumbent local 
        exchange company (ILEC) (including requiring the mixing and 
        matching of line cards made by different manufacturers located 
        in remote terminals). This so-called ``unbundling'' is clearly 
        contrary to the intent of this legislation, and, it in fact, 
        would be prohibited if HR ____ is enacted. These types of 
        requirements apply only to the incumbent local exchange company 
        and not to any other high-speed Internet access provider--
        furthering increasing the regulatory disparity of a competitive 
        service.
    The effects of the disparate regulatory treatment that currently 
exist in the high-speed Internet access market include reduced 
investment by LECs in this market, the inefficient deployment of new 
technologies, higher costs, fewer choices for consumers, and 
continuation of the ``digital divide.'' Hence, elimination of the 
regulatory disparity between the Bell operating companies (BOCs) and 
their competitors in the high-speed Internet access and data services 
markets is essential to fulfilling the fundamental principles outlined 
above.
    In summary, access to high-speed Internet connections is crucial in 
today's economy. High-speed connections to the Internet mean faster 
downloads and can provide a lifeline to small businesses, schools and 
hospitals. Communities that have access to high-speed Internet 
connections will prosper and grow in the Information Age. Communities 
that don't will find themselves on the wrong side of a growing digital 
divide. Consumers with high-speed Internet connections will be able to 
get on-line with the speed they need to link with far away friends and 
family members, tap the latest medical or educational resources, or 
enjoy multimedia entertainment.
    However, different rules for competing high-speed Internet 
companies are not only bad public policy, they are stifling and 
distorting investment and competition and creating anticompetitive 
barriers to entry. That slows down choices and new technology for 
consumers. Without full and unfettered competition in this market, many 
consumers will never have access to high-speed Internet services or 
they will only have access to the services provided by the dominant 
cable modem provider.
    There is no downside in passing HR ____. Consumers benefit from the 
growth of competition and the elimination of costly and anticompetitive 
barriers to entry in the market for high-speed Internet access 
services. Equalizing the regulatory treatment of competitors will 
permit my company (as well as other providers in this market) to 
compete for customers fairly, resulting in greater choices, lower 
prices and more rapid technological innovation. By contrast, the 
failure to enact H.R. ____ will freeze or reduce DSL deployment and 
investment, and leave the rest of the country with no alternative to 
the dominant local cable operation and the other providers in this 
market. Some competitors may want to delay the inevitable competition 
that will result when all markets are open to competition and to 
handicap the Bell companies when competing in the Internet access 
market, but such a policy will harm competition and consumers. The same 
competitive services should be regulated the same way. One competitor 
should not have to incur increased costs and operate at a competitive 
disadvantage simply because of the type of technology that it uses. 
Such regulatory disparity is bad public policy, it creates barriers to 
entry, it distorts investment decisions and the marketplace, and it 
restricts choices for consumers.

                               BACKGROUND

    Historically, the only telecommunications pathway or wire to nearly 
every home and business in this country was the local copper loop used 
to provide voice service. Until recently, the local loop was part of a 
circuit-switched network which was capable of transmitting only narrow-
band analog or digital voice, and slow speed switched data services. 
The local exchange telephone companies provided these services pursuant 
to a legally franchised monopoly, and thus were subject to pervasive 
regulation at both the state and federal level. As competition began to 
develop in the telecommunications marketplace, the local loop continued 
to be viewed as the only way for competitors to deliver voice services 
to the customers. In other words, it was considered a ``bottleneck.''
     However, approximately 25 years ago, there developed another 
telecommunications pathway or second wire to the home. Cable service 
began to emerge as an alternative to broadcast television service, 
through the use of antennas located at the cable provider's head-end 
that received programming from satellites, which was then transmitted 
over coaxial cable to homes and businesses. Coaxial cable was different 
from the LECs' local copper loops, in that it was capable of 
transmitting broadband video and high-speed data services.
    Additional telecommunications pathways to homes and businesses 
rapidly developed through various wireless technologies, including 
digital satellite service, cellular and PCS services, as well as fixed 
wireless.
    Meanwhile, as competition was developing in the telephone industry, 
the Internet began to evolve. When the '96 Act was being debated in 
Congress, the scope of the Internet and the provision of high-speed 
Internet access to the public was uncertain. Congress sought to address 
this new telecommunications phenomena and the promising new advanced 
services through passage of Section 706 of the '96 Act. Section 706 
established a new national telecommunications policy to ``encourage the 
deployment on a reasonable and timely basis of advanced 
telecommunications capability to all Americans.'' Specifically, 
Congress directed the FCC and state commissions to pursue this 
objective by ``utilizing price cap regulation, regulatory forbearance, 
measures that promote competition in the local telecommunications 
market, or other regulatory methods that remove barriers to 
infrastructure investment.''
    Unfortunately, neither the FCC nor the States have eliminated, or 
even reduced, the regulation of ILECs, particularly when they are 
trying to compete in the competitive advanced services market.

                     CABLE MODEM VERSUS DSL SERVICE

    With the evolution of the Internet, both the cable and telephone 
industries had to develop the technologies necessary to provide their 
customers with high-speed Internet access and data services. The cable 
industry developed cable modems to be used in conjunction with their 
broadband coaxial cable networks. The ILECs were at somewhat of a 
competitive disadvantage because their narrow-band local copper loops 
were not designed nor were they equipped to provide high-speed service 
to consumers or businesses. Hence, we had to develop a new technology--
DSL service, in order to provide digital information at high bandwidths 
over copper loops.
    While the ILECs were developing DSL service, the cable industry has 
been rapidly deploying its cable modem technology. The ILECs are now 
playing catch-up and are scrambling to deploy DSL service as a 
competitive alternative to cable modem service for residential and 
small business customers. But, the cable industry is far ahead of the 
ILECs in terms of actually serving customers. At the end of the first 
quarter of 2000, there were approximately 2.5 million residential 
subscribers to high-speed Internet access services in the United 
States. Of these 1.9 million, 77% were cable modem subscribers. Only 
21% were DSL subscribers. It obviously makes no economic or public 
policy sense, for the FCC and the states to continue to regulate the 
nondominant player in this competitive market (DSL), when the dominant 
player (cable companies that provide cable modems) serve three out of 
four customers in that market and they are completely unregulated.
    Thus, the consumer market for the delivery of high-speed broadband 
Internet access and data services is a highly competitive market served 
by the cable industry, the ILECs, fixed wireless providers and 
satellite companies. The FCC has recognized, and it is beyond dispute, 
that the high-speed Internet access market is a separate and distinct 
market in which cable modem service, DSL service, fixed wireless 
service and satellite access service provide the same high-speed 
Internet access and offer to the same residential and business 
customers the same advanced and high-speed data services.
    Most importantly, the ILECs had no ``head-start'' in the deployment 
of advanced services technologies. The ILECs possess neither de facto 
nor de jure monopoly in the provision of broadband Internet access, 
advanced services, or high-speed data services. And, finally, it is 
absolutely clear that the LECs' local copper loop is no ``bottleneck'' 
in the provision of high-speed Internet access and data services to 
consumers. None of the four types of providers in this competitive 
market rely on or use the facilities or networks of their competitors.

                         ASYMMETRIC REGULATION

    Unfortunately, the rules and regulations that apply to the 
provision of advanced services by the cable industry, ILECs, fixed 
wireless and satellite companies are entirely different.
    The cable industry is essentially unregulated in the provision of 
cable modem service. Under Title VI of the Communications Act, the 
cable industry (as well as fixed wireless and satellite access 
providers) are not required to interconnect with its competitors, nor 
unbundle its facilities and make them available to competitors, nor 
provide collocation space to its competitors, nor resell its services 
to competitors, nor provide advanced services through a separate 
subsidiary. Moreover, the cable industry is not currently required to 
give its customers a choice of an Internet service provider. This 
unparalleled ability of the major cable providers to control both the 
means of access to the Internet, combined with its control of the 
content that is delivered to consumers provides it with an enormous 
competitive advantage in the marketplace. For example, AT&T/TCI/Media 
One and AOL/Time Warner control vast holdings in the access and content 
market. AT&T/TCI/Media One is the largest cable provider and provides 
cable modem service to almost 30% of all cable modem customers. AOL/
Time Warner, directly and through its ownership of RoadRunner provides 
cable modem service to approximately 38% of cable modem customers. 
Together, AOL/Time Warner and AT&T also own 8 of the top 15 video 
programming services, including 4 of the top 5. As a result, it is more 
likely that the cable industry and other broadband providers, rather 
than ILECs, will continue to hold a dominant position in the provision 
of high-speed Internet access and advanced services.
    This is in stark contrast to the telephone industry, where the 
ILECs remain pervasively regulated today, even when they try to provide 
competitive advanced services that do not use or rely on the legacy 
voice networks. Under Title II of the Communications Act, the ILECs are 
subject to common carrier regulation in their provision of broadband 
Internet access, advanced services, and high-speed data services. In 
addition, the ILECs are obliged to assist the CLECs in offering 
competing DSL services through the interconnection, unbundling, and 
collocation requirements of Section 251(a) and (c) of the 
Telecommunication Act of 1996. Moreover, SBC's advanced services 
affiliates, through which SBC provides Internet access and high-speed 
data services, are required to provide interconnection under Section 
251(a) and permit resale under Section 251(b).
    Unfortunately, under an asymmetric regulatory scheme, the 
regulators, not the marketplace, determine the winners or losers. That 
significantly affects the growth of the services and the availability 
of choice. Accordingly, any legislation addressing high-speed broadband 
advanced services should eliminate the regulatory disparity between the 
cable companies, telephone companies, fixed wireless providers and 
satellite companies when they provide high Internet access services.
    This bill goes a long way toward accomplishing this objective by 
exempting high-speed data and Internet access services and the 
facilities used to provide such services from regulation, and by 
eliminating any further unbundling requirements with respect to high-
speed Internet access and data services.

                           ECONOMIC BENEFITS

    The rapid deployment of high-speed services is essential to 
expanding and reviving the economy. During the last economic boom, the 
information technology sector generated roughly 30% of the total annual 
U.S. economic growth and 70% of the total U.S. productivity growth. 
However, just as it helped revive the economy during the last boom, the 
present downturn in the Internet and high-speed industry has 
contributed to a broad downturn in overall growth and investment. The 
tightening of capital markets before Internet firms could begin booking 
profits caused this chain reaction. In part, these E-commerce and 
content providers have failed to create profitable businesses because 
slow narrowband connections limit the Internet's potential. Slow 
connections inhibit this industry by limiting product information to 
static pictures and text. High-speed Internet access, with speeds up to 
100 times greater than narrowband, eliminates these impediments.
    The broadband market is heavily oriented towards content, and will 
include packages of video and data. The key broadband offering is an 
integrated package of transport and content, not just transport alone. 
The cable industry occupies the strongest position in this market 
because it has the facilities and faces NO regulation. Likewise, the 
telephone companies today are in the best position to compete with the 
cable industry and other broadband providers to bring new services, 
lower priced services, and more choices to consumers, but not without 
making a substantial investment to build a competing broadband network. 
This is exactly what SBC has started.

                             PROJECT PRONTO

    On October 18, 1999, a few days after SBC closed its merger with 
Ameritech, we announced one of the most ambitious network enhancement 
upgrades in telecommunications history. We called this Project Pronto 
to emphasize the speed that customers want to access the Internet and 
the need for quick time-to-market to compete with cable modem providers 
and others that are providing alternative technologies for high-speed 
Internet access. Unlike many programs and services offered by the large 
long distance companies and other local competitors, this Project was 
intended to serve the mass residential and small business market, not 
large business customers. In other words, customers wanted high-speed 
access, cable companies already had a head start in this market and we 
needed to commit capital and deploy new facilities fast in the market. 
The size of the Project is huge, as is its $6 billion price tag. It 
calls for constructing 16 thousand miles of new fiber optic cable, 17 
thousand ``remote terminals'' and much more equipment. This was an SBC 
shareholder driven investment, with no tax incentives or government 
loans. Project Pronto involved SBC acquiring and deploying new types of 
advanced services equipment that all other potential DSL competitors 
could have invested in and deployed on their own.
    Pronto started out covering all 13 SBC states. Besides the quality 
of life enhancing benefit of bringing high-speed Internet access to the 
broader mass market of residential and small business consumers that 
make up your constituents, Pronto means more jobs in each state and 
contributions to the economy via purchases of equipment from several 
vendors for items such as the new fiber facilities and new equipment 
used to provide this access.

                      STATE REGULATORY MINEFIELDS

    Managing a project of this scope and complexity is hard enough from 
a pure business perspective, but the road to deploy Pronto has also 
involved trying to manage our way through a regulatory minefield. The 
recent DSL related regulatory requirements imposed in Illinois 
illustrate how onerous and technically infeasible requirements can 
distort and potentially destroy competition in the high-speed Internet 
access market. The regulatory requirements in Illinois are such that 
SBC has determined it must suspend Pronto deployment in that state.
    This decision was made with great reluctance in that it, in effect, 
concedes market share to the dominant provider of high-speed Internet 
access, the cable modem providers and the other providers in that 
state. However, we made this decision because of our obligations to our 
shareholders to make investments where there is an opportunity to earn 
a reasonable return on such investments. The end result of this 
situation is that, if the Illinois Commerce Commission (``ICC'') does 
not reconsider its order, consumers in that state will lose a choice in 
the high-speed Internet access market, and all DSL providers within 
SBC's ILEC territory in Illinois (including SBC's own affiliate) will 
fall even further behind cable modem providers who already serve about 
3 out of every 4 residential customers. The bottom line is that 
consumers and DSL providers lose and cable increases its lead in this 
market.
    What is so bad about the Illinois regulatory situation? While the 
subject is quite technical in nature, essentially the ICC is applying 
rules primarily designed to open the legacy local exchange voice market 
to these new DSL-capable facilities and equipment in the high-speed 
Internet access market. In our view, the types of state actions ordered 
by the Illinois Commission not only are unlawful under the 1996 Act, 
but also they apply solely to one provider in the market (DSL), destroy 
the incentives of SBC and other LECs to invest in the high-speed 
Internet access market, and compliance with those requirements are 
technically impossible. Even the manufacturer of the advanced services 
equipment in question has testified under oath that they are 
technically infeasible and simply will not work. As a result of these 
actions, SBC has had to suspend deployment of DSL facilities in 
Illinois, to the detriment of consumers and competition in that state.
    Specifically, these rules require the Pronto architecture to be 
made available in minute piece parts in a ``mix and match'' manner to 
allow competitors to install equipment components made by different 
manufacturers inside SBC's advanced services equipment. There are 
substantial problems with these rules. First there are portions of the 
Illinois orders that just don't work. Trying to fit one vendor's 
components in another vendor's equipment is like trying to insert a 
Sega game cartridge into a Nintendo game system or a Toyota carburetor 
into a Ford engine. It won't fit and it won't work.
    It is not just SBC that is saying this. So do the manufacturers of 
the telecommunications equipment in question. The chief technology 
officer of Alcatel has submitted a sworn affidavit to the ICC that the 
requirements imposed by the ICC are simply not technically feasible. 
The ICC requires the Pronto architecture to do things it is just 
technically not capable of doing. All of these new obligations are 
unworkable from an economic, technical and operational perspective. 
Even if these requirements were technically feasible (which they are 
not), they add unnecessary and unjustified complexity and costs. They 
undermine the business case for proceeding with Project Pronto in 
Illinois. These additional costs--which may exceed more than $500 
million for Illinois alone--would price DSL completely out of the 
Internet access marketplace. While SBC is not opposed to providing 
access to its Pronto high-speed Internet access service to competitors 
at forward looking prices and, in fact, offers to do so, it cannot 
deploy new DSL facilities under the Illinois regulatory model.
    A major concern is that the FCC and other states may decide to 
follow the counterproductive policies enacted in Illinois. Onerous 
regulations that single out only the non-dominant provider in this 
competitive market discourage investment and eliminate the benefits 
that facilities based competition brings to consumers. This important 
issue calls out for a national direction and policy. We believe that 
this bill is essential and to promote investment and competitive choice 
to the benefit of American consumers.

                         INTERLATA RESTRICTIONS

    One of the key regulatory disparities in the market for high-speed 
data and Internet access services is the restriction from offering 
interLATA long distance services. Section 271(c) of the Act prevents 
the Bell operating companies (BOCs) and their affiliates from providing 
services across LATA boundaries and from offering the Internet backbone 
service itself. This restriction is no longer necessary or required 
because the market for high-speed data services for business customers 
is a fully competitive market and the BOCs are not in a monopoly 
position in this market. None of our competitors in this fully 
competitive market--cable companies, satellite or wireless providers, 
the interexchange carriers, nor the CLECs--are subject to this 
restriction.
    The interLATA restriction thus places BOCs at a significant 
competitive disadvantage, in the provision of a full complement of 
competitive high-speed data services. Most medium and large business 
customers have offices in multiple locations, states, or even countries 
that need to be interconnected for the exchange of high-speed data 
communications. Frequently, these business customers also want someone 
to manage these high-speed data networks, including for example the ATM 
and Frame Relay engines, SONET rings, and interLATA transport. This 
requirement places the BOCs at a distinct competitive disadvantage, 
because they are unable to be full service providers to these business 
customers.
    There is no continuing need for the interLATA restrictions for 
these services. As the FCC has found, the business market for high-
speed broadband services is separate and distinct from the consumer 
market for the same services. 1 Virtually all business 
customers have access to high-speed broadband service that is typically 
provided over T-1 lines, and business customers have many competitive 
alternatives for obtaining that high-speed broadband 
access.2 Accordingly, there is no ``bottleneck'' in the 
``last mile'' to the business customer for such competitive services.
---------------------------------------------------------------------------
    \1\ In the Matter of Inquiry Concerning the Deployment of Advanced 
Telecommunications Capability to All Americans in a Reasonable and 
Timely Fashion, and Possible Steps to Accelerate Such Deployment 
Pursuant to Section 706 of the Telecommunications Act of 1996, Report, 
CC Docket No. 98-146 at para. 28 (released February 2, 1999).
    \2\ Id. at para. 26.
---------------------------------------------------------------------------
    Finally, the interLATA restriction (as well as the other disparate 
regulatory requirements) artificially inflates the BOCs' costs of 
deploying high-speed Internet access and data service technologies, and 
renders that deployment less efficient. These costs are reflected in 
our costs to our customers, and they preclude our ability to exert 
downward pressure on the retail rates in these markets to the detriment 
of customers. Further, it means that significant portions of our 
nation, particularly in rural areas, cannot receive high-speed access 
to the Internet because they are not close enough to a hub that can 
connect them to the Internet backbone. With the limited interLATA 
relief contained in this bill, the BOCs will be in a position to 
connect these communities to the Internet, thus making available to 
rural consumers and businesses the same high-speed Internet access and 
high-speed data services that are available in urban areas.

                               CONCLUSION

    HR ____ has gained the support of many members of this Committee 
and over 70 members of the House. It is a major step in the right 
direction to correct the imbalance in regulation and close the 
``digital divide.'' We look forward to working with the Committee and 
the Congress to achieve these objectives.
    Thank you for the opportunity to comment on this very important 
legislation which will, if passed, promote competition and benefit all 
consumers by providing them with more choices and higher quality 
services at lower prices.

    Chairman Tauzin. I thank the gentleman.
    The Chair recognizes Mr. Clark McLeod.

    STATEMENT OF CLARK McLEOD, CHAIRMAN AND CO-CEO, McLEODUSA

    Mr. McLeod. Thank you, Chairman Tauzin. I appreciate being 
invited to speak to the committee today. I will depart 
completely from my written comments, and try to respond to some 
of the comments from the group. I would like to start with the 
fact that this bill is totally unnecessary.
    There is nothing that occurs in this bill that will spur 
broadband deployment to rural markets. That's obvious from what 
this group has already said. There is really nothing that 
prevents the telephone companies from deploying DSL service 
today. Nothing.
    And for us to go and retool something that took 6 years to 
create the Telecom Act and undermine it in this fashion is 
very, very disruptive to our industry. No and's, if's, or but's 
about it.
    This bill actually does damage. It restricts access to the 
Bell networks by competitors. It restricts access to a monopoly 
supply that is totally destructive to a competitive 
environment.
    And it takes away any reason for the Bell companies to 
comply with the 14 point checklist. The 14 point checklist once 
complied with will allow the Bell companies to do everything 
everywhere, and we all agreed on it back in 1996.
    So let me step back for a moment. I only have a couple of 
minutes here, but I have a perspective that maybe is different 
than some of the other people here, and that I have been in the 
competitive industry now for 21 years, and you can tell by my 
gray hair that I have been around for a long time.
    I started a company in 1981 that turned out to be the 
fourth largest long distance company in the United States. It 
was started in 1981 for one reason; the FCC opened up the AT&T 
network to competitors to use in March 1981.
    MCI had tried to compete with AT&T for 13 years up to that 
point, and had gotten 1 percent share. AT&T's market was open 
to competitors like ourselves so that we could buy services and 
bring in new network to combine with that to provide a 
ubiquitous coverage of our market area.
    The exact same thing is true today. If we want a 
competitive marketplace, if we want broadband services 
deployed, the key to that is in the access to the local 
network. You know, that local network is made up of both copper 
and fiber that the Bell companies have today?
    And you know that DSL is just putting a copper link on 
steroids? Right? So what we need access to is that copper 
network. Now, the Bell companies would say the network is open.
    Well, if you call it being open that open, then you are 
right. But try to walk through a door that is that wide open. 
So I want to be as constructive as I can with the group today, 
and talk about what we could do. A couple of things that have 
worked recently.
    Chairman Powell talked about wanting to be able to impose 
fines. A little twist to the fines. They do need to be imposed, 
$60 million have been imposed on SBC in Illinois recently, but 
it all went to the Illinois Government, not to the competitors 
who were hurt by their non-compliance.
    In three States--Colorado, Iowa, and Minnesota--Qwest 
Communications pays us when they don't meet standards. That 
makes sense doesn't it? The people who are damaged.
    So, one, I would propose that if anything is done that we 
should look to the FCC to enforce the current Act, and award 
damages, and award them to the right place. Make the 14 point 
checklist mandatory; date certain, complied with throughout the 
country; and then everybody is free to do everything.
    And finally we can't do anything to restrict access to the 
current Bell network. That is what makes a monopoly a monopoly. 
They control supply. Competitors have to get access to that 
supply. Thank you.
    [The prepared statement of Clark McLeod follows.]

  PREPARED STATEMENT OF CLARK MCLEOD, CHAIRMAN AND CO-CEO, MCLEODUSA 
                              INCORPORATED

    On behalf of McLeodUSA, I would like to thank the Committee for the 
opportunity to talk with you today. I would like to accomplish two 
goals today: first, summarize our concerns with providing the Mega-
Bells unwarranted additional access to intercity long distance markets; 
and second, propose alternatives that will improve nondiscriminatory 
and quality access to all intracity networks, thereby accelerating the 
benefits of competition to consumers.

           I. MCLEODUSA IS EXACTLY WHAT CONGRESS ENVISIONED.

A. Entrepreneurial
    In the early 1980s, I was CEO of Teleconnect, a company founded to 
compete in the long distance industry. I started basically out of my 
garage and began to bring the benefits of competition to my customers. 
In 1981, the Federal Communications Commission (FCC) mandated AT&T to 
allow competitors complete use of its existing network. As public 
policy continued to develop and support competition in that industry, 
several competitors, including Teleconnect, began to have success. Over 
the course of about 8 years we built Teleconnect into the fourth 
largest long distance company in the country employing nearly 7,000 
employees. In 1990, MCI purchased the company, then named TelecomUSA. 
So you can see that entrepreneurial spirit can produce effective 
competition.
    In 1992, I organized McLeodUSA, headquartered in Cedar Rapids, 
Iowa, and began competing in the local and long distance telephone 
markets. We started slowly. When the Telecommunications Act of 1996 
(``the '96 Act'') was passed, we were able to take our company public 
and really accelerate our competition with the local monopoly Bell 
companies.
    McLeodUSA's corporate team is recognized as one of the strongest 
management groups in the telecom industry: strong because of our 
breadth, and strong because of our depth. With the support of policy-
makers, we can continue our competitive activities at a similar pace if 
policy makers do not give unwarranted favors to the Mega-Bells that 
will delay or foreclose competition.
    McLeodUSA Incorporated is a Nasdaq-100 company traded as MCLD. The 
Company's Web site is available at www.mcleodusa.com.

B. Serving a Wide Range of Customers
    We serve both business and residential customers. In fact we have 
more residential customers than business customers. Our goal is to be 
the number 1 and most admired company in the markets we serve. We 
cannot accomplish that by only serving large business customers in 
large cities, so we rejected that model. The Mega-Bells like to portray 
competition as competitors who merely ``cherry-pick'' high-margin large 
business customers. This portrayal is clearly false as to McLeodUSA.
    We also serve a wide range of communities ranging from cities as 
small as a few hundred people up to cities as large as Chicago. The 
``96 Act only required the Bell companies to open their intracity 
networks. Consequently, McLeodUSA is currently serving or plans to 
serve customers in all markets served by the Bells (now including GTE).
    In the communities we serve, our focus is primarily on small and 
medium sized enterprises. While we do serve residential and large 
businesses, we have found that small and medium sized businesses are 
largely underserved. We have good success with those customers using 
our beat-cop sales approach that meets customers face-to-face. 
Currently our average customer only has about 6 lines. So again you can 
see we are not in this business to only serve the ``high margin'' large 
business customers of the Bell companies.

        II. MCLEODUSA IS BRINGING COMPETITION AND ITS BENEFITS.

    In March 1996 we served approximately 40,000 local access lines. By 
December 2000 we served 1.1 million lines. Although we have 
demonstrated rapid increase in our annual compounded growth rate, we 
currently serve less than 1% of the nearly 200 Million access lines 
served by the Bell companies. We can attest to the fact that 
competition in the local markets is a long-term endeavor.

A. Jobs
    In late 1994 we had approximately 200 employees, primarily in Iowa. 
Today we have nearly 11,000 employees working in 130 offices located 
across 25 states. We have invested in and created jobs in many of the 
districts of the members of this committee. We expect our job creation 
will continue to grow as long as public policy continues to support 
competition.

B. Technology
    At the end of 2000 we had 50 central office and long distance 
switches and 396 data switches in operation. In addition we deployed 
and operated nearly 22,000 route miles of fiber optic cable connecting 
most of those facilities, growing to more than 30,000 miles by year-
end. Our one functional network connects 810 cities in all 50 states 
allowing McLeodUSA to reach approximately 90% of the U.S. population. 
Even better, we are now actively developing next-generation 
enhancements to our network. This activity will allow us to offer high 
speed, broadband, next-generation services throughout our network 
coverage area. The one critical missing requirement, however, is 
nondiscriminatory and quality access to the intracity network.
    McLeodUSA is not alone in the installation of fiber optic cable. I 
encourage you to look at other competitive companies who are installing 
fiber optic networks. I believe you will see an astonishing amount of 
intracity fiber and technology installed.
    During my years in the competitive long distance industry, I saw 
deployment start in the early ``80s and really take off after 
divestiture in 1984. During the next 15 years, numerous competitors 
have entered the intercity long distance markets and constructed 
multiple intercity fiber networks. Long distance competition is robust 
and so much intercity fiber exists throughout this country that 
arguable supply exceeds demand. This should not surprise anyone and, I 
contend, is the normal consequence in a truly competitive industry. 
Consumers are reaping the benefits through reduced long-distance rates.
    This country has an oversupply of intercity network capacity to 
carry all services, both narrowband and broadband. We do not need more 
intercity capacity as proposed in this so-called ``Internet Freedom and 
Broadband Deployment Act.'' What we really need are intracity networks 
with broadband capacity. Existing intracity networks are narrowband 
only. This is the real ``Digital Divide.'' It exists between intercity 
broadband fiber networks and intracity narrowband copper networks.
    This divide can only be effectively bridged by competition. 
Meaningful competition, not legislative ``relief,'' will drive 
appropriate investment and technological advancement just as it has for 
the past five years. Meaningful competition absolutely depends on 
quality access to all intracity networks.
    Quality access means much more than simply ordering a loop or 
circuit. It entails equal, nondiscriminatory treatment in every step of 
the process, including Pre-ordering (exchanging information), Ordering 
(accurate and timely data exchange between competitors), Provisioning 
(confirm and implement orders accurately), Maintenance and Repair 
(service problems) and Billing.

III. CHANGING THE FUNDAMENTAL RULES OF THE ``96 ACT IS UNNECESSARY AND 
                 HARMFUL TO COMPETITION AND CONSUMERS.

A. Unnecessary
    Changing the existing system of laws and regulations as supported 
by the Mega-Bells will definitely not address the critical problem of 
nondiscriminatory and quality access to all intracity networks. 
Congress debated the telecommunications issues for seven years before 
finally passing the ``96 Act with the support of all segments of the 
industry. Since then the FCC has further defined and enforced the law. 
The system is working, and could be strengthened with certainty of 
compliance by the Bells and additional enforcement of the current law.
    During the past 5 years, McLeodUSA and other competitors have 
formulated and executed business plans. We are aggressively competing 
under the existing rules and never asked Congress for any legislative 
``favors.''
    In sharp contrast is the action of the original seven Bell 
companies and GTE. Although the stated purpose of the proposed 
legislation is to allow the Mega-Bells to provide intercity long 
distance data services, it is interesting to note that these Bell 
companies have always been free to provide these services outside of 
their own regions. In fact, at the time the ``96 Act became law, it was 
anticipated that we would see widespread competition between the Bell 
companies. In this sense, the original seven Bell companies and GTE 
controlled their own destinies. They could have chosen to, and were 
expected to, compete directly against each other. If they had, they 
could be in the intercity market today. Instead they merged to form 
four larger, stronger ``Mega-Bell'' monopolies.
    During their merger review proceedings, both SBC and Verizon made 
commitments to compete outside their region to gain regulatory 
approval. Their actions since show that their promises were hollow. For 
example, given the size and scope of SBC it would not have been 
difficult (in fact, I believe it would have been relatively easy) for 
SBC to invest in fiber to connect its California operations with its 
Texas operations and actively compete in Arizona and New Mexico along 
the way. But they refused. Furthermore, Verizon had competitive 
operations and customers in Illinois, California, Indiana and Texas and 
was poised to compete with SBC in those states. Instead, they recently 
sold that business to SBC. The result is increased monopoly and 
decreased competition in these states. Verizon avoids competition and 
SBC invests in its monopoly rather than in competition. Their choices 
have slowed the development of competition and delayed competitive 
choices for consumers.
    Furthermore, the Mega-Bell-controlled intracity network serves over 
90% of the nation's business and residential lines. They also have a 
combined market capitalization of $404 billion as of April 4, 2001, 
which is about 33 times larger that the aggregate market cap of CLECs. 
Their size and last mile stranglehold puts them in control of the 
course of competition. Even large companies like AT&T, WorldCom and 
Sprint are not in a comparable position because they lack ownership or 
quality access to the intracity network. Instead of working with us to 
provide quality access to the intracity network, the Mega-Bells have 
constructed countless roadblocks, like imposing special charges only on 
competitors, and pursued numerous legal challenges to the requirements 
we felt they agreed to.
    Now, in spite of their actions and their inherent competitive 
advantage, they are before Congress asking for favors. Last year, they 
asked Congress to eliminate reciprocal compensation payments. Now they 
seek unwarranted access to the intercity long-distance business that 
will only delay competition and preserve their monopoly over local 
markets. Their actions warrant consternation not ``relief.''
    Congress should not being granting ``favors'' to the Mega-Bells. 
Since our existing system is working, and we have robust intercity 
networks, there is no need to give ``relief.'' When Mega-Bells 
effectively open their intracity network quality access, the FCC grants 
authority to provide long distance service. To date the FCC has granted 
long-distance (intercity, narrowband and broadband) approval in 5 
states: New York, Texas, Kansas, Oklahoma and Massachusetts. Numerous 
other Section 271 activities are ongoing. Most of the remaining 45 
states have invested heavily in the 271 process, and we should support 
that investment of tax dollars.
    We should also consider what has already been given to the Mega-
Bells. Currently the telecommunications industry is divided into 
intracity (local) and intercity (long distance) markets. The Mega-Bells 
currently have access to and control virtually the entire intracity 
portion of the industry. On the long distance side, the industry is 
further divided into intra-LATA (which the Mega-Bells also have access 
to) and the interLATA markets. The inter-LATA segment is further 
divided into in-region and out-of-region. The Mega-Bells have always 
had access, but refused to serve, the out-of-region segment. We must 
not simply ``give'' them access to an additional part of the intercity 
long distance market.

B. Harmful to Consumers and Competition
    We are making progress on opening the critical local loop 
bottleneck. We cannot afford to stop or slow that effort by allowing 
Mega-Bells to prematurely enter the intercity long distance data 
market.
    Today the sole method of solving the last mile bottleneck is by 
offering the ``carrot'' of in-region intercity long distance entry. Of 
the total ``pie'' of telecom revenues, the Mega-Bells already have 
access to more than one-half by offering local and intra-LATA long 
distance service. In fact they dominate that portion of the total 
telecom market. SBC alone now serves approximately one-third of all 
access lines in the country.
    If you do not find the pace of local competition acceptable, the 
solution is to increase the ``carrot'' or add a ``stick,'' rather than 
to reduce the carrot. Data services constitute the high-growth, high-
revenue segment of the intercity long-distance market. It makes up the 
largest portion of the ``carrot.'' If it is lost, there will be almost 
no remaining economic incentive to comply with the 14-point checklist 
in Section 271 and provide quality access to the last mile local loop.
    In addition it is almost impossible to divide the ``carrot'' as a 
practical matter. There is no meaningful distinction between voice and 
data. Whether you are watching voice or data, when they are digitized 
and transmitted over a fiber optic cable they are both just flashes of 
light. When you see those flashes there is no way to determine whether 
the message is voice or data and, therefore, no way to know if the 
message should be allowed. Furthermore, as voice over the internet 
technology continues to develop, the problem grows. If we allow the 
Mega-Bells to provide long distance service for the Internet, then when 
voice communication over the Internet becomes widespread, the 
``carrot'' will be gone and there will be no incentive to ease the 
stranglehold on the last mile local loop.
    Just as important is access to capital. Since passage of the ``96 
Act, McLeodUSA and other competitors have raised billions of dollars in 
capital to fund aggressive plans to deploy broadband networks to serve 
business and residential consumers in both urban and rural America. 
Continued access to capital is a critical need for competitors like 
McLeodUSA to continue providing consumers with a competitive choice.
    McLeodUSA is acutely aware of the need to maintain investor 
confidence in the national goal of bringing competition to the 
telecommunications marketplace as set out in the ``96 Act. Legislation 
which would carve out intercity long distance data services from the 
pro-competitive goals of the ``96 Act would surely be seen by Wall 
Street investors and others in financial markets as a retreat from that 
national commitment and bad for competitors. As a result, the ability 
of new entrants to raise the capital needed to bring true, facilities-
based competition to all telecommunications markets could be placed in 
jeopardy. Such a further constriction on al already tight capital 
market could slow the drive toward competition even though that is not 
what supporters of such ``data deregulation'' legislation intend.
    During last year when Congress considered changing the rules and 
granting legislative ``favors'' to the Mega-Bells, access to capital 
declined dramatically. The stock prices for the Mega-Bells decreased in 
equal comparison to the overall market drop. In contrast, the CLEC 
stock prices were really punished and driven to historical lows. During 
a 52-week period prior to April 4, 2001, stocks have fallen the 
following amounts: Mega-Bells--39% and CLECs-- 94%.
    Although stock prices for the strongest CLECs like McLeodUSA, 
Allegiance Telecom and Time Warner Telecom only fell 80%, 89% and 65%, 
respectively, Wall Street clearly favored the Mega-Bells who were the 
clear beneficiaries of the proposed changes in the rules. CLEC stock 
prices disproportionately decreased for two key reasons: uncertainty in 
the public policy arena and continued difficulties in accessing the 
Bells' intracity networks.
    Certainty in public policy will steady the capital markets. 
Additional capital flowing to competitors will allow continued 
deployment of intracity fiber to connect with the existing copper 
network owned by the Bell companies. This will help connect the 
intracity network with the robust intercity network and bring high-
speed services to every home in the local market.

IV. ALTERNATIVES TO ENSURE NON-DISCRIMINATORY AND QUALITY ACCESS TO ALL 
            INTRACITY NETWORKS, THEREBY BENEFITING CONSUMERS

A. Separate Mega-Bells' Network and Retail operations
    In order to facilitate the growth of competition we must return our 
focus to non-discriminatory and quality access to the ``last mile'' 
local loop.
    As I described earlier, by the end of 2002, McLeodUSA will be 
capable of delivering broadband service to within a local telephone 
connection of approximately 90% of the U.S. population. Our fiber 
network will be up to the Mega-Bell bottleneck at the local loop. But, 
we need continued commitment from policy-makers to help open the 
bottleneck in order to complete delivery of broadband services to 
customers.
    There is an inherent conflict of interest between the Mega-Bell's 
dual role as both the network supplier and retail competitor. As the 
Mega-Bells lease their local network infrastructure to CLECs, the Mega-
Bell's retail operations are threatened with lost customers and 
revenue. As long as they can, the Mega-Bells will preserve the use of 
their last mile network for preferential use by its retail operations.
    The only viable, long-term solution, and the very best way to 
facilitate competition, is to separate the Mega-Bells' network and 
retail operations. Competitors and Mega-Bell retail operations must 
each have quality access to the local infrastructure (loops, unbundled 
switch ports, unbundled trunks) on a nondiscriminatory basis. As we 
have seen before in other circumstances, separate but equal does not 
work. Mega-Bell retail operations must be required to purchase the same 
network inputs at the same rates, under the same terms and conditions 
and through the same operation support systems (OSS) as competitors. 
And, Mega-Bell network operations must be made blind. When an order or 
request is received they must not know whose order is being handled in 
order to insure equality.
    Separation can be done either structurally, by breaking the Mega-
Bells into two companies, or functionally by establishing processes and 
procedures to separate the operations. Qwest has recently undertaken 
functional separation and while we are at the very early stages we hope 
their actions will be fruitful. We are working closely with Qwest in 
this process and are willing to work with others. We believe, however, 
that if competitors can show that functional separation has not 
occurred, then either the FCC or state regulatory bodies should have 
jurisdiction and authority to require structural separation. In the end 
we must have separation to insure quality access for all competitors to 
the ubiquitous network paid for by consumers, along with improvements 
being paid for with forward-looking UNE rates and true parity regarding 
provisioning of local service, which is the cornerstone of the Section 
271 competitive checklist.

B. Require Mandatory Date Certain Nondiscriminatory and Quality Access 
        to all intracity Network
    Requiring specific actions can also facilitate competition by the 
Mega-Bells. What I propose here is adding a ``stick'' to our policy 
scheme, in addition to the ``carrot.''
    Congress should make compliance with the 14-point checklist in 
Section 271 of the 96 Act mandatory. Compliance with the 14-point 
checklist will provide competitors with nondiscriminatory and quality 
access to the intracity network. So the key is for Congress to amend 
Section 271 to require the Mega-Bells to meet those requirements to the 
satisfaction of the FCC by a date certain. If they fail to do so, the 
statute should provide a penalty for noncompliance and the penalty must 
be sufficient to make compliance the more economic alternative. The 
statute should also authorize a private cause of action so that those 
who are harmed by any Mega-Bell's failure to comply with the law could 
bring suit to recover damages. These actions should also allow recovery 
of treble damages and attorneys fees as well as awards of punitive 
damages in egregious cases. These tools have been adopted previously by 
Congress to produce results and can be used now to establish effective 
competition.
    Congress might also consider another alternative. Require the Mega-
Bells to meaningfully compete out of region before they are allowed to 
offer long distance service in region. Such a requirement could be 
easily measured. For example we could require each Mega-Bell to 
actively serve a substantial number of customers in at least 150 
central offices in at least 25 different markets within the territory 
of the other three Mega-Bells before they can offer in-region long 
distance.

C. Award Damages to Competitors
    Congress should authorize the FCC to award meaningful damages 
directly to competitors when the Mega-Bell company is found to have 
engaged in anti-competitive conduct, violated the law or breached an 
agreement. Awarding damages to competitors is the fastest way to speed 
competition and benefit consumers by incenting the Mega-Bells to change 
their behavior and fix the problems, rather than simply pay the fines 
as a cost of doing business.
    McLeodUSA has experienced the absolute truth in the concept that 
awarding damages directly to aggrieved competitors benefit consumers. 
State Commissions in Iowa, Minnesota and Colorado, through various 
proceedings and processes, have established a series of objective, 
measurable and verifiable standards in provisioning local service. If 
QWEST fails to meet these standards, the Commissions are authorized to 
require QWEST to pay damages directly to competitors. Since January 
1999, QWEST has paid $4.76 million directly to McLeodUSA for failure to 
comply with its obligations as determined by these 3 state Commissions. 
Requiring the Mega-Bells to pay damages directly to the aggrieved 
competitors was one reason QWEST negotiated a long-term agreement that, 
among other things, accelerates McLeodUSA's entry into additional 
markets throughout the 14-state footprint of QWEST. Competition 
benefits. Consumers benefit.
    In contrast, the Illinois Commerce Commission (ICC) does not have 
the statutory authority to award damages directly to competitors, and 
consequently, the Mega-Bell has chosen to merely pay the fines as a 
cost of doing business rather than fix their problems. During the past 
18 months, the Illinois Commerce Commission (ICC) has imposed fines 
over $60 Million for anti-competitive acts and historically 
unacceptable quality of service performance. Under Illinois law, 
however, all damages imposed by the ICC are simply deposited into an 
Illinois state general fund. SBC, with a market capitalization of $147B 
as of April 4, 2001, chose to pay these $60M fines merely as a cost of 
doing business rather than fix the problem. Therefore, because the ICC 
cannot award damages directly to competitors, competitive providers are 
hurt and consumers are denied a competitive choice.
    I want to stress this critical fact: awarding damages directly to 
aggrieved competitors will accelerate competitive entry into more 
markets and provide consumers a competitive choice.

                               CONCLUSION

    Today we clearly have a ``Digital Divide.'' It exists between 
intercity broadband fiber networks and intracity narrowband copper 
networks. It can only be effectively bridged by competition.
    Mega-Bells have refused to compete and resisted opening their 
intracity networks, which has delayed competition. Congress must not 
reward those actions.
    Meaningful competition will drive investment and technological 
development and absolutely depends on quality access to all intracity 
(local) networks that are controlled exclusively by the Mega-Bells. The 
biggest impediment to competition in the intracity market is the lack 
of nondiscriminatory and quality access to the local intracity network.
    If Congress wants to facilitate competition, and the related 
advancement of broadband services, it must ensure nondiscriminatory and 
quality access to all intracity networks. This proposed Mega-Bell 
legislation does nothing to accomplish this goal, and therefore, 
Congress should oppose it.
    To ensure such quality access, Congress should not further restrict 
our access to capital by changing the agreed rules, but instead should 
mandate compliance with the 14-point checklist by a specific date and 
award damages to aggrieved parties for noncompliance.
    Again, I thank the Committee for the opportunity to appear before 
you today, and would welcome the opportunity to answer any questions 
that any of the Members might have.

    Chairman Tauzin. Thank you very much. The Chair is now 
pleased to welcome and recognize Charles McMinn for his 
testimony.

  STATEMENT OF CHARLES J. McMINN, CHAIRMAN OF THE BOARD, COVAD 
                         COMMUNICATIONS

    Mr. McMinn. Good afternoon, Mr. Chairman, and Ranking 
Member Dingell, and distinguished members of the committee. 
Thank you for inviting me here to testify today. I am the 
Chairman of the Board and a co-founder of Covad communications. 
Covad is the Nation's largest competitive provider of broadband 
DSL services, including Internet access.
    We offer our Internet services in an area that covers 
nearly 50 percent of the country. That is more than any CLEC, 
and that is more than any cable company, and that is more than 
any ILEC in the United States.
    We have over 320,000 DSL subscribers on our network, half 
of which are residential customers, and we are a company that 
did not exist before the Telecommunications Act was passed.
    I am here to tell you that if you pass this bill as it is 
currently written that you will eliminate the driving force 
behind the hi-tech sector, the investment unleashed by the 
Telecom Act of 1996.
    While this bill will certainly benefit the four Bell 
monopolies, I promise that it will halt investment in the hi-
tech sector. It is a poison pill for the technology economy. I 
was in New York only yesterday at a financial conference.
    I am already being told by investors that because of their 
fear of this bill that they are slowing their technology 
investments, and not just in CLECs like Covad, but in equipment 
suppliers like Lucent and Cisco.
    As you can see from this panel the three competitive 
companies you invited here today all chose to send their top 
executive officers. This issue is absolutely critical to us. 
The sad fact is that competition in the local telecom markets, 
especially in residential broadband services, would be 
virtually eliminated by this bill.
    The Tauzin-Dingell bill dismantles the core unbundling 
requirements of the 1996 Act. It eliminates line sharing, and 
it ensures that the four Bell companies will be the only ones 
offering residential consumer broadband activity in the United 
States.
    They won't tell you this, but the Bells are deploying DSL 
as fast as they can. In 1996, there were virtually no DSL lines 
installed. At the end of 2000, there were 2.3 million. SBC 
alone has nearly a million subscribers.
    What's more, the DSL share of the market is projected to 
pass the cable share of high speed access in the United States 
within the next 2 years, and that's despite the fact that the 
cable industry got a 3 year head start.
    The speed of DSL deployment by the RBOCs would not have 
happened without competition from companies like Covad. We were 
the first out of the gate, taking technology that they had in 
house for over 6 years and driving it into the market. We were 
the prod that got the Bell Companies moving.
    We offer services in all of their markets, while still 
today they only offer their broadband services in their own 
monopoly territories. This unhealthy situation will be cemented 
in place if this bill is passed. The Bells, of course, will say 
that they face fierce competition from cable companies.
    This is true only where cable companies offer high speed 
data services, which is a small fraction of the whole country. 
To put that competition in perspective, Covad's national DSL 
network is already larger than all of the cable modem networks 
in this country combined.
    I have with me today our newest product, a Covad Jump Start 
Kit. Using this equipment, just the equipment in this box, and 
following some easy instructions, new DSL customers can install 
their own broadband connection without the need for us to send 
them a technician.
    There is no need for a step data line, and a customer gets 
connected in a matter of days. Our kits work by employing line 
sharing. Every carrier uses line sharing to reach residential 
customers.
    It allows the customer to receive DSL and surf the net over 
the same copper line as regular old telephone servers. This 
bill, as it is currently written, eliminates line sharing for 
everyone by the ILECs. Let me be clear. If line sharing is 
eliminated, Covad will have no choice but to withdraw from the 
residential market.
    We cannot match a competitor whose lines are subsidized. We 
have tried in the past and it just does not work. The bill goes 
even further. If line sharing is eliminated, not only would we 
disconnect over 50,000 of our subscribers, but we would be 
locked out of the residential market forever.
    This bill destroys the very core of the Telecom Act and the 
right of competitors to lease basic portions of the monopoly 
network. The Telecom Act does provide a tremendous framework to 
induce competition or introduce competition into the market. It 
does come up short on enforcement.
    Several members of the committee have mentioned that fact. 
We believe that additional enforcement is necessary, and not a 
reduction of the competitive capabilities that the Act put in 
place.
    I will commit to you in closing to discuss any and all of 
these matters at your convenience. It is without question the 
most important issue facing this industry and one that we take 
very seriously. Thank you very much for your time.
    [The prepared statement of Charles J. McMinn follows.]

PREPARED STATEMENT OF CHARLES J. MCMINN, CO-FOUNDER AND CHAIRMAN OF THE 
                  BOARD, COVAD COMMUNICATIONS COMPANY

    Good morning Mr. Chairman, Ranking Member Dingell, and 
distinguished members of the Committee. Thank you for inviting me here 
today to testify on this very important issue.
    My name is Charles McMinn. I am the Chairman of the Board and a co-
founder of Covad Communications Company. Covad is the nation's largest 
competitive provider of broadband DSL Internet connections, offering 
service to nearly 50% of the country--more than any other CLEC and any 
other ILEC. We have over 320,000 DSL subscribers, half of which are 
residential customers. I am here today to tell you that if you pass the 
bill before you as it is currently written, you will eliminate the 
driving force in the deployment of broadband technology in the United 
States, competition that the Telecom Act of 1996 created.
    Your decision in 1996 to open local telecommunications markets to 
competition allowed consumers a choice in broadband services from a 
variety of competitive providers. The bill you are considering today 
will take that choice away.
    The public telephone network is the only ubiquitous, government-
subsidized communications delivery system in the nation. Using copper 
phone lines, companies can and do offer a variety of different 
services, including voice, data, and video. While other delivery 
systems offer a promise for the future, the monopoly copper phone 
network is the here and now. It is the only choice that many consumers 
will have for the next decade.
    The sad fact is that competition in local telecom markets, 
especially in residential broadband services, would be virtually 
eliminated by this bill. The Tauzin-Dingell bill dismantles the core 
market-opening provisions of the 1996 Act, eliminates line sharing, and 
ensures that the four Bell monopolies will be the only companies 
offering residential consumers broadband DSL internet connections to 
the vast majority of consumers in the U.S.
    Two colleagues and I founded Covad in October of 1996, just months 
after you passed the Telecommunications Act. We took DSL technology--
which had been collecting dust on the shelves and in the warehouses of 
the Bell companies for over six years' and quickly used it to build a 
broadband network that can reach nearly half of the homes in America.
    This competition drove the Bells to deploy their own DSL services 
for the first time. The total number of DSL lines installed nationwide 
in 1996 was zero. In 1998 it was about 38,000. At the end of 2000, that 
number topped 2.3 million. Verizon alone jumped over 500% between 1999 
and 2000, from 87,000 to 540,000. SBC ramped up to 767,000 from 
169,000.
    The speed of DSL deployment by the RBOCs would not have been 
accomplished without competition from companies like Covad. Still 
today, CLECs like us are the only competition that the ILECs face in 
many of their markets. We offer services in all of their markets, while 
they offer services only in their own markets. The fact is, we are the 
ones who compete against each and every ILEC in each and every region 
in the United States. They do not compete against each other.
    Let me repeat that. Even though the ILECs were allowed to compete 
against each other, none of them have chosen to do so. Only CLECs like 
Covad are competing to offer consumers a choice. If this bill is 
passed, competition will be history and consumers will suffer, as they 
have in the past.
    The ILECs, of course, will say that they face competition from 
cable companies. This is true only where cable companies offer high-
speed data services, which is a small fraction of the whole country. To 
put that competition in perspective, Covad's national DSL network alone 
has more coverage than all of the cable modem systems in the U.S. 
combined.
    I believe that Covad is a tremendous example of the type of 
innovation and entrepreneurship that you envisioned and expected when 
you passed that great law. Starting from scratch, we at Covad have led 
the charge to bring broadband services to every home in America, and we 
couldn't have done it without the Telecommunications Act.
    I have with me today our newest product--the Covad JumpStart kit. 
It represents the progress and innovation possible through a policy of 
local competition. Using the equipment in this box, and by following 
some easy instructions, new DSL customers can install broadband in 
their homes without a visit from a technician. As a matter of fact, 
almost 80% of our residential lines are installed using the JumpStart 
kit. There is no need for a separate data line, and a customer can get 
connected in a matter of days. With JumpStart, broadband DSL can be 
wrapped up and given as a gift. That's quite a long way from a few 
years ago when the ILECs controlled broadband services, when prices 
were high, availability scarce, and installation times stretched into 
months on end. This was a time when no consumers and few businesses 
could even afford broadband connections. This bill would return us to 
those times because it would eliminate the only competition that the 
Bells face--CLECs like Covad.
    Our JumpStart kit works by employing line sharing. Line sharing is 
a simple policy. It allows a customer to receive DSL and surf the net 
over the same copper phone line used for regular old telephone service, 
that same copper line that has been paid for by consumers over and over 
again. Because of the unique technical characteristics of DSL, 
broadband services and voice services can travel over the same copper 
wire. They literally share the line. The issue before the committee 
is--who has the right to choose how that wire is used--the customer or 
the monopoly?
    Using line sharing and ADSL technology is the only economically 
feasible way to serve residential users and to mass market DSL service. 
When a Bell company provides DSL to a customer, it exclusively employs 
line sharing. They do not force the customer to install a separate 
phone line, and they do not send a technician to the customer's house 
to complete the installation. When Covad serves a residential customer, 
we also employ line sharing. This fairness principle is at risk in the 
legislation you are considering.
    The Tauzin-Dingell bill as it is currently written eliminates line 
sharing for everyone but the ILECs. This conveys a preferred status on 
the ILECs that we can not possibly overcome. Let me be clear. If line 
sharing is eliminated, Covad and other CLECs will have no choice but to 
stop offering broadband services to consumers. This could result in the 
disconnection of 50,000 residential DSL lines for Covad alone. It also 
means that our Jumpstart kit would become a thing of the past. The oft-
ignored section of the current bill reads:
        ``. . . the Commission shall not require an Incumbent Local 
        Exchange Carrier to provide . . . unbundled access to any 
        network element used in the provision of any high speed data 
        service, other than those network elements described in Section 
        51.319 of the Commission's regulations (47 C.F.R. 51.319), as 
        in effect on January 1, 1999 . . .''
Line sharing was ordered in November 1999, and therefore would, under 
the proposed Tauzin-Dingell bill, cease to exist. How can this possibly 
benefit the consumer?
    I would also note that numerous other pro-competitive rules that 
are vital to a competitive marketplace would be completely eliminated 
as well, but the elimination of line sharing is at the top of the list
    Aside from unplugging over 50,000 Americans from their Covad 
broadband connections, the elimination of line sharing also represents 
a serious retreat from the goal of a competitive local 
telecommunications market. By eliminating line sharing, Congress will 
ensure that the Bell monopolies, and only the Bell monopolies, are 
allowed to offer residential customers DSL services in the vast 
majority of the U.S. In the absence of line sharing, competitors will 
have to lease a separate phone line and send a technician to the field, 
adding significant costs and time delays, a cost disadvantage that we 
can not hope to overcome. And so we will have to withdraw from the 
consumer market.
    Moreover, the Tauzin-Dingell bill would relegate consumers to only 
those broadband services the Bell monopolies decide to offer. While the 
Bells offer only one type of DSL called ADSL, Covad and other 
competitive companies offer a menu of DSL services and products that 
give consumers a wide range of broadband choices, higher speed and 
farther-reaching services. The Tauzin-Dingell bill takes away new and 
innovative services from consumers. I submit, and Covad firmly 
believes, that such a re-monopolization of the local market is clearly 
not in the best interests of the nation. That certainly was not the 
goal of the Telecommunications Act.
    We are not alone in our opposition to returning to a local phone 
monopoly. I point to an April 18, 2001 Business Week editorial that 
reads:
        ``The Bells are not known for their competitive vigor or their 
        willingness to roll out broadband quickly. Indeed, it was only 
        competition from new companies that spurred them to start. Even 
        now, the monthly cost--about $40--for broadband service is 
        high, and the quality of digital subscriber line (DSL) service 
        often low. Baby Bell SBC Communications Inc. just hiked its 
        rate to $50 a month. Broadband is clearly the next big thing in 
        the info-tech economy. Cell-phone and handheld-device 
        manufacturers, Internet infrastructure builders, server makers, 
        content providers, software writers, advertisers, and others in 
        the IT sector are betting on broadband . . . But regulators 
        will have to do their part as well. If consolidation produces 
        more monopolization of the telecom market, America's high-tech 
        economy will suffer.''
At a time when competition for local broadband services is beginning to 
take off, I don't believe the nation can afford to return to a 
monopolized local telecommunications network.
    The Tauzin-Dingell bill addresses a variety of other issues that 
relate to local telecommunications competition. In each case, we 
believe such provisions will stifle competition and slow broadband 
deployment. The Section 271 process is crucial to ensuring that local 
markets are indeed opened to competition. Eliminating it with respect 
to data services is not only technically infeasible; it is the same as 
eliminating it all together. There is no feasible way to accurately 
distinguish between voice and data. How would you classify a 
videoconference between Chicago and San Francisco? How about a 
forwarded voice transcript of that same conference? Or an online replay 
of the conference available to anyone on the Internet?
    The process that Congress put in place in 1996 is working--the FCC 
has not rejected a single RBOC long distance application since 1998, 
and the Bell Companies have announced plans to submit dozens of 
applications for approval this year. By year-end, it is expected that 
half the nation's population will be able to buy long distance services 
from their monopoly phone company. Removing this pro-competitive 
provision from the Act would return the nation and its broadband 
consumers to a monopolized local market--but no provision of the bill 
will harm consumers more than the elimination of line sharing.
    Covad has more experience competing in the last mile of the local 
market than perhaps any other carrier. We've competed in local 
broadband since December of 1997, when we began providing service in 
San Francisco. We deal with each of the four Baby Bells, and can offer 
service to nearly half of the homes in America. It is this long history 
and experience that leads me to believe there are indeed steps that 
Congress can and should take to further the goal of local competition. 
I don't believe they will come as a surprise to any Member of this 
Committee.
    The Telecommunications Act provides a tremendous framework to 
induce competition into a monopoly market. It comes up short, however, 
on enforcement. Only the rigorous enforcement of the law and of the 
Telecom Act will promote the deployment of broadband. Not only do 
competitors continue to receive poor wholesale performance from all the 
Baby Bells, we are without an effective means to have our concerns 
addressed by policy makers. The current fine structures that regulators 
possess are wholly inadequate. I believe that FCC Chairman Powell said 
essentially the same thing in his testimony here in March.
    For example, in the month following Verizon's entry into the long 
distance market in New York, both the FCC and the New York Public 
Service Commission found that Verizon had violated the law and ``lost'' 
thousands of CLEC orders. Both agencies together fined Verizon over $13 
million. An impressive sounding figure, but when one considers the size 
of this company, the penalty is quite literally pocket change. Verizon 
recovered the $13 million in just three hours of operating revenue. In 
regulatory proceedings, the Baby Bells will tell you that it is cheaper 
to pay the fine than to actually address and fix the problem. It is 
also ironic that the Bells are permitted to recover the costs of the 
fines from customers through their local phone rates. Clearly the 
current enforcement regime is not a deterrent to anti-competitive 
behavior.
    Whatever the intent of this legislation, the elimination of line 
sharing will end residential DSL competition overnight, leaving 
consumers with no choice. Granting ``interLATA data'' relief will delay 
indefinitely the opening of the local market. If Congress is to take 
action, it must be to ensure increased and vigorous enforcement of the 
law and increased competition, not the elimination of the only real 
competition the ILECs face. Without it, American consumers will be left 
out in the cold, and once again will be at the mercy of a monopoly 
local phone company.
    I would leave you with one final thought. Monday's edition of The 
Wall Street Journal features a story on the impact of the economic 
slowdown on fiber-optic companies. The article reads:
        ``After two years of staggering sales increases, the world's 
        major fiber-optic companies are experiencing growing pains, as 
        a slowdown in telecommunications spending hurts components and 
        systems makers alike . . . The big domino in all of this is the 
        lack of funding for start-up phone companies. Funding began to 
        dry up in the middle of last year. The start-ups, which were 
        building optical-telecommunications networks, no longer have 
        the cash to spend on optical equipment, and some have declared 
        bankruptcy. As a result, the large incumbent phone companies, 
        which had to spend aggressively to protect their customer 
        bases, have curtailed their own spending plans . . .''
The message from this article is clear. Competitive deployment drives 
the Baby Bells to spend and deploy. Further, outlawing local 
competition, as Tauzin-Dingell does, will have serious repercussions on 
the economy as a whole.
    I look forward to working with you to see us through this process. 
The story of Covad is one I believe you all envisioned back in February 
1996. Unfortunately, I fear our story, and the story of all competitive 
providers of broadband services, is lost amid the hype about ``leveling 
the playing field'' of pseudo-competition between the Bell monopolies 
and the cable companies. Competition and innovation brought broadband 
to the masses. The real beneficiaries of this competitive policy have 
not been companies or shareholders. Instead, the beneficiaries have 
been consumers and constituents who have reaped the benefits, in the 
form of new services and--for the first time--a choice in a local 
provider. Please do not eliminate that choice through your actions.
    Thank you very much, and I would be happy to answer any questions 
you might have.

    Chairman Tauzin. Thank you very much, sir. The Chair is now 
pleased to recognize for an opening statement Mr. Peter Pitsch, 
of the Intel Corporation.

   STATEMENT OF PETER PITSCH, COMMUNICATIONS POLICY DIRECTOR, 
                    INTEL GOVERNMENT AFFAIRS

    Mr. Pitsch. Thank you, Mr. Chairman, and members of the 
committee. I am the Communications Policy Director for Intel, 
and I would like to thank you for this opportunity to be here 
this morning to testify before the committee on this important 
topic.
    In my oral testimony, I want to limit myself to three main 
points. First, I would like to discuss the importance of 
broadband deployment. Second, I would like to lay out Intel's 
policy prescriptions in this area, and last, I want to make a 
brief comment about Intel's position and posture in this larger 
broadband debate.
    First, regarding broadband deployment, Intel believes that 
rapid deployment of affordable broadband technology will 
dramatically drive the growth of the Internet, E-commerce, and 
our larger economy.
    In my testimony, I cited our chairman, Andy Grove, surveys 
of EEOs, business press, and so on, but today I want to make 
just one fundamental point about the importance of broadband, 
and that is that we are just beginning to phantom the 
importance of broadband deployment.
    I would ask you to consider back to the first days of the 
PC and those initial computer applications, and then consider 
where we are today. I submit that dramatic increases in the 
growth of broadband penetration will lead to a similar growth 
of developments, and flourishing of opportunities that we saw 
with the interaction between software and hardware developers 
in the P.C. sector.
    One particular study I reference is a study that looks at 
the broadband revenues worldwide and indicates that in 1999 
those revenues were about $60 billion, and projects that by 
2004 those revenues could be over $460 billion.
    It should come as no surprise then that Intel and many of 
the high tech sector want policymakers to get broadband policy 
right, and in our view, like consumers, Intel believes that 
public policy should best promote rapid deployment of 
affordable broadband to all consumers.
    We believe that the Congress and the FCC should and can 
make this happen through the deregulation of the incumbent 
local exchange DSL services in the last mile. I wish to point 
out that I am not taking any position. Intel does not take any 
position on the interLATA provisions of this bill.
    However, we do believe that eliminating the unbundling 
restrictions that currently exist and threaten the investment 
opportunity for the incumbent telephone companies in the last 
mile between their central office and the residential customer 
do represent a barrier to deployment. I would like to explain 
that just briefly.
    This investment is risky. It is discretionary. It is not 
part of the legacy of existing copper in central office 
buildings, and if we impose that kind of unbundling obligation, 
we undertake the business case for these companies to make that 
investment.
    Intel's position is that if a company takes a broadband 
deployment risk, it should get the reward. We are satisfied 
that there can be safeguards designed that protect competition 
and achieve this goal.
    In my testimony, I mentioned conditioning relief upon 
compliance with the FCC and States, co-location, and loop 
provisioning requirements. I also mention the possibility of 
conditioning relief for an ILEC on the achievement of 
milestones, benchmarks that would require the companies to meet 
certain buildout requirements.
    Last, I would like to talk about Intel's position in the 
larger broadband debate. The position here today is really just 
one of a consistent set of policy positions we have taken in 
this larger area.
    I would like to point out that Intel, through our trade 
association, ITI, a hi-tech trade group that I know that many 
of you are familiar with, supported the FCC's decision in 
finding cable unbundling to be premature at this point.
    We supported the FCC's decision to require the companies 
existing--the incumbent companies to unbundle their existing 
copper and make their central offices available. We also 
supported the FCC decision not to impose unbundling 
requirements on DSL electronics, and there are other examples 
as well.
    It should be clear here that Intel is not uninterested. We 
believe that we are disinterested. We want all these providers 
to have ample opportunity to provide this, and our positions at 
various points are that we have opposed or supported all of our 
friends in this larger community.
    But consistently hopefully always with the goal of 
encouraging affordable broadband for all consumers. Thank you.
    [The prepared statement of Peter Pitsch follows.]

  PREPARED STATEMENT OF PETER PITSCH, COMMUNICATIONS POLICY DIRECTOR, 
                           INTEL CORPORATION

    Mr. Chairman and Members of the Committee, my name is Peter Pitsch 
and I am the Communications Policy Director for Intel Corporation. I 
would like to thank you for this opportunity to testify before your 
Committee. For three decades, Intel Corporation has developed 
technology enabling the computer and Internet revolution that has 
changed the world. In 2000, Intel had sales of $33.7 billion, over 
86,000 employees, and spent $3.9 billion on research and development 
and another $6.7 billion on capital expenditures. Intel's mission is to 
become the preeminent building block supplier to the worldwide Internet 
economy. Of particular relevance to the issue of broadband deployment, 
last November Intel successfully launched the Intel' 
Pentium' 4 processor designed to deliver advanced 
performance for Internet computing, including imaging, streaming video, 
speech processing, 3D, multimedia and multitasking.
    Intel believes that the rapid deployment of affordable broadband 
technology would drive dramatic growth of the Internet, e-commerce and 
the IT sector. As Chairman Andy Grove, said in Intel's most recent 
annual report, ``Connectivity is certainly what's driving the growth in 
computing right now.'' 1
---------------------------------------------------------------------------
    \1\ Intel 2000 Annual Report, p.6.
---------------------------------------------------------------------------
    Broadband has the potential to transform the Internet. Sixty-four 
percent of CEOs ``cited broadband connectivity as the most significant 
immediate factor influencing the way customers will experience 
entertainment and communications in the future.'' 2 
According to a recent Business Week article, ``In the long run, 
realizing the promise of the Net will depend on the widespread 
introduction of advanced technologies such as broadband to the home . . 
.'' 3 Some reasons why are:
---------------------------------------------------------------------------
    \2\ ``Broadband Will Profoundly Alter Consumer Experience'' by Ben 
Macklin. http://www.emarketer.com/analysis/broadband/
20010327__bband__consumer__exp.htm.
    \3\  ``Rethinking the Internet'' by Michael J. Mandel and Robert D. 
Hof. Business Week, March 26, 2001.gQ02
---------------------------------------------------------------------------
 Increased bandwidth could enhance distance-learning, 
        telemedicine, home-management, and public services, in addition 
        to features such as video on-demand and audio streaming.
 Video conferencing and Voice over the Internet could connect 
        family and friends.
 Web surfing and e-commerce will occur at much faster speeds 
        and with more video content.
 The ``always on'' capability of broadband means that services 
        such as electronic yellow pages, stock quotes, and weather 
        forecasts, will be utilized more often than when users have to 
        dial-in every time they want access to this type of 
        information.
 Websites will become more interactive and graphics-intensive. 
        Online shopping will become more attractive when more websites 
        are able to offer better customer service. For example, Land's 
        End converts more than 10% of its Web visitors to buyers--
        compared to the average 4.9%--in part because it offers live 
        chat and other customer service extras.4
---------------------------------------------------------------------------
    \4\ ``Rethinking the Internet'' by Michael J. Mandel and Robert D. 
Hof. Business Week, March 26, 2001.
---------------------------------------------------------------------------
    However, we are just beginning to fathom the possible effects of 
broadband access. Consider the difference between the first computer 
applications and those offered today. Dramatic increases in broadband 
access could spur another ``virtuous cycle'' of innovative products and 
services similar to those that have been introduced by hardware and 
software developers in the PC sector. And while only about 5% of U.S. 
households have broadband, one thing is certain: once users experience 
broadband, they value it. In fact, 63% of respondents in a recent 
survey stated that they would give up coffee before they gave up their 
DSL service.5
---------------------------------------------------------------------------
    \5\ DSL users just love their high-speed Net, http://www.nua.ie/
surveys/?f=VS&art__id=
905356682&rel-true.
---------------------------------------------------------------------------
    Broadband access has implications for more than just service 
providers and their customers. Specifically, the IT sector as a whole 
will benefit. For example, one study considered broadband revenues for 
various groups including manufacturers of communications equipment, 
gateway devices, and semiconductors, as well as service and content 
providers. They estimate that worldwide broadband revenues will 
increase from $59.7 billion in 1999 to $464.5 billion in 
2004.6
---------------------------------------------------------------------------
    \6\ ``Entering the Broadband Era'' Cahner's In-Stat Group, May 
2000.
---------------------------------------------------------------------------
    It should come as no surprise then that Intel wants policymakers to 
get broadband policy right. Like consumers, Intel wants public policy 
that promotes the rapid deployment of affordable broadband technology 
to all consumers. In pursuit of this goal, Intel joined other members 
of the Information Technology Industry Council (ITI) 7, in 
the adoption of the following broadband principles:

    \7\ ITI is the association of the leading information technology 
companies, including computer hardware and software manufacturers, 
networking companies, and Internet services companies. ITI member 
companies employ more than 1.2 million people in the United States and 
exceeded $633 billion in worldwide revenues in 1999.
---------------------------------------------------------------------------
1) Markets, not regulators, should drive the deployment of broadband 
        technology. To that end, ITI supports the deregulation of the 
        telecommunications industry and the continued non-regulation of 
        information services.
2) Market-based competition among all channels of the communications 
        marketplace is the best way to promote rapid deployment of 
        broadband technology.
3) Government intervention in the market is appropriate only where a 
        competitive bottleneck exists.
4) ITI does not endorse any single broadband technology and believes 
        deployment of multiple technologies will benefit consumers.
    Consistent with these principles, Intel believes that the Congress 
and Federal Communications Commission (FCC) should encourage the rapid 
deployment of broadband services to consumers through deregulation of 
the incumbent telephone companies' new, so-called ``last mile'' 
broadband investment. I wish to point out that Intel is neutral on 
whether the interLATA restrictions of the 1996 Act should be modified. 
We believe that deregulation of last mile broadband investment, 
however, could be done in a way that would preserve the 1996 
Telecommunications Act goal of removing barriers to competition in the 
telecommunications markets and stimulate investment, spur technological 
innovation, reduce prices, and increase consumer choices. Section 232 
of H.R. 2420, last year's vintage of The Internet Freedom and Broadband 
Deployment Act, would have moved in this direction.
    In particular, Intel believes unbundling requirements for new 
broadband equipment and fiber loops deployed between an incumbent 
telephone company's central offices and residences should be 
eliminated. This action would remove a deployment disincentive that 
Incumbent Local Exchange Carriers (ILEC) face--being required to allow 
competitors unbundled access to this new high-speed equipment. In the 
past, Intel has supported the imposition of unbundling obligations on 
the ILECs' essential facilities but we do not believe these obligations 
should be extended to new broadband services for residential customers 
because that investment is both risky and discretionary. Unlike the 
existing local loop, ILECs do not have a legacy advantage in newly 
installed broadband investment and broadband equipment is readily 
available to competitors and ILECs alike. Removing the unbundling 
disincentive will lead ILECs to deploy more quickly high-speed services 
such as DSL, bringing the benefits of broadband technology to more 
consumers. Intel believes those who take the broadband deployment risk 
should get the reward.
    Intel is satisfied that safeguards can be designed to ensure that 
the removal of those barriers has the desired effect and does not 
adversely impact competition. Importantly, deregulation should be 
conditioned on ILEC compliance with FCC and state collocation and loop 
provisioning rules. Intel has long maintained that it is important that 
the competitive local exchange carriers (CLECs) have access to ILEC 
loops and central offices. Indeed, in December 1998, we reached an 
accord with several ILECs that conditioned deregulation of their 
broadband services on their making these essential facilities available 
to the CLECs. Finally, in the case of new fiber loops, ILECs should be 
required, upon request, to maintain the existing copper local loop, so 
competitors do not lose access to the home and remain capable of 
providing advanced and other telecommunications services.
    Intel also believes that to get relief an ILEC should be required 
to meet important build-out benchmarks. For example, it could be 
required to make advanced services available to 80% of its customers 
within 3 years and 100% of its customers within 5 years. In sum, Intel 
believes there is a sensible step-by-step approach to eliminating 
regulatory barriers that will encourage rapid deployment of advance 
services to consumers through deregulation and competition.
    I would like to close by noting that Intel's support of DSL 
deregulation is just one part of a consistent set of policies that we 
believe will increase the deployment of a variety of competing 
broadband technologies. For example, in the area of high-speed cable 
access, through ITI we supported the FCC's decision to forego 
regulatory action to mandate cable access.8 ITI has also 
advocated regulatory relief for ILECs before the FCC. ITI argued, and 
the FCC agreed, that certain high-speed DSL equipment installed by 
incumbent local phone companies should not be required to be unbundled. 
ITI submitted comments to the FCC on this particular matter because we 
believe that it will enhance the competitive growth of the broadband 
market by providing an incentive for ILECs to deploy DSL quickly. At 
the same time, however, the FCC also agreed with the position taken by 
ITI that the local loop must remain open to all competitors.
---------------------------------------------------------------------------
    \8\ ITI wrote to FCC in support of the Commission's amicus brief in 
AT&T v. City of Portland. ITI argued that because cable Internet access 
is an emerging service and the providers currently lack market power in 
the Internet access market, they should not be subject at this time to 
open network requirements. Furthermore, ITI agreed with the position 
taken by the FCC that the question of whether cable companies should be 
required to open their cable modem services should be addressed at the 
federal level. Apart from legal arguments over federal and local 
jurisdiction, ITI argued that there are compelling economic and 
business reasons for developing a national policy on this important 
issue.
---------------------------------------------------------------------------
    As you can see, Intel has been actively involved in broadband 
policy issues. We have not sided with one camp or another, but instead 
we have supported and opposed the positions of all of the major players 
at one time or another. Throughout this policy process, Intel has 
supported the same basic goal; namely, rapid deployment of widespread, 
affordable broadband for consumers.
    We would encourage the Committee to be as forward-looking as 
possible when it examines broadband issues. As we all know, the 
telecommunications debates of the latter part of the 20th century often 
involved pitting entrenched business interests against each other, or 
they focused on the competitive deficiencies of one communications 
medium or another. Today, we have a far different landscape, one that 
has emerged only in the last several years. With the Internet achieving 
status as a mass medium, consumer demand for broadband data service has 
grown dramatically. All major communications infrastructure providers 
should be encouraged to meet that demand even if, in practice, that 
means the government will be loosening some of the regulatory 
restrictions that may have made sense in a prior era. As this debate 
continues, I would urge you to turn to Intel and the high-tech 
community as an disinterested voice on these important issues.
    On behalf of Intel, I would like to thank the Committee for its 
time, and I would be glad to respond to any questions.

    Chairman Tauzin. Thank you very much, sir. The Chair is now 
pleased to welcome and for his testimony Mr. Tim Regan, of 
Corning, Incorporated.

 STATEMENT OF TIMOTHY J. REGAN, SENIOR VICE PRESIDENT, CORNING 
                          INCORPORATED

    Mr. Regan. Thank you, Mr. Chairman. As you said, I am from 
Corning, Incorporated, and we are the original inventors of 
optical fiber, and obviously have a lot of interest in seeing 
the technology deployed.
    I applaud the committee for undertaking this discussion 
today, because it deals fundamentally with the issue of 
investment, and we really have two problems from where we stand 
on investment.
    One is to get investment going again in the 
telecommunications sector. One of the things that brought this 
economy down is that investment dried up in the 
telecommunications sector, and so we need a revival of it.
    The second thing is that we really can testify to the fact 
that broadband as we define it is not being deployed to 
American homes today. And let me explain what I mean by 
broadband.
    Broadband, as I refer to it, is the capability to both send 
and receive information in all its forms--voice, data, video, 
graphics, high speed video--by the subscriber. It is not DSL, 
and it is not cable modems, and it is not fixed wireless. These 
are properly defined as high speed capabilities.
    And I will address only the broadband issue, because 
fiberoptics is inherently capable of transmitting broadband, 
and not these other capabilities. Now, we have witnessed very 
unusual investment behavior in this sector as it applies to 
investment in fiberoptic broadband systems to residential 
customers.
    Specifically what we observed is that incumbent local 
exchange carriers are investing in copper rather than 
fiberoptic systems in new bills and in rehab situations when 
fiber systems are equal in cost to copper. It is hard to 
believe, but it is true today. We have reached the cross-over 
point.
    And I can read a statement that came out of the Wall Street 
Journal specifically that refers to that. The quote is, ``Sales 
of communications wire from fiberoptic and coax cable to old 
fashion copper rose 6 percent to $14 billion last year. Here is 
the most surprising part. The bulk of the industry sales 
continue to come from the same type of wire that Alexander 
Graham Bell developed in 1879 to transmit voice signals. 
Copper.'' Obviously this situation puzzled us and so we hired a 
couple of economists, and we said look at this thing. Why is 
there this apparent irrational act. They came back and said, 
no, the ILECs are acting in a very rational way.
    It turns out that there is new economic research that 
indicates in certain situations you are better off to wait than 
to invest in new technologies. Those situations include 
situations where you have high--some costs, and in situations 
where you have technology uncertainty.
    They also noted that the unbundling rules at Telric that 
came out of the FCC have also caused a bit of a problem, and 
that they have not allowed a sufficient rate of return on the 
capital investment to get the investment moving.
    So you have essentially a powerful--two powerful forces 
going on at the same time, which are inhibiting the investment 
in this revolutionary technology. So you might say, well, what 
is the solution, and we don't have any magic wands.
    One solution we might think about is to consider the 
possibility of actually amending the unbundling rules so that 
you can allow a sufficient rate of return on capital to justify 
the investment. In a sense, this is not a regulation issue. It 
is a financial issue.
    It is how do we get the rate of return up, and you can get 
the rate of return up by changing the rules. So it is worth 
taking a look at this, and I think in the final analysis what 
we really face is we face here a tug between two things.
    We all want competition, and we have a natural tug between 
the unbundling rules that will enhance competition, and the 
rules which can inhibit investment, and somehow we have to find 
the right balance. So, with that, I would like to thank you for 
your time. I guess I am less than 5 minutes, but I'm sure that 
is probably appreciated.
    [The prepared statement of Timothy J. Regan follows.]

PREPARED STATEMENT OF TIMOTHY J. REGAN, SENIOR VICE PRESIDENT, CORNING 
                              INCORPORATED

Introduction
    Mr. Chairman, my name is Tim Regan. I am a Senior Vice President of 
Corning Incorporated. We are the original inventors of optical fiber 
and, of course, are anxious to see the technology deployed to all 
Americans.
    My argument is very simple. From the perspective of the fiber 
optics industry, broadband is not being deployed to residential 
customers in America. This is true for residences located in urban, 
suburban, or rural America. Business customers are getting it, but 
residences are not.
    I know that you might find this statement somewhat astounding 
because you hear a lot about the so-called broadband deployment. Cable 
modem service, ADSL service (i.e., asynchronous subscriber line), and 
various wireless data have been described to be broadband, even by the 
FCC. I will argue in my testimony that these capabilities are more 
properly described as high-speed data service, not broadband service.
    I will also describe in my testimony recent economic research that 
Corning has commissioned to determine why broadband capability is not 
being deployed to residential customers. The study identifies both 
financial and regulatory barriers to deployment.
    And, finally, I will propose a possible solution to remove barriers 
to broadband deployment. The Internet Freedom and Broadband Deployment 
Act of 2001, in large part, encompasses this proposal. Thus, we are 
positively inclined toward the bill.
What is Broadband?
    The first issue, of course, is the question of what is broadband. 
The answer is not obvious.
    Oddly enough, the term ``broadband'' really comes from an older 
age--the analog age. In the analog age, the information-carrying 
capacity of a network was defined by the width of the band of spectrum 
used to carry a signal. The wider the band, the greater the 
information-carrying capacity. Thus, the term ``broadband'' was used to 
characterize a system capable of carrying a considerable volume of 
information.
    In the analog world, a standard television video signal that 
requires 6 megahertz per channel was considered to be broadband. Voice 
at 4 kilohertz was thought to be narrowband.
    In the digital world, the notion of broadband really doesn't apply. 
The information carrying capacity of a digital network is described as 
a bit transfer rate. As you know, digital signals are represented by a 
series of on and off signals that are characterized by pulses of 
electrons or photons. Transmissions in the digital world appear more 
like Morse code.
    If we use standard television video as a service to characterize 
broadband, as we have done in the analog world, a bit transfer rate of 
4 million to 90 million bits per second would define broadband. An 
uncompressed standard television video signal requires 90 million bits 
of information per second to transmit. It can, however, be compressed 
to 4 million to 6 million bits per second using compression standard 
known as MPEG-2.
    Data has become a very important form of information in the digital 
world. Remember that computers were originally called data processing 
machines. In the computer data world, the connections between computers 
are quite robust. A standard has evolved known as Ethernet, developed 
by IBM over two decades ago. It provides for the transmission of 10 
million bits per second between computers on a local area network. 
Today, the Ethernet standard has been upgraded to a 100 million bits 
per second.
    Frankly, I think the term broadband is so imprecise, it is probably 
useless at this point.
    I think the better way of engaging the public debate is to identify 
bit transfer rates Americans will need to gain access to audio, video, 
and data applications. Table 1 describes the transmission speeds 
necessary to gain access to a variety of applications.

                                                     Table 1
            Network Transmission Speed Requirements for Real Time Audio, Video, and Data Applications
----------------------------------------------------------------------------------------------------------------
                          Applications                                Downstream Speed         Upstream Speed
----------------------------------------------------------------------------------------------------------------
Audio
CD Quality Sound................................................             256 kbps \1\                    --
Broadcast Quality...............................................       48 kbps to 64 kbps                    --
Plain Old Telephone Service.....................................                  64 kbps               64 kbps
Video
Broadcast HDTV (compressed).....................................      20 mbps \2\/channel                    --
Broadcast Standard TV (MPEG-2 compressed).......................        ~4-6 mbps/channel
Videoconferencing...............................................           64 kbps-2 mbps        64 kbps-2 mbps
Data
File Transfer (Ethernet)........................................                  10 mbps               10 mbps
Web Browsing....................................................                 240 kbps              240 kbps
Network Games...................................................                  80 kbps               80 kbps
----------------------------------------------------------------------------------------------------------------
Source: Timothy C. Kwok, Microsoft Corporation, ``Residential Broadband Internet Services and Applications
  Requirements,'' IEEE Communication Magazine June 1997, Tables 3 and 4, p. 80-81.
\1\ 1 kbps is one thousand bits per second.
\2\ 1 mbps is one million bits per second.

    If you think that Americans will need access to information in all 
its forms--audio, video, and data--it is easy from Table 1 to see that 
a capability in excess of 22 million bits per second downstream and 10 
million bits per second upstream is ideal. Let me explain with some 
examples of the bit transfer speeds necessary to do audio, video, and 
data:

 Plain old telephone service requires 64 thousand bits per 
        second both upstream and downstream.
 Standard television using MPEG-2 compression technology uses 4 
        million to 6 million bits per second per channel downstream. 
        Since there are on average 2\1/2\ television sets in every 
        household in America, three channels at 4-6 million bits per 
        second each is needed.
 HDTV using the most advanced compression technology requires 
        20 million bits per second downstream.
 And, 10 million bits per second both upstream and downstream--
        the so-called 10 Base-T Ethernet standard--is required to give 
        people the same data speeds at home that they get at work in 
        order to facilitate telecommuting.
    I realize that the 22 and 10 million bits per second sound like a 
lot. But, I believe it is what will be needed. Here's the calculation. 
You need 10 million bits per second both downstream and upstream to 
give subscribers the same capability at home that they have in the 
office (i.e., Ethernet 10 Base-T). The remaining 12 million bits 
downstream could accommodate two to three channels of standard 
television quality video.
    The FCC has stated in its various Section 706 reports that 
broadband is 200 thousand bits per second--or less than 1% of my 
prescription. I do not see how the FCC can defend such a low standard 
in light of the speeds described in Table 1 above as necessary to 
transmit the applications we know of today, never mind the limitless 
array of new ones that will be created once the infrastructure is 
deployed.
    The FCC and others have defined broadband at such a low level 
because they fundamentally misunderstand the nature of the future 
network. It has been described by the FCC as a superhighway. And, 
consistent with this analogy, the connections to the home are simply 
narrow on and off ramps.
    This is the wrong analogy. The network of tomorrow, which will all 
be digital, is not a highway. It is a series of bridges. The bridges 
connect islands of intelligence--computers. After all, this is what the 
Internet is. It is a network of computers, and each computer has the 
capacity to store and process hundreds of millions of bits of 
information.
    Today, these islands of intelligence are for the most part 
connected by

very narrow bridges, a copper pair that can transmit only 56 thousand 
bits. Even with these very narrow bridges, we have been able to realize 
tremendous economic benefit from connecting these islands of 
intelligence.
    Fed Chairman Alan Greenspan best characterized the impact of this 
connectedness before the Business Council when he said:
        ``Your focus on technology--particularly the Internet and its 
        implications--is most timely . . . The veritable avalanche of 
        real-time data has facilitated a marked reduction in the hours 
        of work required per unit of output and a broad expansion of 
        newer products whose output has absorbed the work force no 
        longer needed to sustain the previous level and composition of 
        production. The result during the last five years has been a 
        major acceleration in productivity and, as a consequence, a 
        marked increase in the standards of living for the average 
        American household (emphasis added).'' 1
    Tremendous economic prosperity has been realized over bridges that 
connect the computers at 56 thousand bits per second. Can you imagine 
what will happen when we can connect these islands of intelligence by 
bridges that can carry over 10 million or 20 million bits per second?
    The question before us is how to build these bridges as soon as 
possible.
Why Aren't the Bridges Being Built?
    Obviously, to deploy this new technology will require considerable 
investment on the part of all telecommunications carriers. The problem 
is, the dynamics to finance this investment have not been unleashed.
    In fact, we have witnessed some unusual behavior. Incumbent local 
exchange carriers (ILECs) continue to deploy copper wire rather than 
new technology like fiber optics to provide service to new residential 
customers (i.e., ``new builds'') and to totally rehabilitate 
deteriorated plant that is serving existing customers (i.e., 
``rehabs''). They are spending approximately $9 billion deploying 
copper to serve new builds and rehabs in the residential market.
    This reality was evidenced in a recent article in The Wall Street 
Journal which stated:
        ``Global sales of communications wire, from fiber-optic and 
        coaxial cable to old-fashioned copper, rose 6% to $14 billion 
        last year . . . Here's the most surprising part: The bulk of 
        the industry's sales continues to come from the same type of 
        wire Alexander Graham Bell developed in 1879 to transmit voice 
        signals--copper (emphasis added).'' 2
    The fiber optics industry is somewhat puzzled by this investment 
behavior because it does not appear to be cost driven. The cost parity 
between fiber optic and copper solutions for residential customers is 
well established by industry sources. For example, Matthew Flanagan, 
President, Telecommunications Industry Association, submitted comments 
to the FCC attesting to this fact. As evidence, he submitted sworn 
affidavits from four different telecommunications engineering experts 
who all supported the cost parity claim. 3
    ----------
    1 Remarks by Alan Greenspan, Information, Productivity, 
and Capital Investment, Before the Business Council, Boca Raton, 
Florida, October 28, 1999.
    2 Mark Tatge, ``Wire Makers Thrive Despite Advent of 
Wireless Phone'', The Wall Street Journal, February 16, 2000, p. B-4.
    3 Matthew J. Flanagan, re: Implementation of the Local 
Competition Provisions in the Telecommunications Act of 1996, CC Docket 
No. 96-98, Telecommunications Industry Association, letter to Federal 
Communications Commission, August 2, 1999, which states at p. 6-7 that 
``In his Declaration, Mr. Cannata from Marconi Communications, 
demonstrates that POTS can be provided over a fiber-to-the-curb 
(``FTTC'') system at 98 percent to 103 percent of the cost of providing 
POTS over a copper system using a digital loop carrier (``DLC/
copper''). He notes further that the FTTC system can be upgraded to 
provide high-speed data (i.e., 10/100 Base T) by incurring a 16 percent 
incremental cost compared to a 40 percent to 50 percent incremental 
cost to upgrade DLC/copper to provide Digital Subscriber Line (xDSL) 
service. Finally, he demonstrates how a further upgrade to provide VHS-
quality broadcast video can be deployed for an incremental cost of 44 
percent over FTTC for POTS, which again compares favorably to the 40 
percent to 50 percent incremental cost associated with the xDSL 
solution.
    Mr. Jacobs from Corning Incorporated shows in his Declaration 
similar results with respect to broadband solutions. His analysis shows 
that an Ethernet fiber-to-the-home system (``EFTTH'') using multimode 
fiber can be deployed at 7 percent less than ADSL over copper, and 
EFTTH is substantially more capable. The EFTTH system can deliver POTS, 
10/100 Base T data, and VHS-quality broadcast video, which cannot be 
done on an ADSL system.
    Mr. Tuhy from Next Level Communications states in his Declaration 
that ``fiber-based narrowband solutions for local access serving 
residential end-users can be deployed at cost parity with copper-based 
solutions as measured on an installed first cost basis for newly 
constructed or totally rehabilitated outside plant.'' He makes a 
similar statement with respect to broadband. He notes that Next Level 
Communication's FTTC system ``can be deployed to provide integrated 
voice, data, and video for the same cost as a copper-based solution 
with an ADSL
    Because we are somewhat puzzled by this investment behavior, we 
commissioned a study by three Ph.D. economists, Drs. Kevin Hassett and 
J. Gregory Sidak, who are associated with the American Enterprise 
Institute for Public Policy Research, and Dr. Hal Singer who is 
associated with Criterion Economics. The study concluded that the ILECs 
and the CLECs are acting very rationally in delaying their decision to 
invest in new technology to serve residential customers. They 
identified both financial and regulatory explanations for the delayed 
investment behaviors. From a financial perspective, this delayed 
investment behavior is explained by a rather new model for explaining 
investment behavior known as the Dixit-Pindyck model. This model shows 
that when faced with certain conditions, a prudent investor will 
maximize his return by delaying investment in next generation 
technology. These conditions include a sunk cost investment, a high 
degree of market or technology uncertainty, and the absence of robust 
competition. Under these three conditions, which are all prevalent in 
the residential telephone market, a carrier is better off delaying a 
decision to invest in new technology. 4 Since ILECs are 
required to provide telephone service, they invest in copper solutions 
which are suited for just plain old telephone service.
    ----------
    overlay for high-speed data.'' This assumes new builds or total 
rehabs as well as first installed cost comparison.
    Finally, Mr. Sheffer from Corning Incorporated addresses the rural 
deployment issue in his Declaration. He cites a proprietary Bellcore 
(now Telcordia Technologies) study prepared for Corning showing that 
the cost of narrowband fiber-to-the-home (``FTTH'') at $2,370 per home 
passed beats narrowband DLC/copper at $2,827 per home passed. In other 
words, narrowband FTTH is 16.2 percent less costly than DLC/copper in a 
rural setting. More surprisingly, broadband FTTH also beats narrowband 
DLC/copper by 7.5 percent (i.e., $2,616 per home passed for broadband 
versus $2,827 per home passed for narrowband). Again, this analysis was 
based on new builds and total rehabs and the cost comparisons were done 
on an installed first cost basis.
    4 Kevin A. Hassett, J. Gregory Sidak, and Hal J. Singer, 
An Investment Tax Credit to Accelerate Deployment of NewGeneration 
Capability, February 28, 2000, p. 7, which states: ``A simple example 
can make the point more intuitive. The traditional view is that one 
should invest in any project that has a positive net present value of 
cash flows. Recent advances in economic theory have shown, however, 
that this rule is not always correct. On the contrary, it is often 
better to wait if at all possible until some uncertainty is resolved 
and cost reduction can be achieved. Consider, for example, a firm that 
traditionally offers telecommunications services through copper wire. 
The firm must decide whether to install a new advanced broadband line 
that costs, say, $100 today but has an uncertain return tomorrow. 
Suppose that, if the demand for high-bandwidth services is high, the 
firm stands to make $400 profit. If, on the other hand, there is a bad 
outcome and the demand for the new services is low, then the new 
``pipe'' will be underutilized, and the firm will gain nothing from 
owning it. If the probability of either outcome is 0.5, then the 
expected net present value of laying the new broadband line is, 
ignoring discounting, calculated as follows: (0.5 x $400) + (0.5 x $0) 
- $100 = $100. We can summarize this simple decision problem in the 
following table.

  Scenario 1: The expected profit if firm installs a NGi fiber-optic cable that costs $100 and has an uncertain
                                                return tomorrow.
----------------------------------------------------------------------------------------------------------------
                                                        Tomorrow
           Today  Invest            -----------------------------------------------                Net Expected
                                       Good Outcome                  Bad Outcome                      Return
----------------------------------------------------------------------------------------------------------------
-$100..............................    (0.5 x $400)        +           (0.5 x $0)        =                 $100
----------------------------------------------------------------------------------------------------------------

    Because the project has a positive expected cash flow, one might 
think it optimal to install the cable today. But it is not. If the firm 
delays making the investment, it can reduce the risk by observing the 
experience of others and capturing the gains associated with deploying 
reducing-cost technology later. The value of waiting is that the firm 
can decide not to make the investment if the bad state occurs. We can 
summarize this subtler decision problem in the following table:

                         Scenario 2: Expected profit if firm waits and decides tomorrow.
----------------------------------------------------------------------------------------------------------------
                                                      Tomorrow
          Today  Invest          --------------------------------------------------                Net Expected
                                     Good Outcome                    Bad Outcome                      Return
----------------------------------------------------------------------------------------------------------------
$0..............................  0.5 x ($400-$100)        +           (0.5 x $0)        =                 $150
----------------------------------------------------------------------------------------------------------------

    By waiting, the firm would increase its expected return by $50. If 
the firm invests today, it gives up an option to invest tomorrow that 
is worth $50. The firm is better off waiting because it can avoid the 
loss of $100 by not purchasing the new cable in the bad state. Note 
that the two examples would have the same expected return if the firm 
were allowed to resell the ad-

    The study goes on to conclude that the incentive to delay for ILECs 
is intensified by the so-called unbundling rules which require 
incumbents to allow their competitors to use parts of the incumbents' 
network at a regulated rate. This rate does not provide a sufficient 
return on investment to justify investment is new technology.
    The parts of an ILEC's network that must be unbundled and resold to 
competitors are known as unbundled network elements, or ``UNEs.'' The 
FCC has defined the price for the sale of these UNEs as TELRIC, or 
total element long run incremental cost. TELRIC attempts to value the 
various network elements based upon their forward-looking costs. The 
FCC believes that TELRIC replicates how competitive markets actually 
operate by approximating what it would actually cost an efficient, 
competitive firm to produce UNEs.
    The study concludes that TELRIC pricing creates a disincentive to 
invest in new technology. It states:
        ``Most observers believe that mandatory unbundling [at TELRIC] 
        limits the upside potential of any new investment project and 
        that the expected return to investment in some projects may 
        fall below the firm's cost of capital. ``This disincentive to 
        invest has been emphasized in the public debate over 
        telecommunications policy by both incumbent local exchange 
        carriers (ILECs) with respect to the local telephony networks, 
        and by AT&T with respect to proposals that unaffiliated 
        Internet service providers be given the legal right of 
        mandatory access to AT&T's cable-television networks.'' 
        5
In other words, the rate of return provided for TELRIC pricing is 
inadequate to give carriers an incentive to invest in new technology.
    Other experts, including Kathleen Wallman, former Chief of the 
FCC's Common Carrier Bureau and Deputy White House Counsel in the 
Clinton Administration, as well as Supreme Court Justice Breyer, have 
observed this disincentive. Ms. Wallman stated in a speech to state 
regulators:
        ``Do we really mean to say that any carrier that is thinking of 
        building a new broadband network should count on being able to 
        recover, from day one of the operation, only the forward 
        looking cost of their brand new network? I don't think so. No 
        rational, efficient firm would take that deal. And that would 
        be our collective loss, not just theirs.''
Similarly, Justice Breyer reinforced this observation when he noted 
that ``. . . a sharing requirement may diminish the original owner's 
incentive to keep up or to improve the property by depriving the owner 
of the fruits of value-creation investment, research, or labor.'' 
6
    The point is, the new economics as characterized by the Dixit-
Pindyck model combined with the unbundling rules at TELRIC create a 
powerful disincentive for ILECs to invest in new technology. This 
disincentive is reflected in the stock price of incumbents, including 
AT&T, when they make decisions to invest in infrastructure. Their stock 
price falls.
    With this explanation, it is clear that regulatory changes are 
necessary to give carriers an incentive to invest in new technology, 
especially broadband technology. As indicated in the analysis, 
financial changes are also necessary.

The Proposed Solution
    One thing is clear from the analysis, the existing regulatory 
structure is not working. It is discouraging investment in broadband to 
residential customers, not remaining neutral or encouraging it.
    One possibility to address this problem is to start out with an 
obvious regulatory failure. This failure is reflected by the fact that 
ILECs are investing in copper systems for residential new builds and 
total rehabs rather than fiber-based solutions that are equal in cost. 
The analysis we commissioned indicates that this seemingly irrational 
behavior is, in part, due to the unbundling requirements and the price 
set for the various unbundled elements.
    ----------
    vanced broadband line at the original purchase price if there is 
bad news. But that salvage scenario is patently unrealistic for two 
reasons. First, many pieces of equipment are customized so that, once 
installed, they would have little or no value to anyone else. Second, 
if the demand for high-bandwidth services is indeed low, then the 
advanced broadband line would have little value to anyone else. For 
these reasons, the investment in the equipment is ``irreversible'' or 
sunk in the sense that it has virtually no value in an alternative use.
    5 Id., p. 3-4
    6 AT&T Corp. v. Iowa Util. Bd., 119 S. Ct. 721, 753 
(1999) (Breyer, J. concurring in part and dissenting in part) (citing 
1.H. Demstez, Ownership, Control, and the Firm: The Organization of 
Economic Activity, 207 (1988)).
    A possible solution, therefore, would be to eliminate the 
unbundling rules entirely, or only with respect to residential new 
build and total rehab situations where the regulatory failure is 
occurring. In either case, the regulatory relief would be conditioned 
upon an ILEC investment in broadband capability. Broadband in this case 
would be a data transfer speed sufficient to allow the subscriber to 
both send and receive audio, video, and data. This capability can be 
delivered with a variety of technologies and architectures including 
copper-based xDSL, satellite, hybrid fiber coax, and fiber-to-the-home.
    In any event, the conversion of the network to broadband capability 
is a long-term undertaking. By some estimates, it could take 30 years 
to complete. We must move ahead now. The Internet Freedom and Broadband 
Deployment Act of 2001 is a good place to start.
Conclusion
    Mr. Chairman, in conclusion, I think my testimony can be summarized 
by three points: First, broadband is not happening. Second, the lack of 
deployment is caused by the unbundling rules and financial factors. And 
third, eliminating the unbundling requirement, either entirely or for 
residential new builds and total rehabs, where broadband is being 
deployed, is a reasonable and measured step to take.
    Thank you for your time and attention. I stand ready to address any 
questions you may have.

    Chairman Tauzin. Thank you, Mr. Regan. And finally the 
testimony of Tom Tauke, of Verizon Communications, is welcomed.
    Tom.

 STATEMENT OF THOMAS J. TAUKE, SENIOR VICE PRESIDENT FOR PUBLIC 
      POLICY AND EXTERNAL AFFAIRS, VERIZON COMMUNICATIONS

    Mr. Tauke. Thank you, Mr. Chairman. It is always good to be 
here. I will say it is nicer to be up there where you get to 
walk around a little bit during the course of the meeting.
    I want to make a couple of assertions that I believe most 
of us agree upon. The first is that the broadband market is a 
distinct market. The high speed services market is an 
identifiable and distinct market.
    The second is that the deployment of broadband services is 
key to economic. Alan Greenspan has suggested that the 
productivity growth that we have experienced over the last 
several years has come from networking, and the improvement of 
those networks will explode the economic growth.
    Third, that the members of this committee, and the Members 
of Congress want the right public policy for broadband, and the 
right public policy is a policy which, one, encourages 
deployment, and two, encourages competition. Now, I think that 
we can agree on all of those things.
    For some of you, I think you are not aware that Congress 
has never established a broadband policy, and if you believe 
that Congress has established a broadband policy, I encourage 
you to look at what the three Circuit Courts have done that 
have addressed broadband issues.
    They haven't been able to figure out what the 1996 Act said 
about broadband services, and whether or not they are telecom 
services--they couldn't agree on that--or what rules ought to 
apply.
    Congress needs to set a broadband policy. When you don't, 
you have a lot of confusion and we have mass confusion to day 
as to what rules apply. You have unfairness, and certainly it 
is unfair for the dominant provider to be able to offer 
services and not have any rules or regulations, while the 
provider that has less than a quarter of the market has all 
kinds of rules and regulations. You have that unfairness today.
    And you have barriers to the deployment of broadband 
services. We believe that the Tauzin-Dingell bill moves in the 
right direction in setting the right policy. I will say to you 
that we might start by agreeing on what the Tauzin-Dingell bill 
does, because I don't recognize the bill from a lot of the 
assertions that have been made today about it.
    Let me tell you what I think it does. First, it does not 
change any of the rules relating to the telephone network, to 
telephone services, to narrowband services, none of those 
change.
    The assertion has been made, for example, that if we deploy 
fiber in the network that we don't have to unbundle. We don't 
see that. We believe that we still have to unbundle and sell 
the loop to carriers, even if it is on fiber, and sell it to 
them for their voice services. The telephone rules don't 
change.
    Second, it imposes no new rules on anybody else. Satellite, 
wireless, cable, nobody else gets any new rules. Third, it 
lifts the telephony rules which we believe the FCC and some 
have mistakenly begun to apply to broadband which Congress 
never directed be applied to broadband.
    I might say that the FCC even tried to undo some of that 
and got overturned by the Courts. Let me just say that we 
believe there are two areas where the rules need to be lifted.
    One is in the local broadband networks. We have learned a 
lot about DSL deployment and DSL is important, but the first 
one that talked about fiber was Tim Regan, and the biggest 
challenge we face is that as we attempt to upgrade the local 
networks by putting fiber out to the neighborhoods, we have all 
kinds of technical inhibitions to doing so because of the 
rules, and economic inhibitions from doing so.
    And yet it makes no sense for you to try to discourage us 
from deploying fiber in the network. The second area where we 
think the rules should be lifted is the interLATA restrictions, 
and we believe that also happens under the Act.
    I testified 2 years ago before this committee, and at that 
point I used the airport analogy, and the long hauls. We were 
getting lots of long hauls, you know, and lots of routes from 
New York to Los Angeles, and we weren't getting those regional 
networks that would serve places like in Iowa in my hometown.
    Well, I can report to you 2 years later that everybody is 
continuing to invest in those long haul networks, but we don't 
have many more regional airports that hook people in to the 
broadband nationwide network, and the need is still there. 
There are two separate needs and both are important.
    You are not plowing new ground here by the way. What you 
are doing is very parallel in this bill to what was done with 
wireless services back in 1993. Wireless at that time was 
recognized as a separate market. Congress decided that the 
telephony rules, even though wireless service looked a lot like 
telephony, the telephony rules should not apply.
    And Congress established a pro-market policy and then in 
1996 lifted the interLATA restrictions on wireless. What 
happened to wireless? An explosion of growth from 11 million 
users in 1993 to a hundred-million today.
    Development of robust competition, and ubiquity of 
deployment, new services provided for consumers, and lower 
prices. You can get the same good results from the right policy 
for broadband.
    [The prepared statement of Thomas J. Tauke follows:]

  PREPARED STATEMENT OF THOMAS TAUKE, SENIOR VICE PRESIDENT, VERIZON 
                             COMMUNICATIONS

    Mr. Chairman, thank you for this opportunity to testify before the 
Committee. I am Tom Tauke, Senior Vice President for Public Policy and 
External Affairs at Verizon Communications. I am before you today in 
support of the Internet Freedom and Broadband Deployment Act of 2001 
and to tell you that, without changes in the current regulatory regime, 
the deployment of high speed Internet access will be significantly 
impeded, to the detriment of the American economy as a whole and all 
Americans.
    Mr. Chairman, the Internet is a wonderful tool that developed far 
faster than anyone could have imagined. Use of personal computers and 
dial-up access to the Internet fueled the growth the U.S. and world 
economy enjoyed in the late 1990's. This growth has now reached a 
plateau. More is needed now to move the economy to the next level. And 
that stimulus--stimulus to the economy as a whole--could be provided by 
greater deployment of high-speed broadband Internet access.
    The current infrastructure on which the Internet rides has proven 
insufficient to handle the explosive growth. To stimulate the 
infrastructure investment that is required, policy-makers must stop 
applying old regulatory models to this entirely new, competitive 
technology. As the recent economic indicators have shown, the 
consequences of this policy are very serious. The entire Internet 
economy rests on the ability of businesses to reach consumers and to 
reach each other. Without broadband deployment, many local communities 
will never realize the promise of high-speed Internet, and Internet 
companies will not be able to reach their markets. This has had and 
will continue to have a serious impact on the value of the Internet 
economy itself and the economy at large.
    Using policies for the Internet and broadband services that were 
intended for a local voice telephone market has slowed deployment of 
broadband, inhibited competition and slowed investment at the very time 
when we need every possible player involved to help advance the 
capabilities and capacity of the Internet.
    The opponents of this legislation will talk about everything but 
broadband services. They will tell you their stories about narrowband 
local service competition and about voice long distance. But this bill 
is not about narrowband or voice long distance. This bill will not 
change the market-opening provisions of the 1996 Act or the section 271 
tests that Verizon and the other Bell companies will have to pass if 
they are to provide voice long distance services. What the bill will 
change is rules that were never intended to apply to the Internet world 
in the first place and, in doing so, will allow more resources to be 
devoted to meeting consumers' needs for broadband services. That is why 
I urge you all to support this legislation.

                       THE STATE OF THE INDUSTRY

    As recently as a few years ago, the American people knew nothing of 
the Internet. Electronic commerce was all but unknown. In 1995, when 
Congress was re-writing the Communications Act, revenues generated by 
the Internet were a mere $5 billion. Since then, the growth of the 
Internet has been astounding, far outstripping everyone's predictions. 
Last year, Internet revenues rose to an astronomical $130 billion.
    With this growth, there has been increasing demand for bandwidth 
and speed. The 56k modems that were fast a couple of years ago now seem 
to crawl. Consumers who have gotten used to high-speed connections at 
work want the same speeds when they go online at home.
    This problem is exacerbated in rural areas and other locations that 
are distant from backbone connections or hubs. Even where backbone 
exists, such as in major urban centers, it is often congested. Many 
Internet providers have no way to get their data traffic to the 
backbone efficiently and without numerous back-ups and delays. Many are 
simply located too far away from convenient backbone connections. And 
when they do get to the backbone, they find that the lack of adequate 
capacity slows their customers' service.
    If any leg of the transmission is slow, the consumer cannot enjoy 
the benefits of high-speed Internet service. Without this speed, some 
of the more exciting applications for education and telemedicine 
involving video, for example, are impossible. We need competition and 
investment in the Internet from end-to-end--from the local connection 
to the nationwide and global backbone. Without it, whole new industries 
based on a more advanced Internet will be stymied and the continued 
development of our high tech and computer industries will be slowed. 
The Internet drove the growth of the high tech sector, and it can drive 
it again, if we change the regulatory regime that now inhibits 
investments by some of the most logical players.
    Today, the two landline technologies that provide residential 
consumers with high speed Internet access at a reasonable cost are 
Digital Subscriber Line (DSL) services and cable modem services. Only 
one of these services, DSL, is subject to significant federal 
regulation. Even worse, only certain providers of DSL--the Bell 
operating companies (BOCs)--are so constrained as to not be able to 
provide data services across LATA boundaries that were drawn with 
traditional voice telephone service in mind.
    If consumers are to get widespread deployment of high speed 
Internet services from competing providers, it is necessary for DSL 
services to be deregulated just like cable modem services. Current 
regulation hampers significant DSL deployment and denies consumers 
benefits.

                       THE BROADBAND MARKETPLACE

    Broadband services are different from narrowband services and 
constitute a separate market. As the FCC found in analyzing the AOL-
Time Warner merger, ``Residential high-speed Internet service 
constitutes a discrete market that must be considered separate from the 
residential narrowband market.'' 1
---------------------------------------------------------------------------
    \1\ FACT SHEET: FCC's Conditioned Approval Of AOL-Time Warner 
Merger at 3, dated January 2001.
---------------------------------------------------------------------------
    This market is already competitive, as the FCC has repeatedly held. 
For example: ``The record before us, which shows a continuing increase 
in consumer broadband choices within and among the various delivery 
technologies--xDSL, cable modems, satellite, fixed wireless, and mobile 
wireless, suggests that no group of firms or technology will likely be 
able to dominate the provision of broadband services.'' 2
---------------------------------------------------------------------------
    \2\ Rulemaking to Amend Parts 1, 2, 21, and 25 of the Commission's 
Rules to Establish Rules and Policies for Local Multipoint Distribution 
Service and Fixed Satellite Services, 15 FCC Rcd 11,857, at para. 19 
(2000).
---------------------------------------------------------------------------
    Local telephone companies like Verizon are not the dominant 
providers in this market--in fact, they are the new entrants. Cable 
operators serve more than 70% of all residential broadband customers, 
offering these customers high-speed local access bundled with the 
service of an affiliated ISP.3 Local telephone companies are 
newer entrants in the residential broadband access market, challenging 
the dominant market position held by cable operators.
---------------------------------------------------------------------------
    \3\ On February 22, 2001, Precursor Group reported that 73 percent 
of residential broadband service was provided by cable modems. How 
Broadband Deployment Skews Economic/Business Growth at 1, dated 
February 22, 2001. According to data released by the Commission in 
October, cable operators control 70% of all ``residential and small 
business high-speed lines''--a total that understates cable operators' 
share of the residential market by including a class of business 
customers largely served by DSL. Industry Analysis Division, Common 
Carrier Bureau, High-Speed Services for Internet Access: Subscribership 
as of June 30, 2000, at Table 3 (Oct. 2000).
---------------------------------------------------------------------------
    In addition, local telephone companies must make substantial 
improvements to their networks to provide residential broadband 
access.4 As the FCC has recognized, ``traditional 
telephone'' networks ``are not ideally suited for broadband.'' 
5 Specifically, the Commission has found that ``variations 
in legacy outside plant conditions can limit access to certain end-
users even in upgraded areas.'' 6 For example, ADSL service 
cannot generally reach customers whose loops exceed 18,000 feet or are 
routed through a Digital Loop Carrier.7 Further, ``in 
contrast to an upgraded cable network, which can offer upgraded service 
to all homes it passes, LECs must `condition' each end-user's line by 
removing'' ``devices that were used to enhance the quality of voice 
traffic over the copper.'' 8 The necessary improvements to 
the telephone network will require substantial investments.
---------------------------------------------------------------------------
    \4\ Inquiry Concerning the Deployment of Advanced 
Telecommunications Capability to All Americans, Second Report, CC 
Docket No. 98-146, at para.para. 31. 35 (Aug. 21, 2000) (Second 
Advanced Services Report'').
    \5\ Inquiry Concerning the Deployment of Advanced 
Telecommunications Capability to All Americans, 14 FCC Rcd 2398, at 
para. 46 (1999).
    \6\ Second Advanced Services Report para. 31.
    \7\ See id. para.para. 38, 40.
    \8\ Id. para. 39.
---------------------------------------------------------------------------

                        THE REGULATORY LANDSCAPE

    Cable operators started first, are ahead in deployment and have 
more customers than local telephone companies. And yet cable is 
unregulated, while telephone companies are burdened with a set of rules 
that were designed for the voice business and that make no sense at all 
in this marketplace.
    This regulatory disparity has a direct effect on the market. 
Observers note that ``DSL is a long shot to seize the lead now'' in 
part because ``archaic regulations that forced DSL players to adopt a 
wrong-headed structure from the get-go.'' 9 ``Even if the 
FCC acts quickly [to free the Bells], it isn't clear that DSL, in such 
turmoil, can keep pace with cable.'' 10
---------------------------------------------------------------------------
    \9\ Technology: Highway to Hell, Forbes, dated Feb. 19, 2001, at 
98-99.
    \10\ Technology: Highway to Hell, Forbes, dated Feb. 19, 2001, at 
100.
---------------------------------------------------------------------------
    Existing federal regulations handicap Verizon's provision of DSL. 
The FCC has applied the section 251 unbundling and resale requirements 
to Verizon and other incumbent local telephone companies. They require 
Verizon to allow competitors to put their DSL equipment not only in our 
central office equipment buildings but also in small ``remote 
terminal'' boxes in local neighborhoods.
    They require us to provide not only unbundled lines from our 
locations to customers, but also ``subloop'' pieces of those lines. The 
FCC first required us to provide DSL-capable loops, then it required 
``line sharing''--allowing a competitor to use only a portion of the 
capacity of the loop almost for free to provide DSL service while 
Verizon provided the underlying basic telephone service. Now we are 
also required to ``line split''--to arrange for two different 
competitors to share our lines, while we provide no service at all to 
the customer.
    The FCC is now considering requests from other carriers that we be 
required to provide our new DSL services to them at very low TELRIC 
prices--that is prices that are below our costs. If we have to do this, 
what incentive will we have to make the investments that make these 
services possible? And yet that investment is exactly what you and the 
public expect from us.
    The other characteristic of the regulatory landscape is 
uncertainty--participants and investors don't know for sure what the 
rules are. One federal court of appeals has held that cable modem 
service is a ``telecommunications service'' under the Communications 
Act; another has held the opposite. A third circuit court has found 
that comparable services provided by telephone companies are 
``telecommunications services.'' Whether Verizon must provide wholesale 
DSL services at discounts to their competitors and whether it must 
unbundle its retail DSL service are now before the courts. Our 
investment decisions, and the investment decisions of our competitors, 
will be effected by the actions of these courts and by the Commission's 
actions in response to them. If Congress wants to encourage broadband 
investment, it needs to set a clear, national broadband policy.

                        THE CELLULAR EXPERIENCE

    There is a better way. And it is not to heavily regulate 
telecommunications services. Arguably, one of the greatest success in 
this industry in the last twenty years is the growth of wireless 
services, but that success came only after regulation was disposed of 
and the marketplace was allowed to operate.
    In March 1982, the FCC created commercial cellular service, 
11 and service began in 1983. No one at that time predicted 
cellular's fantastic growth. In fact, at the time of the breakup of the 
Bell system, it was unclear as to whether AT&T or the BOCs would 
inherit AT&T's cellular spectrum licenses. AT&T had predicted that 
cellular subscription levels would reach one million by 1999. In 
reality, cellular subscribership reached that level in 1987, and at the 
end of 1998, there were 69,209,321 wireless subscribers in the 
U.S.12
---------------------------------------------------------------------------
    \11\ Report and Order, 86 F.C.C.2d 469 (1981), modified 89 F.C.C.2d 
58 (1982), further modified 90 F.C.C.2d 571 (1982).
    \12\ CTIA Semi-Annual Wireless Industry Survey Results.
---------------------------------------------------------------------------
    Wireless growth was slow at first. By the end of 1988, there were 
approximately two million cellular subscribers in the U.S., 
13 with an average monthly cellular bill of $98.02. At that 
point, the FCC made an effort to significantly deregulate cellular 
service.14. Within four years of the FCC's deregulatory 
effort, cellular subscribership reached 11 million, while the 
subscriber's average monthly bill dropped by nearly 30 
percent.15
---------------------------------------------------------------------------
    \13\ Id.
    \14\ Amendment of Parts 2 and 22 of the Commission's Rules to 
Permit Liberalization of Technology and Auxiliary Service Offerings in 
the Domestic Public Cellular Radio Telecommunications Service, Report 
and Order, 3 FCC Rcd. 7033 (1988), recon. in part 5 FCC Rcd 1138 
(1990).
    \15\ CTIA Semi-Annual Wireless Industry Survey Results.
---------------------------------------------------------------------------
    A second major deregulatory effort was undertaken by Congress in 
1993. In the Omnibus Budget Reconciliation Act of 1993, 16 
Congress, to a great extent, deregulated the cellular telephone 
industry. In the next five years, wireless telephone subscribership 
rose from 16 million to 69 million, while the average monthly bill 
dropped by nearly 50 percent.17 Today, there are more than 
100 million mobile customers in this country, paying as little as $15 
per month for basic service. Wireless long distance service has become 
so inexpensive that about 40% of mobile phone users make long distance 
calls on their cellular phone while they are home.
---------------------------------------------------------------------------
    \16\ Omnibus Budget Reconciliation Act of 1993, Public Law 103-66.
    \17\ CTIA Semi-Annual Wireless Industry Survey Results.
---------------------------------------------------------------------------
    Regulation was not necessary to keep prices reasonable--the market 
did that. In fact, regulation actually raised cellular prices. During 
FCC proceedings, a Cellular Telephone Industry Association study showed 
that cellular prices in regulated states averaged 17% higher than the 
prices in unregulated states. It also found that cellular penetration 
and cellular growth is lower in regulated states than in unregulated 
states.18
---------------------------------------------------------------------------
    \18\ The Cost of Cellular Regulation, Jerry Hausman, McDonald 
School of Economics, MIT, January 3, 1995.
---------------------------------------------------------------------------
    The inescapable conclusion is that the cellular industry--and 
cellular consumers--benefited greatly from deregulation. In a 
deregulated environment, subscribership rose and prices dropped.
    The high-speed Internet market today is in a similar position today 
as the cellular industry was more than ten years ago. Of the more than 
60 million U.S. Internet households, 5.5 million access the Internet 
via high-speed cable modem, and only 2.3 million use xDSL technology 
for high-speed Internet access. Adoption of deregulatory measures, such 
as those contained in the Internet Freedom and Broadband Deployment 
Act, will permit telephone companies to provide xDSL technologies at a 
more rapid pace, hopefully with the same results as deregulation of the 
cellular industry: more consumers accessing the technology for lower 
costs.

                       CONGRESS NEEDS TO ACT NOW

    The FCC cannot solve the problem of regulation that inhibits 
broadband deployment and skews the competitive marketplace--Congress 
must do that. The longer the delay, the longer consumers will have to 
wait for services they want and the longer the economy will have to 
wait for the boost that these new services would surely produce. The 
authors of this bill want to free the Internet from the LATA 
constraints that were established for the voice telephone network 
nearly twenty years ago. They want to remove burdensome regulation that 
discourages innovation and deployment in data services. And they want 
to put telephone company broadband providers on a more level 
competitive playing field with cable. These are all worthy goals. I 
urge you to start the process and to take up and report out the 
Internet Freedom and Broadband Deployment Act without delay.
    Thank you.

    Chairman Tauzin. And you wrapped it up very nicely, and 
almost within the time limit, Mr. Tauke.
    We are going to have a vote on the floor in just a few 
minutes, and I know that you would like to walk around, perhaps 
for some very reasonable reasons.
    And what we are going to do is that we are going to take a 
break for lunch and other purposes, and come back at 1:30, when 
we will begin our questions of the panel. The committee stands 
in recess until 1:30.
    [Whereupon, at 12:47 p.m., the committee recessed, to 
reconvene at 1:35 p.m. the same day.]
    Chairman Tauzin. All right. The Chair will recognize 
himself and then members in order of their appearance for a 
round of questions. The Chair recognizes himself.
    Let me first make a statement, and then I want to ask a few 
questions of you. History is a good gauge by which you can tell 
where people have been and where they are going. I just want to 
remind this audience and all of you that there was a time in 
the history of this panel when we took on the deregulation of 
the cable industry in 1986, and we accomplished that into law.
    And we were back here in 1992 reregulating cable, because 
we discovered in those interim years that cable and its 
vertical integration had fairly well monopolized the video 
marketplace.
    There was a huge fight if you recall in 1992 when we took 
on the issue of whether or not we ought to provide competitors 
to cable then, and the programmatic access provisions that 
created the satellite industry.
    We allowed cable to go back into total deregulation, and to 
let those new rules in 1992 expire on the basis of that renewed 
interest in video competition and satellite services, and the 
good effect of the program access bill.
    It is for that very same reason that Mr. Dingell and I 
bring this bill today, is to make sure that we don't have to 
come back as we did in 1992 to revisit the question of cable 
deregulation, as cable now moves into broadband deployment and 
broadband services.
    Several members mentioned that today, and Mr. Cicconi, I 
want to focus on that first. If we didn't have a phone issue 
here, and if this wasn't about the side of your business that 
has to do with telephones, and if it was strictly about whether 
or not cable is going to be permitted in this country to 
operate broadband services in the deregulated market place we 
provided for cable, which we want to preserve in this new 
marketplace, these advanced services, and the minority 
competitor with DSL continues to be regulated--and I have the 
list of them, Mr. Mancini, and there are 22 different 
requirements on the phone companies trying to provide broadband 
services that don't apply to cable.
    And absent--and just getting away from the phone company 
issues themselves, telephone service, how could cable expect 
that Congress wouldn't 1 day be forced to reregulate you if 
there isn't enough competition out there in the marketplace, 
and cable's share of broadband growth from 75 to 80, to 90, to 
wherever it may end up being, absent a fair playing field? Mr. 
Cicconi.
    Mr. Cicconi. Mr. Chair, first of all, cable's share of 
multichanneled video is declining dramatically. Competitors 
have about 20 percent of the market, and they are growing at 
twice the rate of everyone else, and the opposite is happening 
in local phone service. So I dare say that----
    Chairman Tauzin. Well, wait a minute. I only have a limited 
amount of time. I want you to get away from the phone service. 
I want you to simply answer the question. How can cable not 
expect this panel 1 day to be revisiting regulation of cable 
rates, terms, and conditions, when video for cable becomes part 
of broadband services, and you have got 75, 80, 90 percent of 
the market because we have not created a fair playing field for 
competitors?
    Mr. Cicconi. Well, Mr. Chairman, first of all, the chart 
you held up is with respect or is somewhat misleading. I know 
that the Bell companies produce it. They picked out 20 areas 
where they are regulated and we are not.
    Chairman Tauzin. Twenty-two.
    Mr. Cicconi. I could produce about 30 areas where we are 
regulated that they are not.
    Chairman Tauzin. Bring me a chart like that. I want to see 
it.
    Mr. Cicconi. I would be happy to provide you that, but 
several of the largest I mentioned in my opening statement. We 
have regulation by 30,000 local franchising authorities across 
America. The Bells have to deal with nothing of the sort. We 
pay about $2 billion annually in local franchise fees.
    Chairman Tauzin. Well, the Bells pay all kinds of telephone 
taxes.
    Mr. Cicconi. The Bells pay nothing of the sort. The Bells 
benefit from the Universal Service Fund. We don't benefit from 
that in providing these services.
    Chairman Tauzin. So you think right now that the state of 
the law is a fair playing field, and cable is as regulated as 
the Bell Companies in the provision of broadband services?
    Mr. Cicconi. Mr. Chairman, we are regulated differently. We 
are both regulated, but we are regulated differently.
    Chairman Tauzin. Are you as deeply regulated as the Bells?
    Mr. Cicconi. Mr. Chairman, you yourself decided there in 
the program access rules that satellite would be regulated 
differently than cable.
    Chairman Tauzin. Are you--I don't have a lot of time. Are 
you as deeply regulated in the provision of broadband services 
as the Bells? Do you make that assertion to this committee?
    Mr. Cicconi. We are regulated, and we are regulated 
differently. We have our obligations and they have theirs.
    Chairman Tauzin. Let me move on. We heard a huge difference 
of opinion in the middle of the panel. By the way, we have had 
to excuse Mr. Hill, who had to catch a plane, and I apologize 
for that.
    We have heard a huge difference of opinion as to whether or 
not the Bells are really incentivized to connect the last mile, 
to lay the fiber, and to cook up the homes. As Mr. Tauke 
indicated, to do something more than just build networks to fly 
over us, but to actually connect our homes and our towns, and 
our small businesses to broadband.
    Mr. Regan, whose company buildings the fiber, and who would 
love to see the Bells putting down more fiber to the home, and 
Mr. Pitsch is obviously representing a company that has been 
critical and instrumental in the computer industry, and in the 
power of this new technology to service so well, and they are 
both telling us that we had better worry about these unbundling 
requirements because they serve as a disincentive to investment 
in connecting the homes.
    Mr. McMinn says, no, and I think Mr. McLeod says no, too. 
These are good laws, and we are going to get deployment 
regardless. The guys that make the cable and the guys that 
literally empower the computers for us tell us it ain't 
happening unless we change the laws.
    Now, I want to ask you, Mr. McMinn, we wrote a law in 1996 
to try and create and empower competition of the telephone 
service. I am very interested. How many residential telephone 
consumers does Covad serve for telephone service?
    Mr. McMinn. We are not yet in telephone service.
    Chairman Tauzin. So you serve zero residential telephone 
consumers?
    Mr. McMinn. We have a technology that----
    Chairman Tauzin. But you are not doing it.
    Mr. McMinn. We have a technology that is operational in the 
San Francisco Bay Area that is in trial with our own employees 
to provide not just one telephone line and one DSL line, but up 
to 10 telephone lines on top of 10 DSL lines.
    Chairman Tauzin. But for the time being, you are providing 
data services to customers, but no telephone services?
    Mr. McMinn. Mr. Chairman, we have only been around for 3 
years. We have managed to put in place a footprint that covers 
half the United States in that time, but we have not yet 
managed to offer voice services and data services in 
competition.
    Chairman Tauzin. To a single customer. And this is my last 
question as my time is up. I want to get a good understanding 
of your argument that unless we change the policy on 
unbundling, we do not incentivize the connection to the homes.
    And only 7 percent of the homes in America are connected to 
broadband right now, and unless we change the policy, that 
number doesn't rise rapidly. That is kind of what I heard from 
you two guys. I would like for each of you to elaborate on 
that. Why is that true?
    Mr. Pitsch. Mr. Chairman, I think I can put it quite 
intuitively that if you are a company making a broadband 
investment and if it fails, you assume the entire risk, and 
your shareholders assume the entire risk. But if it succeeds, 
your upside is capped by unbundling requirements, which in most 
of these States the cost of cap was about 13 percent.
    And you obviously are going to undercut the business 
proposition to make investment, and this investment is risky, 
and it is uncertain, and it is discretionary. This is not plain 
old telephone service.
    Chairman Tauzin. We are talking about new investments, 
building new investments?
    Mr. Pitsch. We are talking about building new investments, 
exactly. So on that level, I submit that this is not cold 
fusion. If they can make more money doing it, they will do it.
    Chairman Tauzin. Mr. Regan, if you will answer, please.
    Mr. Regan. I guess my answer is somewhat similar to 
Peter's, except that I guess I want to modify it a little bit. 
We have studied a very specific segment of the market, and that 
is the deployment of what we call broadband. This is the 
capability to deliver all the services, both in and out of the 
home, in new build, and in rehab situations.
    And what we have found is that the rate of return is 
insufficient to justify the investment because of the 
unbundling rules at Telric.
    Chairman Tauzin. And finally do you agree with that, Mr. 
Tauke?
    Mr. Tauke. The financial issues are one thing, and I agree 
with what they said about the financial issues. But frankly the 
more troublesome thing right now are the technical issues. If 
you put--let's say right now as you know, we have a limit on 
the length of deployment of a DSL service.
    If you live more than 1,800 feet from the central office, 
you can't get it. The logical thing to do is to deploy fiber to 
the neighborhood. If we are going to deploy fiber to the 
neighborhood, then we have to--and this is just one example, 
but we have to then offer co-location in remote terminals--
those little green boxes that you see in suburban 
neighborhoods--for competitors.
    To offer co-location and remote terminals requires that we 
expand those remote terminals or have a garden pot of several 
of these remote terminals in an area, and expansion would be 
the thing you do.
    When you try to expand, you have to get neighborhood 
association approval, zoning ordinances, and you have to go to 
zoning authorities, and city, county, to do this. The hassle of 
trying to get co-location in remote terminals is so great that 
it is a huge deterrent, in addition to the economic issues.
    But it is a huge deterrent in the deployment of fiber. So 
we aren't deploying the fiber to the neighborhoods right now 
and this is a big deterrent as much as we could, and this is a 
big reason why.
    Chairman Tauzin. Thank you very much. Mr. Dingell.
    Mr. Dingell. Thank you. Mr. Chairman, I have a series of 
questions which I will direct at Mr. Tauke, Mr. Mancini, and 
Mr. Cicconi. These will all be yes or no responses. I am doing 
that because we have a limitation on time, and I want to be of 
assistance to our witnesses, Mr. Chairman.
    Now, gentlemen, at an earlier hearing my friends at AT&T, 
Verizon, and SBC agreed on one thing; that the cable modem 
service and DSL are functionally equivalent services. Do any of 
you disagree with that statement, Mr. Cicconi, Mr. Mancini, and 
Mr. Tauke. Do you disagree with that?
    Mr. Cicconi. Yes, sir, I think they are very different 
services.
    Mr. Dingell. All right. Mr. Mancini, do you agree or 
disagree?
    Mr. Mancini. Absolutely not, and the FCC, and I think every 
other independent analyst would agree that they are----
    Mr. Dingell. So you are contesting then what was said 
earlier. Mr. Cicconi is contesting what AT&T told the committee 
earlier, and you are not, Mr. Mancini. Mr. Tauke, what is your 
view on the matter?
    Mr. Tauke. They offer the same service to consumers.
    Mr. Dingell. And they are substantially identical?
    Mr. Tauke. They are substantially identical.
    Mr. Dingell. Very well. Now, Mr. Tauke, is Verizon's high 
speed Internet service regulated by the Federal Government; 
yes, or no?
    Mr. Tauke. Yes.
    Mr. Dingell. Mr. Mancini, is SBC's high speed Internet 
service regulated by the Federal Government; yes or no?
    Mr. Mancini. Absolutely yes.
    Mr. Dingell. Now, Mr. Cicconi, AT&T offers high speed 
Internet service. Is that regulated by the Federal Government?
    Mr. Cicconi. Yes, sir, over cable it is.
    Mr. Dingell. And you are saying cable is regulated?
    Mr. Cicconi. Under the cable Act, cable services offered 
are regulated by the government, and that is subject at all 
levels.
    Mr. Dingell. What are you required to do under this 
regulation?
    Mr. Cicconi. We are required to get local franchises, and 
we are required to pay local franchise fees.
    Mr. Dingell. I am not asking you about cable. I am asking 
about your Internet services. Are they regulated by the Federal 
Government?
    Mr. Cicconi. Not in the same way, no, sir.
    Mr. Dingell. Just answer my question.
    Mr. Cicconi. Not in the same way.
    Mr. Dingell. And so how are they regulated?
    Mr. Cicconi. Well, I have indicated that under the Cable 
Act that there are various requirements that we have on cable 
services, and that's a cable service.
    Mr. Dingell. All right. Let's go through that. Are you 
subject to FCC prescribed depreciation rates on your 
investments; yes or no?
    Mr. Cicconi. I don't know off the top of my head, sir.
    Mr. Dingell. You don't know. Do you have a legal duty to 
interconnect with other companies, including your competitors; 
yes or no?
    Mr. Cicconi. When we offer telephone services to CLECs, 
yes.
    Mr. Dingell. When you offer telephone services. We are 
talking now about your Internet services. Are you compelled to 
do that at this time?
    Mr. Cicconi. No, sir.
    Mr. Dingell. You are?
    Mr. Cicconi. I said no.
    Mr. Dingell. You aren't compelled to interconnect with 
other companies when you offer Internet services?
    Mr. Cicconi. No, sir.
    Mr. Dingell. You're not. Now, with regard to Internet 
services, does the government require you to allow your 
competitors to resell your services; yes or no?
    Mr. Cicconi. Does the government require us to let our 
competitors resell our services? No, sir.
    Mr. Dingell. Okay. Are you under a duty to negotiate access 
to your network on your Internet services?
    Mr. Cicconi. No, sir.
    Mr. Dingell. Must you allow competitors to physically co-
locate on your property?
    Mr. Cicconi. No, sir.
    Mr. Dingell. Must you obtain government approval before 
carrying Internet service traffic over long distances?
    Mr. Cicconi. No, sir.
    Mr. Dingell. Okay. Now, Mr. Mancini and Mr. Tauke, you are 
required to be regulated by government on all of those matters 
are you not?
    Mr. Tauke. That's correct.
    Mr. Dingell. Very well. Now, Mr. Cicconi, if cable modems 
and DSL are functionally equivalent services, why should a DSL 
be subject to Federal regulatory burdens in these matters, 
while cable modem service is not?
    Mr. Cicconi. Do I have to answer yes or no, sir, or can I 
explain my answer?
    Mr. Dingell. Just give a short answer.
    Mr. Cicconi. They are regulated differently because the 
Congress has concluded that one is a bottleneck facility and 
the other is not. You have a choice of receiving cable services 
through the type of service cable offers through a variety of 
means. You don't have a choice today in local phone service. 
That is why they are regulated differently.
    Mr. Dingell. Now, Mr. Cicconi, you make a very interesting 
point. What percentage of the share of broadband residential 
market service does cable modem service currently have? Is it 
75 percent?
    Mr. Cicconi. It is about 4 million out of a little over 6 
million, sir.
    Mr. Dingell. And what percentage that? Is it 75 percent?
    Mr. Cicconi. Roughly.
    Mr. Dingell. Now, assuming that DSL has all the remaining 
broadband customers that would put telephone companies at a 25 
to 30 percent market share. Now, Mr. Pitsch, you are an 
economist and does that sound like a bottleneck or a monopoly 
to you?
    Mr. Pitsch. Sir, I would say that in that broadband market 
that cable has more market power than DSL.
    Mr. Dingell. Would it be fair to say that it was a monopoly 
with that 75 percent?
    Mr. Pitsch. I am always reluctant to call anything less 
than 90 percent--sir, I think your questions are going very 
much in the right direction. I think if I could just say two 
sentences by way of explanation. I think that the broadband 
market is a dynamic nascent----
    Mr. Dingell. And 75 percent controlled by one kind of 
company?
    Mr. Pitsch. It is now controlled by one. However, if the 
regulatory environment straightened out, and if wireless 
specter becomes available, then these shares could change. I 
think the point is that the----
    Mr. Dingell. Well, this is a wonderful point. Is DSL a 
bottleneck?
    Mr. Pitsch. No, I do not think so.
    Mr. Dingell. You don't think so. All right. Now, the----
    Chairman Tauzin. The gentleman's time has expired. One last 
question.
    Mr. Dingell. Mr. Cicconi, this is what I know what you want 
to answer. If Congress were to pass a law that required AT&T to 
lease its broadband facilities to competitors at cost, and to 
allow competitors to physically co-locate on AT&T premises, and 
which would permit access to AT&T's network by all competitors 
who want to interconnect, would you recommend that any further 
investments by AT&T be made in broadband facilities?
    Chairman Tauzin. Yes or no.
    Mr. Cicconi. Mr. Dingell, that is really not the situation 
facing us here. One is a monopoly facility and the other is 
not.
    Mr. Dingell. That would put you, my dear friend, on exactly 
the same awkward ground that Mr. Mancini and Mr. Tauke stand. 
And if you were in that position rush out to instruct your 
company to make investments in this area, or would you say, you 
know, I think we can put our money more profitably to work in 
other places? What would be your response?
    Mr. Cicconi. Mr. Dingell, there is no impediment today, 
regulatory or otherwise, for DSL deployment.
    Mr. Dingell. I am transgressing upon the chairman's time. 
He wants you----
    Chairman Tauzin. He would like you to answer his question. 
Why don't you do that, Jim. Would you invest or not invest?
    Mr. Dingell. How about Mr. Ashton. Mr. Ashton, you are an 
expert in these matters. And you don't have any particular axe 
to grind in this matter. Would you advise clients of your 
company to rush out and invest under these circumstances?
    Chairman Tauzin. Last question.
    Mr. Ashton. No, I would not.
    Mr. Dingell. Would not. gentlemen, thank you for your 
kindness. Thank you, Mr. Chairman.
    Chairman Tauzin. Thank you, Mr. Dingell. Chairman of the 
subcommittee, Mr. Upton.
    Mr. Upton. Thank you, Mr. Chairman, and I look a lot at my 
district as a microcosm of the country. We have a lot of 
different blends. We have ethnic strengths, and we have a very 
good blend of rural and urban, large businesses and small, and 
some terrific educational State universities there as well.
    And when I look at a--and because Mr. Stupak is here--a 
partial map of Michigan, and I'm sorry that I don't have the 
upper peninsula here, but on the other side, and when I look at 
a map of Michigan, a partial map of Michigan, and this district 
is mine in this corner of the State, the southwestern side, 
also looks like a microcosm of America.
    By the way, yellow means DSL, and Michigan DSL service as 
provided by Ameritech. In other words, the answer is that there 
is not a lot that is there, and as I look at this legislation, 
and I look at the intent of where I want to this technology to 
go, I want to see all of Michigan in yellow, including the 
upper peninsula, too.
    But sadly this is where we are, and our district I don't 
think is any different than very many districts around the 
country, particularly when you have such variances as mine.
    And I guess, Mr. Mancini, I would like to know from you--I 
know that there is a project, project Pronto, which you have 
prepared to testify with regards to, and I think the clock ran 
out, but how is that investment proceeding, and what will this 
legislation do in terms of speeding up shading our State 
yellow?
    Mr. Mancini. Well, Congressman, as you are aware, there are 
distance limitations in DSL. In other words, if your home is 
beyond 15 thousand feet from a central office, DSL really can't 
provide service.
    About 40 to 50 percent of our customers are within those 
space limits or space requirements. So we have started Project 
Pronto, and we could observe 45 to 50 percent of our customers. 
What Project Pronto does is that it is a $6 billion investment 
or bet on our part--no tax credits, no government assurances 
behind it--to extend that work from 40 to 50 percent to 80 
percent.
    As a result of this $6 billion investment, which requires 
us to lay fiber from the central office and build new remote 
terminals closer to the neighborhoods, put new advanced 
services and equipment into those remote terminals, and hook up 
to the fiber, we will be able to reach 80 percent of the 
customers.
    That investment is proceeding in Michigan and the rest of 
the country, but as I mentioned it is on indefinite hold in 
Illinois because--and this causes us great concern, because 
what the Illinois Commission did is being considered by 
Commissions in Kansas, Texas, and California.
    The end result of those kinds of overregulatory decisions, 
which definitely do not apply to cable, could destroy the 
economic base in our incentive to invest. What the Illinois 
Commission did was go well beyond what the 1996 Act and the FCC 
had required regarding unbundling.
    They required that within those little remote terminals 
that are close to the neighborhood, they are what we call line 
cards, which are used to provide to split the data voice.
    They require us to allow competitors to take their own line 
cards made by their own manufacturers, and try to insert them 
into this facility. First of all, it is technically infeasible. 
The manufacturer of that equipment has said that it cannot be 
done, and in addition, and as a result of those requirements, 
it has imposed an additional $500 million cost on us.
    And that destroys the economic base, and as a result we 
will not deploy Project Pronto in Illinois, and over a million 
Illinois customers will not have an alternative to cable.
    Mr. Upton. Mr. Henry and Mr. Ashton, as I have had many, 
many meetings over the last couple of months with a variety of 
different interested parties, one of the common comments is 
that--and particularly with the CLEC industry--is in big 
trouble.
    That they are not getting the return on their investment, 
and some have suggested that this legislation would in fact 
provide the final nail in the coffin, and that presupposes, of 
course, the argument that the corpse is also inside the coffin.
    You two have a little bit of a different view in terms of 
the Wall Street analysis of the CLEC industry, and perhaps what 
this legislation will do. Can you expound, and can you look at 
each other's arguments that were made during the testimony and 
offer some comment?
    Mr. Ashton. I will go first. I am encouraged by the 
questioning this afternoon when I see more questioning geared 
toward the cable competitors in the cable industry than the 
earlier commentary, which was very CLEC dominated.
    And the reasons are because of where those companies focus 
their networks, and where the networks have largely not been 
modernized. And that goes back to my earlier comments this 
morning, which were you have to think about the markets, in 
terms of large business and small business, and residential 
access.
    And in the large business market, I think it looks more 
like the core market. It has been largely--you can say in some 
cities it has been overbuilt to some extent. There have been a 
lot of fiber runs in the cities, which was a natural way for 
the CLEC market to try and grow up, and get into the business. 
But if you look at the small business and residential market, 
it is not where the CLECs are largely dominant.
    It is not an overly economical market for them, and so I 
think more or less we have to move the commentary toward 
broadband access in those markets to a competitive battle 
between the regional Bell companies and the cable companies.
    And I think, you know, the other thing is that a little bit 
of this is in hindsight. The CLEC market itself is in dire 
straits, and this may or may not kind of put that sector to 
rest to some extent.
    Mr. Upton. And getting a signal from my Chairman. And that 
happened with or without this legislation?
    Mr. Ashton. I think it would happen with or without it. I 
don't think it is--it is my personal opinion, and not Bear 
Stearns' opinion, but it is my personal opinion that this bill, 
or without this bill, that those competitors are not worth 
really worrying about.
    Chairman Tauzin. The Chair recognizes the gentleman from 
California, Mr. Waxman, for a round of questions.
    Mr. Waxman. Thank you very much, Mr. Chairman. Mr. Mancini, 
in a letter last fall to Pacific Bell, two small California 
cities in Ventura County, California, complained that they were 
being redlined based on population and income levels, and long 
term business development potential.
    They had been trying to get DSL service for 2 years before 
they sent their letter complaining. At the same time, a 
spokesman for Pacific Bell told the L.A. Times that the 
company's only obligation is to provide basic telephone 
service, that high speed Internet service is deregulated, and 
that the cities didn't have enough potential customers to be 
profitable.
    Now, Pacific Bell had more than a 19 percent increase in 
earnings last year, and in fact Pacific Bell's annual profits 
have ranged from almost 12 percent to almost 21 percent. How 
much income--let me ask you two questions.
    How much in profits do you believe that Pacific Bell and 
SBC, and other local carriers, are going to have to earn for 
them to have enough of an incentive to offer high speed 
Internet service to undeserved areas?
    Mr. Mancini. I can't answer what the profits need to be, 
but I can tell you what the criteria are on how we decided to 
spend $6 billion to expand our network to cover 80 percent of 
our customers, and those had to do with where central offices 
were located, and where population centers were located, and 
where the growth was going to be.
    It was purely a decision on what is the most effective way 
to expand the network, but in addition to that, we did make a 
commitment to the FCC, which we have kept, that we would deploy 
in what are called underserved and rural areas.
    So as part of that $6 billion, we have in fact gone to 
areas which we would not have economically normally done.
    Mr. Waxman. Well, let me ask you this. I want to point out 
that John Britain, who is the media director for Pacific Bell, 
was quoted as saying of the high speed Internet services 
deregulated in Ojai and Fillmore--these two cities don't have 
enough potential customers to be profitable. What assurances do 
we have in H.R. 1542 that you will ever deploy long distance 
data service in some areas of this country that are not going 
to fit that profile?
    Mr. Mancini. My guess is that those areas are in fact 
already served by PAC Bell with regard to long distance data, 
and so I think they would immediately be able to provide that.
    With regard to high speed Internet access, every company 
has to make economic decisions. It is a competitive market, and 
I think the right question is what incentives do the telephone 
companies, as well as the cable companies and wireless 
companies, and satellite companies, have to serve those areas. 
It is not just us. This is not a monopoly market.
    Mr. Waxman. Does the bill give you any requirement ever to 
serve those areas?
    Mr. Mancini. It doesn't give us or anyone else a 
requirement to serve those specific areas.
    Mr. Waxman. You have begun to offer long distance service 
in Texas about a year ago.
    Mr. Mancini. Yes.
    Mr. Waxman. And can you tell us whether you were offering 
services in rural areas?
    Mr. Mancini. We are offering service in every single 
community to every single customer that we serve.
    Mr. Waxman. Mr. Tauke, Verizon has met the 14 point 
checklist in New York State, and can offer long distance 
service there. Can you tell me how many rural markets you are 
currently offering long distance service and when you plan to 
roll out service to those areas?
    Mr. Tauke. We are offering long distance service, the 
traditional long distance service, every place in New York 
State to every customer. In terms of high speed data services, 
that varies from area to area of the State.
    Mr. Waxman. One thing that I can't understand, and maybe 
someone on this panel can answer it for me, but there is a 
savings clause in Section 232(b) of H.R. 1542, and it is at the 
bottom of page 6, that reserves to the States the right to 
continue to regulate voice services if this bill is enacted.
    And my understanding is--and a number of my colleagues have 
pointed this out today--that voice and data are identical when 
transmitted with packet switching technology.
    Can anyone explain to me as a technical matter how voice 
and data traffic carried over high speed data service lines can 
be separated so the States can fulfill their regulatory 
function?
    Mr. Tauke. Well, Mr. Chairman, I think there is a 
substantial amount of confusion following the discussion this 
morning on this issue. If Verizon, for example, under this 
bill, builds a broadband network, we cannot market, we cannot 
build, we cannot charge for any voice service that goes over 
that network. Now, if someone else purchases from----
    Mr. Waxman. My question was about technologically how a 
State can regulate.
    Mr. Tauke. Let me just speak to that. I am trying to get to 
that. Just as it is the case today, if AOL leases a line from 
us in order to provide ISP service to a customer, and they over 
this broadband line offer voice services, and they charge for 
the voice services, we can't do anything about that. We get no 
money from it.
    We aren't marketing it, and we can't do anything about it, 
and whether or not the State Commission can regulate what AOL 
does on voice services is a good question today, and it will be 
a good question if this bill passes.
    But it doesn't change what is currently the situation 
relating to AOL offering IB telephony.
    Mr. Waxman. Mr. McMinn, can you respond to my question?
    Mr. McMinn. I think that your distinction of voice and data 
is disappearing. As ones and zeros are indistinguishable from 
each other, they are also indistinguishable in terms of how far 
they have traveled, and how they have traveled to get to a 
particular customer.
    I mean, take a teleconference, and if it is handled over 
the Internet between people that are in New York State and 
California. Is that long distance, or is that data, or is that 
voice? How about if someone makes a transcript of that 
conference and makes is available on a website, and it is 
accessible in Florida? Is that voice or is that data?
    And supposing someone chooses to modify and redistribute 
that? I mean, is that voice or is that data, or is that video? 
I don't think that technologically the distinction is going 
away by bits or bytes.
    What I think is important for everyone to remember is that 
we are trying to enable the most competitive broadband 
distribution system for those bytes, and it is not about one 
versus the other. It is about giving the consumers as much 
different choices as they can get, and as many different 
options to be able to get.
    So we should not be picking winners and losers between 
CLECs, ILECs, and cable companies. We should be figuring out 
how to make all three of those networks continue to compete.
    Chairman Tauzin. The gentleman's time has expired. The 
Chair recognizes the gentleman from Oklahoma, Mr. Largent, for 
a round of questions.
    Mr. Largent. Thank you, Mr. Chairman. Mr. Ashton, in your 
written testimony, you state that we need regulation that will, 
quote, we need regulation that will reward risk taking, one 
that gives those who do the risk taking the incentive to garner 
its rewards.
    And I wholeheartedly agree with that statement. My question 
to you is how does rolling back access provisions, such as line 
sharing rules, reward Mr. McMinn's company, Covad?
    Mr. McMinn. Our point is that your voice network is 
basically built out, and that competitive--and competing in 
that market is largely something that can go on if it was worth 
competing for, and there is no restrictions in the current 
rules, nor do I read this Act to restrict voice competition.
    But if you look at the broadband services buildout, and you 
go beyond narrowband services, we need a new access network, 
and the cost of that is going to be extremely high. And in my 
belief that in order to get us going in that direction, it is 
not just regulation.
    It would not propose that this reform will just--just holds 
all the answers. There are technical and equipment costs and 
issues that need to drop, and more than anything, and it is 
often forgotten, we have to identify services that will 
actually travel over this network, and people will pay money 
for, and demand in a large enough quantity to actually pay for 
the network buildout.
    And that is a question that is still out there, but that is 
a major risk, because high speed--you know, $40 a month or 
whatever it might be is not going to be enough to pay for this 
buildout.
    So I see it as a major risk, and I see it as a new type of 
risk that the large carriers have not had to deal with before, 
and I see it as something where we should reward that kind of 
risk taking if it takes place.
    Mr. Largent. But major risks, and yet this leads to my 
third question, and I will ask the SBC folks in just a second, 
but major risks. SBC's data revenues increased 39.9 percent to 
$2.1 billion, compared to $1.5 billion in the year ago quarter. 
The company's data revenue stream has nearly doubled in the 
past 2 years. Man, that is the kind of risk that I would like 
to get in on, a 39 percent rate of return. Wouldn't you?
    I mean, that is what you would advise your customers 
wouldn't it? Let's get in the kind of risk that has a return 
that has 39 percent. That does not seem like a lot of risk to 
me.
    And yet the bill that we are talking about, and that his 
hearing is about, is going to take players like Covad out of 
the market. So they have zero ability to invest any capital in 
making this kind of investment. Am I correct?
    Mr. Mancini. No.
    Mr. Largent. I am not asking you. I am asking Mr. Ashton.
    Mr. Ashton. I wasn't sure. First off, the services that are 
being offered today are being offered to customers that are the 
easiest to offer them to; those that are within the distance 
limitations of central office switches if it is DSL, or it is 
all data services.
    Data services are not that new. We have been offering T-1 
and frame relay, and all kinds of data service for some time, 
and that's where the companies are doing very well, because 
there is more data demand than there ever used to be.
    The question is that to bring this down to the mass market, 
which is what I think is what we would all like to see, that is 
going to require a different type of expenditure. We are not 
talking about the large business market where they derive most 
of their data revenues from.
    We are talking about the consumer market and the small 
business market, and those customers are largely not part of 
these numbers, and they are not part of the growth, and they 
won't be addressed because there are different economic 
questions addressing them versus large businesses.
    Mr. Largent. Mr. Ashton, you seem like a pretty sharp guy. 
Are you aware that the CFO of Verizon Communications sits on 
the Board of Directors for Bear Stearns?
    Mr. Ashton. I am aware of that, but these positions----
    Mr. Largent. I thought you would be.
    Mr. Ashton. But I want to make this very clear. We are also 
the largest--and James can answer this better than I can--but 
we were one of the major financiers of CLECs, and we were the 
primary investment bank behind Covad. But it is important that 
the committee know that my comments are mine and not Bear 
Stearns.
    Mr. Largent. Mr. McMinn, in your testimony, you have 
outlined your concerns with eliminating line sharing. I'm 
curious. What has Covad's experience been with the Bell 
companies' willingness to provision a line or loop when you 
sign up a customer?
    Mr. McMinn. Our position has really been a compromise. 
Unfortunately, it is going to take me a few seconds to give you 
the history here. As soon as the FCC determined that they were 
going to encourage the adoption of line sharing, which was 
April 1999, we began to offer DSL to consumer customers at a 
loss.
    We knew that it was uneconomical to do it on second lines, 
but we anticipated the passing of that line sharing order, and 
we began to offer consumer services. The FCC finally passed 
that line sharing obligation in November 1999.
    We thought that then we would be able to offer up line 
shared lines. It took an additional year until some, but not 
all, of the ILECs were able to offer line sharing for us, and 
in particular let's take the case of Verizon.
    They claimed publicly that they installed 3,500 line shared 
lines per day increasing their customer base. In the first full 
year of operation, they were unable to give us 3,500 lines of 
line shared DSL. That is the disparity of all of this.
    I think it is also important to remember that we are not 
taking about wanting a free ride on these remote terminals or 
the fiber that might be put into the field. What we are asking 
for, and the only thing that we are asking for, is access to 
the 1.6 billion miles of copper that are out there in the 
plant.
    And even in the most optimistic scenario of rolling out 
remote terminals, that at least two-thirds of that existing 
copper plant will remain in effect. It is that two-thirds of 
the copper plant that lie beyond these exotic fibers, or lie 
beyond the remote terminals we want.
    We are willing to pay for the fibers ourself, and we are 
willing to pay for the remote terminals ourself. We need access 
to that copper.
    Mr. Largent. Thank you, Mr. McMinn, and Mr. Chairman, I 
will yield back. I do have another question for Mr. Mancini 
that I hope to get to ask about the seeming incongruity of 
their complaint about the burdensome regulation at a time when 
they are getting a 39 percent rate of return on their 
investment in broadband. I yield back my time.
    Chairman Tauzin. The gentleman's time has expired. The 
Chair recognizes the gentleman from Massachusetts, the ranking 
member of the subcommittee, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman. Just a little bit of 
history. In 1967, the Federal Government gave the Bell system 
50 megahertz to deploy a cellular system, and they didn't do 
anything with it. Nothing.
    They were able to deploy DSL before the 1996 Act. They 
didn't do anything with it. Nothing. They came here in 1995, 
all seven chairmen from the Bells, and they said that if we 
lift the restriction on their ability to get into cable that 
they will compete against the cable industry.
    What have they done? Nothing. They said that would give 
them an incentive in fact to deploy. Have they? No. What has 
led to the fact that we have now gone from virtually zero of 
broadband access in 1995 to 52 percent of all homes in the 
United States that now have access to broadband?
    Paranoia. The cable industry and the telephone industry 
afraid that someone else is going to get there before them. 
Plus, Mr. McMinn, and Mr. McLeod, and Mr. Gregori, that's what 
drives them. Paranoia.
    You give something to the Bells and they don't have to do 
anything with it, they won't. And, in fact, in 1993, this 
committee, working with the Federal Government, had to say that 
the Bells could not compete for the third, fourth, fifth, and 
sixth licenses because they had not even gone to digital yet. 
They were still on analog for their cells.
    So we had to actually say that they can't even compete in 
the regions in which they already own cell phone licenses. 
That's 1993, because only the competitors were going digital, 
and then they moved to digital, the Bells.
    Let's get the little history here straight of the 
incredible, backward way in which the Bells have looked into 
the deployment of new technologies over the years. Mr. McLeod, 
many companies in the telecom market have talked about one stop 
shopping, and about a bundled package, and that includes a 
group of services, including a DSL line, and voice data, local 
and long distance, and Internet services.
    How does a regulator know what service it is regulating? 
How is the State or the Federal Regulator going to be able to 
track down voice from video, from data, to make sure that it is 
being monitored?
    Mr. McLeod. There really is no way to track it down. On the 
backbone networks, starting out in the 1980's when fiber was 
deployed throughout the United States, and those networks 
carried both voice and data services, and now as we move 
forward in the local access arena, voice and data services are 
integrated on the same copper wire.
    So there is no way of separating the two. What is the key 
element here through all of this is that that network element, 
that last mile connection, is 100 percent controlled by the 
Bell companies today, and we need access to it, equal access to 
it.
    Mr. Markey. So there will be a regulatory morass that is 
created then?
    Mr. McLeod. There will be, yes.
    Mr. Markey. And this bill really doesn't help to clarify 
that as far as I can see, because it really even doesn't 
provide a definition that is useable.
    Mr. McLeod. There is no definition whatsoever, and the 
focus here on data, as compared to voice, is really absurd in 
the new world of communication.
    Mr. Markey. Well, when the Internet telephony explodes over 
the next 5 years, will we be back here with a slew of lawsuits 
on requests to change the legislation?
    We have people down here saying you people didn't get it 
when you acted in 2001. The bill really should have been about 
Internet telephony. You didn't say anything about it. Are we 
missing really where it is all heading right now, Mr. McLeod?
    Mr. McLeod. Well, certainly voice over IP over the next 5 
years over Internet protocol technology will be the primary way 
that voice is carried.
    Mr. Markey. Well, let me ask you this. Do you agree--you 
and Mr. McMinn if you could--do you agree that we should not 
import legacy subsidy models of per minute access charges, or 
usage sensitive fees, on the Internet, including on IP 
telephony, rather than having per minute charges on per 
Internet traffic, while they are having flat rate, for example, 
universal charges?
    Mr. McLeod. Well, I think that eventually that--access 
rates have been coming down, and recipe comp rates have been 
coming down over time because they are viewed as artificial 
charges, and some orderly mechanism for bringing those rates 
close to zero should be in place, and I think that is the 
direction that we are moving in.
    Mr. Markey. Mr. McMinn.
    Mr. McMinn. Well, I think in terms of what regulations or 
what concerns might come up 2 or 3 years from now in the 
regulatory environment, I think that is indicative I think of 
the profound forward looking thinking that was in the Telecom 
Act.
    It did not try to predict what type of services were going 
to be put in place. It opened up the network to a whole host of 
new services, and in fact no one could have really predicted 
the rate at which the Internet data use of the network has 
evolved.
    That was exactly the beauty of the Act. What we are seeing 
now is an attempt to roll that back. The ILEX finally realized 
that they weren't the most innovative forces in the United 
States, and now that the door is open a little bit, all four 
monopoly bodies are slamming against that door to try to shut 
it down again.
    Mr. Markey. I think to be honest with you, this bill is 
technologically obsolete. I think it creates an image of the 
FCC as State regulators trying to perform a most futile task, 
which is chasing ones and zeros down the information super 
highway trying to put them over to the side, and trying to 
determine whether they are voice, or video, or data, or 
Internet, or whatever, in an era when we are trying to 
appreciate the fact that it is convergence and not divergence 
which is going to be the hallmark of the future.
    And I think what we are heading for in this bill is a 
regulatory retrogression back to an earlier period of time when 
there were separate and distinct services which were being 
performed.
    So I think that after we have spent a decade educating 
ourselves as a committee as to the inevitability of 
convergence, for us to be considering this kind of legislation 
demonstrates that unfortunately we still need more remedial 
work as to where the whole future of this technology is heading 
over the next 5 and 10 years. Thank you, Mr. Chairman.
    Chairman Tauzin. I would only add that everybody needs a 
different level of remedial work. The Chair would recognize the 
gentleman, Mr. Cox.
    Mr. Cox. Thank you, Mr. Chairman. I'm sorry, Mr. Tauke, a 
former colleague, that I was not here for your testimony, but I 
read it. But I would have liked to have been here just to pay 
you the courtesy of listening to it personally.
    And I want to start as basically as I can along the lines 
of the old Vince Lombardi talk to the Packers about getting 
back to basics, where he said, ``Gentleman, this is a 
football.'' And I want to ask you as a matter of philosophy is 
digital voice information in your view data?
    Mr. Tauke. Digital voice is the same ones and zeros as any 
other digital service. I don't know that I would call that 
data, because we do have an artificial regulatory structure in 
place. It is artificial today.
    I mean, the right thing to do is eliminate all of the 
distance restrictions that are currently in the Act. There 
should be no local calling areas. There should be no toll. 
There should be no interLATA restrictions.
    It makes no sense in today's world, but there is 
unfortunately a regulatory structure which drives the way in 
which the industry develops. It is still in place. Today, there 
is no way that Congressman Markey or any other regulator can 
know what is and is not voice that is going over the network 
today.
    The way in which the current law is enforced is by ensuring 
that there is no offering, marketing, or sale, or money 
collected, by a Bell company for an interLATA service. That is 
the same mechanism that would remain in place for voice 
services tomorrow, but as I indicated earlier, when you look at 
what is going over the network, you can't tell what it is.
    And so when AOL and when we sell a line to AOL today, we 
don't know whether AOL is offering to their ISP customer voice, 
video, data, whatever, that they put over that line.
    Mr. Cox. And when you talk about the restriction that will 
remain, you are talking about Section 6 of this bill that says 
that there will be, even if we were to adopt this pending 
legislation, a continuing prohibition on marketing voice 
telephone services?
    Mr. Tauke. Correct.
    Mr. Cox. So let me explore a little bit about what we mean 
by voice services, because this really is a dynamic marketplace 
that is changing a lot. During the 2 week recess when I was 
home in my district, I had talked to a lot of the tech 
companies that I didn't even know that I represented.
    It changes a lot, and one of them is building a car. They 
are getting together with Honda, and Honda is going to actually 
build the thing. They started out as a technology company 
making the computers for the car, and they decided that their 
computers were so far advanced beyond what is available on the 
market today that they just built the car around it, and have 
it be an intelligent automobile.
    And when you are driving this car, you can answer your 
pages hands free when you are on the road, and it does all 
sorts of fun things, and it would be a fun car to own the way 
they have described it.
    But you could answer your pages just by talking, and via 
the Internet, you voice responses to your pages are delivered. 
Is that a voice service, and would it be subject to Section 6 
of this bill?
    Mr. Tauke. It is not subject to Section 6 of the bill, 
because today voice services are not subject to any of the 
distance restrictions as long as they are via wireless. So when 
you pick up your wireless phone, Horizon can provide a 
nationwide wireless service because the interLATA restrictions 
on wireless services were lifted in the 1996 Act.
    And so the wireless service voice, data, or whatever, that 
you have in the Honda, those things can--a Bell affiliated 
wireless company can offer those services because the 
restriction on interLATA does not apply to wireless.
    Mr. Cox. And that would be true also after the enactment of 
this legislation?
    Mr. Tauke. That would be true after the enactment of this 
legislation. This legislation would lift the interLATA 
restriction on wire line data services.
    Mr. Cox. And so now let's move away from the automobile and 
away from the wireless environment, to the workplace, and let 
us say that you answer the same page from your place of work, 
and you use your broadband connection in your office. Is that a 
voice service?
    Mr. Tauke. It probably would be a voice service given the 
kind of service that you suggested it is, and as I interpret 
the Act as it is written, or the proposed Act as it is written, 
Verizon would not be able to offer that service. Another 
company could.
    Mr. Cox. So answering the same page in the same way, 
depending on whether you do it from your car or your office----
    Mr. Tauke. It depends on which technology; if it is 
wireline versus wireless technology.
    Mr. Cox. [continuing] results in two dramatically different 
regulatory consequences?
    Mr. Tauke. That's correct, and as today, there is a 
different regulatory consequence between voice over, the 
wireless phone, and voice over, the wireline phone.
    Mr. Cox. And without question, and I think we all pretty 
much all agreed on this, all 11 panelists, that the reason we 
are here today is that we have some regulatory models that 
don't fit the current regulatory environment.
    And I think in your own remarks in answering my big picture 
question about what is voice and what is data, you made it 
clear that you are chaffing under the restrictions of an old 
regulatory model.
    My concern is this. If we move in the direction of the 
proposed legislation, aren't we again institutionalizing this 
very artificial distinction between voice, and data, even to 
the extent of discriminating between voice and voice?
    Mr. Tauke. No, I don't think you are really. I think what 
you are simply doing is carving off one more piece. If 
information services and wire services were carved up in the 
1996 Act for InterLATA purposes, you would be carving off one 
more piece, and you would be saying to the Bell companies that 
if you have the network and the facilities, you can market that 
service and provide that service, and charge for that service 
if it goes over your network.
    And I would observe because this question has been raised, 
that the big money is still in the interLATA market is in the 
voice market. In Massachusetts, where we just got authority, a 
$2 billion market for interLATA voice services, and that is the 
big huge incentive that is still out there for the companies.
    Mr. Cox. Last, let me finish up on a point that I think 
that Congress Markey raised, if not quite explicitly, almost 
explicitly. Under this Section 6, you would be prevented from 
marketing, billing, or collecting, for interLATA carried over 
your broadband equipment?
    Mr. Tauke. Until we got the 271 approval.
    Chairman Tauzin. The gentleman's time has expired. He is 
permitted to finish his answer.
    Hon. Cox. To the extent that you are offering in the future 
under this legislation broadband services to your customers, 
and your customers are availing themselves of Internet long 
distance telephony, local and long distance, do you think that 
you wouldn't feel justified in coming back to the FCC and to 
the Congress saying we are being ripped off, and that these 
people aren't paying any of the fees that we have to pay in our 
business.
    And they are competing in ways that we can't, and they are 
using all of our equipment, and they are in markets that we 
should be able to be in, and we want a level playing field?
    Mr. Tauke. Well, today, America On Line, if they purchased 
one of our DSL lines, which they do, can offer IP telephony 
over that line if they choose to do so. Verizon On Line, using 
the exact same line on-line service, cannot offer IP telephony.
    And it would be the same kind of restriction that would 
remain in place tomorrow if this Act passed that is in place 
today. And we might think that is not right, and I would say 
that there are a lot of other restrictions that ought to go 
away, but I think we would expect that we would adhere to the 
1996 Act, and go through the 271 process to get rid of that 
restriction.
    Chairman Tauzin. The gentleman's time has expired. The 
gentleman, Mr. McLeod, if you would like to respond, you are 
welcome.
    Mr. McLeod. Yes, just for a second, because I think there 
is a tremendous amount of confusion here which we could solve 
very quickly. It is 5 years after the Telecom Act, and it is 
2001, and a 14 point checklist has not been completed in 45 
States in this country to open up the local networks.
    So we don't have these issues, and so we don't have to 
define what is going on, whether it is voice or data. So that 
the Bell companies can be freed to operate, and it is 5 years 
later, and when are we going to talk about mandating that these 
networks be open so that there can be competition.
    Chairman Tauzin. The gentleman's time has expired. I would 
only add as a point of reference that the 14 points have now 
been expanded to 1,100 by last count. The gentleman, Mr. 
Boucher, is recognized.
    Mr. Boucher. Well, thank you very much, Mr. Chairman. And I 
want to thank all of the witnesses for a very informative 
presentation and discussion here this morning and this 
afternoon.
    There has been some discussion recently about what I think 
is a very interesting proposal to create a new title to the 
Communications Act, and a new Title 7, wherein would reside 
converged broadband services.
    The purpose of the new Title 7 would be to treat the 
offerors, the providers, of substantially similar services the 
same way from a regulatory standpoint. And that would be I 
think a major and an important departure from current practice.
    At the present time services are regulated not by the 
character of the service offered, but by the company that 
offers the service. So regulation tends to be industry specific 
and not service specific, and that creates disparities, and it 
creates a discriminatory and uneven treatment, and competitive 
disadvantages.
    A new Title 7 would have the benefit of placing within a 
new regulatory environment all of the various services where a 
common platform is used to provide multimedia offerings.
    So if some combination of voice, video, and data, were 
offered over the platform, this new regulatory treatment would 
be provided. And telephone companies, cable companies, and 
others, would be treated the same way under the regulatory 
structure.
    I think the time has come to do this. The legislation 
doesn't speak to this, but perhaps at some future stage in the 
legislative process we can address this concern, and if there 
is a consensus to do it, insert this Title 7 concept.
    Mr. Tauke, I would like to ask you for your comments on 
this general theme, and whether or not you think an approach 
such as this has merit.
    Mr. Tauke. Well, Mr. Boucher, I do think the approach has 
merit. As you will recall, Ira Magaziner, who was in the 
Clinton White House, made quite an effort during the discussion 
of the 1996 Act to float this notion, and to establish the idea 
of a separate title for broadband services.
    He recognized that broadband was a distinct market and 
there should be a clear policy established that would apply to 
all broadband service, regardless of the nature of the company 
that offered the service.
    And I think that there is substantial merit to that. As I 
alluded to in my testimony, we need a broadband policy. It 
makes no sense to have different policies for different kinds 
of companies, and a deregulatory policy which gets rid of the 
distance issues, which the gentleman from California was 
talking about, and gets the States out of it and establishes a 
national policy, is just what we need in my judgment.
    Mr. Boucher. Well, thank you very much. I can't depart this 
discussion without raising another issue that is not addressed 
in the legislation, but is one which I think should be 
addressed at the proper time.
    And that is the need for an open access policy that assures 
that whatever the platform for Internet transport that a 
particular customer uses, that customer can have a choice of 
Internet access providers.
    Now, that is the rule today with regard to the telephone 
company platform, and that would remain the rule for the 
telephone company platform upon the passage of this bill.
    But nowhere in the law, either present or proposed, do we 
have a provision that applies that same open access principle 
to the cable platform, the fixed wireless platform, or the 3-G 
mobile wireless platform that we will soon be using, or to the 
satellite platform.
    And I wonder if our witnesses would care to comment on the 
appropriateness of having open access so that every Internet 
user has a choice of the Internet service provider that 
provides services to him, and so that we eliminate this perhaps 
last remaining regulatory disparity, assuming of course the 
adoption of this bill and its many deregulatory provisions. Who 
would like to begin? Yes, sir, Mr. McMinn.
    Mr. McMinn. Well, certainly I think that the consumers need 
absolutely as much choice as they can get in the provision of 
broadband services. This is a whole new network that is being 
built at Internet speed in the United States, and I will say 
that they have open access today with our technology, with our 
network, which covers 45 percent of the homes and businesses in 
the United States.
    We have over 250 Internet service providers that we sell 
our services to so that they can provide Internet access to 
their customers. But what I think is important to remember is 
that just because the ILECs today are in this transition 
period, that that choice is unavailable to the market, and in 
fact choice will decrease in the market if the bill as it is 
currently proposed goes into effect.
    I mean, what more incentive do the ILECs need to roll out 
broadband services than getting into the hundred-billion dollar 
long distance business.
    Mr. Boucher. Well, thank you, Mr. McMinn, that is an 
interesting answer, but it doesn't have a lot to do with the 
question. Would anyone on the panel care to comment on the 
question of the need for open access?
    Chairman Tauzin. The gentleman's time has expired, but 
anyone is allowed to answer. Mr. Cicconi.
    Mr. Cicconi. Mr. Boucher, first of all, I think it is 
important to point out when one considers open access which as 
I understand it has been defined as providing consumers with a 
choice of ISPs, that everywhere in America today, every 
consumer in America today, has that choice of ISPs.
    And they can connect to the ISP of their choice through a 
variety of means. Cable itself is in the process for providing 
that form of an open access today, and frankly the only 
impediment to providing that access has been a contract with 
the people that built the network in the first place to allow 
them a return on their investment.
    AT&T is in the process of testing its system right now, and 
we will be deploying it in scale in one of the major markets, 
and in fact in Mr. Markey's district this year, and will be 
doing full deployment next year.
    Other cable companies are following suit on that, and I 
might add that the jux of the position of these issues to me is 
striking, because the bill in front of you would in fact 
preempt any Federal or State regulation of the Bell facilities 
in this area which are in fact bottleneck facilities on this if 
they provide, or if they have anything to do with the delivery 
of the high speed service.
    So even an old Legacy facility within their network, if it 
is involved in the delivery of this high speed service, the 
Federal and State regulators would be preempted from anything. 
So the oddity here, Mr. Boucher, in an open access proposition 
is that where you don't have a bottleneck facility, some people 
are opposing to regulate cable.
    But where there is a bottleneck facility, we are proposing 
to deregulate it, and let them shut out people who want to 
access those facilities. I would submit that that an odd jux of 
a position.
    Mr. Mancini. If I could just reply. When we are talking 
about the high speed advance services market, and that's what 
we are talking about today, the BOCs nor anyone else have a 
monopoly on those equipment, those facilities. Cable modems do 
not use any of our systems, and we don't use any of theirs. 
There is no monopoly.
    So to talk about a monopoly system in a new competitive 
market, where there are four different facilities, I think is 
just strange cojolity.
    Mr. Boucher. Well, thank you, Mr. Chairman.
    Chairman Tauzin. I will allow Mr. Pitsch and Mr. Tauke, if 
you will quickly respond as I need to move on.
    Mr. Pitsch. Very briefly, as I indicated in my testimony, 
we have supported what we would call good symmetry in this 
market, Congressman Boucher. We have opposed forced access, or 
access at regulated terms. We supported on negotiated terms, 
and for that very same reason we would support not imposing on 
bundling our regulations on the telephone company's last mile 
fiber in a remote terminal investment.
    Chairman Tauzin. Mr. Tauke, and then I will move on.
    Mr. Tauke. Well, I just wanted to say, Mr. Boucher, that 
any open access provision that Mr. Cicconi will agree to, I'm 
sure that Verizon will happily agree to.
    Chairman Tauzin. The gentleman's time has expired, and the 
gentleman from Florida, Mr. Stearns, is recognized.
    Mr. Stearns. Thank you, Mr. Chairman. Let's see. Listening 
to your opening statements, I was here for all of them. Let me 
see where I think we are at here. The Tauzin-Dingell bill will 
probably pass if members believe that it will move broadband 
forward in this country.
    Will the arguments about what industry is regulated, yours 
versus cable, and the facts that the CLECs will lose money, all 
of that will probably not be as powerful as the argument what 
will move broadband in this country.
    Now, Corning obviously when Mr. Regan talks, he is talking 
from self-interests because they want to sell more fiber. And 
the gentleman who was talking about getting to the rural part 
of this country, broadband--I mean, we would all agree if in a 
magic wand this bill would get us more broadband, and I think 
we would all go ahead with it.
    But it seems to me that we also have to take the fact is 
that we are not sure that it will. So let me ask Mr. Pitsch. 
You are from Intel, and just take your hat off for a moment, 
and you are supporting from your opening testimony the RBOCs.
    So I want to say that without Congress doing anything, what 
could the FCC do today to move broadband across this country? 
Two things.
    Mr. Pitsch. Congressman, they could reboot under Section 
251(d)(2). They could determine that under the necessary and 
impaired standard that a lot of the investment that I was 
talking about is or should not be unbundled.
    And they should do that under a standard set by the Supreme 
Court, and under the Iowa Utilities case, just to use Just 
Scilia's term, something akin to a central facility should be 
unbundled.
    Mr. Stearns. And why is that?
    Mr. Pitsch. I'm sorry?
    Mr. Stearns. Why should that be?
    Mr. Pitsch. We support unbundling for the copper, and I 
want to make this very clear, because that is a bottleneck in 
the dial up market. That's No. 1.
    Mr. Stearns. And No. 2? If that's it----
    Mr. Pitsch. Well, another thing they could do is that they 
could get a lot more wireless spectrum out, and they could 
rebalance local rates to encourage local telephone competition. 
Let's face it. One of the reasons we don't have a lot of local 
telephone competition is because those rates are regulated 
rates.
    Mr. Stearns. Okay. Now, we have an article here from the 
New York Times, dated April 22, and I want to give Mr. Mancini 
an opportunity to answer this. This article in the jump 
headlines said, ``How the Baby Bells May Rule the World.''
    So the article shows that you folks have all the money, and 
have all the ability here. So you are coming here with this 
bill saying that you are the victim here and you need help. 
This article, the way it is slanted, shows that in addition 
that you are not only not the victim, but you are the 800 pound 
guerilla.
    And they show a graph here that shows that the long 
distance calls, that the cost has gone down since 1985. Yet, 
the costs for the local has gone up. So I want to give you an 
opportunity to respond.
    Mr. Mancini. Well, I obviously would like to know what they 
meant by the cost of the local.
    Mr. Stearns. Well, to the consumer. What it costs the 
consumer to pay for local calls has gone up, while the costs 
for the long distance has gone down. And my point being is that 
you are making a lot of profit, and thee doesn't seem to be as 
much competition in the local line as there is in the long 
distance.
    Mr. Mancini. Well, I can tell you, Congressman, that the 
cost of local service to our customers has not increased since 
1984. In Texas, for $9.85, you get 24 hour a day, flat rate 
service, 30 days a month, and that cost has not increased since 
1984.
    Mr. Stearns. Did you see this article?
    Mr. Mancini. I saw that article.
    Mr. Stearns. Is the graph wrong from the Federal 
Communications Commission, Bureau of Labor Statistics, showing 
that the local calls have gone up almost 70 percent since 1985. 
Is that graph wrong?
    Mr. Mancini. I assume what they are including in there are 
various costs of vertical services, like call waiting, call 
forwarding, and some of those costs have increased. The costs 
of local basic service has not increased. The cost of vertical 
services has increased.
    Mr. Stearns. Let me ask AT&T to respond to that.
    Mr. Cicconi. Mr. Stearns, I do have the figures in front of 
me. I think what may be confusing this, in terms of whether 
they have gone up or not is whether they are adjusted for 
inflation.
    The consumer price index during this same period went up 73 
percent and local phone service went up 70 percent, and I think 
that is the graph that you are showing. During the same period, 
even adjusted for inflation, long distance rates declined 34 
percent.
    This is the competitive market in action. When the Bell 
system was broken up, it created a vibrant competition in long 
distance and zero competition in local. And what you are seeing 
there is the evidence that they have kept their rates 
consistent with inflation, while competition, despite 
inflation, has forced long distance rates down over the same 
period.
    Mr. Stearns. Is there anybody else who would like to 
respond? Mr. Tauke. And I think, Mr. Chairman, that this 
article has come out, and I think it is appropriate to give the 
RBOCs an opportunity to respond to this article, because as it 
points out, they are certainly the people who are making all 
the money, or that is the implication here.
    Mr. Tauke. Well, Mr. Chairman, and Congressman Stearns, I 
first want to say that nobody is coming here, or at least I'm 
not, saying that we don't have a good business.
    And nobody is coming here and saying that our business is 
not doing well. The market is growing rapidly and there are a 
lot of new services that we are offering to consumers and it is 
a good business. And the companies, thank the lord, are doing 
reasonably well, which allows us to make huge investments in 
this business.
    We have to invest every year $18 billion in our business in 
order to keep the networks moving forward and the services 
being provided, and meet the demand that is out there.
    In terms of the New York Times article, I would be happy to 
give you a point by point response to the New York Times 
article, but I think the basic issue on rates is this. Local 
rates, the basic dial tone rate, has continued to decline. It 
has not gone up.
    And when you take into account inflation, it certainly has 
not gone up. In a State like New Jersey, for example, the rates 
have been $8.19 for as long as anybody can remember for dial 
tone service.
    But where there are increases is we have lowered the access 
charges for long distance under the Federal cost proposal, and 
so we got a $3.50 increase in the interstate charge that is 
going to be coming. I should say that was in the first 
lowering, and it was $3.00 the first time around, and now with 
calls it is going up again.
    So we lowered the access charges the long distance 
customers were paying for use of the local network, and that 
has permitted long distance charges to go down. These flat rate 
charges that have been added to the local bill in order to 
offset that cost.
    We have seen more services added, such as vertical 
services, and so those are the things that have added to the 
cost of local telephone service, but your basic dial tone 
service has gone down, and not up, over the last 15 years.
    Chairman Tauzin. The gentleman's time has expired, and the 
Chair recognizes the gentleman from Tennessee, Mr. Gordon.
    Mr. Gordon. Thank you. I think Cliff Stearns summed up most 
of our objective here, and that is that we want to see 
broadband expanded to everyone, and we want to see competition 
so that it can be done as economically as possible for relief 
for our consumers.
    I guess the first observation, Mr. Ashton, as I listened to 
you today, and I remember just broadly trying to characterize 
what you are saying, but it seems to me that what you are 
saying is that having broadband is an expensive venture, and 
that competition is good.
    But as a practical matter, we might as well just realize 
that CLECs, as good of folks that they might be, can't afford 
it, and that if you want competition to the cable folks, you 
might as well just go ahead and recognize that the Bells are 
the only ones that have the money, and let's move on.
    Is that generally what you are saying?
    Mr. Ashton. Yes.
    Mr. Gordon. That's fine. I just thought I wanted to get it 
out there.
    Mr. Ashton. Yes. It can only be done by those who have the 
money. It is pretty basic.
    Mr. Gordon. And I guess Chris Cox is gone again, but if he 
was here, he would have heard once again, Tom, that you are the 
best. You really are always articulate and your plane over Iowa 
is a very good analogy.
    And I understand your interest in wanting them to land with 
the broadband coming in there, but what about DSL? Do we need 
to have--the other aspect of this bill will--is that going to 
reduce the DSL landings in Iowa? I would like for someone to 
take the other side of Tom's----
    Mr. Tauke. Well, first, on the local market in DSL and line 
sharing, I now that this is an issue that troubles the 
committee, and frankly it is a case where the committee has a 
choice to make, a tough choice.
    I don't think that all the choices here are difficult, but 
I would have to acknowledge that this one is a challenge, 
whether or not to require line sharing under the Act. The Act, 
as it is currently written, does not require line sharing. 
Others may add to this, but I will try in an objective way to 
give you the two sides of the issue.
    The side against line sharing, what is the reason for 
getting rid of it? The reason for getting rid of it is, one, 
that there are very few people, Covad notwithstanding, who are 
using line sharing.
    There are most of the DLECs that are out there that use a 
different technology. They use SDSL technology, and they do not 
line share. They purchase the full loop. And so as result, you 
have a relatively small number of people who are losing or 
using line sharing.
    Line sharing in our view is a real inhibitor 
technologically speaking to the deployment of additional fiber 
in the network. We frankly don't know how to do it. We don't 
know how to deploy the fiber and still be able to continue line 
sharing.
    We have people saying, well, we will just maintain the 
copper. Well, if you maintain the copper when you are trying to 
replace it with fiber, it takes all the reason for putting 
fiber in out. It takes all the reason away, because one of the 
reasons that you put in fiber is to avoid the maintenance, the 
high maintenance costs of the copper.
    So if you have to maintain the fiber or have to figure out 
a way to do line sharing over the fiber, you can't make it 
work, or we haven't figured out how to do so yet. And so 
therefore you have a choice between continuing line sharing on 
the one hand, or on the other hand, encouraging the deployment 
of fiber.
    The second observation that I make is that those who are 
doing line sharing today, and I emphasize that we believe that 
it is a very small percent, but those who are doing line 
sharing today still have the option to buy the whole loop.
    Now, when they buy the whole loop, what do they do? They 
offer not just data services, but they also can offer the voice 
services, and so therefore you get more voice competition. It 
would be good for voice competition frankly if Covad would 
offer voice services, along with their data services.
    And I would suggest that they would have a whole lot better 
business plan if they were offering an array of services over 
that wire, instead of trying to just offer discreet service to 
customers.
    So I think the choice that you face is that you have to 
decide is line sharing and the value that it brings to the 
competitive market in broadband sufficient to offset the 
downside that comes from the delay in the deployment of the 
fiber facilities and the broadband facilities in the local 
loop.
    We don't believe it is, and we assume that the authors of 
the Act don't think it is, but that is the choice that you 
have.
    Mr. Gordon. Mr. Chairman, as usual, Tom is very good. Could 
we give someone an option if they want to take a contrary view.
    Chairman Tauzin. You still have time, and Mr. McMinn can 
respond.
    Mr. Gordon. Okay. Good.
    Mr. McMinn. I will repeat one fact. The reason why more 
companies are not offering line sharing, especially in Verizon 
territory, is the 100 to 1 or 300 to 1 advantage they have put 
in front of--the obstacle that they have put in front of us, in 
terms of ordering up line sharing from them in order to be able 
to implement it. And 3,500 lines in 1 year, and 3,500 lines a 
day.
    Mr. Gordon. What about his technology?
    Mr. McMinn. I would like to address the technology, because 
there is a couple of things that have been merged together 
here. One is the deployment of fiber in relatively dense 
metropolitan areas to offer even higher levels of broadband, 
which is what Project Pronto and some of the others are 
designed to do, versus offering broadband in truly rural 
communities.
    Wired technology will never offer that result, and I 
understand that many of the members here represent truly rural 
communities. Do not hang your hats on a false promise that the 
ILECs will roll out fiber to these remote areas.
    Think of the analogy to t.v. There is no cable t.v. in 
rural America. They get their t.v. over satellite, or some 
other alternative technology, and it becomes much more 
economical than the buildout of a cable plant to the most 
remote areas.
    It makes much more sense to develop or promote a technology 
that focuses on alternative ways to deliver broadband, either 
by satellite or by wireless, to the most remote areas. 
Certainly cable over time has been pushed more and more 
outward, but that's only the wire that has to be run, and not 
the fiber and not the active electronics.
    Chairman Tauzin. The gentleman's time has expired. The 
gentleman from Michigan has a request.
    Mr. Dingell. Mr. Chairman, I would ask for unanimous 
consent that the gentleman be given 1 additional minute so that 
I might and so he could yield for me to ask a question.
    Chairman Tauzin. Any objection? Hearing no objection, the 
gentleman yields.
    Mr. Dingell. Thank you. Thank you, Mr. Chairman. Mr. Tauke, 
I am curious. We have been talking about line sharing. Can you 
think of anybody, or Mr. Mancini, can you think of any company 
that uses this line sharing for purposes of broadband that also 
provides voice service, or do they just limit themselves to 
offering data?
    Mr. Mancini. If they are line sharing that is all that they 
can offer. They have a choice. If they line share, they can 
have the high frequency parts of the loop that provide data. 
They also have their choice of getting the full loop if they 
want to offer both voice and data.
    Mr. Dingell. But all of them only use the high end, and 
none of them offer voice service along with the data; is that 
right?
    Mr. Mancini. Today that is correct.
    Mr. Dingell. Is that right, mr. Tauke?
    Mr. Tauke. Yes.
    Mr. Dingell. Mr. McLeod, do you agree with that?
    Mr. McLeod. Sure.
    Mr. Dingell. Sir, do you agree with that?
    Mr. McMinn. Actually, that's not true. You can offer voice 
services----
    Mr. Dingell. How many do it?
    Mr. McMinn. Well, I think the issue here is this.
    Mr. Dingell. No, no, I hope that you are not offended, but 
I have a question to which I would like an answer.
    Mr. McMinn. I will try to answer.
    Mr. Dingell. How many of them offer voice and data?
    Mr. McMinn. There is quite a few CLECs. Probably a handful 
of CLECs that do that.
    Mr. Dingell. A handful?
    Mr. McMinn. Yes.
    Mr. Dingell. And most of them do not?
    Mr. McMinn. It is very difficult to compete against a 
subsidized voice offering with one that is not subsidized.
    Mr. Dingell. So very few of them do?
    Chairman Tauzin. The gentleman's time has expired. If Mr. 
Tauke would like to respond.
    Mr. Dingell. Mr. Tauke.
    Mr. Tauke. There are a number of CLECs who offer both voice 
and data services, and they purchase the line in order to do 
that. They purchase the full loop in order to be able to do 
that. When you do line sharing, by definition, what you are 
doing is purchasing a small piece of the loop for a couple of 
dollars a month.
    And the expectation is that the local company, the 
incumbent, is providing voice service over the line, and then 
somebody else is providing the data service, which is what 
Covad generally does.
    Now, Mr. McMinn had earlier indicated that you could have 
IP telephony that you would put over the line sharing piece of 
the loop. Of course, from all our perspectives, what that means 
is that we have to maintain the loop, but we get only a couple 
of dollars a month for the line sharing of that line, and we 
can't do anything with the rest of it.
    And so that highlights I think the problem with the whole 
line sharing structure that we have. So they can offer the full 
service without purchasing the full loop.
    Mr. Dingell. You are coming to the point where this imposes 
certain technological limitations on your use of that line, and 
it also imposes certain limitations on the services that you 
can offer in instances where that line sharing takes place; is 
that not so?
    Mr. Tauke. The biggest problem with line sharing, frankly 
speaking, is that if you have the copper loop, it is not a big 
deal. But if you don't have a copper loop and you are trying to 
put fiber into the network, further into the network, fiber 
from the central office toward the home, that is where the 
technological problem arises.
    So when you have line sharing in place, that discourages us 
from being able to put fiber in because we don't know how 
technologically how to line share in an efficient way when the 
fiber is part of the loop.
    Chairman Tauzin. The gentleman's time has expired.
    Mr. Dingell. Thank you, Mr. Chairman.
    Chairman Tauzin. I just want to put on the record that 
cable came to rural America, in my part of the world, a lot 
earlier than it did to urban American. I don't know where you 
got the notion that cable was late into rural America. That 
just isn't true.
    Mr. McMinn. That is not the intent I intended to say.
    Chairman Tauzin. The gentleman, Mr. Ganske, is recognized.
    Mr. Ganske. Thank you, Mr. Chairman. In trying to figure 
out issues like this, I usually get the advice of fellow 
Iowans. So I have the opportunity to question two Iowans on 
this panel.
    In fact, my hometown of Manchester is halfway between 
Dubuque and Cedar Rapids. So I think we will start out with a 
question to Mr. Tauke, and we will give Mr. McLeod a chance to 
respond, and we will just go back and forth a little bit.
    Mr. Tauke, if you could in 1 or 1\1/2\ minutes, just tell 
me and the citizens of Iowa why if this bill became law it 
would be good for them.
    Mr. Tauke. For the citizens----
    Mr. Ganske. And let me just interrupt for a minute. And I 
want to point out that McLeod is a company that employs a lot 
of Iowans. Qwest does, too.
    Both companies have significant investment in Iowa, and 
furthermore, Qwest has stated on several occasions that they 
will be applying for their long distance because have met 
Section 271, and they will be applying for that within the next 
3 months. So, Mr. Tauke.
    Mr. Tauke. If Qwest is going to apply for long distance in 
the next 3 months, then will be offering long distance services 
before this bill is going to become law, and so I think it is 
fair to say that that piece of it wouldn't have much impact on 
Iowa.
    The other piece, however, the part which provides a 
broadband policy for the Nation and addresses how broadband in 
the local loop is regulated would have impact. And I think that 
for Iowans they are fortunate to have a very strong competitor 
like McLeod who is providing services, but a lot of people are 
still relying on Qwest and other local telephone companies, 
about 150 of them as I recall in the State of Iowa, to provide 
broadband services to their homes or the cable companies.
    This bill would make sure that those local telephone 
companies had a greater incentive and greater ability to offer 
broadband services to customers. That would mean that there 
would be competition for the cable companies who are offering 
broadband services in the State, and the competition between 
the cable and the telephony companies in the State, providing 
that dual option for broadband services in the local loop has 
got to be good for consumers.
    Mr. Ganske. Mr. McLeod, would you care to respond to Mr. 
Tauke's comments?
    Mr. McLeod. Sure. As far as this bill and the State of Iowa 
is concerned, with Qwest applying, and if they receive 271, 
really they can provide data services throughout the area. But 
I might add that they could do that today as well.
    There is nothing stopping them from doing DSL services in 
any of their markets today, and in fact they are doing DSL 
services in those markets. On the other piece of this 
legislation, the restriction to access certain pieces of the 
Bell network, that could impact us in the State of Iowa, in 
that it could impact our ability to use the Qwest network as 
part of the last mile facilities to get to our customers.
    Now, we have invested--well, billions of dollars in 
fiberoptic network, but we have done that to tie together 
cities like Dubuque, to Cedar Rapids, so that we can bring 
broadband services to those markets.
    But we still are dependent on the last mile connection, and 
when we get that copper loop, then we can do some pretty nice 
things with it. We can bring one megabyte service to the 
computer.
    Now, that is not broadband service. That is not 45 megabyte 
service, but that is high speed Internet service, and the 
copper loop is the key to that. We would all have fiber going 
to every neighborhood, and that is going to take 20 or 30 years 
to get to that kind of point.
    What we need to do is get to a point where we can walk, and 
that means one megabyte service, and that is delivered on 
copper, and we have to have access to the copper to compete. 
This bill affects our access to the copper loop.
    It is undermining the 1996 Act. However, if Qwest is smart, 
they will go and get their 271 and they will have most of what 
this bill provides when that happens.
    Mr. Ganske. Mr. Tauke.
    Mr. Tauke. The fundamental difference in viewpoint here is 
that we have a different reading of the Act. I don't think the 
Act says a word about his access to the copper loop.
    We think that as long as there is a copper loop there that 
this Act makes no change about the ability of Mr. McLeod and 
his company, or any other competitor, to get access to that 
local copper loop. So I don't think there is a fundamental 
difference.
    Mr. McMinn. Oh, there is, because the telephone companies 
can hide the copper loops if you will behind fiber, and say 
this is now part of the new deployment of network and no longer 
can you get access to the copper loop.
    So for a period of time anyway the existing copper network 
as it stands is very important for competition, and we can 
provide DSL services on it, and we are, and we are moving just 
as fast as we can to provide service as broadly as we can 
through our markets.
    Mr. Tauke. Let me be clear on this. There is no intent to 
say that there is--at least from the perspective of this 
person, or our company--no intent to have an Act passed which 
says that you can't get a loop, a full loop from the central 
office to the home, even if there is fiber in that local loop.
    The only thing that we believe this Act does relating to 
the local loop today is that there is fiber put into the local 
loop the line sharing would not be required, but you would 
still have the ability to get the full loop.
    Mr. McMinn. The difference is that we can only get it for 
voice, and we can't use it for data services according to the 
bill.
    Mr. Tauke. Well, that's great. How are we going to service 
customers with an integrated product and only have voice in the 
future on a copper network? That's absurd.
    Mr. Ganske. Mr. Chairman, do we have counsel to resolve 
this difference?
    Chairman Tauzin. Which city were you from? The gentleman's 
time has expired.
    Mr. Ganske. I appreciate it.
    Chairman Tauzin. The Chair would recognize Mr. Stupak for a 
round of questions.
    Mr. Stupak. Thank you, Mr. Chairman. Mr. Mancini, as you 
know, I come from Michigan, and last September the Public 
Service Commissioners of Illinois, Michigan, Indiana, Ohio, 
Michigan, and Wisconsin, issued a joint statement.
    And it said--and I am going to read part of it--it said, 
``SBC, Ameritech, through its various five-State operating 
subsidiaries, has in recent months consistently demonstrated 
its inability to effectively operate the local exchange 
telecommunications operations that it controls in Illinois, 
Indiana, Michigan, Ohio, and Wisconsin. We as the five 
chairpersons of the Public Utility Commissions charged by our 
respective States with overseeing these local 
telecommunications properties, have come together today to 
formally call upon SBC, Ameritech, and its senior management to 
take further action to address these issues of operational 
deficiency which have persisted for an extended period of 
time.''
    So my question is why should Congress deregulate services 
provided by Bell companies when the service records in these 
States is so miserable?
    Mr. Mancini. Well, Congressman, I don't really think there 
is a relationship between the two. After SBC acquired 
Ameritech, as you are aware, there were some service problems 
and difficulties in Ameritech.
    SBC changed management in Ameritech, and SBC committed 
hundreds of millions of dollars. We have hired thousands of 
technicians, and I believe that you will see and have seen 
significant improvements in service.
    Mr. Stupak. Yes, but I guess the five Commissioners are 
saying that it has been for quite a long time and these five 
States have a real problem. So if we deregulate and get into 
new services, how can we make sure that they are going to be 
properly and proficiently provided to our local areas?
    Mr. Mancini. Well, whether Ameritech had service problems 
in the 1990's----
    Mr. Stupak. Well, they still exist. It is at least 30 to 60 
days before you can get any service up in my neck of the woods.
    Mr. Mancini. Well, the alternative is that here we have a 
competitive market. Those Commissioners have encouraged SBC and 
Ameritech to deploy and invest monies in those States to 
upgrade those networks.
    Part of Project Pronto not only provides the ability to 
provide DSL, but it also improves the network. It improves the 
reliability and reduces costs.
    Mr. Stupak. Sure, but if there was really competition, if 
the service was so bad you think that someone else would want 
to come in there and pick up the services that according to the 
Commissioners that you were not properly providing, right? If 
the competition was there at the local level in rural areas, 
you would really see that.
    Mr. Mancini. Well, there has been and continues to be 
competition, and I would just like to make the point that there 
seems to be an indication that there is no competition.
    Mr. Stupak. Well, there isn't.
    Mr. Mancini. Well, in fact, let me----
    Mr. Stupak. Let me go back to the bill. Upon that 
statement, if you go to page 6 of this bill, Section 232, 
Provisions of High Speed Data Services, what it basically says 
is that the FCC and the State can't regulate you.
    Mr. Mancini. That's correct.
    Mr. Stupak. So if they can't regulate you----
    Mr. Mancini. Only for competitive high speed Internet 
access services.
    Mr. Stupak. Right.
    Mr. Mancini. But it has nothing to do with local.
    Mr. Stupak. Here are the public utility commissioners and 
the FCC who do have some control over you, and you are not 
providing the service according to local people. And now you 
want to get into a new area where there isn't going to be any 
regulation. How do we keep some accountability going here?
    Mr. Mancini. Well, would you prefer that cable have a 
monopoly? That's the alternative. If we don't compete, and if 
we don't invest, you are seceding the market to the cable 
monopoly.
    Mr. Stupak. But if you have sort of monopoly right now, at 
least in our five States----
    Mr. Mancini. Not in the provision of high speed Internet.
    Mr. Stupak. I will agree, but----
    Mr. Mancini. Could I just follow up?
    Mr. Stupak. Sure, go ahead.
    Mr. Mancini. I think there has been somewhat of a 
misimpression given that the 1996 Act wasn't successful in 
opening the markets. As you recall, there was a 14 point 
checklist, and as SBC states, CLECs have captured more than 10 
million customers, with provisions of more than 2.8 million 
interconnection trunks.
    We have exchanged more than 98 billion minutes, and we have 
invested more than $4 billion opening those networks. Yes, it 
is true that competitors are focused mostly on the business 
market, because that is where the profit is.
    But if you go down the line, you cannot capture 10 million 
customers without giving each and every one of them the 14 
point checklist. And to say that there is no competition is not 
completely accurate.
    Mr. Stupak. Well, let me ask this question of Mr. Tauke, 
and maybe he can answer this one for me. Here is this article 
again, and how the Baby Bells may conquer the world, and there 
was a Times article that Mr. Stearns mentioned that my good 
friend, Elliott Engel, was reading that, and so we both had a 
chance to take a look at it.
    And so the RBOCs that come in our office are very 
persuasive in telling us how this legislation will enable to 
get it deployed, these high speed services to urban and rural 
areas.
    But Bell Atlantic and Verizon have been offering long 
distance service in New York there for some time now. What is 
the current state of the deployment then of these services in 
Upstate New York in the rural areas or how about even Harlem? 
Has that been covered?
    Mr. Tauke. I can't tell you specifically what central 
offices in New York have been covered and which ones have not 
been covered. I would be happy to come to your office and try 
to provide you a map of that.
    We are providing and are offering DSL services in New York 
to a majority of the lines, but I can't tell you where all of 
them are.
    Mr. Stupak. So upstate, we are pretty well covered up 
there?
    Mr. Tauke. No. I would have to be honest and say to you 
that there is greater coverage in New York and the suburbs than 
there is upstate. But going back again to my analogy this 
morning to the wireless market.
    When we look at the wireless market back in 1993 and 1994, 
the major deployment was first in the big cities, where you put 
up a tower and you get a lot of customers per tower.
    And then as you go to less populated areas, you go there a 
second, and the less populated areas, naturally in the 
deployment of most new technologies get the deployment a little 
bit later, and I think that is the economics of it, and that is 
happening with DSL and broadband services as it did with 
wireless.
    Mr. Stupak. So really the rural areas can count on almost 
being sort of last to get that?
    Mr. Tauke. You know, in most areas they are always the 
last. There are some other factors that come into play, too. 
But I think that generally the competitors in the local market 
come first to the big cities.
    Why do they come to the big cities? Because they can get a 
lot of people in a relatively small geographic area, and----
    Chairman Tauzin. The gentleman's time has expired.
    Mr. Dingell. Mr. Chairman, I ask for unanimous consent that 
the gentleman be permitted to proceed for 1 additional minute 
for purpose of yielding to me. Would someone yield to me?
    Mr. Stupak. Yes, as long as I can follow up on it.
    Chairman Tauzin. One additional minute to you.
    Mr. Dingell. Mr. Mancini, I hope that you were listening 
closely to what it was that Mr. Stupak was saying, because his 
questions are very important to you and to me, and to him. I 
think that he was raising two questions to you which are very 
important.
    The first is that if this legislation passes would your 
company be up there providing his constituents with broadband 
service; and this is a very important question. What is your 
answer to that, sir?
    Mr. Mancini. If this legislation passes, it will provide us 
with a significantly greater incentive to invest in broadband 
and to expand our footprint in Michigan and every other State.
    Mr. Dingell. I understand that the upper peninsula of 
Michigan is a unique area. Would this move you to get up there 
to provide assistance to those people in terms of providing 
this kind of service?
    Mr. Mancini. In very remote rural areas, the economics 
probably make it very difficult for either cable or telephone 
company wires to serve those areas. As one of the other 
speakers said, in some areas it may be more cost effective for 
satellite and wireless to serve those areas.
    We are looking at partnering with some of those satellite 
and wireless companies to serve those areas.
    Mr. Stupak. But to follow that up, cable is actually up 
there now doing it for us.
    Mr. Mancini. And they can serve it.
    Mr. Stupak. So I think the answer to the question is that 
you may be willing to do it, but the real question----
    Chairman Tauzin. The gentleman's time has expired again. We 
have got to move on, guys.
    Mr. Dingell. Just tell us what you are doing now and what 
you will do to improve services.
    Chairman Tauzin. The gentleman is entitled to answer the 
question, and we will move on.
    Mr. Mancini. We are spending $6 billion to expand the reach 
in Michigan in serving 40 percent of the customers to 80 
percent of the customers.
    Mr. Stupak. But that's Pronto, and you said 20 percent 
still would not be covered, and I am sure that the Upper 
Peninsula wasn't part of that 20 percent.
    Mr. Mancini. And 20 percent would not be covered. That 
would take additional investment. If this Act passed, there is 
a much greater likelihood that we would go to those areas. If 
this Act did not pass, the likelihood is----
    Chairman Tauzin. The gentleman's time has expired. The 
gentleman from Michigan, Mr. Shimkus, is recognized.
    Mr. Shimkus. I didn't think that was my colleague from the 
upper peninsula. I thought that was James Earl Jones with that 
deep voice that he has today.
    Mr. Stupak. I need high speed Internet.
    Mr. Shimkus. I have actually enjoyed, although I have not 
sat through the entire hearing, I think it has been a very good 
discourse and exchange. Let me ask based upon a comment made by 
my colleague, Mr. Markey, which raises a question.
    I think his point was that prior to the Telecom Act, which 
was before I became a Member of Congress, the regional Bells 
had the ability to deploy DSL and did not. Mr. Mancini, do you 
want to address that?
    Mr. Mancini. Yes, I would just like to make a few comments 
about that. There is no question that very early versions of 
DSL were being worked on in the labs. In the 1990's--actually, 
two points--the technology did not exist that exists today.
    And, No. 2, there was no market. The Internet had not 
developed. We could not spend $6 billion or $10 billion to put 
a product out there that no one had or would want to use.
    It was only until the Internet developed and DSL 
manufacturers and vendors developed a system. In Project 
Pronto, we are using a state-of-the-art system which was when 
we announced it, it was still being in development. So that 
Elcatel integrated line card was not even on the market when we 
announced Pronto.
    Mr. Shimkus. Let me go on. There has been a lot of hi-tech 
discussion and I would like to boil it down to my simplistic 
infantry officer perspective. What I see is a debate, and there 
is a concern about competition in the local loop. I don't think 
that anyone disagrees with that.
    Some people say that to prohibit--that we need DSLs and 
full coverage, and I agree, and the regional Bells can help 
provide that service. Others want to say, no, we need to hold 
them hostage so that we continue to force the local loop.
    A question would be that if we increased the 251 and 271 
aspects of the Telecom Act, and divorced the debate on voice 
from the digital aspects, how would that be received? And I 
want to go back again to Mr. Mancini.
    Mr. Mancini. I'm sorry, I didn't understand the premise. If 
you divorced the debate on voice?
    Mr. Shimkus. There is a debate on the committee about your 
company, sir, which is receiving a lot of fines in Illinois for 
service issues that are debatable whether the fines are still 
enough to make some movement on service quality.
    And so there are debates at the Illinois Commerce 
Commission's level, or even within members of the committee, 
that maybe the stick is not big enough. Do we make the stick 
big enough to address the local loop questions versus using 
this whole DSL debate as a whipping boy for access on the local 
loop?
    Mr. Mancini. Well, I can tell you that we don't need fines 
to provide quality service. We have not had service problems 
for 100 years in the Southwestern Bell States, nor IMPAC Bell 
and Nevada Bell.
    We provide quality service because that is what he customer 
has demanded, and there is competition, and for a whole variety 
of reasons. Yes, we have had some problems in the Ameritech 
States after we completed the merger, and we are committed to 
improving them, and I think the record shows that there have 
been significant improvements.
    Mr. Shimkus. And you know, of course, we as Members of 
Congress have to represent our citizens, and we must ask on 
behalf of our constituents some of these questions.
    But, Mr. Tauke, I want to ask a question on an issue that 
if some local company requires consumers who subscribe to their 
high speed Internet services to also subscribe to the local 
telephone service offering, should this type of requirement be 
permitted?
    Mr. Tauke. Well, today we can't do that, and I don't think 
there is anything in this Act which would change that, that you 
can't tie the two services together.
    Mr. Shimkus. And that would be a problem, but it all stems 
to the whole debate of what is the real intent of the 
legislation, and I think the intent is to provide competitive 
aspects in the high speed Internet services.
    Mr. Tauke. Right.
    Mr. Shimkus. And there is a problem still which has been 
identified as entrance into the local loop or competitive local 
exchanges. And that is what I struggle with.
    Mr. Tauke. Well, first of all, I think we should or can 
talk about competition in the local loop, but on the issue of 
tieing the two together, think again of wireless. There is no 
tie between giving your wireless phone and your wire line 
phone--they are marketed separately and they are separate 
entities.
    So even though Verizon has a wireless service and we have a 
wire line service, we can't tie the two together, as PC can't 
do it with singular and I would assume that same rule would 
apply here.
    Mr. Shimkus. Out of respect, sir, let me stop and yield 
back the balance of my time in respect to my other colleagues 
who need to move on.
    Chairman Tauzin. I thank the gentleman.
    Mr. Cicconi. Can I just comment on that last point. The SPC 
really does tie these services together today in the State of 
Texas. They tie the provision of their DSL to a customer having 
their local phone service. You can't have their DSL service 
unless you are a local phone service customer of SBC in Texas.
    Chairman Tauzin. The gentleman's time has expired. The 
Chair recognizes Mr. Green from Texas.
    Mr. Green. I will yield for a couple of seconds to my 
colleague from Colorado.
    Ms. DeGette. Thank you, Mr. Chairman, and thank you, Mr. 
Green actually. I have a whole series of searing questions that 
I know the panel was looking forward to answering but 
unfortunately I am running a meeting in 2 minutes, and so I 
have to leave.
    So I would just like to make one quick comment. I am sorry 
that Mr. Hills had to leave because he was--I mean, I 
understand that everyone here has a lot of business issues 
relating to competition in this legislation, and he was the 
purported consumer representative on this panel, and after all, 
the reason that we do this, is for the consumers.
    I just wanted to point out to the members that I received 
today a letter from two consumer groups, Consumers Union, and 
Consumer Federation of America. Consumers Union is the 
publisher of Consumer Reports, which is my husband's bible. He 
won't even let me buy toothpaste without reading it.
    And the Consumer Federal of America is the Nation's largest 
consumer advocacy group. They sent a letter to the members of 
the committee today urging us to oppose the bill because they 
had three reasons.
    The proposed legislation undermines the efficacy of the 
Telecommunications Act of 1996, because it doesn't encourage 
local telephone competition.
    And it removes one of the best incentives for the Baby 
Bells to open local markets by allow interLATA data traffic, 
and it retards the development of strong competition. So I am 
finishing up and I'm sorry. I know that you will give him extra 
time, Mr. Chairman, out of comity to me.
    But I would ask for unanimous consent to insert the letter 
that we received from these groups in the record.
    Chairman Tauzin. Without objection, unanimous consent is 
granted.
    The Chair recognizes Mr. Green.
    Mr. Green. Thank you, Mr. Chairman, and I just have some 
questions. I have a very urban district in Houston, and first I 
would like to start with Mr. Tauke from Verizon, because 
Verizon is a mobil seller in Houston and not an RBOC.
    But I represent a district that is blue collar and very 
urban, and how the passage of this legislation by letting Bell 
companies provide that Internet backbone benefit urban areas, 
because the similarities for very urban areas and rural areas 
are the same, and giving them greater access at lower prices of 
broadband services.
    Mr. Tauke. I don't know the specifics of the situation on 
the ground in Houston today, but as a general rule, I think 
again what this legislation would do is establish a broadband 
policy that would provide for a more level playing field 
between telephone and cable, and so both of us would be 
deploying and competing on an equal playing field in Houston, 
where you would have both competitors trying to get to the 
consumer.
    And second it would permit SBC in Houston to do a better 
job of building or engaging in the building of the regional 
networks that hook to the long haul backbone networks, and that 
is an area where there is a capacity issue in terms of Internet 
capability.
    Mr. Green. Mr. Ashton, I read your testimony and that of 
Mr. Henry's, and first when it was delivered to my office, 
because I believe the Wall Street holds the key to the future 
success of the competitive local exchange carriers.
    And can you outline the kind of telecommunications company 
you personally would recommend as a good buying opportunity, 
and more specifically, what business fundamentals need to be 
present to make a telecommunications company worth investing 
in?
    Mr. Ashton. Well, if you broke them out into two 
categories, there is service providers and then there is the 
telecommunications technology vendors. So they each have 
different--you have to analyze them very differently, although 
they are tied together, and lately they have not been looked 
upon that way.
    So what we would like to see from a technology standpoint 
is a good rate of return, availability to carriers who invest 
in the network, and then we would expect to see technology 
spending follow through.
    And our concern to that is that you are not seeing that 
right now because the rate of return isn't there, which impacts 
the metrics that go into a rate of return, which are revenues 
and costs, and the costs of capital, and those kinds of issues.
    Mr. Green. Okay. Mr. Henry, your testimony was interesting 
because you have a completely different view on the current 
state of the CLEC marketplace than Mr. Ashton, and you never 
fully touched on the issue of regulatory scheme uncertainty.
    And you seem to think that one of the driving forces 
slowing the flow investment is capital to CLECs. Can I pose the 
same question to you? Can you outline the kind of 
telecommunications company that you would personally recommend 
as a good buying opportunity, and more specifically, what 
fundamentals need to be present to make or have that 
telecommunications company worth investing in.
    Mr. Henry. Certainly. I think the first condition that has 
to be present is a great market opportunity, which clearly 
local telephony presents in all its forms and facets a hundred-
billion dollars of revenue, and $45 billion plus of cash-flow.
    It is an opportunity to dream of and one that the Bells 
have enjoyed for a long time, and one that I think presents a 
great market opportunity for the CLECs, and to translate that 
opportunity into a good business, you need very talented 
management, and you need lots of capital.
    And heretofore the capital markets, Wall street has been 
willing to fund the CLECs to the tune of over a hundred-billion 
dollars for their capital expenditures and their operating 
losses.
    The great uncertainty that has arisen is to some extent to 
the uncertainty of the regulatory regime has dried up that 
capital, and you see the very unpleasant impact in the 
marketplace.
    Mr. Green. When you talk about drying up the capital, let 
me ask you both the same question, because Ms. Ashton, you have 
talked about service providers versus vendors. Service 
providers actually has a network, and a vendor is someone who 
is a reseller?
    Mr. Henry. A vendor would be somebody who sells equipment 
to build that network, and so it would be Cisco or Intel, or 
somebody like that.
    Mr. Green. Well, I am talking about the distance between 
someone who has the network, like an RBOC, and somebody who is 
selling is reselling or just utilizing it, which would be a 
better cap investment, which would be a better environment for 
someone who already has that network out there, or someone who 
is relying on using someone else's.
    Well, we can say that traditionally that investors have 
looked more favorably upon funding facilities based carriers, 
meaning those that owned and built their own networks.
    And so we have not had lot of retail carrier investment, 
and so it is has appeared to the collective wisdom of investors 
that facilities based carriers ares more valuable. Now that the 
competitive facilities based carriers have no longer a kind 
of--are attracting a lot of investment and attention, the value 
proposition is moved from just owning facilities to other 
things, like economies of scales and your ability to raise 
capital and those kinds of issues.
    Mr. Green. Mr. Henry.
    Mr. Henry. I would just add that investors tend to like 
those companies which are perceived to be more in control of 
their own destinies. Pure resellers that essentially own 
nothing and just essentially rebrand the Bell's location 
product are not perceived to have a ton of value companies, and 
what we refer to as a smart billed CLECS.
    So just take the copper loop the last mile and couple that 
with their own switching fabric. They are on their own 
transmission transactions, and their own transmissional 
electronics, and their own get to work intelligence That is 
perceived to be an attractive business model, and one that will 
ultimately lead to greater facilities deployment, just as it 
did in long distance.
    Mr. Green. I am almost out of time, and my concern is--my 
goal on the committee and I think from 1996 on, was to have 
investment capital that would drive the telecommunications 
marketplace and I am trying to get a feel from each of you how 
the capital would flow.
    And what you are saying in the companies month compared to 
previous months, it would flow to someone who has the 
facilities based effort.
    Mr. Ashton. Well, one thing you can say is where does it 
flow today? They have raised a lot of money, and put a lot of 
money to work, and it has largely flowed where it theoretically 
should, which is to large buildings that are highly 
concentrated and have more money to spend But it has not solved 
the small business and residential issue.
    Chairman Tauzin. The gentleman is almost out of time.
    Mr. Green. Let me ask one last question, Mr. Chairman. So 
if each of you would give me your best prediction about which 
telecommunication company each of you would still be operating 
a year from now, whether it is an ILEC or CLEC side, and also 
please explain the conclusion as briefly as possible so that 
other members can follow up.
    Mr. Ashton. So if we took a----
    Mr. Green. Considering where we are at today, who would be 
around a year from now to provide that investment; what 
companies, either ILEC or CLEC?
    Mr. Ashton. Your ILECs and your cable companies.
    Chairman Tauzin. The gentleman's time has expired. Does 
anyone want to answer that? Mr. Gregori.
    Mr. Gregori. Thank you. As a relatively newcomer to this 
playing field, we are building facilities, and we are spending 
our capital which is relatively modest compared to many of the 
other members sitting before you. We are spending that on 
building out data network.
    We believe that the future is in data. The convergence of 
technologies. However, without access to competition in the 
local markets, we would have never put forth the business plan.
    It is absolutely a requirement that newcomers to today's 
market be able to bundle services and do so effectively and 
reach out into the local markets through the use of the 
unbundled network elements, UNE-P, and other methods of 
aggregating services to build top line revenues, build cash-
flow, and that is what Wall Street requires today.
    And you need that totality of support to build good 
competitive companies in the future.
    Chairman Tauzin. The gentleman's time has expired.
    The gentlelady, Ms. Wilson.
    Mrs. Wilson. Thank you, Mr. Chairman. Tom, as you know, New 
Mexico is not in your area. We are a Qwest or U.S. West, 
territory, but you do have some assets in New Mexico. So you 
don't need to get approval for long distance to roll out DSL or 
do all kinds of innovative things.
    And it would seem to me then ideal for rural broadband, 
because in a way this skill has already passed for Verizon in 
New Mexico. So why are you selling off New Mexico?
    Mr. Tauke. Well, actually, the decision related to the sale 
of local exchanges in New Mexico was made prior to the merger 
of GTE and Bell Atlantic. GTE had made the decision to sell off 
access lines in New Mexico, Texas and a number of other states 
prior to that time.
    And as you know, out of that came the recreation of Valor 
Communications. As you may know, during the last year, I have 
been the Chairman of the United States Telecom Association, and 
one of the things that I think is evident from my activity in 
that role is that you see in many cases it is a favor to some 
of the more rural areas if they are the focus of a company like 
Valor, because Valor is going to focused on those areas , and I 
suspect, for example, that they may out broadband services more 
quickly as a result.
    Mrs. Wilson. In fact, let's focus on that then, and what 
you are saying then is that this Act is not a solution for 
rural broadband. In fact this is a map that stayed in New 
Mexico, and I know that nobody is close enough to see it, but 
you can probably see the colors.
    The gray hatched area is where you U.S. West territory is, 
and all that is in blue is rural telephone co-ops. And if I put 
my thumb right her, I just covered about a third of the 
population of the State of New Mexico, and for those of you who 
are not good in geography, if I drive here from Albuquerque 
over to here in Tatum, it would be like driving through the 
entire State of Maryland and up through Delaware, and past 
Philadelphia, and across New Jersey, and all the way to New 
York City.
    I guess my question is why can I get DSL in Mescalra, New 
Mexico, but it wasn't until 6 months ago that I could get it in 
the north valley of Albuquerque?
    Mr. Tauke. Well, if you want an honest answer, I will give 
you one. The honest answer is that most of the rural small 
telephone companies are heavily subsidized by universal service 
funds. They are able to draw from those funds in order to be 
able to provide high quality service in the rural areas, and 
the cooperative has additional advantages under the law in 
taxes and in other areas. That's why they were created.
    Mrs. Wilson. Tom, I think you made my point real well, and 
that is that it is that rural America doesn't need this bill. 
It is not going to benefit from this bill because you are not 
in rural America.
    This little town here of 20,000 in Clovis and Potalis, that 
is not a rural area by New Mexico standards. The rural areas of 
places the size of Delaware with 857 people in them who already 
have these services. And if this is an answer for rural 
America, then how come you aren't there?
    Mr. Tauke. Congresswoman, I think two points. One is the 
cooperative is also not subject to the 1996 Act. They don't 
have any of the requirements of Section 251 or any of the other 
requirements that we are talking about today. So that is point 
one.
    Point No. 2 is that Verizon, even though we provide service 
in many major cities, we provide service to more rural 
customers than any other telecommunications company in the 
country.
    There area lot of good rural companies who are providing 
communication services to rural America, but their most rural 
customers are receiving services from one of the companies that 
you see sitting at this table.
    Mrs. Wilson. One final question, I guess, and maybe I will 
ask Mr. Mancini this. Why don't you own significant networks in 
other RBOC territory? Why don't the RBOCs compete with each 
other?
    Mr. Mancini. Well, SBC is in the process of expanding out 
of region into 30 major markets, and we have already deployed 
in 20 of those markets.
    Mrs. Wilson. Local service?
    Mr. Mancini. Local service. It is a very difficult 
business, however, when we do not have the ability to offer 
long distance service to all of our customers. So it is very 
difficult when you are handicapped and everyone else can offer 
a full service of packages and we can't.
    Chairman Tauzin. The young lady is out of time.
    Mr. Mancini. Can I complete my answer?
    Mrs. Wilson. I actually heard your answer and that you 
think that my assumption is incorrect, and that's okay, and 
maybe I have the wrong data. But the final question I did want 
to ask you was that your statement that you believe that cable 
will have a monopoly on broadband if we don't do this Act.
    I read in your fourth quarter results that SBC expects to 
provide an estimated 77 million Americans with high speed voice 
area and video services via DSL service by the end of 2002. How 
can that be if you are up against a monopoly?
    Mr. Mancini. Well, that growth is Project Pronto, and it is 
based on the assumption that we continue it, which of course we 
have not continued it. We have suspended it based on the 
regulatory uncertainty in Illinois.
    We have expanded and are committed to compete in that 
market, but because of the uncertainty in the FCC and in other 
States, it is causing us to rethink that whole option and 
rethink the investment decision.
    Mrs. Wilson. Thank you, Mr. Chairman.
    Chairman Tauzin. The Chair recognizes Mr. Engel.
    Mr. Engel. Thank you, Mr. Chairman. Mr. Tauke, in your 
testimony you mentioned that the wireless industry really took 
off after it was deregulated. Can you expand on the type of 
consumer benefits which resulted, and you obviously believe 
that similar benefits will result for broadband deregulation. 
Can you talk about that a little bit?
    Mr. Tauke. Sure. Wireless service as you know developed 
relatively slower early in its history. There were two 
competing carriers, an A license and a B license, i most areas.
    And back in 1993 with those two players in the marketplace, 
Congress decided to essentially move forward with deregulation 
of wireless services and the wireless market began to expand 
and grow very rapidly at that point.
    Three years later in 1996, with the Telecom Act, Congress 
lifted the restrictions on interLATA for wireless services. And 
about that time new technology such as PCS started coming 
along.
    And so what we had in this market was a deregulation if you 
will of the marketplace, a prohibition on the States that they 
could not come in and regulate it, and the establishment of a 
national boundryless policy.
    Since 1993, the subscribership has gone from 11 million to 
100 million, which was a ton of investment. You had to put 
towers up all over the country and that has happened. We have 
competition for wireless services all over the country.
    The price of wireless services has declined, and we have 
seen a proliferation of new services offered via wireless, the 
latest being a variety of Internet and broadband services.
    You are attempting to stop the application again of 
telephony rules to the broadband service, and you have a market 
that is similar to what the wireless market looked like a few 
years ago, with two major players offering services in the 
market, and I think if Congress pursues the same policy, you 
will get similar results.
    Mr. Engel. Thank you. In my home State of New York, in New 
York Verizon has already long distance authority, and in 
Massachusetts as well, and I understand that Verizon has filed 
with the FCC for the same authority in Connecticut.
    If this bill were enacted will Verizon continue to push the 
long distance approval at the same rate?
    Mr. Tauke. Yes. We are going as fast as we can to get 
approval next in Pennsylvania, and we hope as soon in the other 
New England States and New Jersey. We would like to get all of 
those out of the way this year.
    Mr. Engel. And you wouldn't see any change at all if the 
bill passes?
    Mr. Tauke. Well, there will be no change in our commitment 
to move as fast as we can.
    Mr. Engel. In my opening remarks I had mentioned that one 
of the difficulties that I had with the current system is the 
wiring of high Internet access by cable companies is not 
regulated, and I wonder if the general panel, and I know there 
are others with different views, is it really fair or should we 
regulate a product such as high speed Internet access in the 
same manner regardless of the way a consumer uses it?
    Mr. Pitsch. Congressman, I would say this. That unless 
there is a situation where the company has a competitive 
bottleneck, they should be regulated the same, and the way that 
I look at this market is that the Internet access market is the 
relevant market, and dial up in the bottleneck. The copper is 
the bottleneck. That under the Act and under good public policy 
should be made available to the Covads of the world.
    But other broadband investment in this last mile should be 
deregulated so cable and telephone and wireless and satellite 
companies all have the maximum incentive to make this risky 
investment.
    Mr. McMinn. Again, let's not get into the business of 
picking winners and losers. This is about trying to get as much 
as choice to the consumers as we can. The history of the cable 
plant deployment and the RBOC deployment differ substantially. 
One was a guaranteed rate of return funded substantially by the 
consumers of that business for 100 years.
    The net result is 1.6 billion miles of copper in the 
ground. Even in these scenarios where additional fiber and 
additional remote terminals are deployed the vast majority of 
that copper must be reused to provide high speed services.
    All that we are asking for and what this bill substantially 
eliminates is the ability to continue to use that copper unless 
there is a contiguous run of copper all the way from the 
central office to the end customer.
    If they shortened that up and if they put fiber in place, 
and they put electronics in place, then one company will be 
advantaged at offering a much higher class of service to the 
end customers. Just give us the opportunity to also put our 
electronics in the field and to also put our fibers right next 
to theirs, and attach to the existing copper wires.
    Chairman Tauzin. The gentleman's time has expired. The 
gentleman from Nebraska, Mr. Terry, is recognized.
    Mr. Terry. Thank you, Mr. Chairman. I apologize for missing 
part of your statements and questions. So if my question has 
already been asked forgive me, but it does follow up on what my 
colleague, Ms. Wilson, from New Mexico was getting to.
    Obviously as some of you know, I am from Omaha, Nebraska, 
and I represent just Omaha basically, and so I actually have 
more cement than fields. But needless to say, broadband in 
rural areas is an important issue.
    I have the University of Nebraska, the Med Center, coming 
to me and saying we would like to roll out a telemedicine 
program, but we can't it into our smaller cities because you 
can't stream immediate video teleconferencing with dial up 
service. It just doesn't work.
    So as they want to provide higher quality medicine using 
telemedicine, we are restricted by the infrastructure. So 
obviously even though I am from Omaha, and almost every house 
in Omaha, Nebraska, is wired with fiberoptics and sometimes 
from 2 or 3 different companies, we are blessed in that 
respect.
    But once you get outside the city limits it is almost a 
completely different story. And one of the selling points of 
this legislation is that it will provide the more opportunity 
to the rural areas to get broadband, and they believe it is 
life or death. It is not just telemedicine, but it is maybe a 
small business that can compete in a world market.
    It may be an employer with 20 or 30 folks, and that is 
survival in a small town in Iowa or Nebraska. But I read 
through this Act and have learned a little bit about your 
industry, and I am having a hard time understanding what this 
Act really does to either encourage or force broadband in to 
the rural areas without going into what Heather had brought up, 
and just forcing Verizon or Qwest, or SPC, to divest some of 
the rural lines and let the experts in that small market take 
it over, user subsidiaries, and then roll out a higher end 
product. Help me with this. Tom, I will let you be first.
    Mr. Tauke. Let me start this way. When wireless rolled out, 
there was concern expressed in the communications world at that 
point that wireless was going to be an urban service, but it 
wouldn't get to the rural areas because it was expensive to 
erect facilities in rural areas.
    But the fact is that it moved into rural areas very 
quickly. Why did it move into rural areas? Because it was 
deregulated, and there was an effort to try to ensure that 
there was a nationwide service, and my cell phone in 
Washington, DC became worth more when I could reach you if you 
were out in Nebraska and you could receive the call.
    Similarly with broadband, it is a similar thing. I think 
that if we get the right policy in place that you are going to 
get more rapid deployment of the services. If we get rid of the 
rules for everybody, I think that is going to help. If we are 
in a situation where there is an incentive to invest rather 
than a disincentive to invest, that helps substantially.
    And then beyond that of course there is the desire that 
everybody will have to have everybody else connected. So for a 
company like Verizon, it is in our interest to get everybody 
connected.
    Mr. Terry. What is missing from today that deregulating 
this aspect is going to allow quicker buildout in rural 
communities? I am missing that component.
    Mr. Tauke. Okay. There are a lot of things and maybe others 
want to answer, but quickly----
    Mr. Terry. Well, your voice is almost gone, and that's why 
we are picking on you.
    Mr. Tauke. Well, the first thing we can do is that we have 
a mechanism in place that allows us to deploy in the last mile 
without having the expense and the technological restrictions 
that are presently in place because of the regulations that 
apply to the last mile.
    This is solely for broadband and not for voice or 
narrowband services. Getting rid of those technological 
difficulties and the final disincentives is bid. The second 
thing is that with the interLATA piece we had the ability to 
build the connecting networks, which allow the local person to 
get connected to the regional and to the cross-country if you 
will broadband network.
    Mr. Terry. Mr. McMinn.
    Mr. McMinn. Again, I come back to this situation that we 
have to understand the technology that is being deployed. DSL 
technology and broadband technology over wire does not make 
economic sense to very rural areas. Alternative technologies 
do.
    There is a false promise here that somehow magically we are 
going to change the economics of telephony or 
telecommunications because we grant a more exclusive monopoly 
to the service. Choice is what drives this. We should be if we 
are encouraging--and I think the goal of encouraging more rural 
broadband access is a very good one.
    We should subsidize it if that is the case. We should 
provide incentives for satellite communications or some of the 
alternatives. But offering this pseudo-exclusivity by 
prohibiting the use of the copper plant when it is not directly 
connected to the central office is not going to make the 
economics better for rural America.
    Mr. Mancini. If I could just make one comment, because I 
don't want there to be any misunderstanding. SBC has never 
claimed that this bill alone would ensure that broadband is 
delivered to 100 percent rural customers. We don't believe that 
is true.
    It costs more to service rural customers and what we are 
saying is that this bill will encourage us and incent us to 
invest more to service a larger number of our customers. We are 
not saying that this bill alone would incent us to make it 
economical to service 100 percent rural customers.
    Mr. McMinn. But right now when I buy an unbundled loop from 
an ILEC, I pay them a cost plus a profit. If we determine what 
a cost plus a profit is to access unbundled combination fiber 
and copper loops, we are happy to pay for that. They are making 
money when we offer it. They just don't want to offer in 
competition with anybody.
    The fastest growing segments of many of the RBOCs are their 
wholesale segments today, as more and more CLECs come on to 
their services.
    Chairman Tauzin. The gentleman's time has expired. But you 
have stirred up a bee's nest and let everybody respond.
    Mr. McMinn. I just want to make a quick comment and 
hopefully I can be succinct. That first that cable pass by is 
over 90 percent in this country, and so it is possible to serve 
many rural customers with wire line. There should be more done 
in this area through wireless. No question.
    Second, in my testimony, I indicated that you could explore 
benchmarks, build out benchmarks, and when SBC announced 
Project Pronto, they said within 3 years that 80 percent of 
their customers would get 1.5 megabytes per second download 
capability. Half of their customers would get 6 megabytes per 
second.
    Those are milestones that could be explored and they have 
to be reasonable, but it is a way to make this process work 
better.
    Mr. McMinn. I just want to tell a real quick story that I 
think is a little bit appropriate, especially because of the 
rural aspects of this discussion. Back in the 1985s when we 
were in the long distance business, basically AT&T controlled 
all of the lines in Iowa.
    So as we continued to compete and get a share using their 
lines, we crossed over a point where we could make our own 
investment of fiber, and we built the first fiber to span the 
State of Iowa. The comment from the monopoly of the day, AT&T 
then, was our company was getting all dressed up for a party, 
but there was no party in Iowa.
    That was the comment from the monopoly of the day, and so 
you see, competition drove the investment, and if you try to 
get investment being driven by some kind of regulatory scheme, 
that's really difficult. Create a competitive environment, and 
you will have investments.
    And believe me that telephone companies will go after $220 
billion marketplace in the United States with all the gusto in 
the world. They are going to continue to invest money. They are 
not going to give it up.
    Chairman Tauzin. Anyone else? Mr. Cicconi, and then we will 
move on.
    Mr. Cicconi. Just a quick point. This bill as we read it 
would not in any way inhibit the Bells or incentivize them from 
going into rural areas. They have got all the incentive they 
have today. They have just as much if this bill passes.
    What this bill would do would be to allow them to keep the 
Covads of the world out of the rural areas. It doesn't mean 
that they are going to get in there. It allows them to keep 
others out, and it is strange credulity to believe that keeping 
competitors out of a rural area is somehow going to advance 
competition.
    The second point is that the DSL providers of the Bell 
companies have not led the broadband deployment. They have 
followed. It is the Covads, and it is the Northpoints, and it 
is the cable companies that have led in this. Mr. Dingell made 
a good point earlier about who is ahead in this.
    AT&T has got about 1 million out of about 6 million high 
speed customers, and not anywhere near 70 percent. I don't know 
where this figure is coming from. But the fact is that the 
other companies are ahead right now for a reason. They led in 
this.
    The DSL providers at the Bell companies have followed. They 
have only followed because competitors have led the way. They 
are behind right now because they were slower, and if you take 
away their competition, they are going to slow it down further.
    Chairman Tauzin. They might even sign non-compete 
agreements. Who knows. Ms. Harman is recognized.
    Mr. McMinn. I don't think they need to sign them. They 
don't compete with each other.
    Ms. Harman. Thank you, Mr. Chairman. I want to commend you 
and the panel for your stamina and apologize for being in and 
out of this hearing. The conflict with my other committee was 
enormous today.
    As I watched our colleagues hold up maps, I wondered 
whether I was in a hearing on reapportionment. I don't think 
so. But I would comment that we may be closer together than it 
seems in this way. I think everyone on the committee and every 
witness is in favor of broadband access.
    I think that everybody on the committee and every witness 
thinks that we don't have enough of it. The question is what do 
we do, and that is where we differ. As I said in my opening 
remarks, my preference is to leave the regulatory framework 
that we worked on so hard in 1996 in place, and enforce it 
against any and all who violate its provisions.
    I think that that framework was a win-win and that changing 
that framework changes the paradigm to win for some, and lose 
for some, and that is what we have been arguing for 6 hours 
today, and obviously for 2 years since this bill was drafted.
    So that is my preference, and within that I have a couple 
of questions. The firs is about definitions in this bill. I 
remember the computer export wars and I was there when we were 
debating how many M-tops should be the maximum level for the 
export of a computer, and an M-top is millions of theoretical 
operations per second.
    So we had our colleagues saying that it should be this 
level or it should be that level. By the time that we were 
done, we had prohibited the export of the normal PC, and that 
was clearly a wrong call, and of course now we are revisiting 
it.
    In this bill the magic number under definitions is 384 
kilobytes per second in at least one direction. I am interested 
in the panel can enlighten me on whether that is the precise 
right number, and why not 383 and why is that the magic 
transition number.
    And do you think that that number will be valid should we 
enact this bill for some period of time in the future, and will 
we need to come back here and have 6 more hours of conversation 
about whether to change the number, and whether to let more 
people win or change the formula in some way.
    Mr. McMinn. It is a very much moving target. Any number 
that you put in place from a regulatory framework will be 
obsolete in 6 months. I mean, this is an industry that has 
grown by 3 or 4, or 500 percent a year, depending on which 
metric that you measure. So it is very, very dangerous for 
regulatory speed to impose technological constraints on an 
industry.
    Ms. Harman. Other comments?
    Mr. Ashton. I could add that the importance of the speeds 
in these types of services is based on what services the speed 
can support. So this is one of the issues that all of the 
companies are grappling with, which is what type of DSL is more 
upstream than downstream or vice versa, or should they be the 
same.
    And certainly the speed of the service is another. If you 
want to support video services and streaming video, that will 
require a certain type of network, and if you want to basically 
limit it to more high speed Internet access along that way, 
that would necessitate another. So a lot of it will depend on 
what services the carriers expect to use or to offer off of 
these networks.
    Ms. Harman. So is it fair to conclude that if we pass this 
bill with this definition that we will be back here again in X-
period of time--it could be 6 months or it could be shortly--
revisiting our definitions and perhaps trying to fine tune them 
again to include some other variation on this?
    Mr. Ashton. I think if it said no more than 384 kilobytes, 
that would be a problem. But it is set at an entry level at a 
number that I think that seems okay. But clearly it is not no 
more than.
    Ms. Harman. Well, I would remind us all of the great M-tops 
debate and how quickly that became outdated, and I think we may 
be heading in the same direction here.
    Mr. McMinn. Could I add one little point in terms of sort 
of the engineering of all of this? I do have a B.S. and an 
MS.EE, and I know about the technology. On a single copper 
wire, you can get as much as 52 megabytes per second over short 
distances.
    So to set a limit of 384 kilobytes, which is 1-1500th of 
the potential spectrum of the wire is a pretty low hurdle.
    Mr. Tauke. Congresswoman, I think one of the--I think the 
way you have to look at this particular number--and I don't 
know if this is the right number, but the industry has had 
various numbers. But what you are really attempting to do is 
saying should narrowband regulation apply to what services. So 
this is saying anything about this we don't want narrowband to 
apply to, and anything below it, narrowband regulation applies.
    I don't think that 6 months from now that we are going to 
want to change the definition of what narrowband is or what 
regulation we want to apply to it.
    Ms. Harman. Well, as you know, I read from the floor debate 
on the 1996 Act, and my position is that it applied to data, 
and we already got there. But I have one more question, Mr. 
Chairman. And that is about the DSL business model.
    There were four healthy DSL providers a year ago in Los 
Angeles to my knowledge. Now there are none. Were they all hit 
by the plague?
    Chairman Tauzin. I think it was an electricity crisis. I'm 
not sure.
    Ms. Harman. Well, in that case the answer is simple.
    Mr. McMinn. Actually, we offer service to Los Angeles. We 
cover somewhere around 5 or 6 million homes and small 
businesses in the area, and it is a very viable market for us. 
We are making money in the market, and we have thousands or 
tens of thousands of customers in that market.
    So the only issue is that it takes time for a startup like 
us to build out a network, time and money, and then it takes 
more time to get profitable. We have made a $3 billion 
investment to do that, and we are working through the process 
of doing that. So of our competitors didn't make it and that is 
not a bad thing. That is competition.
    Chairman Tauzin. Thank you, young lady. The Chair 
recognizes the gentleman from New Hampshire, Mr. Bass.
    Mr. Bass. Thank you very much, Mr. Chairman. Mr. Tauke and 
Mr. Mancini, what do I tell all the local ISP people that have 
come in to see me over the last few months that are scared to 
death about the passage of this bill and if they are going to 
be able to stay in business and will be able to thrive if this 
bill is passed?
    Mr. Mancini. I don't think that this bill in any way is 
going to adversely affect ISPs. ISPs will continue to 
interconnect with ISPs.
    Mr. Tauke. Well, the real concern of the ISPs ought to be 
that cable is the dominant player in the market and they have 
no right to have access to any cable customer under the current 
rules of the game. So what they need is for our companies to be 
healthy and to be deploying broadband services so that they can 
get access to customers.
    They can get access to a customer that is served by DSL 
services offered by a telephone company and they have no 
assurance of getting access to a customer served by any cable 
company.
    Mr. McMinn. Can I respond to this notion that somehow cable 
modems are the big boogy men here? Cable modem and high speed 
services are losing market share every day to DSL. Telechoice 
projects that within 2 years the total number of DSL high speed 
connections will be greater than the total number of cable 
modem connections.
    That is because DSL is more pervasively available than 
cable modem is, and the plant has been rolled out in the United 
States much more pervasively, and it is only because they got a 
3 year head start. This is only because this was not the 
Telecom Act of 1993 instead of 1996 that DSL doesn't lead 
already. We are gaining on cable modem every day.
    Mr. Bass. Mr. Tauke, Congressman Engel's talked about this 
briefly, and I would like to ask you to elaborate a little bit 
more. The FCC granted Verizon approval to offer services in 
Massachusetts in that $2 billion market, and on Monday, I guess 
Verizon has applied for long distance services in Connecticut.
    New Hampshire is a smaller market, and what are your plans 
for New Hampshire and the rest of New England, and although I 
know that this bill won't be even in your wildest dreams 
enacted prior to September-October of this year, does any 
aspect of this bill change in any way any plans that you might 
have with respect to New Hampshire or any other New England 
State to apply and to offer long distance services?
    Mr. Tauke. In response to the second part of that question 
the answer is no. No change. In terms of where we are in New 
Hampshire, we believe we have a tentative understanding with 
the New Hampshire Commission as to how we will proceed.
    We are completing a PriceWaterhouseCooper analysis of our 
systems in New Hampshire and the other New England States to 
have a testament from a third party that they are the same as 
the Massachusetts' systems, which were just the subject of the 
long distance approval.
    Once that study is completed, we will take it to the New 
Hampshire Commission, along with an application for long 
distance approval. We expect a 90 day process in New Hampshire 
and we hope that this fall that we will be filing an 
application with the FCC for long distance approval in the 
State.
    Mr. Bass. Very well. Mr. Mancini, my last question. The 
other ILEC, Mr. Tauke indicated that they don't believe that 
passage of this bill or ongoing network upgrades preclude 
competitive access to unbundles services in their network 
elements. What is your position on this, and will you make it 
clear if that includes fiber deployment?
    Mr. Mancini. We believe under this legislation a competitor 
like Covad would have access to the loop, all the way to the 
house. They could use that access to provide data alone, voice 
alone, or both data and voice.
    So we don't see that that is a problem. There may be some 
issues on why Covad may or may not want to do that, but that is 
their option, and that is what would be available after this 
Act passed.
    Mr. Bass. Okay. Thank you, Mr. Chairman.
    Chairman Tauzin. Thank you. Would the gentleman yield for 
just a second? Didn't Covad do that at one time? Didn't it 
subscribe to the whole loop before the FCC ruled?
    Mr. McMinn. Actually, we still do. Half of our lines are 
installed where we have at least a second line for business 
folks, and in addition we tried or started to do that for 
consumers, but we can't compete against a telephone company 
that puts one subsidized telephone service and one high speed 
data service on a single copper line when we can only put one 
data service on it. To add voice, and it is not a subsidized 
voice.
    Chairman Tauzin. But you did do it at one time for 
consumers and then you discontinued it?
    Mr. McMinn. Well, I would like to also say that this is 
about choice. The consumer ought to be free to choose to get 
their voice services from us or the ILEC and their data 
services from somebody else. Customers want the choice.
    Chairman Tauzin. Mr. Deutsch.
    Mr. Deutsch. Thank you, Mr. Chairman. Obviously we are 
drawing to a close, and I don't know if I will be the last 
questioner or close to the next to last one, but to try to put 
it in perspective with respect to constituents. We really have 
this huge policy choice in front of us of how to shape or how 
we can influence or as Congress can influence the future of 
broadband.
    What I would like to try and get a sense from it, and I 
know that there have been some comments to try to be very clear 
about this, that if we were to pass this legislation 
specifically in terms of changing the way the data on the local 
loops for businesses and consumers, and specifically what would 
your expectation be both in the short run, medium run, and the 
long run in terms of consumer prices for Internet access?
    Mr. McMinn. Well, if we don't pass the legislation, the 
costs of all of those regulatory requirements that we talked 
about earlier, there is a cost. They add a significant cost to 
us which we have to pass on to our consumers.
    If we could eliminate those requirements, that would 
eliminate some of our costs. If you pass the bill, that will 
provide us some additional security and certainty, and provide 
us with a bigger incentive to expand and to invest. So those 
are two things that you can expect if you do or don't pass the 
bill.
    Mr. Deutsch. And the other side?
    Mr. Cicconi. In Texas, where SBC got such relief, DSL 
prices have been raised 25 percent.
    Mr. McMinn. And I will say before DSL was around the cost 
of one megabyte's worth of band was--actually 1.5 megabytes 
worth of bandwidth was the cost of the T-1, was measured in 
thousands of dollars a month.
    We offer one megabyte per second of service for several 
hundred dollars a month and on long term contracts for less 
than a hundred dollars a month. So the difference between no 
competition and competition was a factor of 10 reduction in the 
price of service.
    And I absolutely agree with AT&T that the price has gone up 
recently as competition has been thinned out in the CLEC ranks.
    Mr. Deutsch. And maybe again to try to just dialog a little 
bit. If you could respond specifically to Mr. Mancini's 
comments and Mr. Mancini, if you can respond to specifically 
the experience of Texas, and why did the rates go up in Texas?
    Mr. Mancini. Our rates went up for a very simple reason. 
Our costs are up. We have to structurally separate thousands of 
employees. We had to do line share and we had to put in OSS 
systems. None of these costs are borne by our cable competitors 
or the other providers.
    If we could have kept the price at $39 we would have. We 
are not competing against Covad. Yes, we are competing at one 
level, but we are competing against cable modems. That is where 
the competition is. We are competing against satellite and 
wireless. The fact that Covad is still in the market, we raised 
our prices because our costs increased, period.
    Mr. Cicconi. We only have got cable in one market in Texas 
and so that is not really the issue. A year ago, SBC got 271 
relief for voice and data, the very data relief that they are 
seeking under this legislation without meeting the checklist.
    And the experience has been that they not only increased 
DSL rates by 25 percent after getting this type of data relief, 
but they laid off 25 percent of the people that were installing 
DSL for them.
    Mr. Mancini. It is amazing that AT&T, who constantly raised 
cable rates without any competition, talks about our rates. 
Number 1, the reason that we could let go some of the 
technicians is that we are doing the same thing that Covad is 
doing.
    A much, much higher percentage of our installations are 
self-installed. We didn't need as many technicians. But the 
bottom line is that we raised those rates in areas where there 
is competition with cable. We simply have not met the 
projections on DSL, and we are not making money on DSL today.
    Mr. McMinn. Actually, we are. It is like shooting fish in a 
barrel. The only reason we are not profitable is because we 
don't have enough subscribers. We can't sign them up fast 
enough because we can't get adequate performance out of the 
ILECs.
    One more point. The cost of a line shared line is 
significantly less than the cost of a second line. Not just for 
us, but also for the ILECs. Their costs should have gone down 
as they more aggressively implemented line sharing.
    Mr. Dingell. If the gentleman would yield. Have you folks 
been down there talking to AT&T about making some space 
available to you? You are complaining about the Bells, and you 
are not building your own line, but you have not said a word to 
dear Mr. Cicconi over here, who has got lots of lines.
    Mr. McMinn. Actually, my network is far more expansive in 
Texas than AT&T's network. I have a network that covers all of 
Dallas, and all of Houston, and all of Austin, Texas, and all 
of San Antonio. I don't have the whole list off the top of my 
head, and the reason is because the copper was far more 
pervasive and available, and tuned up for high speed 
connections than the cable plant. The cable plant in that area 
is not very good.
    Mr. Dingell. Have you talked about telephone lines down 
there?
    Mr. McMinn. I don't know if he has telephone lines down 
there. If he does, he doesn't have very many; or the vast 
majority of the copper lines in the ground, Mr. Dingell, are 
under the control of one monopoly down there.
    Mr. Dingell. Have you talked with him about his cable 
facilities? He has got lots of cable space, and lots of good 
fiber, too.
    Mr. McMinn. Actually, we buy a lot of fiber capacity from 
AT&T, but in terms of our network, our DSL network is already 
bigger than all of the cable modem networks in the United 
States combined. They have not been upgraded. We have more 
coverage of more homes and more businesses than everybody who 
is in the cable modem business today because we get access to 
the copper lines.
    Chairman Tauzin. The gentleman's time has expired.
    Mr. Deutsch. Just to reclaim my time for a minute. I'm glad 
that all of you were able to clarify the answer to that 
question.
    Chairman Tauzin. I just want to clarify. You said that you 
were still unprofitable though?
    Mr. McMinn. Absolutely.
    Chairman Tauzin. Is it like shooting fish in a barrel and 
you are still unprofitable?
    Mr. McMinn. We are unprofitable as a total company. In the 
first 22 markets we are in, we have----
    Chairman Tauzin. But you are still unprofitable?
    Mr. McMinn. Because we have to wade through this 
interminable cycle to get our lines installed. We can't get 
them installed fast enough. I wish we could get them installed 
at the rate that they install them for themselves.
    Chairman Tauzin. And I was asked by the ranking member are 
you building out lines?
    Mr. McMinn. We are putting our own equipment, our own fiber 
connectivity, our own switching centers. The only thing that we 
lease from them is the copper line.
    Chairman Tauzin. So you are not putting in the lines 
themselves?
    Mr. McMinn. Well, it is 1.6 billion miles of it. We can't 
afford to put place again.
    Chairman Tauzin. Mr. Pickering.
    Mr. Pickering. Thank you, Mr. Chairman. Mr. Henry, there 
have been several who have asked the different participants 
that if this bill passes what will happen as far as deployment 
in services.
    I would like to ask you what would happen if this bill 
passes in the capital markets? What would happen to the 
emerging competition and the CLECs in that industry if this--or 
what would happen to the value of the other participants in 
telecommunications, the Bells and non-Bells, in the capital 
markets if this bill were to pass?
    Mr. Henry. Well, it is my impression that this would create 
first of all even greater uncertainty than already exists in 
the telecommunications industry and in the CLEC sector in 
particular, on the basis that it would reduce the Bells 
incentive in my opinion to open their markets to local 
competition on the basis that it would hurt both sides of the 
argument.
    But I tend to think that the Bells will have the ability to 
restrict access to unbundled loops and dark fiber, and remote 
terminals, and things like that, which many of the CLECs are 
basing their business models on.
    Mr. Pickering. Mr. Tauke, as you know, as we have worked 
together on the 1996 Act, and everyone sitting at this table, 
and with some new people sitting at the table who have joined 
in support of the 1996 Act, but in the 1996 Act, we had both 
AT&T, and the Bells, and the long distance, and the other 
competitors--the lions and the lambs laid down together, and 
which is which I don't know--but peace was made and policy.
    And my preference is to make peace and good policy. My 
concern here is that after 5 years, and I have to confess that 
part of this Act is borne out of the frustration of the time 
period to get from 1996 to get where we are in the marketplace 
today in full competition in all markets, and in the 
convergence and the hopes that we had seen.
    But realistically 3 years out of that 5 years were spent in 
regulatory and court battles. We have had 2 years of the 
implementation of the Act, and it is beginning to work. 
Chairman Powell the other day testified that any change both in 
relation to the capital markets and in regulatory certainty 
which the Bells have testified today that it is one of the 
inhibitors of their deployment regulatory uncertainty, why 
shouldn't we allow the new chairman, Chairman Powell, to 
implement the Act?
    We have got all those regulatory and court battles behind 
us, and he has already moved quickly on a 271 application in 
Massachusetts, and it seems to mean that he has committed to 
move quickly on the applications that come to the FCC. Isn't 
that the best way to have the best policy with the greatest 
certainty?
    Mr. Tauke. If I could just comment on that quickly. First, 
I think it is Congress' responsibility to set national policy. 
Congress has not as I alluded to in my opening comments set a 
national policy for broadband.
    Three appellate courts have looked at it and can't figure 
out what it is that is supposed to happen in the broadband 
world, and whether these services are telecom services and 
Title 2 applies, or in some cases if they are cable services 
and Title 6 applies.
    There has not been a policy established. I think in all due 
respect that Congress has a responsibility to establish policy 
for broadband services. This is a huge market, and it is very 
important to the growth of the economy and you are derelict in 
your duty if you don't say what the rules are for the game.
    And it is about time that Congress stepped forward and said 
what the rules are, and you shouldn't defer that to the FCC 
Chairman who has to do it in the context of an Act that doesn't 
really address some of the issues.
    And so I think that's why you can't leave it to Powell, 
because the Act isn't clear and the courts have not been able 
to figure out what it clearly says, and Congress has to set 
forth what the rules are.
    Mr. Pickering. Mr. Tauke, you said earlier in response to 
Mr. Cox that in an ideal world it would better instead of 
trying to differentiate on service data, voice, video, that it 
should be all distance, all everything. Isn't that the best 
policy outcome?
    Mr. Tauke. Well, in the ideal world, if we could 
reconstruct the world right now, we would say that distance 
should go away, and we shouldn't differentiate on the basis of 
service provided, and we should say you have capacity, and how 
much capacity are you using, and what is the urgency.
    If it is e-mail, you don't need it this second, and if you 
are exchanging other things, you might need it simultaneous, 
and that is the way that services should be priced. But we have 
a regulatory structure within which we are working which 
doesn't make that possible right now. I don't think that 
anybody wants to revisit the narrow band or voice structure.
    If Congress does, we would welcome it, but I don't think 
that Congress is up to revisiting that. But we do believe that 
since there is a lack of policy and there is a policy for 
narrowbands, and there is a lack of policy for broadband, that 
there Congress should step up to the plate.
    Mr. Pickering. Mr. Tauke----
    Chairman Tauzin. The gentleman's time has expired, but 
proceed with your last question.
    Mr. Pickering. Yes, sir, Mr. Chairman. The Act really 
didn't make a difference between narrowband and broadband. It 
gave open access in local markets regardless of the product, 
and we try to be technology neutral, which is one of the 
strengths of the bill.
    Again, I believe that Chairman Powell has indicated that he 
will move quickly and once you get a 271, you can do data, and 
you can do voice, and you can do everything. I am the Chairman 
of the Wireless Caucus. You mentioned earlier that if we free 
you from this that you will go to rural areas.
    But really wireless and wire line are apples and oranges. 
Wire line is distance and density, and wireless leap frogs over 
that, and that is why in rural areas you will have different 
technologies and different means of distribution.
    It just seems to me for regulatory certainty and the 
reality that you really cannot separate voice from data on a 
network, that this is the wrong approach. Now, if we wanted to 
sit down and try to figure out a way to do all distance, all 
everything, convergence, with greater certainty, that we would 
try to find agreement on how to enforce the local market 
openings, where we can increase and enhance local market 
competition, while at the same time giving you greater 
certainty for entry into other markets.
    It seems to me that that would be a better way to go than a 
data only data relief, which is really again a step turning the 
clock backwards to segment and segregate policies of the past 
that really don't seem to work technically or economically, and 
is at the wrong time in an economic situation right now with 
emerging competitors. Mr. Chairman, thank you for your time.
    Chairman Tauzin. Thank you very much, sir. Before I move to 
Mr. Doyle, Chairman Powell has been quoted a number of times 
today, but incorrectly, and I want to correct it by reading his 
statement.
    Mr. Powell testified on page 140 of his testimony, ``I 
think my advice, such that it is worth anything, is that I 
think that you--any sort of wholesale rewriting to my mind is 
ill-advised unless you are very clear as to what it is that you 
think you are going to replace it with.''
    Mr. Powell was basically not coming out against 
``reopening'' the Act. He came out against wholesale rewriting 
of the Act as I read his testimony. I just wanted to put that 
on the record. Mr. Doyle.
    Mr. Pickering. Would the chairman yield?
    Chairman Tauzin. I will be glad to yield, my friend.
    Mr. Pickering. In Mississippi and in Louisiana, we may have 
different definitions of wholesale, but----
    Mr. Markey. Mr. Chairman, when you change the definition 
from yes to no, we consider that wholesale--and you have a 
different definition down in Louisiana. That is a pretty big 
change.
    Chairman Tauzin. That is retail in Massachusetts. Mr. 
Doyle.
    Mr. Doyle. Thank you, Mr. Chairman. Thank you for this 
hearing and thanks to the panel for sitting through these long 
hours. I apologize as my schedule today didn't permit me to sit 
through more of it. But rest assured as a new member of this 
committee we are reviewing all of your testimony very 
carefully.
    Mr. Tauke, let me start with you to talk a little more 
broadly about the overall state of the deployment. In your 
statement, you were very emphatic about the timeliness of this 
bill, and tell me, why do you need this bill now? In specific 
terms, what is the urgency for long distance relief for data? 
Isn't the Act working on any level?
    Mr. Tauke. The Act in our view is working on many levels. A 
lot of good things have happened as a result of the Act, and 
including the development of competition in the local 
marketplace.
    If you look at a State like New York, we know that 3 
million lines are being served by competitors, and we have 
100,000 customers a month who are moving, and in other States, 
we have very high levels of competition as well.
    And a lot of that is a result of the Act and so that is 
stuff that is working. What is the sense of urgency here? The 
sense of urgency I think is as follows. Every day that 
consumers and small businesses and mid-sized businesses do not 
have access to broadband capacity, they are losing out on 
economic opportunities.
    If you are a contractor who is dealing with Home Depot, 
Home Depot wants to deal with you over the Internet where you 
submit your plans and they send back to you what you need.
    If you have broadband connections that works great, and if 
you don't, it doesn't work. If you are an auto dealer and you 
are dealing with Ford Motor Company, if you have got broadband 
connections and you can have great interaction with Ford Motor 
Company, you can handle your warranty issues, and your 
financing issues, your maintenance issues, on-line with Ford 
Motor and it works great. But if you don't have it, you are not 
doing so well.
    And so every day is an important day for the economic 
growth of the country and the delay of broadband hurts the 
economy, and I think that the broadband deployment really is 
going to improve and help improve the productivity of our 
economy as it has in the recent past.
    And so in terms of--so that's why this is urgent, and I 
think that bringing clarity and certainty to the marketplace by 
saying what the rules are, and then having rules that are 
appropriate for the marketplace, the combination of those would 
result in more rapid deployment of broadband services and 
benefits to the consumers.
    Mr. Doyle. Let me ask you also in terms of Verizon's 
efforts in rural areas. Can you tell me the status of your 
divestiture of rural exchanges, and are you committed to 
servicing these areas with or without the passage of this bill?
    Mr. Tauke. Well, first, just a little history here. The old 
Bell Atlantic has not in any recent history divested any rural 
exchanges. The old GTE prior to the merger did have a program 
of divesting rural exchanges, which they thought was 
rationalization of their service territory.
    We have at Verizon not divested any service territories 
since the creation of Verizon, and we certainly don't have any 
plans for any major changes in our service territories, and not 
to say that there will never be any divestment of service 
territories, but there is going to be no wholesale divestment 
of rural exchanges.
    Mr. Doyle. Mr. McMinn, I understand that I missed a lively 
discussion about line sharing earlier. In someone's statement 
it was stressed that broadband deployment disparities not only 
exist along rural and urban divides, but they also exist within 
metropolitan areas.
    And I think that is an important clarification to make I 
can tell you personally that I tried to get DSL service, and I 
signed up for it in November, and I got it last week. And it 
was very frustrating.
    Mr. McMinn. Was it from us, or was it from----
    Mr. Doyle. No, it wasn't through Covad.
    Mr. McMinn. Was it from an ILEC?
    Mr. Doyle. From America On Line had an AOL plus.
    Mr. McMinn. And they use the ILECs exclusively, and so you 
should have come to us for better service.
    Mr. Doyle. I will take that into account. I was interested 
in your Jump Start Kit just because of some of the frustrations 
that I had trying to access broadband services, and it appears 
that this kid is focused on providing additional options to 
consumers, and by extension deals directly with the concept of 
fair competition.
    But we have heard different interpretations of what fair 
competition means, and how it is equated with successful 
deployment. And I am just wondering isn't that the viability of 
the jump start kid predicated on line sharing? And if so, 
wouldn't this venture be squashed by this bill?
    I mean, how would this bill effect that?
    Mr. McMinn. Yes, our jump start kid is predicated on the 
fact that we can use a line shared line, and so we can mail to 
a customer the jump start kit, and they can put it on their 
existing telephone line without the need for a technician to 
come out to their facility to install a new wire.
    That saves the telephone company, the ILEC, money. That 
saves us money in terms of putting DSL into service.
    And we have talked a lot about DSL to consumers today, but 
we just were mentioning DSL to sm all businesses. Let me point 
out one other thing. None of the ILECs offer a suite of 
services for small businesses. If you tell them that you are at 
a business address, they will not offer you DSL. We are the 
only ones, CLECs like us, that offer DSL to small businesses.
    It takes a different suite of services that the ILECs have 
chosen not to do, because they don't want to cannibalize their 
existing T-1 and ISD end revenue. So if you are a small 
business, with a small business address, you must come to a 
CLEC to get DSL service.
    Mr. Doyle. Thank you. Mr. Cicconi----
    Chairman Tauzin. The gentleman's time has expired, but 
proceed with your last question.
    Mr. Doyle. Thank you. I didn't want to leave AT&T out of 
this. You know, it has been presented in testimony and it was 
emphasized that there are two land line technologies that are 
provided to residential customers with high speed Internet 
access at a reasonable cost being DSL and cable modem services.
    And that only DSL was subject to regulation, significant 
regulation, and should be deregulated just like cable modem 
services. I just wanted you to react to that assertion that has 
been made regarding the linkage between DSL and cable, and do 
you think this assertion is a fair claim?
    Mr. Cicconi. No, I really don't. I think it is a convenient 
claim. We see charts thrown up about the regulations that 
telephone companies have and that cable companies don't have. 
They are regulated differently, but they are both regulated.
    They are each regulated under schemes set out by the 
Congress to deal with the specific circumstances of those 
companies. The one has a bottleneck facility and the other does 
not. By the way, I might add that the one is helping drive 
broadband deployment in this country and the other is following 
their competition in the case of the ILECs.
    So I mentioned a few of the distinctions earlier, and I 
know that Mr. Mancini made light of having to be regulated by 
30,000 local franchising authorities, but it can be pretty 
onerous, and $2 billion is not a small amount of money to pay 
if you consider that it could be going into actually upgrading 
facilities to provide these high speed services.
    I don't see any volunteering on the part of the Bell 
companies to be regulated in this manner, and I don't see them 
volunteering for limitations on the number of subscriber lines 
that they can have. I dare say that SBC could probably not have 
merged twice with other companies if they had had similar 
restrictions.
    Mr. Doyle. Thank you.
    Mr. Tauke. I am getting a little tired of hearing about how 
the Bell companies haven't tried to deploy DSL services, and 
with all respect to my former colleagues and some of the 
witnesses.
    The fact is that Bell Atlantic invested DSL service, and 
has the patent on DSL service and tried to put it into place 
first for video services, and put a lot of money into the 
creation of DSL in order for it to offer video services, and 
for a variety of reasons a lot of them due to regulation that 
didn't work.
    We had then over time as the Internet developed, it became 
clear that this application could be put forward and used for 
data services. But back in 1993 and 1994, and 1995, there was 
no Internet that people were clamoring to hook up to, and so as 
a result of applying the service, or deploying the capability 
when there was not the service to put on it was not something 
that was particularly viable from a business perspective.
    And the suggestion that we have been somehow dragging our 
feet to get it out to our customers I think is just an 
inappropriate suggestion. The second observation I would make 
is that Mr. Cicconi has spent most of the last couple of years 
fighting against the application of any franchise restrictions 
on broadband services. I don't think he wants to suggest that 
franchise restrictions imposed by communities are broadband 
services.
    He went to the 9th Circuit Court of Appeals to make sure 
that they didn't apply franchise or didn't apply franchise 
restrictions to broadband services. Those kinds of restrictions 
just don't apply or he doesn't want them to apply to these 
services.
    It is only the restrictions that are coming from the 
Federal and State authorities that apply to broadband services 
and they don't apply to cable, cable oriented broadband 
services.
    Mr. Cicconi. May I respond.
    Chairman Tauzin. Mr. Cicconi, the time is up, but since you 
were named here, I think you have a right to respond.
    Mr. Cicconi. We went to the 9th Circuit because the 
communities have areas where they are allowed to regulate by 
Federal statute, and one particular community frankly went well 
beyond that and tried to regulate us in an area where the 
Congress specifically we felt said in Black Letter Law that 
they can't do it.
    The 9th Circuit Court of Appeals actually agreed with us in 
that case. I am very pleased that Mr. Tauke has actually 
indicated that they feel that they have full incentives and are 
doing a vigorous deployment of DSL currently, and I think that 
raises the question about the rationale for this bill.
    Mr. Doyle. Mr. Chairman, I want to thank you and this is 
all much clearer to me now.
    Chairman Tauzin. I want to acknowledge and announce that we 
have the last member who will be recognized for a round of 
questions of this extraordinary hearing today, and in doing so, 
I want to thank you for your great patience. The gentleman, Mr. 
Shadegg, is recognized.
    Mr. Shadegg. Thank you, Mr. Chairman. And I compliment you 
all on your stamina. It has obviously been an interesting day 
with a lot of controversy in the testimony, and I doubt if I am 
going to bring a calmness to the waters, because I don't have a 
dog in this fight either way, in terms of long distance or 
local, or the ILECs, CLECs, and the rest of them, the RBOCs, 
and the rest of the alphabet soup.
    But what I do have is a letter of frustration and a concern 
that when Congress passes a law it ought to see that law works 
before it passes a new law in that area, and I have got to tell 
you that I don't see that in this circumstance.
    I hear some of the witnesses here saying--and particularly 
Mr. Tauke, you saying that we don't have an established policy 
for broadband, and Congress ought to get in there and do its 
job.
    And I don't disagree that Congress ought to get in and do 
its job. But it seems to me that we did have an established 
policy on the other side of the spectrum by the 1996 Act, and 
we were supposed to bring about competition. And we were 
supposed to bring about competition at the local level.
    And I started to look at this legislation, and I support 
the legislation, and I am anxious to see us do something, but I 
want to see us do the right thing. I can't help but be 
frustrated. The reality is and you may sit here and say that we 
have competition in your perception at the local level, but I 
have to tell you that I think you are crazy.
    Maybe it exists in New York, and maybe it exists in a few 
other places, but I don't know anyplace across America that we 
can point to vast expanses and say, yes, we have got great 
competition at the local level.
    I asked my staff in Arizona how many providers can you go 
to to get local phone service. The answer? Realistically, one. 
I asked my staff in Washington how many providers can you go to 
to get local service? The answer? Realistically, one.
    I had a staffer in Phoenix, Arizona, my chief of staff, who 
decided that I am going to give competition at the local level 
a chance and he went to Cox Cable, and got his local phone 
service. In about 3 weeks I told him that if he didn't switch 
back that I was going to fire him, because I literally could 
not get a hold of him, and it drove me absolutely crazy.
    And ultimately I said this simply isn't working, and I 
don't have anything against Cox, but I can't get you on this 
phone system that they have sold you, and so you have got to go 
back to the baby Bell that he was being served by.
    You say that every day consumers don't have access to 
broadband, and they are losing money, and I would argue that 
every day they don't have access to competition for local 
service, they area also losing money.
    The reality is that every member of my staff will tell you 
that for local service who can they go to, they will say at a 
minimum three, and in reality 20. You can't turn on the 
television and watch an hour of a program and not see eight ads 
for somebody offering you a better deal than the guy who was on 
15 minutes ago on long distance service.
    I think you were right and that we have to have a public 
policy for broadband, but we are not effectuating public policy 
for local service. So, let me ask a few questions. Mr. McMinn, 
in your testimony, you say that Verizon was fined--and I will 
give Mr. Tauke a chance to respond to this, but Verizon was 
fined $13 million by both the FCC and the New York Public 
Service Commission for violating the law, and quote, losing 
thousands of collect orders.
    And then you go on to say that Verizon was able to recover 
that $13 million in just 3 hours of operating revenues. Is part 
of the reason that Cox couldn't get service to my chief of 
staff the fact that we are not getting cooperation and access 
to the switch, and cooperation for competition to exist in 
local service?
    Mr. McMinn. There is no question that the CLEC community is 
being hampered by the ILECs. They somehow find the capability 
to service their own customers at 10, or 20, or 100 times the 
speed and the efficiency than they manage to serve CLECs.
    We are battling through that and we are taking them to 
court, and we have an anti-trust suit out against Verizon, and 
we have an anti-trust suit out against Bell South, to try to 
enforce what has already been required of them under the Act.
    So the notion that they should be given additional 
incentives on top of 271 and on top of everything else to me is 
not the direction that we ought to be going. One big aspect is 
enforce what has already been put into law. Get them to 
perform. All I want is parity, and all I want them to do is to 
perform as good for us as they do for themselves.
    Mr. Shadegg. The San Francisco Business Times also contains 
an article that I think you may also want to comment about, 
that says that he SBC, and I will let Mr. Mancini respond to 
this also, was fined $6.1 million at the end of 2000 by the FCC 
for failing to meet performance standards for wholesale service 
it provides to the competing companies. You were involved in 
that as well.
    Mr. McMinn. Yes, absolutely. It is again another example of 
where we have to resort to other than an arm's length 
arrangements with these companies. I have a real test about 
whether I am a customer of an ILEC or not. I want somebody to 
point me to the salesmen at the ILEC that gets a commission for 
the business that I bring to them. No ILEC yet has assigned me 
a salesman.
    Mr. Shadegg. Some people have argued that we can't fix the 
current bill to deal with that problem. Others say that we 
perhaps could. My question of you is or anybody on the panel is 
are there things that we can do to fix this current bill to 
deal with the lack of competition at the local level short of 
simply killing the bill and not asking for it, and then I will 
let Mr. Tauke and Mr. Mancini respond.
    Mr. McMinn. I think that a clear signal is that the 
consumer needs to have choice. Do what you need to do in a bill 
to enhance competition, but don't in the process reduce 
competition, and in my view there are two things that will 
enhance competition. One is to make sure that we continue to 
have access to the copper plant, which is the bottleneck, which 
is the uneconomically able to be reproduced in any significant 
amount of timeframe.
    And the second is to make sure that there are very strong 
enforcement mechanisms put in place so that the ILECs must 
perform for us, rather than just accepting these fines as an 
ordinary course of doing business.
    Mr. Shadegg. Mr. Tauke, is there anything that you think 
can be done in the current bill to enhance competition at the 
local level or do you think that is not needed?
    Mr. Tauke. First, let me just say a word about competition 
at the local level if you might.
    Mr. Shadegg. Sure.
    Mr. Tauke. I think it is fair to point out that the 
telephone business is a tough business. It is a very 
technically complex business, and in order to develop 
competition you need two players. You need the incumbent and 
you need the new competitor coming in.
    We have had difficulties, and there is no question about 
that in making this competition work. We have had systems 
difficulties as you referenced in New York, and we have had 
other challenges. So have the competitors had their challenges 
as they have tried to get ready for this market.
    I think it is remarkable frankly that in 5 years that we 
have had so much of the market become competitive. If you look 
at what happened in long distance, it took longer for AT&T to 
lose the percentage of the market that we have lost, for 
example, in local for them to lose it in long distance, even 
though the long distance market is not as nearly complex.
    We have lost over 10 percent of the market share and that 
is in dial tone market. We have lost 30 percent in the toll 
market, and we have lost much larger percentages in special 
access and other areas of the marketplace, because customers 
have gone after the high end pieces of the market.
    The dial tone piece is the last to go because much of that 
is subsidized, and the rates are very low, and there isn't the 
incentive for competitors to come in and still in a State like 
New York, we have lost 25 percent of the lines, and in a State 
like Pennsylvania, we are losing a percent of the lines every 
month.
    So I think the fact is that in a lot of cases that 
competition is developing and developing rapidly, but it takes 
two players, including a healthy competitor who is in the 
market and wants to compete.
    Now, having said that, in terms of the FCC and its 
capability and what can it do, I think what happened in New 
York was a good example of what it can do. We had a problem 
with our systems in New York.
    They hammered us hard, and within a few months after that 
problem with the systems was discovered, we had excellent 
review from the FCC and the New York Commission, and have had 
since, on delivering on the problem that was acknowledged at 
that time by us, and which was brought to our attention by the 
FCC.
    They had the ability to hold our feet to the fire if you 
will. I don't think it is wrong for Congress to give the 
regulatory agencies the authority for us to hold our feet to 
the fire.
    We also have performance guarantees, where we have 
performance guarantees that we have with the States, and if we 
mess up and we don't meet high standards, the more that we have 
to pay.
    And we have performance guarantees in many of our contracts 
with competitors. I will say to you that having said all of 
that, however, if there is a problem in the local telephony 
market, don't punish the consumers of America by not doing what 
is right for the broadband market. Deal with the local 
telephony market and deal with that problem, but don't as a 
result just delay and not get the services delivered in the 
broadband side.
    Mr. Shadegg. You don't see any need to add anything to this 
to deal with the lack of competition. Mr. Mancini.
    Mr. Mancini. I will just make a few quick points as I know 
it is late. With regard to the reference to the $6.5 million 
fine, that was not a fine. That was part of the performance 
measurements on the systems that Tom talked about.
    We agreed to put in place a comprehensive set of 
performance measurements which measures in detail the service 
we provide to CLECs with dollar amounts if we fall short. So if 
anything that is an indication of how much under a microscope 
we are, and if we do fall short, we pay a performance payment 
to the FCC or to the CLECs in a variety of States.
    If one of your staffers was having a problem with Cox, it 
probably was not the ILEC's problem, because Cox, who is the 
cable provider, doesn't rely at all on the LEC. The problem is 
usually not at the interconnection, but the problem is usually 
at the switch or the loop. So my guess is that they are 
providing all the facilities.
    The third thing I would suggest is I think it is 
instructive of what happened in both New York and Texas as we 
got close to completing the 271 process.
    In both States, the level of competition increased fairly 
dramatically as it appeared that the FCC would approve 271, and 
after the 271 approval occurred in both States, local 
competition went up significantly and long distance prices went 
down significantly, and as we competed in the long distance 
market, long distance rates came down, and local competitors 
increased their competition and offered bundles. So competition 
increased as you got 271 approval.
    Mr. Shadegg. Mr. Cicconi.
    Mr. Cicconi. First of all, even if you offer phone service 
over cable, you have to be able to connect with a Bell company. 
So I don't know where the problem was there. But I know that we 
have problems with that interconnection even over cable 
facilities.
    Second, you brought up the question of fine, and putting 
aside performance measures, the fact is that the Bell companies 
since early last year have been fined a total of $360 million 
for falling short of their obligations under law by various 
State and Federal authorities.
    Now, if you think about that, that is a staggering number, 
and what it indicates to me and what we fear is that the Bell 
companies are deciding that these fines are a cost of doing 
business. That this is a better way to approach it than to 
service competitors.
    The competitors are gradually going out of business and 
they are paying the fines, and it is a cost of doing business 
to them, and at the end of the day they end up with a secure 
monopoly. That would give me pause, and we fear that this bill 
would make that situation far worse.
    Mr. Shadegg. And to my other question, are there things 
that you think can be done to this bill or is it your position 
that it simply has to be canceled?
    Mr. Cicconi. No, sir, I think it is irreparable.
    Mr. Shadegg. Thank you, Mr. Chairman. I yield back my time.
    Chairman Tauzin. Thank you, my friend. I want to mention 
for the record that there have been a lot of fines, and we have 
not totaled them up, but there have been a lot of slamming 
fines as well assessed to the telecom market, and everybody 
does make mistakes. We know that.
    I will add for the gentleman, Mr. Shadegg, that one of the 
things that we have instructed the staff to work with members 
on, because we received a number of member requests to do so, 
is how we might add new enforcement authorities in the bill, 
and that is an area where not only Chairman Powell, but I think 
many members agree that we could probably enhance the spirit of 
competition a great deal more, and we are looking very 
seriously at that.
    I would also announce before we adjourn that the record 
will stay open obviously, and we want to continue receiving 
your comments. If you have additional written comments, you are 
more than welcome to supplement your testimony.
    If you heard something that you thought was wrong, or 
somebody said something that you really didn't agree with, and 
you didn't have a chance to respond, please do so on the record 
for us. We will keep the record open an appropriate time for 
that.
    Second, for members who have additional questions, we 
really pounded you hard today, and I apologize for this long 
day, but we will keep the record open for members to submit 
written questions, either one of you or collectively, and 
please respond if you do receive such a request timely, and we 
would appreciate that.
    And there is one thing finally that I would like, Mr. 
Tauke, is that in the context of questioning you answered 
regarding line sharing, with reference to technical problems in 
deployment, and we heard a lot about financial incentives, but 
you mentioned technical problems.
    If you can elaborate in writing for us those issues, 
because we want to understand them in regards to the time 
sharing issue, which is indeed a hard call for all of us to 
make here. Thank you, and you have illuminated the issue a 
great deal, and clouded it in some other areas, and we expected 
that, and it was great hearing from you, and I thank you, and 
we are all dismissed. The committee stands adjourned.
    [Whereupon, at 5:05 p.m., the committee was adjourned.]
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