[Senate Hearing 107-893]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-893

 DOMINANCE ON THE GROUND: CABLE COMPETITION AND THE AT&T-COMCAST MERGER

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                    BUSINESS RIGHTS, AND COMPETITION

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 23, 2002

                               __________

                          Serial No. J-107-75

                               __________

         Printed for the use of the Committee on the Judiciary


85-889              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts     ORRIN G. HATCH, Utah
JOSEPH R. BIDEN, Jr., Delaware       STROM THURMOND, South Carolina
HERBERT KOHL, Wisconsin              CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California         ARLEN SPECTER, Pennsylvania
RUSSELL D. FEINGOLD, Wisconsin       JON KYL, Arizona
CHARLES E. SCHUMER, New York         MIKE DeWINE, Ohio
RICHARD J. DURBIN, Illinois          JEFF SESSIONS, Alabama
MARIA CANTWELL, Washington           SAM BROWNBACK, Kansas
JOHN EDWARDS, North Carolina         MITCH McCONNELL, Kentucky
       Bruce A. Cohen, Majority Chief Counsel and Staff Director
                  Sharon Prost, Minority Chief Counsel
                Makan Delrahim, Minority Staff Director
                                 ------                                

      Subcommittee on Antitrust, Business Rights, and Competition

                   HERBERT KOHL, Wisconsin, Chairman
PATRICK J. LEAHY, Vermont            MIKE DeWINE, Ohio
RUSSELL D. FEINGOLD, Wisconsin       ORRIN G. HATCH, Utah
CHARLES E. SCHUMER, New York         ARLEN SPECTER, Pennsylvania
MARIA CANTWELL, Washington           STROM THURMOND, South Carolina
                                     SAM BROWNBACK, Kansas
               Victoria Bassetti, Majority Chief Counsel
                 Peter Levitas, Minority Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Brownback, Hon. Sam, a U.S. Senator from the State of Kansas.....    10
DeWine, Hon. Mike, a U.S. Senator from the State of Ohio.........     3
Hatch, Hon. Orrin, a U.S. Senator from the State of Utah.........     6
Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin......     1
Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................     9
Thurmond, Hon. Strom, a U.S. Senator from the State of South 
  Carolina.......................................................    91

                               WITNESSES

Armstrong, C. Michael, Chairman and Chief Executive Officer, AT&T 
  Corp., Basking Ridge, New Jersey...............................    15
Betty, Garry, Chief Executive Officer, Earthlink, Atlanta, 
  Georgia........................................................    25
Green, Richard R., President and Chief Executive Officer, Cable 
  Television Laboratories, Inc., Louisville, Colorado............    30
Haverkate, Mark, President and Chief Executive Officer, 
  WideOpenWest, Castle Rock, Colorado, on behalf of the Broadband 
  Service Providers 
  Association....................................................    34
Perry, Robert A., Vice President, Marketing, Mitsubishi Digital 
  Electronics America, Irvine, California........................    42
Roberts, Brian L. President, Comcast Corporation, Philadelphia, 
  Pennsylvania, accompanied by Ralph Roberts.....................    12

                       SUBMISSIONS FOR THE RECORD

RCN Corporation, statement.......................................    69
Writers Guild of America, west, Inc., Los Angeles, CA............    94

 
                        DOMINANCE ON THE GROUND:
                       CABLE COMPETITION AND THE
                          AT&T-COMCAST MERGER

                              ----------                              


                         TUESDAY, APRIL 23, 2002

                               U.S. Senate,
        Subcommittee on Antitrust, Business Rights 
                                   and Competition,
                                Committee on the Judiciary,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 2:03 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl, 
Chairman of the Subcommittee, presiding.
    Present: Senators Kohl, DeWine, Hatch, Specter, and 
Brownback.

        OPENING STATEMENT OF HON. HERBERT KOHL, A U.S. 
              SENATOR FROM THE STATE OF WISCONSIN

    Chairman Kohl. This subcommittee will come to order.
    Today, we examine the merger between Comcast and AT&T 
Broadband. This is the end of AT&T as we know it, but a new 
AT&T, a wide-ranging, powerful cable monopoly, is emerging. 
Just as the pre-1984 AT&T controlled the phone line, the 
equipment, and the content, this new cable giant has the 
potential to wield similar control over the cable line, the 
equipment, and the content sent to more than 22 million 
American homes. The creation of this new and even broader 
communications conglomerate may pose the same dangers to 
consumers and to innovation that led to the break-up of the old 
AT&T monopoly.
    As this merger indicates, big changes are coming to the 
cable industry, but one thing remains the same: cable rates 
continue to rise, about triple the rate of inflation since the 
passage of the 1996 Telecommunications Act, and more than 7 
percent last year.
    Make no mistake, if this merger is approved, AT&T-Comcast 
will become the Nation's largest cable company, providing 
television signals to about 30 percent of the Nation's homes. 
Since this merger was announced, we have been asking ourselves 
over and over again, how is this good for consumers. We know it 
is good for the companies, but what does it do for the average 
consumer?
    Ten years from now, if trends like this merger continue, 
consumers may find almost all of their personal communications 
and information dominated by a very few large media companies. 
Their phones, their movies, their Internet, their cable, their 
link to the outside world will be priced, processed and 
packaged by one company that faces virtually no competition.
    While the Echostar-DirecTV deal has faced a barrage of 
antitrust questions, this deal has not. In fact, it appears 
there are few, if any, traditional antitrust concerns raised by 
it. Nevertheless, there are some serious issues that need to be 
looked at.
    Big is not necessarily bad, but we cannot ignore the 
potential for a cable company as big as AT&T-Comcast to throw 
its weight around. We should be frightened about this future, 
and we need to be thinking about imposing meaningful conditions 
on this merger to make it tolerable for consumers. Therefore, 
before we can fully understand the impact of this merger on 
consumers, we need answers to five key questions.
    First, the parties have promised that they will 
aggressively continue efforts to offer cable telephone service 
in more markets. This competition to the local telephone 
monopoly is sorely needed, so how can we be sure that they will 
keep their promise?
    Two, we cannot ignore that such a large company will affect 
and perhaps control programming. Small, independent media 
voices will have even a harder time gaining access to the video 
airwaves. For the last 10 years, we have had rules to guard 
against cable companies leveraging their monopolies and 
blocking access to programming to competitors.
    These program access rules are expiring this year. Now more 
then ever, in the face of all of this consolidation, these 
rules need to be extended. Why do the parties oppose extending 
these rules?
    Three, the parties have promised that they will let 
consumers choose who will provide them their Internet, but they 
have been unwilling to make the promise binding. AOL-Time 
Warner made the promise binding as a condition of their merger. 
Why shouldn't these parties?
    Four, after recent court decisions, the long-established 
cable ownership caps are currently under review by the FCC. 
With a seemingly unrelenting wave of media mergers underway, 
reasonable ownership limits are the last line of defense 
against excessive concentration in this industry. Will the FCC 
live up to responsibilities as guardians of diversity of 
expression in our video marketplace?
    Finally, 6 years ago we passed a law mandating a 
competitive market for the so-called set-top box, the device 
that delivers the cable signal to the consumer. In the digital 
age, controlling technology and software is the ultimate power. 
All of us remember the time when there was only one type of 
telephone, a clunky and rudimentary device. But when we broke 
up that monopoly, innovation then flourished. Only a truly 
competitive set-top box market can unlock the type of 
innovation that brought us cell phones, faxes, and the Internet 
itself. We required a competitive set-top box market 6 years 
ago. So what is going on here?
    The answers to these questions and others are essential. We 
thank our distinguished panel of witnesses for testifying today 
and we look forward to your testimony.
    [The prepared statement of Senator Kohl follows:]

         Statement of Hon. Herb Kohl, a U.S. Senator from the 
                           State of Wisconsin

    Big changes are coming to the cable industry. Consolidation is 
picking up. Court rulings are reconfiguring the laws that govern the 
industry. New technology is blossoming. But one thing remains the same: 
cable rates continue to rise--about triple the rate of inflation since 
the passage of the 1996 Telecommunications Act, and more than 7 percent 
last year.
    Today we examine the merger between Comcast and AT&T Cable. If this 
merger is approved, AT&T and Comcast will become the Nation's largest 
cable company, providing television signals to about 30 percent of the 
Nation's homes. Three companies--AOL-Time Warner, Charter 
Communications and the new ATT-Comcast--will control 65 percent of the 
Nation's cable market. And, if this wasn't already enough, the only 
head-to-head competitors to cable in most areas--the satellite 
television companies Echostar and DirectTV--are also planning to merge, 
further reducing consumer choice.
    While the Echostar-DirectTV deal has faced a barrage of antitrust 
questions, this deal has not. In fact, it appears that there are few if 
any traditional antitrust concerns raised by it. Nevertheless, there 
are some serious issues that need to be looked at. Big is not bad, but 
we can't ignore the potential for dominance in a cable company as big 
as ATT-Comcast will be.
    Since this merger was announced, we have been asking ourselves over 
and over: how is this good for consumers? We know it's good for the 
companies--but what does it do for the average consumer? Ten years from 
now, if trends like this merger continue, consumers may find almost all 
of their personal communications and information dominated by a very 
few, large media conglomerates. Their phone, their movies, their 
Internet, their cable, their link to the outside world will be priced, 
processed and packaged for them by one company that faces virtually no 
competition.
    Before we can fully understand the impact of this merger on 
consumers, we need answers to five key questions:
    One, the parties have promised that they will aggressively continue 
efforts to offer cable telephone service in more markets. This 
competition to the local telephone monopoly is sorely needed. How can 
we be sure they will keep their promises?
    Two, the parties have promised that they will let consumers choose 
who will provide them their Internet--but they have been unwilling to 
make the promise binding. AOL-Time Warner made the promise binding as a 
condition of their merger, why shouldn't these parties?
    Three, we cannot ignore that such a large company will affect and 
maybe control programming. Small, independent media voices will have 
even a harder time gaining access to the video airwaves. For the last 
10 years, we've had rules to guard against cable companies leveraging 
their monopolies and blocking access to programming to competitors. 
These program access rules are expiring this year. Now more than ever, 
in the face of all this consolidation, these rules need to be extended. 
Why do the parties oppose renewing these rules?
    Four, 6 years ago we passed a law mandating a competitive market 
for the so called set-top box--the device that delivers the cable 
signal to the consumer. In the digital age, controlling the technology 
and software is the ultimate power. All of us remember the time when 
there was only one type of phone--a clunky and rudimentary device. But 
when we broke that monopoly, innovation flourished. Only a truly 
competitive set-top box market can unlock the type of innovation that 
brought us cell phones, faxes, and the Internet itself. We required a 
competitive set-top box market 6 years ago--what's going on here?
    Finally, after recent court decisions, the long-established cable 
ownership caps are currently under review by the FCC. With a seeming 
unrelenting wave of media mergers under way, reasonable ownership 
limits are the last line of defense against excessive concentration in 
this industry. Will the FCC live up to responsibilities as guardians of 
diversity of expression in our video marketplace?
    The answers to these questions are essential. I thank our 
distinguished panel of witnesses for testifying today and I look 
forward to their views.

    Chairman Kohl. Senator DeWine.

                STATEMENT OF HON. MIKE DeWINE, 
             A U.S. SENATOR FROM THE STATE OF OHIO

    Senator DeWine. Mr. Chairman, thank you very much for 
holding this hearing on this very important issue.
    This afternoon, we will examine the proposed merger between 
two of the leading cable providers in the country, AT&T 
Broadband and Comcast Corporation. This merger would create an 
industry giant, as you have pointed out, serving over 27 
million subscribers, more than double the size of the next 
largest cable company.
    But, Mr. Chairman, despite its resulting size, this deal 
appears to avoid many of the traditional antitrust concerns 
raised by horizontal mergers because the companies in this case 
do not currently compete with each other in the delivery of 
video services. Accordingly, in regard to the delivery of video 
services, a merger between the two is probably not a violation 
of the Clayton Act test of the ``substantial lessening of 
competition.''
    But the effects of this deal are not limited only to the 
video delivery market, and it cannot be examined in isolation. 
It occurs at the same time that the courts and to some extent 
the Federal Communications Commission are acting to 
significantly roll back restrictions on media consolidation.
    This trend toward further media consolidation is troubling. 
Frankly, the regulators must pay close attention to the impact 
of consolidation, beyond just the standard antitrust analysis. 
Obviously, preserving vigorous competition is always important 
and will ensure that consumers receive affordable, high-quality 
products. However, it is also important that we ensure that 
information outlets in communities or regions of the country 
are not controlled by just a few players.
    If one company were to own the cable franchise, several 
broadcast stations, and newspaper outlets in any one given 
community, the people of that community would suffer not only 
from a lack of competition, but in all likelihood they also 
would be exposed to a smaller range of opinions. This would be 
unacceptable in an era that has been dubbed as the 
``information age.''
    Mr. Chairman, in light of recent court decisions, the 
Federal Communications Commission needs to develop reasonable 
rules to protect this marketplace of ideas, and it must do so 
in a coherent fashion that will pass the scrutiny of the 
courts.
    One such rule that they may need to reexamine that is 
particularly relevant to our hearing today is the cable 
ownership limit. The FCC must thoroughly examine cable 
ownership limits and establish an appropriate limit that would 
ensure healthy competition and a diverse marketplace. If they 
can't do it, then Congress will need to take a look at it.
    Now, focusing again on the specifics of the deal we have 
before us today, there are competitive implications of this 
merger that I believe deserve examination. Perhaps the most 
important is the effect of the merger on the programming 
market.
    As I have said, a combined AT&T-Comcast would control 
access to over 27 million customers. This customer base would 
become an extremely important outlet for programmers, 
increasing the pressure to obtain a spot on the AT&T-Comcast 
cable system. This would impose a challenge for those who offer 
new, independent programming.
    These independent producers may not have the leverage of 
linking their product with more established programs. An 
independent programmer also may not have the financial backing 
to offer very low initial prices. This creates an obvious 
problem. The programmer more than ever needs the customer base 
of AT&T-Comcast, but does not necessarily have the leverage to 
strike a worthwhile deal. Thus, the increased size of the 
combined AT&T-Comcast may make it more difficult for 
independent programmers, and this, I believe, we should be 
concerned about.
    This increase in the market power of AT&T-Comcast also 
raises concerns in situations where the cable companies own 
programming. For example, Comcast owns the Outdoor Life 
Network. The combined company, with an expanded presence across 
more media markets, would likely be less willing to carry a 
similar network from an independent producer. This incentive to 
exclude independent programming, coupled with fewer programming 
outlets, might harm the ability of new programs to develop and 
then to survive.
    However, we should acknowledge that these two companies 
have limited programming ownership. Along those lines, it is 
important that AT&T has confirmed publicly that it will divest 
its ownership interest in Time Warner Entertainment 
programming. I applaud them for that decision and look forward 
to the completion of that transaction.
    The increased market power of AT&T-Comcast also could have 
an effect on the ability of competitors to gain access to 
programming. Depending on the competitive circumstances in a 
local market, the combined AT&T-Comcast might have enough 
negotiating power to demand exclusive rights to programming, 
therefore harming the ability of a satellite system or cable 
over-builder to compete. This obviously would be a very serious 
concern for consumers, since there is significant evidence that 
the existence of viable cable over-builders helps to lower 
prices.
    Of course, increased purchasing power also might have a 
positive effect on prices. If AT&T-Comcast were able to drive 
down programming costs, it might be able to limit the seemingly 
endless rise of cable rates. This obviously would be of great 
benefit to consumers if, in fact, it happened.
    One additional area of concern involved broadband, 
specifically the ability of consumers to choose an Internet 
service provider when they obtain broadband service from their 
cable company. When AOL and Time Warner merged, the Federal 
Trade Commission required the combined company to allow a range 
of competitive ISPs to provide service on their broadband 
network.
    While the competitive dynamics of this deal differ from 
those in the AOL merger, this remains an important issue, and I 
look forward to hearing what plans the company has to ensure 
that their 27 million consumers will have a choice of ISP 
providers.
    In addition, I look forward to hearing the parties' plans 
for rolling out broadband and voice services to consumers, and 
how this merger will help them speed this process. I am 
particularly interested in their plans for cable telephone 
service.
    Mr. Chairman, I think it is fair to say that we have all 
been very disappointed in the amount of competition in the 
local phone service market since the passage of the 1996 
Telecommunications Act. If this merger can speed competition in 
that area, it would be a big plus for consumers.
    The AT&T-Comcast merger is an important one and it has the 
potential to reshape the competitive landscape of cable service 
in a number of significant ways. We have a very excellent panel 
today, Mr. Chairman, and I look forward to our discussion.
    I thank the Chair.
    Chairman Kohl. Thank you, Senator DeWine.
    Now, we call on Senator Orrin Hatch from Utah.

                STATEMENT OF HON. ORRIN HATCH, 
             A U.S. SENATOR FROM THE STATE OF UTAH

    Senator Hatch. Well, thank you, Mr. Chairman. I commend you 
and Senator Dewine for your work on this committee and for 
holding this hearing to discuss the AT&T-Comcast merger.
    This merger before us today follows a series of 
consolidation activities in the communications sector since the 
passage of the 1996 Telecommunications Act. Careful antitrust 
scrutiny is necessary where two of the five largest cable 
companies in the Nation plan to merge, and our inquiry should 
include the possible effects of this merger on related 
businesses and markets.
    These include areas such as the deployment of broadband 
Internet service; the manufacture and design of cable set-top 
boxes, which could be the access point for all communications 
in the future; and the continued vitality of the video 
programming and Internet content markets.
    Overall, this merger by itself does not appear to present 
the types of competitive concerns that have led me to be 
skeptical or critical of some other recent major media mergers.
    For example, unlike the AOL-Time Warner merger, this 
transaction does not involve the aggregation of the enormous 
ownership of content with an online service provider and the 
cable pipes to deliver that content, creating powerful 
incentives to favor one's own content over competing content. 
Nor does the proposed AT&T-Comcast transaction involve the 
elimination of a direct competitor as does the pending 
Echostar-DirecTV merger.
    It appears that this merger is largely free from these 
types of traditional antitrust concerns, and I would hope that 
this merger would not raise issues regarding content 
discrimination that leads to fewer choices of diverse content 
which I have found to be of great concern in past media 
mergers.
    I should note that this merger does raise several broader 
policy questions for us to consider as policymakers. These 
largely center around potential limitations on consumers' 
access to rich and diverse content resulting from changes in 
the competitive landscape as divergence of technologies 
continues.
    By means of the 1996 Telecommunications Act, Congress 
succeeded in creating a shift in policy in key high-tech 
industries toward increased deregulation and a concomitantly 
increased reliance on antitrust principles and enforcement to 
protect competition.
    Now, 6 years later, consumers are really beginning to see 
some of the benefits of these actions in the form of increased 
competition and increased choice. Much of this choice is the 
result of convergence in the types of services provided by the 
varied companies that form the new information economy. I 
believe that this convergence will continue to the point where 
services provided by telecommunications and cable companies 
will be indistinguishable to consumers. This technology-driven 
convergence should increase competition, and therefore 
hopefully consumer choice.
    Along with convergence, however, consumers have at the same 
time witnessed increasing consolidation in the cable, media, 
and telecommunications markets. In contrast to convergence, 
this consolidation tends to reduce the number of competitors, 
and consequently threatens to reduce competition and choice.
    As these two forces, consolidation and convergence, work to 
reshape the competitive landscape of the new economy, I 
strongly believe that we must not merely protect but, where 
possible, seek choices that allow the marketplace to expand 
consumer choice to ensure that as many Americans as possible 
have full and free access to rich and diverse entertainment and 
information content.
    Accordingly, as the competitive landscape changes, we must 
ensure that legislation and regulation do not inadvertently 
hinder consumer choice. In light of these ongoing changes, it 
is perhaps appropriate to continue to examine existing 
regulations and their effects on competition in new and 
evolving marketplaces to protect and strengthen consumer 
choice.
    I have frequently expressed my concerns regarding 
competition in digital entertainment services and the harms 
that may befall consumers when information ``gatekeepers'' 
limit consumers' choices or access to content and information 
for anticompetitive purposes. These concerns have arisen in 
contexts ranging from the Microsoft case to the AOL-Time Warner 
merger. These concerns apply equally to cable programming and 
broadband Internet content.
    Because the proposed merger would create the largest cable 
provider in the Nation, a merged AT&T-Comcast would have 
significant power as a major purchaser of content. A merged 
AT&T-Comcast would have similar power in determining which and 
how many Internet service providers will have access to 
consumers over its cables. Any merged entity with such power 
must exercise carefully its powers to ensure that consumer 
choice and marketplace competition are not unfairly hindered.
    In the digital age, a cable merger involves much more than 
simply which company will deliver video programming to 
consumers. Rather, a merger within the cable industry today is 
likely to affect other services, products, technology, and 
business relationships between very large cable companies and 
providers of content and communications services.
    Finally, I have some basic concerns about implementation of 
the proposed merger. We need to take into account the practical 
effects of the proposed merger on consumers. More specifically, 
I note that AT&T currently provides cable broadband and 
telephone services in my own home State of Utah. I would like 
to hear today, and hopefully get some types of assurances 
regarding how the merger has been structured to avoid 
difficulties such as loss or disruption of these services, 
degradation of the quality of these services, and unexpected 
rate hikes.
    Again, I want to thank you, Mr. Chairman. I look forward to 
hearing from all of our witnesses here today.
    [The prepared statement of Senator Hatch follows:]
  Statement of Hon. Orrin Hatch, a U.S. Senator from the State of Utah
    This merger before us today follows a series of consolidation 
activities in the communications sector since the passage of the 1996 
Telecommunications Act. Careful antitrust scrutiny is necessary where 
two of the five largest cable companies in the Nation plan to merge, 
and our inquiry should include the possible effects of this merger on 
related businesses and markets. These include areas such as the 
deployment of broadband Internet service, the manufacture and design of 
cable set-top boxes, which could be the access point for all 
communications in the future, and the continued vitality of the video 
programming and Internet content markets.
    Overall, this merger by itself does not appear to present the types 
of competitive concerns that have led me to be skeptical or critical of 
some other recent major media mergers. For example, unlike the AOL-Time 
Warner merger, this transaction does not involve the aggregation of the 
enormous ownership of content with an online service provider and the 
cable pipes to deliver that content, creating powerful incentives to 
favor one's own content over competing content. Nor does the proposed 
AT&T-Comcast transaction involve the elimination of a direct competitor 
as does the pending Echostar-DirecTV merger. It appears that this 
merger is largely free from these types of traditional antitrust 
concerns, and I would hope that this merger will not raise issues 
regarding content discrimination that leads to fewer choices of diverse 
content which I have found to be of great concern in past media 
mergers.
    I should note that this merger does raise several broader policy 
questions for us to consider as policymakers. These largely center 
around potential limitations on consumers' access to rich and diverse 
content resulting from changes in the competitive landscape as 
divergence of technologies continues.
    By means of the 1996 Telecommunications Act, Congress succeeded in 
creating a shift in policy in key high-tech industries toward increased 
deregulation and a concomitantly increased reliance on antitrust 
principles and enforcement to protect competition. Now, 6 years later, 
consumers are really beginning to see some of the benefits of these 
actions in the form of increased competition--and increased choice. 
Much of this choice is the result of convergence in the types of 
services provided by the varied companies that form the new information 
economy. I believe that this convergence will continue to the point 
where services provided by telecommunications and cable companies will 
be indistinguishable to consumers. This technology-driven convergence 
should increase competition and, therefore--hopefully--consumer choice.
    Along with convergence, however, consumers have at the same time 
witnessed increasing consolidation in the cable, media, and 
telecommunications markets. In contrast to convergence, this 
consolidation tends to reduce the number of competitors, and, 
consequently, threatens to reduce competition and choice.
    As these two forces--consolidation and convergence--work to reshape 
the competitive landscape of the new economy, I strongly believe that 
we must not merely protect, but--where possible--seek choices that 
allow the marketplace to expand consumer choice to ensure that as many 
Americans as possible have full and free access to rich and diverse 
entertainment and information content. Accordingly, as the competitive 
landscape changes, we must ensure that legislation and regulation do 
not inadvertently hinder consumer choice. In light of these ongoing 
changes, it is perhaps appropriate to continue to examine existing 
regulations and their effects on competition in new and evolving 
marketplaces to protect and strengthen consumer choice.
    I have frequently expressed my concerns regarding competition in 
digital entertainment services and the harms that may befall consumers 
when information ``gatekeepers'' limit consumers' choices or access to 
content and information for anticompetitive purposes. These concerns 
have arisen in contexts ranging from the Microsoft case to the AOL-Time 
Warner merger. These concerns apply equally to cable programming and 
broadband Internet content. Because the proposed merger would create 
the largest cable provider in the Nation, a merged AT&T Comcast could 
have significant power as a major purchaser of content. A merged AT&T 
Comcast would have similar power in determining which and how many 
Internet Service Providers will have access to consumers over its 
cables. Any merged entity with such power must exercise carefully its 
powers to ensure that consumer choice and marketplace competition are 
not unfairly hindered.
    In the digital age, a cable merger involves much more than simply 
what company will deliver video programming to consumers. Rather, a 
merger within the cable industry today is likely to affect other 
services, products, technology, business relationships between very 
large cable companies and providers of content, and communications 
services.
    Finally, I have some basic concerns about implementation of the 
proposed merger. We need to take into account the practical effects of 
the proposed merger on consumers. More specifically, I note that AT&T 
currently provides cable, broadband, and telephone services in my home 
State of Utah. I would like to hear today and hopefully get some type 
of assurances regarding how the merger has been structured to avoid 
difficulties such as loss or disruption of these services, degradation 
of the quality of these services, and unexpected rate hikes.

    Chairman Kohl. Thank you very much, Senator Hatch.
    Now, we call on Senator Specter.

               STATEMENT OF HON. ARLEN SPECTER, 
         A U.S. SENATOR FROM THE STATE OF PENNSYLVANIA

    Senator Specter. Thank you very much, Mr. Chairman. May I 
note at the outset that there is parity between the parties? We 
have four Republicans and you, Mr. Chairman, a Democrat. So the 
odds are about even at this point.
    Chairman Kohl. You are right on that.
    Senator Specter. There is a practice of a fair amount of 
testifying on this side of the podium as on that side. I think 
the issues have been delineated so that I will await for 
further comment on the substance for the witnesses.
    I would like to take just a moment or two to introduce Mr. 
Brian Roberts from Comcast. The cable company was founded by 
his father, Ralph Roberts, 35 years ago, just about the time I 
became District Attorney of Philadelphia, and I am in a 
position to say unequivocally that there was never an 
investigation of Ralph Roberts or his company.
    [Laughter.]
    Senator Specter. In my capacity as a United States Senator, 
I am obviously concerned about the serious issues which have 
been discussed, but as a Pennsylvania Senator and as a 
Philadelphian there is a great deal of pride in what the 
Roberts family has done and what Comcast has done.
    Mr. Brian Roberts, at the age of 42, brings an 
extraordinary record as a leader of this company. He has had 
the osmosis advantage of being associated with his father for 
42 years, and having a son about the same age I know what 
osmosis can do.
    His educational background is sterling--Wharton School. His 
public service activities are extensive. He serves on the Simon 
Weisenthal Board, taking up the important issues of the 
Holocaust. He took on a very big job several years ago on being 
co-chairman of the committee which brought the Republican 
National Convention to Philadelphia, a much-heralded event, 
with agreement by our mayor, who was a Democrat, and the 
Republicans who came and enjoyed the hospitality of the city.
    He has received very distinguished awards, the Powell 
Police Athletic Award and the William Penn Award, and those go 
to people who have done some significant amount on public 
service. Last October, he had Comcast's 35,000 employees 
nationwide engage in a day of public service. His persuasion 
brought me for a day of public service as well. I was 
commandeered to join the enormous throng that he had in 
Fairmont Park that day.
    It is a matter of great economic concern to my city and 
State to have a company which has 35,000 employees and $40 
billion. I took another look at the figure to be sure. I have 
watched Comcast grow. I visited them several years ago when 
they were downtown, and I had just noted that they took on a $7 
billion operation and I said to the Roberts, Ralph, Brian, are 
you sure, $7 billion in debt? And now they have moved ahead as 
giants.
    I visited a very high-tech operation in northeast 
Philadelphia and saw what consumer service can be. This line of 
activity is very complicated and it requires a lot of capital, 
a lot of know-how and a lot of technology on speed of 
transmission and availability of services for the consumer. 
While there are important questions we have to answer in our 
duties on the Antitrust Subcommittee, we should also note what 
this kind of a merger can do for the consumer.
    Thank you very much, Mr. Chairman.
    Chairman Kohl. I thank you, Senator Specter.
    Before we hear from Senator Brownback, I would ask 
unanimous consent that the statement of Senator Thurmond be 
made part of the record.
    Senator Brownback.

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

    Senator Brownback. Mr. Chairman, thank you very much. I 
want to associate myself with the comments already made and 
just would note that the convergence issue that Senator Hatch 
had talked about, I think, is an important one, and we are 
wrestling with it both here and in the Commerce Committee.
    It affects different areas of legislation that are coming 
up now, along with this hearing and the proposed merger that is 
here today. So I see, as well, some convergence of issues 
coming together, and I look forward to hearing the panel's 
thoughts of how that impacts us in bringing these various 
technologies together in one place in the home as it comes out 
the other end of the pipe.
    Thanks for holding the hearing.
    [The prepared statement of Senator Brownback follows:]

   Statement of Hon. Sam Brownback, a U.S. Senator from the State of 
                                 Kansas

    Washington.--U.S. Sen. Sam Brownback today addressed the issue of 
broadband and the AT&T-Comcast merger at a Senate Judiciary Antitrust 
Subcommittee hearing. Portions of Brownback's statement follow:
    ``Broadband connections are having a powerful impact on the 
underlying service industries providing them to consumers,'' Brownback 
said. ``Cable TV, wireless, satellite, and telephone companies are 
converging, with each deploying new technologies that will permit them 
to offer the same voice, video, and data services over their respective 
platforms. These developments are ushering in a new era of 
interplatform competition in telecommunications.
    ``While today's broadband services provide us with a window into 
the future converged and borderless market, we can still clearly 
recognize traditionally distinct communications industry sectors. For 
this reason, distinct regulatory regimes continue to be applied to 
each, and we tend to understand market power within each sector as we 
always have.
    ``Convergence requires something more. Congress is currently 
searching out answers to the question of how regulations should be 
balanced between the old and the new, as reflected in the Tauzin-
Dingell bill and legislation I have introduced, S. 1126, the Broadband 
Deployment and Competition Enhancement Act. Likewise, the merger of 
AT&T and Comcast, as with Echostar and DirecTV, requires us to balance 
our traditional understanding of market power with the development of a 
converged market where the pool of potential competitors is greatly 
increased.
    ``AT&T has vigorously opposed regulatory parity for all broadband 
service providers, specifically incumbent local telephone companies, 
rejecting the importance of convergence in the broadband regulatory 
debate. Yet, today AT&T comes before this subcommittee hoping that we 
recognize the advent of convergence-and-inter-platform competition in 
the broadband-and multichannel- video markets as reason to rubber stamp 
this merger.
    ``If AT&T's opposition to broadband parity is correct, then I 
cannot imagine how convergence justifies this merger. Cable rates 
continue to rise, the cable industry controls two-thirds of the 
broadband market, and cable modem subscribers have little choice in 
ISPs.
    ``I prefer to embrace the future, and not be mired in the past. I 
have had the opportunity to meet with Mr. Roberts, and I think he 
understand the changes that are underway in the marketplace. I 
appreciate the impressive investments made by the cable industry--
including both Comcast and AT&T Broadband--to compete in a converging 
market.
    ``While I might not be overly enthusiastic about mergers in 
general, I am prepared to recognize a validity to consolidation that, 
traditionally, has never existed as it does in a converging market.
    ``The Federal Communications Commission, in classifying cable modem 
service as an information service, has similarly moved forward with an 
eye toward our future. I commend the commission for this action, and 
look forward to similarly enlightened treatment of all broadband 
service providers in the commission's ongoing proceedings,'' Brownback 
said.
    Sen. Brownback is author of the Broadband Deployment and 
Competition Enhancement Act of 2001 (S. 1126).

    Senator Specter. Mr. Chairman, may I just add one note? I 
left out perhaps Brian Roberts' most important qualification. 
He won the silver medal in squash at the Macabbean squash 
tournament. When I found that out, I almost revoked my 
agreement to introduce him today. I am a squash player, but not 
that kind.
    Chairman Kohl. Well, we thank you very much and we will 
start with our panelists. I will introduce them. I would like 
to bring this information to you briefly: We will have to 
recess at about 2:30, maybe at 2:40. There is a vote, and then 
we will come back immediately after that vote and we will 
continue this hearing.
    Our first witness today will be Mr. Brian Roberts, who is 
president of his family's Comcast Corporation. Before becoming 
president in 1990, Mr. Roberts held a number of senior 
management positions within the company.
    Next, we will hear from Mr. Michael Armstrong, who is 
chairman and CEO of AT&T. Mr. Armstrong joined AT&T in 1997, 
after 6 years as the chairman and CEO of Hughes Electronics. 
Prior to that, he was with IBM for three decades.
    Joining us from EarthLink is its CEO, Mr. Garry Betty. 
Before joining EarthLink in 1996, Mr. Betty was president and 
CEO of Digital Communications Associates, and senior vice 
president of sales, marketing and international operations at 
Hayes Microcomputer.
    Next, we will hear from Dr. Richard Green, who is CEO of 
CableLabs, a non-profit research and development consortium of 
the cable television industry. Mr. Green has been involved in 
this industry in a variety of capacities, from television 
broadcasting and engineering to managing key industry 
technology projects.
    From WideOpenWest, also known as WOW, we have Mr. Mark 
Haverkate, who is founder, president and CEO of that company. 
Prior to the launch of WOW in 1999, Mr. Haverkate was executive 
vice president of RCN Corporation and president of Cable 
Michigan.
    Finally, we will be hearing from Mr. Robert Perry, who is 
vice president of marketing at Mitsubishi Digital Electronics 
America. Mr. Perry joined Mitsubishi after a 7-year tenure with 
Sharpe Electronics, where he served most recently as the head 
of the Consumer LCD Products Division.
    In addition, Consumers Union, RCN, and the Writers Guild 
have submitted testimony for the record today.
    Following conclusion of this hearing, the record will 
remain open for 1 week for any additional statements to be 
included.
    So now we would like to call upon Mr. Brian Roberts for 
your statement.

STATEMENT OF BRIAN L. ROBERTS, PRESIDENT, COMCAST CORPORATION, 
    PHILADELPHIA, PENNSYLVANIA, ACCOMPANIED BY RALPH ROBERTS

    Mr. Roberts. Chairman Kohl, Senator DeWine, members of the 
subcommittee, on behalf of my father, Ralph, who is seated just 
behind me, and myself, we are honored to be here today to talk 
about our vision and our excitement about what the merger of 
Comcast and AT&T Broadband will mean for American consumers. I 
hope we will get to all the issues you laid out, but obviously 
in questions we can go into specifics. Let me also thank 
Senator Specter for that gracious introduction, and 
particularly my squash attributes.
    Because this is my first time before this subcommittee, I 
would like to just take a brief moment to tell you about 
Comcast and our roots and the kind of company we are.
    As Senator Specter mentioned, my dad founded the company in 
1963, and I think we represent what is truly great about family 
business in America, the opportunity to chase your dream. My 
dad is a true entrepreneur and he is always forward-looking; 
evidence the name he coined for his new company back in 1963, 
Comcast, which means communications and broadcasting. Today, I 
can't think of a more concise summary of our vision than 
communications and broadcasting.
    I went to work for my father right out of college and have 
been with Comcast in many different jobs ever since. We both 
love the cable business; it is in our blood. Having the chance 
to work together side by side during this great era that we 
have seen in cable and to have been part of the terrific things 
that cable has brought this Nation--the creation of CNN, HBO, 
C-SPAN I, II and III, Fox News, and hundreds of new channels 
that today we all take for granted--we have always been 
enthusiastic about the ability of cable technology to do even 
more. That is why we keep rebuilding and reinvesting.
    Our company was one of the first to experiment with the 
high-speed cable modem, delivering lightning-fast Internet over 
cable, and one of the first to deploy it. We set the pace in 
rolling out digital cable, which gives you over 250 channels of 
TV and audio programming. Now, we are introducing high-
definition television right here in Washington, and video-on-
demand, another product that lets viewers watch what they want 
when they want it.
    We think there are going to be more and more other great 
services that broadband cable can deliver. This is why I am so 
excited about the proposed merger with AT&T Broadband. In all 
the decades that we have been in this industry, we have never 
seen another business opportunity that is as exciting for our 
customers, our employees, and our shareholders.
    There is a lot of interest in making sure that the benefits 
of broadband reach all Americans, and much discussion of what 
the Government can do. This merger presents a private sector 
response to that question. It will bring more digital services 
and features to more Americans more quickly. Let me explain 
why.
    Comcast has substantially completed the upgrade to our 
cable systems necessary to offer broadband. Nearly 95 percent 
of our systems are now built to current industry standards. 
Comcast also has a strong balance sheet, among the very best in 
our industry, and our business first and foremost has been and 
will remain cable television.
    By contrast, a greater number of AT&T Broadband systems 
still require additional investment to get them up to current 
standards. Of course, AT&T has been in a number of different 
businesses up until now, all of them competing for scarce 
capital dollars. In the face of external financial pressures, 
they haven't completed system upgrades as quickly as Comcast 
did.
    This merger will give the combined company a clear focus, a 
solid balance sheet, and strong borrowing capacity. It will 
find cost savings in several key areas which will help to 
finance system upgrades and speed up the introduction of new 
services, including video, Internet, and cable telephone.
    Now, I haven't mentioned phone yet. Frankly, we at Comcast 
have been a little slow to introduce cable-based phone service. 
We have been excited and always have said we have been excited 
about the prospect of cable telephony, but we haven't been 
focused on circuit-based, but rather the so-called next 
generation Internet protocol or IP phone, which we believe 
offers more features at lower cost.
    However, the more I spoke with Mike about AT&T Broadband's 
business and phone business, the better the opportunity looks. 
Comcast can now take advantage of AT&T's considerable expertise 
and experience in providing circuit-switched phone over cable, 
and that will let us give millions more customers a true choice 
between facilities-based telephone providers. Mike will speak 
more about these opportunities and their experience in a 
moment.
    I have used the term ``facilities-based'' a couple of 
times. Promoting facilities-based competition--telephone 
against cable, cable against satellite, satellite against 
wireless--was a cornerstone of our Nation's pro-competitive 
communications policies of the 1990s. As a result, satellite 
alone has captured nearly 20 percent of the video marketplace.
    Our industry certainly got the competitive message. In the 
past 6 years, we have invested over $55 billion as an industry 
to prepare our systems and our companies for the digital era. 
Comcast alone has invested over $5 billion. This merger is 
completely consistent with these pro-competitive policies. It 
will accelerate broadband, promote more investment in 
facilities, and let us keep with the rapidly changing, hotly 
competitive communications world.
    So let me summarize the fundamental case for this merger. 
What specifically will it mean for consumers? It will mean that 
more Americans will have broadband sooner. It will speed up the 
introduction of digital cable, high-speed cable, and other 
innovative services still on the drawing board.
    It will bring facilities-based phone competition to 
millions more homes, it will allow us to expand investment in 
improved local and regional programming, and it will permit us 
to expand our strong commitment to our local communities using 
the latest technology. This merger will make all these things 
possible, as you have said, while not reducing competition in 
any relevant market.
    Chairman Kohl and other Senators, I could not be more proud 
of what the cable industry and Comcast have brought to America 
in the past. With our new company, joining Comcast and AT&T 
Broadband, we have the chance to do so much more. We want to 
make our new company a true 21st century leader in every sense. 
We are committed to serve our customers and our local 
communities both as quality communication service providers and 
as good corporate citizens.
    I thank you for the opportunity to appear today and I look 
forward to your questions.
    [The prepared statement of Mr. Roberts follows:]

     Statement of Brian L. Roberts, President, Comcast Corporation

    Comcast's merger with AT&T Broadband will accelerate the growth and 
availability of broadband services. Combining these two companies, and 
drawing on the special strengths and capabilities and resources of 
each, will ensure that more Americans have access to more digital 
services and features, sooner. The transaction will yield demonstrable 
benefits in investment, innovation, facilities-based competition, and 
new and improved video, data, and voice services, with no offsetting 
detriments. The merger will therefore serve the public interest.
    The merger of Comcast and AT&T Broadband will accelerate the 
deployment of facilities-based high-speed Internet service and other 
broadband services. Speeding the deployment of these advanced services 
not only will benefit consumers by offering them innovative video and 
other services, but also will benefit the Nation at large by 
stimulating productivity gains and economic growth. Although Comcast 
has substantially finished the upgrades to its cable plant necessary to 
offer broadband services, AT&T Broadband's systems require significant 
additional investment in order to complete needed upgrades. Due to 
economies of scale and scope and cost savings resulting from the 
merger, those upgrades can and will be implemented faster, bringing 
more benefits to more consumers sooner, than would be possible without 
the merger. Scale and scope efficiencies and cost savings generated by 
this merger will also increase the incentive and ability of the merged 
firm to invest in, and assume the risks associated with, developing and 
deploying a variety of innovative services and features, such as high 
definition television (``HDTV''), video-on-demand, and other 
interactive television (``interactive TV'') services.
    The proposed merger will also bring benefits in the form of long-
awaited local telephone competition, particularly for residential 
customers. AT&T Broadband brings to this merger its considerable 
expertise and experience in the provision of circuit-switched telephony 
over cable plant. It currently markets cable telephony to more than 7 
million households and serves more than 1.5 million lines. 
Significantly, Comcast has no comparable offerings, and the merger will 
thus permit Comcast to accelerate its entry into this market. Although 
providing local telephone service in competition with incumbent 
carriers involves substantial business risk, AT&T Comcast will be 
better equipped to confront that risk than either company could alone, 
because of the complementary assets and expertise of Comcast and AT&T 
Broadband. Importantly, this competition will be facilities-based, thus 
allowing the merged company to offer residential customers a broader 
range of differentiated services and features that are far less 
dependent on access to the incumbent telephone companies' facilities on 
economically-viable terms and conditions.
    The proposed merger also will deliver benefits to consumers by 
stimulating the production and delivery of local and regional 
programming. Comcast is widely recognized as an industry leader in the 
development of successful, high-quality programming geared to regional 
and local markets. The merger will enable AT&T Comcast to extend this 
expertise to areas in which AT&T Broadband has significant clusters. 
The merger will also allow the two companies to draw on their 
respective expertise in community outreach efforts, including 
initiatives to connect classrooms to the Internet.
    The proposed merger is consistent with all applicable laws, 
including the antitrust laws. The proposed merger will have no 
anticompetitive effects in any relevant market. Comcast and AT&T 
Broadband provide services to consumers in different local markets and, 
therefore, their union will not affect horizontal concentration in any 
relevant market. Further, the combined entity will not have either the 
ability or incentive to exercise buyer or seller market power in any 
relevant market.
    It will not result in any violations of the Communications Act or 
the Federal Communication Commission's rules. In particular, it bears 
emphasis that AT&T Comcast will serve less than 30 percent of the 
Nation's multichannel video programming distribution (``MVPD'') 
customers, the national limit that was reversed and remanded in Time 
Warner II. That calculation does not include the customers served by 
the Time Warner Entertainment (``TWE'') and Time Warner Inc. (``TWI'') 
cable systems. AT&T, with the full support of Comcast, is firmly 
committed to completing the sale of its limited partnership interest in 
TWE. If that divestiture is not completed prior to closing, the 
applicants are prepared to take the steps that may be necessary to 
insulate the interest (and thus render it non-attributable) under the 
Commission's rules, as well as such additional steps as may be 
appropriate to ensure that AT&T Comcast would not be able to influence 
TWE prior to its ultimate sale.
    In addition, AT&T Comcast is fully committed to negotiating 
mutually beneficial service agreements with Internet service providers 
(``ISPs'') so that its cable customers will have a choice of ISPs. Both 
AT&T Broadband and Comcast have conducted trials to explore the issues 
associated with multiple ISP arrangements. Now, each applicant is 
actively (and independently) negotiating to reach commercial agreements 
with unaffiliated ISPs. Indeed, Comcast recently announced that it has 
executed an agreement with United Online that will provide Comcast's 
customers in Indianapolis and Nashville with access to United's ISP 
service, with the potential to roll-out this offering to other Comcast 
cable systems with the concurrence of both Comcast and United Online. 
In addition, AT&T recently announced that it has reached an agreement 
with Earthlink.
    In summary, the proposed merger of Comcast and AT&T Broadband 
offers real and substantial benefits to consumers. It will enable AT&T 
Comcast to accelerate costly investments required to equip cable 
systems with the capability to deliver and improve high-speed Internet 
and other broadband services. The proposed combination will also 
promote facilities-based local telephone competition, particularly for 
residential customers, and will hasten the development and deployment 
of other advanced competitive services. The merger will not have any 
adverse competitive effects in any relevant market. Thus, the merger 
will be pro-competition, pro-consumer, and consistent with the public 
interest.

    Chairman Kohl. We thank you, Mr. Roberts.
    Mr. Armstrong.

STATEMENT OF C. MICHAEL ARMSTRONG, CHAIRMAN AND CHIEF EXECUTIVE 
         OFFICER, AT&T CORP., BASKING RIDGE, NEW JERSEY

    Mr. Armstrong. Thank you, Chairman Kohl and Senators, for 
inviting me to testify about this proposed merger of AT&T and 
Comcast.
    This merger is a unique opportunity, I think, to achieve 
two of Congress' longstanding goals: first, the widespread 
deployment of facilities-based local telephone competition, 
and, second, the more rapid provision of advanced broadband 
services. By uniting two companies with complementary assets, 
this merger will bring more voice, data, and digital video 
services to more Americans more quickly than would be possible 
without this merger.
    When I testified before the Judiciary Committee almost 3 
years ago, I offered that AT&T's cable investments would give 
more American consumers a choice of local telephone providers. 
Just 2 years after closing that merger, we are over-achieving 
on that commitment. We now serve more than 1 million 
residential telephone subscribers. This is a fivefold increase 
over the number of cable telephony customers we served at the 
time of the MediaOne merger.
    As a result of this progress, in just these 2 years AT&T 
Broadband has become one of the ten largest local telephone 
companies in the Nation. Today, in 55 communities, our 
telephone penetration is already 25 percent or higher, and this 
includes several cities such as Salt Lake, Pittsburgh, and 
Seattle. We enable customers to pay one charge for local 
intraLATA toll and long distance, and savings are some 39 
percent when compared to incumbent telephone companies.
    In our original 5-year plan, we thought we would break even 
financially on telephony in the last quarter of this year and 
we are on track, because we are over-achieving, to beat that 
goal. But despite this rapid success, there is still much more 
to be done. Incumbent local exchange carriers still serve 
nearly 95 percent of the market for residential telephone 
service.
    We are confident that AT&T-Comcast will take our success to 
the next level. Comcast cable systems today provide telephone 
service on a very small scale. AT&T's broadband telephony 
expertise will strengthen Comcast's ability to offer telephony.
    First, Comcast can take advantage of AT&T Broadband's 
technical and operational capability in launching and providing 
cable telephony. We have already deployed the systems for the 
design, for the installation, and for the operation of the 
complex fiber-coaxial systems that it takes to support digital 
voice.
    Second, Comcast will gain access to AT&T Broadband's back 
office and customer care systems. Third, our marketing success 
will help Comcast face the difficult challenge of competing 
with local monopolies.
    Importantly, because AT&T Broadband's cable telephony 
approach is so highly scalable, it will allow us to expand the 
availability of telephony over Comcast's systems much more 
quickly, at least capital expense, and in a more customer-
friendly manner. In fact, Brian and I have already announced 
that shortly after closing the merger we will begin deploying 
telephone service in Comcast's Philadelphia and Detroit 
systems. This will bring facilities-based local telephone 
choice to about 1 million more consumers.
    But local telephony competition is not the only important 
benefit of our merger. The merger will also enhance our ability 
to offer new broadband services such as HDTV, video-on-demand, 
and expanded Internet services to virtually millions of 
additional Americans. In particular, the combined company will 
have greater financial strength than either one of us would 
have to do this alone. As a result, we will have far greater 
access to the capital required to upgrade our cable systems to 
deploy broadband services.
    In addition, the scale economies created by the merger will 
allow us to more efficiently use the combined resources. For 
example, we can combine the call centers, centralize repair and 
maintenance facilities, and more efficiently manage broadband 
research and development costs. All of this means that we will 
be in a much better position to bring new broadband services to 
many, many more customers.
    This was our experience in our merger with MediaOne. When I 
testified before you about that merger, I noted that we would 
give many more American consumers access to high-speed Internet 
and other broadband services. In the 2 years since the merger 
closed, our high-speed data customers have nearly doubled to 
1.5 million, and our digital video customers have jumped from 
2.2 million to 3.5 million. We are just as confident that the 
combination of our two companies will continue these benefits.
    I also want to address the issue of ISP choice which I know 
is of interest. Given the competition we have in the 
marketplace with DSL, we are interested in being as competitive 
in our offerings to consumers as possible. We concluded a 20-
million trial in Boulder, Colorado, with 4 ISPs. We learned a 
great deal about what we had to do to implement a multiple ISP 
network.
    In fact, we have negotiated and now have in the process of 
planning an EarthLink implementation in Boston and Seattle, and 
we announced just this morning another ISP in the Boston area, 
a local, regional ISP, Net One Plus, so that there will be 
three ISPs on the network, and we are currently in negotiation 
with others.
    Finally, I want to stress that we will achieve all of the 
benefits of our merger without violating any FCC rule or 
antitrust policy. As I described in the written testimony, our 
merger will not reduce competition in any market.
    I look forward to answering any specific questions you may 
have, Mr. Chairman.
    [The prepared statement of Mr. Armstrong follows:]
     Statement of C. Michael Armstrong Chairman and CEO, AT&T Corp.
    Thank you, Mr. Chairman and Members of the Subcommittee, for 
inviting me here today to testify about the proposed merger between 
AT&T Broadband and Comcast Corp.
    The merger creates a unique opportunity to accelerate the 
development and widespread deployment of facilities-based local 
telephony and broadband services. By uniting two companies with 
remarkably complementary assets, this merger will bring more digital 
video, data, and voice services and features, to more Americans, more 
quickly than would be possible without the merger. In short, the merger 
will benefit American consumers and enhance competition, without 
violating any FCC or antitrust rule or policy.
    I will focus today on two of the principal public interest benefits 
that will be made possible by the merger. Specifically, I will discuss 
how the merger will: (1) promote facilities-based local telephone 
competition; and (2) accelerate the deployment of facilities-based 
high-speed Internet service (as well as ISP choice), digital video, and 
other broadband services. I then will explain that the merger will not 
violate any law or regulation (including any horizontal ownership 
limit) and will cause no competitive harm in any relevant market.

      I. The Merger Will Promote Facilities-based Local Telephone 
           Competition, Particularly to Residential Consumers

    The proposed merger will create substantial benefits in the form of 
long-awaited local telephone competition, particularly for residential 
customers. Six years after passage of the Telecommunications Act of 
1996 (``1996 Act''), virtually all local exchange traffic--and 
particularly residential traffic--continues to be carried by the 
incumbent local exchange companies (``ILECs''). While we are making 
tremendous strides, the ILECs still provide local exchange service to 
95 percent of the customers in their territories. Although our merger 
obviously cannot be a full solution to producing local competition, it 
will accelerate the availability of local telephone choice to millions 
of additional consumers.
    The deployment of cable telephony in new markets continues to 
involve considerable business risks. Cable systems entering the 
telephony business must underwrite large, upfront investments in new 
plant and develop and implement order processing, customer care, and 
other complex support systems, in order to overcome the substantial 
advantages of incumbent providers. An ILEC's installed infrastructure 
allows it to serve customers at a lower incremental cost than a new 
facilities-based entrant and to realize scale efficiencies provided by 
heavily concentrated customer bases. The magnitude of the risks facing 
new entrants is underscored by the numerous telecommunications 
companies that have filed for bankruptcy in recent years.
    AT&T Comcast will be on a stronger footing in dealing with these 
substantial business risks because of the complementary assets and 
expertise of AT&T Broadband and Comcast and the scale economies created 
by the merged entity. AT&T Broadband brings to the merged entity 
extensive experience and expertise in the design, roll-out, 
provisioning, operations, and marketing of cable telephony in a 
customer-friendly manner. AT&T Broadband currently offers cable 
telephony in 16 markets to more than 7 million households and has 
approximately 1.1 million customers. We offer special ``Block of Time'' 
plans that allow customers to pay one charge for local, intraLATA toll, 
and long distance telephone services, with savings in some markets of 
over 39 percent when compared to incumbent LEC calling plans. Savings 
for customers buying more than one line can be even higher.
    Our experience has been quite positive. For example, in the Salt 
Lake City market, we have had consumer take rates of 25 percent or 
higher in Ogden, Provo, and Salt Lake. We have had a similar consumer 
response in several Pittsburgh-area communities, including McKeesport, 
Aliquippa, East Hills, South Hills, Beaver Falls, Carnegie, McKees 
Rocks, Ross, and Midland, as well as Bellingham in the Seattle market.
    In the past year alone, AT&T Broadband added almost one-half 
million new cable telephony customers, increasing its customer base by 
over 100 percent. As illustrated below, AT&T Broadband is by far the 
leading provider of cable telephony in the U.S. today:

[GRAPHIC] [TIFF OMITTED] T5889.029


    By contrast, Comcast's cable systems currently provide cable-
delivered telephone services on only a very small scale, mostly in 
cable systems Comcast acquired from third parties which had already 
launched telephone service.
    Fortunately, AT&T Broadband's cable telephony expertise is highly 
scaleable and can be applied to Comcast's existing cable systems. As a 
result, AT&T Comcast will be better able to expand the availability of 
telephony over the Comcast systems more quickly, at less expense, and 
in a more customer-friendly manner. In light of these synergies, 
Comcast has announced that, after closing, the merged company intends 
to begin to deploy telephone service in the Philadelphia and Detroit 
markets currently served by Comcast, bringing facilities-based local 
telephone choice to about one million additional homes.
    AT&T Broadband's cable telephony expertise will enhance the ability 
of Comcast's cable systems to offer telephony services in three 
important respects: technical and operational expertise, back office 
systems, and marketing.

                 A. TECHNICAL AND OPERATIONAL EXPERTISE

    Comcast will acquire AT&T Broadband's technical and operational 
expertise in launching and providing cable telephony. AT&T Broadband 
has already deployed centralized systems to support the design, 
installation, maintenance, and operation of the complex, two-way hybrid 
fiber-coaxial systems that support digital voice and data applications 
and that interconnect with both copper twisted-pair and fiber optic 
technologies used by the ILECs.
    AT&T Broadband has several business units that have developed--at 
significant cost--the technical and operational know-how to provide 
cable telephony in an efficient and consumer-friendly manner. For 
example, the AT&T Broadband National Operations team provides support 
on a wide range of planning, engineering, technical, and operational 
issues that are faced when deploying complex cable telephony service. 
AT&T Broadband's Technical Operations Organization has already 
developed operational performance metrics to ensure quality cable 
telephony services, effective training of technicians and field 
fulfillment personnel, and cost-effective investigation and resolution 
of field performance issues. AT&T Broadband's National Service 
Assurance Center provides the means for our cable systems to ensure not 
only that calls are completed successfully and billed correctly, but 
also that all of the necessary number portability, emergency service, 
and other databases are managed correctly. And, cable telephony 
providers must be interconnected to, and coordinate with, ILECs (and 
other competitive LECs) and interact effectively with a variety of 
third parties to rate, record, and bill traffic for purposes of 
reciprocal compensation--all functions that AT&T Broadband already 
performs for its systems. Upon closing of the merger, the same 
organizations at AT&T Broadband that now act as the points of interface 
for these issues will be available to support cable telephony 
operations over the Comcast systems. Comcast will also be able to take 
advantage of certain interconnection agreements that AT&T Broadband has 
with the incumbent LECs serving Comcast's territories.

                         B. BACK OFFICE SYSTEMS

    Comcast will also gain access to AT&T Broadband's existing back 
office systems that support cable telephony. These systems allow AT&T 
Broadband to take customer orders and to serve as the point of contact 
for customer care inquiries. Having in place these ``nuts and bolts'' 
back office capabilities and employees is essential to offering local 
telephone service in competition with incumbent LECs. Not only are AT&T 
Broadband's back office systems highly robust and efficient, but they 
employ technologies and processes that will allow AT&T Comcast to use 
them to support offerings in Comcast territories without incurring 
substantial additional cost.
    The combination with AT&T Broadband will also enhance Comcast's 
telephone billing capabilities. AT&T Broadband has in place specialized 
billing software processes, developed over several years, that are 
sufficiently flexible to handle a service area's unique billing 
parameters and sufficiently robust to handle substantial increases in 
volume. These back office billing systems can be used to support 
telephone entry in Comcast territories at a mass market level.

                             C. MARKETING.

    AT&T Broadband's substantial marketing expertise will also help 
Comcast face the considerable challenge of competing for local 
telephony customers against formidable incumbents in Comcast's service 
areas. AT&T Broadband has already conducted primary market research on 
topics such as pricing and offer design--benchmarked against the 
competition--to assist it in developing successful product offers, 
programs, and marketing campaigns. And AT&T Broadband has learned a 
tremendous amount about customer preferences (including the types of 
marketing that customers like and dislike) as a result of its market 
experience over the past several years.
    Finally, the technical, operational, back office, marketing, and 
customer care experience AT&T Broadband has gained from its cable-
based, circuit-switched telephony operations should be applicable in an 
IP telephony environment. Comcast and AT&T Broadband have taken 
leadership roles in developing cable-delivered IP telephony. IP 
telephony may result in significantly lower roll-out costs and 
increased flexibility and may also provide a common infrastructure that 
supports multiple advanced services. AT&T Broadband is committed to the 
continued development of IP telephony.
    I want to emphasize that the synergies detailed above are not 
merely theoretical. AT&T Broadband's experience in deploying cable 
telephony after the MediaOne merger has proven that combining new cable 
assets will result in just such consumer benefits. Indeed, as 
illustrated below, the number of telephony customers served by AT&T 
Broadband today is five times greater than the number served by the two 
separate companies before their merger:

[GRAPHIC] [TIFF OMITTED] T5889.030


    We are confident that AT&T Comcast can build on this successful 
record, and that the combination of our complementary assets and 
expertise will further accelerate the pace, broad deployment, and 
effectiveness of facilities-based local telephone competition, creating 
substantial benefits for consumers. It is also worth emphasizing, 
however, that while the promise of facilities-based local telephone 
competition is a major benefit of this merger, realizing this promise 
will require a substantial investment of time and money by AT&T 
Comcast, as well as other cable operators, to deploy the necessary 
technology and gain the necessary market presence. AT&T Broadband and 
Comcast are strongly committed to making these investments, but nothing 
about cable telephony or this merger diminishes the independent need to 
facilitate the other means of creating local telephone competition that 
Congress specified in the 1996 Act.

  II. The Merger Also Will Enhance the Deployment oF Facilities-based 
    High-speed Internet Service, Digital Video, and Other Broadband 
            Services, Particularly to Residential Customers

    Comcast and AT&T Broadband both offer high-speed Internet services, 
serving a combined 2.5 million customers. By combining complementary 
assets and experience and creating economies of scale and scope, the 
merger will allow us to more efficiently develop and deploy new, 
innovative broadband applications over the AT&T and Comcast cable 
facilities, providing substantial benefits to consumers and stimulating 
productivity gains and growth in the U.S. economy. Moreover, AT&T 
Comcast's efforts will provide a competitive spur to other entities, 
including incumbent telephone companies, nationwide direct broadcast 
satellite (``DBS'') providers, and others. The existence of a strong 
and credible broadband alternative on cable has already generated 
competitive responses in the form of accelerated DSL deployment by 
incumbent telephone companies, and this proposed merger will further 
advance this trend.

A. Capital Improvements And Other Merger Benefits
    AT&T Broadband's merger with Comcast will enhance significantly its 
access to the capital required to underwrite an aggressive plan for 
deploying new broadband services such as HDTV, video-on-demand, and 
expanded Internet offerings to residential consumers over existing AT&T 
Broadband systems. It is estimated that AT&T Broadband and Comcast 
collectively will spend approximately $5.5 billion in 2002 on capital 
expenditure items and, following the merger, AT&T Comcast will continue 
to make substantial capital expenditures. AT&T Comcast should be able 
to obtain lower prices for many of these capital items as a result of 
the increased scale of its purchases.
    More generally, the scale economies created by the merger will 
foster more efficient use of infrastructure (e.g., by allowing for more 
efficient use of call centers), and provisioning, repair, and 
maintenance (e.g., by providing local/regional scale to support 
efficient, centralized truck rolls). The merger will also provide 
national scale that will allow the merged firm to defray more 
efficiently the enormous research, development, and testing costs 
associated with new services and features. This increased scale is 
particularly important to accelerating the development and testing of 
new interactive TV services, voice-enhanced data services, home 
networking and security, and other new, and as yet untested, broadband 
services.

B. ISP Choice
    I want to address in particular the issue of ISP choice, which I 
know is of interest to members of the Subcommittee. AT&T Broadband and 
Comcast share a strong commitment to providing multiple ISP access on 
their broadband networks. Indeed, both companies have ample market 
incentives to make commercially reasonable, customer-friendly 
arrangements with unaffiliated ISPs in order to maximize the 
attractiveness of their Internet offerings to customers and potential 
customers. Given the need to compete with DSL and other comparable 
high-speed data providers, AT&T Comcast will continue to have such 
incentives to offer its customers a choice of ISPs post-merger.
    AT&T Broadband has made real progress in its efforts to provide ISP 
choice. In particular, in 2000 and 2001, AT&T Broadband conducted a $20 
million 6-month trial in Boulder with four ISPs (Excite@Home, 
EarthLink, Juno, and WorldNet) which provided significant experience on 
the technical and operational requirements needed to support a multiple 
ISP environment. The Boulder trial enabled us to test our technical 
infrastructure and assess our key business assumptions. For example, we 
learned a great deal in Boulder about routing architecture, consumer 
self-help and diagnostic tools, business-to-business interfaces, and 
how consumers value ease of ISP selection.
    The lessons learned in Boulder will be valuable as we roll out ISP 
choice in Boston and Seattle this year. The first step in commencing 
implementation of ISP choice is the agreement we recently entered into 
with an unaffiliated ISP, EarthLink. Under the agreement, EarthLink 
will offer high-speed cable Internet service via AT&T Broadband's 
network. Initially, EarthLink will launch service in Seattle followed 
by greater Boston. The companies anticipate launching EarthLink's 
service in additional AT&T Broadband markets in 2003. The planning 
discussions are underway with EarthLink regarding, for example, the 
interconnection of our two networks, the deployment of efficient 
operational interfaces between the companies, and the schedule for 
rolling out the service in particular communities. In addition, we are 
actively reaching out to a number of regional ISPs in an effort to 
provide our customers with even greater ISP choice. We are also 
migrating to a more robust high-speed data provisioning system across 
all of our markets to provide more effective support for our high-speed 
data customers, both those we serve directly and those receiving ISP 
services from unaffiliated ISPs.
    Comcast also has conducted trials of ISP choice, which have 
provided it with valuable experience and insight into how best to roll 
out this new offering. The merger will enable our two companies to 
share the unique experiences we have had and the important knowledge we 
have gained in our respective ISP choice trials. This sharing of ``best 
practices'' will enable AT&T Comcast to overcome the substantial 
technical and operational complexities involved in implementing ISP 
choice, so that this important new service offering can be rolled out 
on a more efficient and widespread basis than the two companies could 
hope to achieve independently.

III. The Merger Will Not Result in any Violation of the Communications 
                         Act or the FCC's Rules

    The proposed merger will not result in the violation of any 
provisions of the Communications Act, other applicable statutes, or the 
FCC's rules. In particular, I will address today the reasons why the 
proposed merger will not violate the FCC's cable horizontal ownership 
limit.
    In October 1999, the FCC adopted a rule prohibiting a cable 
operator from having an attributable interest in cable systems that 
account for more than 30 percent of all MVPD subscribers nationwide. 
However, as the Subcommittee knows, last year the D.C. Circuit in Time 
Warner II reversed the 30 percent limit and remanded the rule to the 
FCC for further consideration. The FCC has initiated a proceeding to 
consider the cable horizontal issue in light of Time Warner II. The FCC 
has not yet reached a decision in that proceeding.
    Of course, AT&T Comcast will take all steps necessary to comply 
with any new cable horizontal ownership limit that the FCC adopts. But, 
it is especially noteworthy that the merger would not violate even the 
30 percent limit that was set aside in Time Warner II. AT&T Comcast 
will serve approximately 27.3 million subscribers, or about 29.7 
percent of the Nation's MVPD subscribers. Because this percentage is 
below the horizontal limit in effect before the ruling in Time Warner 
II, there can be no reasonable basis for concern that the proposed 
merger would violate any horizontal ownership rule.
    This calculation does not include the subscribers served by the 
cable systems owned by Time Warner Entertainment Co., L.P. (``TWE''). 
When AT&T merged with MediaOne, AT&T Broadband acquired a minority, 
limited partnership interest representing about 25 percent of TWE. 
Subsidiaries of AOL Time Warner hold the remaining majority interest in 
TWE. Under the terms of the TWE Limited Partnership Agreement 
(``LPA''), AT&T Broadband has no role in or ability to influence the 
management or operations of TWE, nor does it have the right to 
communicate with TWE, or AOL Time Warner, the general partner of TWE, 
on matters pertaining to the day-to-day operations of TWE. The TWE 
Cable Management Committee (all members of which are appointed by and 
from AOL Time Warner) has full discretion and final authority over 
TWE's cable operations. All of MediaOne's rights with regard to the TWE 
Cable Management Committee were terminated before AT&T merged with 
MediaOne and acquired the TWE interest. Thus, we believe that the 
interest in TWE would qualify for insulation from attribution to AT&T 
Broadband under the FCC's attribution rules today, and to AT&T Comcast 
post-merger.
    In any event, AT&T Broadband and Comcast do not view the TWE 
interest as a long-term investment and are firmly committed to 
divesting the interest for a fair price as quickly and efficiently as 
possible. In fact, the process of attempting to sell the TWE interest 
is already underway. AT&T Broadband has pursued with AOL Time Warner 
various options for the sale of its TWE interest to AOL Time Warner in 
an efficient and expeditious manner. AT&T Broadband also is pursuing 
the sale of its TWE interest via a public offering pursuant to the 
registration rights provisions of the TWE LPA. Although AT&T Broadband 
is pursuing diligently all possible avenues to dispose of its TWE 
interest, the simple fact is that our ability to sell promptly the 
interest at a fair price depends almost entirely on the cooperation of 
AOL Time Warner and its subsidiaries, who do not have the same 
interests or incentives as AT&T Broadband in this regard.

  IV. The Merger Will Have No Anticompetitive Effects in Any Relevant 
                                 Market

    AT&T Broadband and Comcast provide services to consumers in 
different local markets and therefore the proposed merger will have no 
measurable impact on horizontal concentration in any relevant market. 
Additionally, the combined entity will not have either the ability or 
incentive to exercise buyer market power in any relevant market.

             A. MULTICHANNEL VIDEO PROGRAMMING DISTRIBUTION

    The merger will not have any adverse effect on competition in the 
business of multichannel video programming distribution. AT&T Broadband 
and Comcast cable systems reach different residences and businesses and 
compete in different local markets, so the proposed merger will not 
reduce actual competition in any relevant local distribution market.
    Further, the merged company will face intense competition from DBS 
providers. DirecTV and EchoStar, two DBS providers, distribute video 
programming throughout the United States and compete directly in all 
local markets served by AT&T Broadband, Comcast, and other cable 
operators. In less than 10 years, DBS has grown from serving no 
multichannel video subscribers to serving nearly 18 million 
subscribers, over 19 percent of all MVPD subscribers nationwide. Last 
year alone, DBS grew 12 times faster than cable, with both DirecTV and 
EchoStar experiencing tremendous subscriber growth. Indeed, four out of 
five new customers now are choosing DBS over cable, and almost one-half 
of existing DBS subscribers are former cable customers. In addition, 
AT&T Comcast will face retail competition in many localities from cable 
``overbuilders'' (including RCN and Knology), electric utilities 
(including Starpower and Seren), and MMDS and SMATV providers.

             B. VIDEO PROGRAMMING PRODUCTION AND PACKAGING

    The merger will not adversely affect competition in the production 
and packaging of video programming for sale to MVPDs. As explained 
below, AT&T Comcast will have neither: (1) ``seller power'' that would 
allow it to raise prices for, or discriminate in the distribution of, 
video programming; nor (2) ``buyer power'' that would allow it to 
insist on anticompetitive terms and conditions for programming that it 
purchases from others.
    As the members of the Subcommittee know, a critical element of any 
competition analysis is the definition of the relevant geographic 
market. The relevant geographic market for the purchase and sale of 
video programming is quite broad and, for many types of programming, 
international in scope. There are no significant limitations on 
transporting programming and, as a result, video programming can be 
sent to virtually any distribution outlet in the world for roughly 
equivalent costs. Moreover, the only limiting factor on the 
international distribution of U.S.-produced content is whether there is 
foreign demand for that content. Foreign demand is quite strong; 
international sales now account for a very substantial portion of video 
programmers' businesses. By way of example, MTV reaches more than 340 
million households in 140 countries.

1. Seller Power
    The merger will not reduce competition or create market power in 
the sale of video programming by AT&T Comcast. The combined company 
will have only very modest programming interests and no enhanced 
ability to control the pricing of video programming to MVPDs. AT&T 
Comcast will have ownership interests in a total of 24 video 
programming networks, or 6.4 percent of the current 374 programming 
networks. This very limited set of post-merger interests (many of which 
are minority interests) presents no concentration problem or threat of 
competitive harm, particularly when viewed against the backdrop of the 
highly competitive video programming marketplace, and the far more 
significant program holdings of other media entities.

2. Buyer Power
    AT&T Broadband and Comcast are, of course, buyers of video 
programming. There are two theories of competitive harm that could be 
raised by an assertion that the merger creates buyer ``market power'': 
first, that the merger would reduce horizontal competition in the 
purchasing of programming and thereby create buyer monopsony power; and 
second, that the merger would increase the incentive and ability of the 
merged firm to engage in distribution foreclosure in the purchase of 
video programming from video programming producers. As explained below, 
the merger will not create any anticompetitive consequences under 
either of these theories.
    Monopsony Power. Traditional monopsony theory holds that a firm 
buying a sufficiently high percentage of the output of a group of 
sellers may have the ability to set unilaterally the price it pays for 
goods or services produced by the sellers. This theory has no 
applicability in the present case for several reasons.
    First, companies can only exercise monopsony power over goods that, 
when sold to one buyer, cannot be sold to another buyer. However, video 
programming can be consumed by an unlimited number of buyers. This 
negates the normal intuition that a very large purchaser may be able to 
exercise monopsony power over sellers.
    Second, a programmer's distribution alternatives will largely 
determine whether the programmer is vulnerable to an attempt to 
exercise monopsony power. As noted, AT&T Comcast will account for less 
than 30 percent of total purchases, and that is not remotely enough to 
give it buyer market power, since the alternative distribution channels 
and revenue sources available to video programmers are significant 
(i.e., over 70 percent of the U.S. distribution market, as well as 
substantial international distribution markets).
    Third, a cable operator's appetite for quality programming is 
driven by consumer demand and retail competition. As a cable operator 
gets bigger, there is no change in its incentives to buy the 
programming that is likely to produce the greatest number of viewers 
relative to the cost of the programming. For these reasons, and given 
the intense competition from DBS and others at the retail level, even 
if a cable operator was large enough to exercise monopsony power--and 
AT&T Comcast clearly will not be large enough--it would choose the same 
quantity and quality of programming as a competitive, ``non-
monopsonist'' purchaser.
    Distribution Foreclosure. Nor could the combination of AT&T 
Broadband and Comcast trigger any foreclosure concerns. Such concerns 
could arise if the merged entity would have sufficient market power in 
the distribution of programming such that it would have the incentive 
and ability to foreclose access to its cable systems by refusing to buy 
programming that viewers desire from unaffiliated program packagers or 
producers.
    As an initial matter, AT&T Comcast will not have the incentive to 
foreclose unaffiliated video program packagers or producers because 
AT&T Comcast will have only modest video programming interests, and the 
damage caused by distribution foreclosure to its core cable 
distribution business could be substantial. It is clear that consumers 
view DBS and cable as substitutes and have demonstrated that they would 
readily switch from cable to DBS if they viewed AT&T Comcast's offering 
as inferior. As a result, any action by AT&T Comcast that degraded the 
quality of its programming--by foreclosing competitively priced 
unaffiliated programming that consumers want--would cause AT&T Comcast 
to lose customers to DBS or other distributors. Moreover, given the 
modest programming interests of AT&T Comcast, the potential benefits of 
such a strategy would be essentially non-existent.
    AT&T Comcast will also have no ability to foreclose. In order to 
engage in foreclosure successfully, AT&T Comcast would have to control 
such a substantial percentage of all distribution channels to which 
rival video programmers could turn as to be able to drive them out of 
business or substantially raise their costs. However, even focusing 
solely on U.S. MVPD distribution channels, AT&T Comcast will purchase 
programming for systems that serve less than 30 percent of subscribers. 
Video programmers, of course, understand marketplace dynamics and would 
recognize that, even without AT&T Comcast, they still have access to 
more than 70 percent of U.S. MVPD subscribers.

   C. SET-TOP BOXES, CABLE MODEMS, AND OTHER MVPD CONSUMER EQUIPMENT

    Likewise, the merger will have no adverse effect on any equipment 
market. The relevant geographic market for MVPD customer equipment is 
global. Set-top boxes, modems, and other navigation devices are 
purchased by MVPDs and MVPD customers in the U.S., as well as by MVPDs, 
consumers, and other buyers worldwide. With fewer than 30 million 
subscribers, AT&T Comcast will represent less than 10 percent of the 
317 million worldwide cable and DBS subscribers. Accordingly, AT&T 
Comcast cannot be considered to have the power to do anything to harm 
the production or supply of such equipment.
    Even if one were to focus on the domestic equipment market, AT&T 
Comcast would purchase equipment for less than 30 percent of U.S. 
multichannel video customers--a level too low to raise any concerns 
about anticompetitive harm.
    Moreover, given the ubiquitous availability of DBS and DSL 
alternatives, AT&T Comcast will have no incentive to exercise market 
power against set-top box or modem manufacturers. Any action by a cable 
operator that has the effect of restricting the supply of high-quality 
equipment that enables consumers to access operator-provided services 
would cause the operator to lose cable customers to the DBS competitors 
and Internet customers to DSL or other competing providers. Thus, AT&T 
Comcast will be compelled by market forces to deal fairly with 
equipment manufacturers and to ensure that it and its customers have 
access to the best quality state-of-the-art equipment at the best 
possible price.

                       D. INTERACTIVE TV SERVICES

    The merger will not harm consumers or competition with respect to 
the provision of interactive TV services. As with MVPD and other 
services discussed above, AT&T Broadband and Comcast do not compete 
with each other in the provision of interactive TV services, so the 
merger will have no adverse effect on competition in this business. 
Moreover, the interactive TV business is in the very early stages of 
its development and many questions remain about the technology and 
consumers' demand for it. Indeed, there has not yet emerged a clear 
definition of what interactive TV is or how the market should be 
defined. So, it is entirely premature to even speculate on how the 
merger might affect this business.
    Moreover, notwithstanding the nascent stage of the interactive TV 
business, numerous companies (including DBS providers) are investing 
substantial resources in developing, deploying, and distributing 
interactive TV content, equipment, and services. In this highly dynamic 
environment, AT&T Comcast will have no market power in the provision of 
interactive TV services.
                               Conclusion
    Thank you for this opportunity to testify. I would be pleased to 
answer any questions you might have about the proposed merger.

    Chairman Kohl. We thank you, Mr. Armstrong.
    As I noted, there is a vote, so we will have now a 10-
minute recess and then we will be back.
    [The subcommittee stood in recess from 2:44 p.m. to 3:02 
p.m.]
    Chairman Kohl. This hearing will resume, and we will 
commence with testimony by Mr. Betty.

 STATEMENT OF GARRY BETTY, CHIEF EXECUTIVE OFFICER, EARTHLINK, 
                        ATLANTA, GEORGIA

    Mr. Betty. Thank you, Chairman Kohl, Senators, and thank 
you for inviting me to testify today about the proposed merger 
between AT&T and Comcast and its potential impact on 
competition and consumer choice in the broadband Internet 
access arena.
    My name is Garry Betty. I am the CEO of EarthLink. 
EarthLink is the Nation's third largest Internet service 
provider and we are the largest independent ISP. We currently 
serve 4.9 million customers with dial-up, broadband, and Web-
hosting services. In broadband, EarthLink is platform-agnostic, 
providing high-speed Internet access to over 530,000 customers 
through digital subscriber line, cable, and satellite 
connections. The majority of EarthLink's broadband customers 
today have DSL connections, as most major cable companies do 
not offer cable modem customers a choice of ISPs.
    All of us here today want to encourage broadband 
deployment. Broadband deployment is a term that is frequently 
used about almost anything these days. Unfortunately, it is 
also misused as an excuse for activities that benefit network 
owners at the expense of consumers.
    It has been said that you can do just about anything you 
want in Washington these days as long as you say it is to 
promote broadband deployment. One example of this has been the 
refusal of most major cable companies to allow consumers who 
want to connect to the broadband Internet through high-speed 
cable modems to choose their ISP. Rather, these cable companies 
have forced customers to use just their cable company's in-
house Internet service.
    This ``take or leave it'' choice has resulted in higher 
prices and lower adoption rates than would be the case if 
consumers had competitive choice in their Internet provider 
over cable. We are therefore here today to ask that AT&T and 
Comcast commit to providing customers in all their markets a 
choice in broadband ISPs over cable by signing commercially 
reasonable contracts with independent ISPs prior to the merger 
being approved.
    AT&T and Comcast have argued since 1998 to Congress, the 
FCC, Federal courts, and local authorities that they should not 
be required to offer their subscribers a choice in Internet 
providers over broadband cable. Rather, they have proposed that 
open access should be voluntary, and have promised that they 
would open their networks by this year. They have couched these 
arguments in very appealing calls for market-based solutions 
for broadband Internet access over cable.
    Unfortunately, while ISPs have always existed in a 
competitive marketplace, cable companies have not. Just as most 
consumers have no competitive choice in their cable television 
provider, so too most consumers have no choice in their 
Internet provider over broadband cable.
    This is a significant problem, since cable is and will 
remain the primary platform through which consumers get 
broadband Internet access. In 2001, cable provided about two-
thirds, or 6.5 million out of 9.7 million, of all broadband 
connections. By the end of 2002, cable will still be 60 
percent, and by 2005 it is estimated that cable will provide 
more than half of the connections for broadband customers.
    Notwithstanding calls for ubiquitous competition in 
platforms, the fact remains that cable will remain the only 
broadband connection for millions of Americans for years to 
come. This many consumers should not be denied meaningful 
choice in their Internet provider over these cable connections.
    Furthermore, broadband is the future of the Internet. While 
the market for dial-up Internet access has matured and reached 
a platform of about 55 million households, broadband continues 
to grow and it has grown from about 1 million households at the 
end of 1999 to an estimated 30 million households by the end of 
2005.
    There have been a lot of promises made over the years. 
During 1999, in AT&T's merger with TCI, AT&T told the 
Commission that it was committed to an open broadband platform 
and that it would favor the unbundling of the modem in order to 
provide consumers with choice at the lowest prices.
    Later that year, at the urging of then-FCC Chairman 
Kennard, AT&T signed a statement of principles with MindSpring 
Enterprises, now part of EarthLink, in which AT&T committed to 
offer broadband consumers a choice of ISPs when its exclusive 
contract with its own affiliated ISP, Excite@Home, expired in 
June 2002.
    In June 2000, AT&T signed an agreement with the 
Massachusetts Coalition for Consumer Choice and Competition, 
which was seeking an open access referendum on the November 
2000 ballot. In exchange for removing the ballot initiative, 
AT&T committed to conduct a multiple ISP trial no later than 
October 2001 and to implement ISP choice statewide by July 1, 
2002.
    As part of their acquisition of TCI, AT&T also made a 
commitment in the year 2000 to the local franchising authority 
in King County, Washington, to provide multiple ISP choices to 
consumers once their contract expired. On March 12, we 
announced an agreement with AT&T to offer broadband service to 
AT&T Broadband cable customers in Boston and Seattle later this 
year. They have also suggested that they will open additional 
markets during 2003, although they are under no obligation to 
do so.
    While we are pleased to have reached the agreements we have 
and look forward to signing others like them, there are still 
millions of AT&T and Comcast cable customers who have no 
competitive choice in broadband Internet service over cable.
    Similarly, Comcast recently signed an agreement with United 
Online to provide Indianapolis and Nashville customers with a 
choice of ISPs. Again, these limited agreements raise a 
question as to whether this is a slow trend toward long-
promised open access or merely an effort to forestall an open 
access requirement in the context of this merger review.
    As I am running out of time, I will say that we have been 
very satisfied with the arrangement that we have been able to 
negotiate with AOL Time Warner. I think it is an example of how 
it does provide consumer choice. Their business and adoption 
rates have increased 20 to 25 percent only 6 months after the 
introduction of that and has been a big part of their growth 
story prospectively.
    What I urge today is to have support from the Senate to 
support concepts of customer choice on open access over AT&T 
and Comcast systems, look for standards of effective open 
access consistent with what was set forth in the AOL Time 
Warner agreement that we signed, and perhaps push for getting 
more than just a promise and actually implement contractual 
arrangements between independent third parties prior to the 
merger being concluded.
    Thank you.
    [The prepared statement of Mr. Betty follows:]

                Statement of Garry Betty, CEO, Earthlink

    Good afternoon and thank you for inviting me to testify today about 
the proposed merger between AT&T and Comcast and its potential impact 
on competition and consumer choice in broadband internet access.
    I am Garry Betty, CEO of EarthLink. EarthLink is the Nation's third 
largest Internet Service Provider (ISP) and is the largest independent 
ISP. EarthLink serves 4.9 million customers with dial-up, broadband and 
web hosting services. In broadband, EarthLink is ``platform agnostic'' 
providing high-speed internet access to over 530,000 customers through 
Digital Subscriber Line (DSL), cable, and satellite connections. The 
majority of EarthLink's broadband subscribers today have DSL 
connections as most major cable companies do not offer cable modem 
customers a choice of ISPs.
    All of us here today want to encourage broadband deployment. 
``Broadband deployment'' is a term that is frequently used these days. 
Unfortunately, it is also sometimes misused as an excuse for activities 
that benefit network owners at the expense of consumers. It has been 
said that you can do just about anything you want in Washington these 
days as long as you say it is to promote broadband deployment.
    One example of this has been the refusal of most major cable 
companies to allow consumers who want to connect to the broadband 
internet through a high-speed cable modem to choose their internet 
provider. Rather, these cable companies have forced consumers to use 
just their cable company's in-house internet service. This take-it-or-
leave-it choice has resulted in higher prices and lower adoption rates 
than would be the case if consumers had competitive choice in their 
internet provider over cable.
    We are therefore here today to ask that AT&T and Comcast commit to 
providing customers in all their markets a choice in broadband ISPs 
over cable by signing commercially reasonable contracts with 
independent ISPs prior to their merger being approved.

   AT&T and Comcast Must Offer Cable Modem Customers a Choice of ISPs

    ATT and Comcast have argued since 1998 to Congress, the FCC, 
Federal courts and local authorities that they should not be required 
to offer their subscribers a choice in internet providers over 
broadband cable. Rather, they have proposed that open access should be 
voluntary and have promised that they would open their networks by this 
year. They have couched these arguments in very appealing calls for 
market-based solutions for broadband internet access over cable.
    Unfortunately, while ISPs have always existed in a competitive 
marketplace, cable companies have not. Just as most consumers have no 
competitive choice in their cable television provider, so too most 
consumers have no choice in their internet provider over broadband 
cable.
    This is a significant problem since cable is and will remain the 
primary platform through which consumers get broadband internet access. 
In 2001, Cable provided about \2/3\ (6.5 million out of 9.7 million) of 
all broadband connections. By year-end 2002, cable will still provide 
60 percent (8.0 million out of 13.8 million) of all broadband 
connections. By 2005, cable will still provide more than half (est. 
17.0 million out of 30.7 million) broadband connections.
    Notwithstanding calls for ubiquitous competition in platforms (i.e. 
cable vs. DSL vs. satellite) the fact remains that cable will remain 
the only broadband connection for millions of Americans for years to 
come. This many consumers should not be denied meaningful choice in 
their internet provider over those cable connections.
    Furthermore, broadband is the future of the internet. While the 
market for dial-up internet access has matured and reached a plateau at 
about 55 million households, broadband continues to grow from about 1 
million households at year-end 1999 to an estimated 30 million or more 
households by 2005.

                             Promises Made

    In 1999, during the FCC's review of AT&T's merger with TCI (even 
then the Nation's largest cable company), AT&T told the Commission that 
it was committed to an open broadband platform and that it ``would 
favor the unbundling of the modem in order to provide consumers with 
choice and lowest prices.''
    Later that year, at the urging of then FCC Chairman Kennard, AT&T 
signed a statement of principles with MindSpring Enterprises (now part 
of EarthLink) in which AT&T committed to offer its broadband consumers 
a choice of ISPs when its exclusive contract with its own affiliated 
ISP, Excite@Home, expired in June 2002. (Letter to FCC Chairman William 
E. Kennard from James W. Cicconi, David N. Baker and Kenneth S. 
Fellman, December 6, 1999).

                 Boston and Seattle: Local Commitments

    In June 2000, AT&T signed an agreement with the Massachusetts 
Coalition for Consumer Choice and Competition which was seeking an open 
access referendum from the November 2000 ballot. In exchange for 
removing the ballot initiative, AT&T committed to conduct a multiple 
ISP trial no later than October 2001, and to implement ISP choice 
statewide by July 1, 2002. (Memorandum of Agreement between AT&T Corp. 
and the Massachusetts Coalition, June 27, 2000).
    As part of their acquisition of TCI, AT&T also made a commitment in 
year 2000 to the local franchising authority in King County, Washington 
to provide multiple ISP choice to consumers once their contract with 
Excite@Home expired on June 4, 2002. As Excite@Home expired before 
their contract did, King County demanded in February 2002 that open 
access should immediately be implemented. (Letter to Janet Turpen, 
AT&T, from Kevin Kearns, King Co. Washington, February 19, 2002).

                          Small Steps Forward

    On March 12, 2002, EarthLink announced an agreement with AT&T to 
offer broadband internet service to AT&T Broadband cable customers in 
Boston and Seattle later this year. AT&T has also suggested that they 
will open additional markets in 2003. While we are pleased to have 
reached the agreements we have, and look forward to signing others like 
them, there are still millions of AT&T and Comcast cable customers who 
still have no competitive choice in broadband internet service 
providers over cable.
    Similarly, Comcast recently signed an agreement with United Online 
to provide Indianapolis and Nashville customers with a choice of ISPs. 
Again, these limited agreements raise the question as to whether this 
is a slow trend toward long-promised open access or merely an effort to 
forestall open access requirements in the context of a merger review.
    While we would like to believe that AT&T, Comcast and other cable 
companies will voluntarily open their systems, promises may no longer 
be enough. This merger would combine the Nation's first and third 
largest cable companies into super-size company controlling cable TV 
and internet access to over 40 percent of American homes. We would 
prefer to be able to sign business contracts on commercially reasonable 
terms. But barring such commitments, open access requirements would be 
necessary to ensure consumer choice in access.

                        AOL-Time Warner Example

    As part of its' antitrust review of the AOL Time Warner merger, the 
FTC required open access as a condition of approving that merger. In 
order to offer cable internet access through its affiliate AOL, Time 
Warner Cable must allow subscribers on its cable systems to choose from 
among AOL, Roadrunner (another in-house service), EarthLink, or other 
two other unaffiliated ISPs.
    While it is still early in our relationship with Time Warner, we 
are glad to report significant progress. Beginning in September 2001, 
EarthLink now offers broadband internet access to Time Warner Cable 
customers in 30 of their top 40 markets, with the remainder to come 
online by the end of this year.
    This open access relationship benefits all involved. Not only can 
EarthLink offer broadband service to customers formerly foreclosed to 
us, but we have helped drive overall broadband subscriber growth on the 
Time Warner systems. Time Warner executives have noted a 20 percent to 
25 percent increase in overall broadband take rates. (Chris Bogart, 
Pres./CEO of Time Warner Cable Ventures, at Goldman Sachs Communacopia 
2002, April 9, 2002). Consumers also benefit as they now have 
competitive choice in their internet provider over cable, with price 
differentiation and EarthLink service offered at a market-leading 
$41.95 a month.
    I urge you today to support the same basic conditions of open 
access on the AT&T and Comcast systems that apply to the AOL Time 
Warner systems.
    The minimum standards for effective open access are:
     Consumers of broadband cable services should have a choice 
among multiple ISPs.
     Cable broadband providers must negotiate at arms-length 
nondiscriminatory commercial arrangements with both affiliated and non-
affiliated ISPs (including ``first screen'' placement).
     ISPs should have the choice of operating on a national, 
regional, or local basis.
     Both the ISP and the cable operator should have the 
opportunity for a direct relationship with the customer.
     ISPs should be allowed to provide video streaming and 
there should be no discriminatory restrictions on provision of content.
    These are the basic standards that shaped the FTC's requirement for 
open access on the AOL Time Warner systems. These same requirements 
should be met by AT&T and Comcast as a condition of their merger.

                      Not Regulating the Internet

    There's been a lot of rhetoric by cable companies and their 
surrogates that open access is ``regulatory.'' But stop for a moment 
and consider what's being regulated. Throughout the country, cable 
companies have had exclusive local franchises to operate the cable 
system in any given area. These franchises were created by government 
regulations. Actions that seek to limit cable monopoly power created by 
these regulations, and to give consumers increased choices in broadband 
services are, by definition, de-regulatory.
    This is also not ``regulating the internet.'' The open unregulated 
competitive internet we enjoy today exists because of regulations on 
the underlying largely non-competitive infrastructure over which it 
travels. That's why even though consumers until recently had no choice 
in local phone service (and may only have limited choice today), they 
have never been required to buy the local phone company's ISP. For 
example, Verizon's ISP is available as a competitive choice, but you're 
not required to buy or use their ISP just because you get your local 
phone service from them. Compare this to most cable companies (which 
are also regulated, just under different rules) where if you want 
internet access through a cable modem, you have no choice but to 
purchase the cable company's affiliated ISP.
    By comparison, internet access has always been competitive. There 
are over 6,000 ISPs across the country. Consumers in major cities can 
choose from hundreds of ISPs that serve their local area. And over 96 
percent of internet users throughout the country, even in the smallest 
towns and rural areas, can choose from among at least 4 Internet 
Service Providers. Compare this to cable, where over 96 percent of 
customers throughout the country have NO choice in who their cable 
company is. As high speed internet access becomes available over cable, 
we are at a crossroads. Will we follow the open consumer choice path of 
the internet, or the closed no choice model of cable?
    Cable folks will say that open access isn't necessary because there 
are other means of high-speed access to the internet, such as Digital 
Subscriber Line (DSL) technology over phone lines. But DSL has distance 
limitations. Once you get more than a mile and a half from a telephone 
central office, DSL service starts to degrade. Once you get beyond 
three miles, it is essentially unavailable. And technologies such as 
satellite, wireless and electric lines will not be widely available for 
many years to come. The upshot is that for as many as a third of 
consumers across the country, particularly in rural areas, if they get 
any broadband access at all in the next 5 years, it will only be 
through a cable line. These customers deserve choice in broadband 
internet access as well.
    It has been consistent policy in this country for over 20 years to 
give consumers greater choice in their telecommunications services. The 
Federal court decision that broke up the old Ma Bell AT&T in 1984 and 
allowed competition in long distance has resulted in rates that are 
more than \2/3\ lower today than they were then. In passing the 
Telecommunications Act of 1996, Congress established the framework to 
bring these same benefits of competition to local phone service and to 
wireless. Legislation such as the Satellite Home Viewer Act and the 
program access provisions of the 1992 Cable Act sought to end cable's 
longstanding monopoly over multi-channel video programming. And 
consumers have always had competitive choice in Internet Service 
Providers in large part because FCC decisions beginning in the 70s, and 
80s and continuing today that allowed such information services to 
travel unfettered over phone lines. At every turn, policymakers have 
sought to give consumers greater choice in their communications 
services. Broadband internet access over cable should be no exception.
    Thank you for giving me the opportunity to speak with you today. I 
look forward to any questions you may have.

    Chairman Kohl. We thank you, Mr. Betty.
    Mr. Green.

 STATEMENT OF RICHARD R. GREEN, PRESIDENT AND CHIEF EXECUTIVE 
   OFFICER, CABLE TELEVISION LABORATORIES, INC., LOUISVILLE, 
                            COLORADO

    Mr. Green. Good afternoon, Chairman Kohl and Senators. I am 
Richard Green, President and CEO of CableLabs. I appreciate 
this opportunity to testify before this subcommittee and look 
forward to answering any of your questions that you have 
concerning the role of the cable industry in developing and 
deploying new technology.
    CableLabs is a research and development consortium of the 
cable television system operators serving North and South 
America. CableLabs conducts and funds research and development 
projects to help cable companies plan for the future and apply 
technology to meet customers' needs.
    We have been working to promote development of new services 
over cable systems and to introduce competition among suppliers 
to increase innovation and reduce prices to consumers. Our 
tremendously successful effort with cable modems is an example 
of this work.
    Today, 7 million American homes enjoy cable high-speed data 
service. The cable modems used in those homes were developed at 
CableLabs. The cable industry recognizes that to make cable 
modems broadly available, it would be necessary for these 
modems to use a common interface. Interoperability of the 
modems was achieved through the cooperation of the cable 
industry, equipment manufacturers, retailers, and others 
working with CableLabs on the DOCSIS project.
    As a result, a highly competitive environment has 
developed, to the benefit of consumers. CableLabs has certified 
over 200 different modem models from dozens of vendors. Cable 
modem retail prices have dropped from $300 to $50.
    In a similar and parallel effort, CableLabs has worked hard 
to encourage the commercial availability of cable set-top boxes 
and other equipment that work with cable systems. CableLabs 
members have been very clear in their instructions to us. These 
members supported the DOCSIS effort that successfully created a 
retail market in cable modems. They want the same thing to 
happen with cable set-top boxes and integrated digital 
television sets.
    But first and perhaps foremost, it is important for you to 
understand that cable systems can deliver and today are 
delivering broadcaster digital signals. High-definition digital 
cable set-top boxes which allow cable operators to provide 
digital and high-definition broadcast to consumers exist and 
they are being deployed today.
    Therefore, in those areas where cable companies have 
reached agreement with broadcasters to carry their digital 
signals, there are no technical compatibility problems.
    A number of cable companies, including Comcast, AT&T, AOL 
Time Warner, Cox, and Charter are currently providing such 
services or have announced plans to do so in the near future. 
The cable industry has worked with the consumer electronics 
industry to develop an integrated DTV set which would allow the 
cable set-top box to be incorporated within the DTV.
    To this end, the National Cable and Telecommunications 
Association and the Consumer Electronics Association reached a 
voluntary agreement in February of 2000, and that agreement 
would allow consumer digital television sets to be connected 
directly to digital cable systems.
    In a related area, the FCC has implemented the provision in 
the 1996 Telecommunications Act calling for the commercial 
availability of navigation devices such as set-top boxes. 
Consistent with the congressional direction that the security 
of the cable operator's signal not be jeopardized, the FCC 
rules require that separable security modules must be available 
from cable operators. These modules support integrated 
television receivers, as well as set-top boxes, in the retail 
market.
    These removable point-of-deployment, or POD, security cards 
foster the portability of set-top boxes and other point-of-
deployment-enabled devices. Leading cable operators, including 
the two companies here today, have publicly affirmed that these 
systems will support set-top boxes and integrated TV equipment 
built to these specifications.
    Moreover, to further promote retail sales of set-top boxes, 
in October of 2001 the cable industry launched an initiative 
that provides customers with the option of purchasing from 
participating retailers the exact same set-top box that they 
lease from the cable operator.
    In addition to the open cable hardware specification 
mentioned above, the Open Cable project has recently published 
an open specification for middleware, a voluntary initiative 
called OCAP, that will promote the commercial availability of 
fully portable digital set-top boxes and integrated TVs that 
will function seamlessly on cable systems. Once again, Comcast, 
AT&T and other cable operators have committed that their 
systems will support OCAP-enabled devices.
    The CableLabs process is open, cooperative, and efficient. 
We modeled our Open Cable effort on our successful DOCSIS 
effort. As we did with DOCSIS, we worked with equipment 
designers and manufacturers, over 500 companies in all, to 
cooperatively prepare and approve specifications. We are 
convinced that by attracting additional manufacturers, 
competition will add features to and reduce the price of set-
top boxes for consumers as well as cable operators. Our goals 
are to issue specifications that will unleash market forces to 
promote innovation and competitive offerings.
    Thank you again for this opportunity to testify this 
afternoon, and I will be pleased to answer the subcommittee's 
questions.
    [The prepared statement of Mr. Green follows:]

 Statement of Richard R. Green, President and Chief Executive Officer, 
                  Cable Television Laboratories, Inc.

    Good afternoon. I am Dr. Richard Green, President & CEO of 
CableLabs. I appreciate the opportunity to testify before this 
Committee, with particular emphasis on the development of the retail 
market for cable set-top boxes. I also look forward to answering any 
technical questions you may have concerning the role of the cable 
industry in developing and deploying new technology.
    I speak to you today as a scientist who has devoted a great deal of 
his professional career to questions involving the application of 
digital technology. The experience I gained during 4 years as Director 
of the CBS Advanced Television Technology Laboratory, 5 years as Senior 
Vice President of Operations and Engineering of PBS, and 14 years as 
CEO of CableLabs gives me a special appreciation for the technical 
perspectives of manufacturers, cable operators, and broadcasters.
    CableLabs is a research and development consortium of cable 
television system operators serving North and South America. CableLabs 
conducts and funds research and development projects to help cable 
companies plan for the future and apply technology to meet consumers' 
needs. I know this hearing is focused on the pending merger between 
Comcast and AT&T Broadband, and I would be remiss if I did not note 
that both of those companies are important participants in the work of 
our laboratory. Brian Roberts has recently served as Chairman of the 
CableLabs Board of Directors.
    CableLabs was incorporated under the Cooperative Research Act. The 
Act, which this committee played a key role in developing, encourages 
research and development among companies within industries like the 
cable industry. I believe that we have been able to realize the 
potential of that Act by, among other things, contributing to the 
development of a burgeoning broadband industry and helping spur the 
digital transition.
    For example, over ten million American homes now enjoy high-speed 
Internet access connections and over seven million of those homes are 
served by cable high-speed data service. The cable modems used in those 
homes were developed at CableLabs. In the past, computer users knew 
that they could buy a modem that would work on any phone line. Cable 
industry leaders wanted their customers to be able to buy their own 
cable modem at retail and be confident that it would work on any cable 
system in North America. hrough CableLabs' DOCSIS (Data Over Cable 
Service Interface Specification) project, that goal has been achieved. 
Cable's broadband service is providing an important new and 
competitive, high-speed data highway into American homes.
    A word about the CableLabs' cable modem or DOCSIS effort is 
instructive because it is a model for our OpenCable project which aims 
to address similar interoperability and retail availability issues for 
cable set-top boxes and digital television sets.
    The cable industry recognized that to make cable modems broadly 
available and take advantage of the economies of scale to get the 
lowest possible price for consumers, it would be necessary for cable 
modems to use a common interface. Interoperability of DOCSIS cable 
modems was achieved through the cooperation of the cable industry, 
equipment manufacturers, retailers and others working with the 
CableLabs DOCSIS project. With 3 years of careful development of the 
specification, relying upon input from CableLabs' member companies and 
the consumer electronics and software industries (including many who 
were not traditional suppliers for the cable industry), the DOCSIS 
modem specification became an international standard at the 
International Telecommunications Union. Then, CableLabs, again with 
input from its members and industry vendors, invited vendors to bring 
their equipment to CableLabs to test its interoperability with other 
vendors' DOCSIS modems. CableLabs developed a series of tests to 
measure conformance with the standard and, in so doing, insure product 
interoperability. We do this by ``certifying'' cable modem compliance 
with the DOCSIS standard.
    The certification process gives retail purchasers confidence that a 
certified cable modem will interoperate with other DOCSIS products made 
by other manufacturers. As of today, a highly competitive environment 
has developed to the benefit of consumers as CableLabs has certified 
over 200 different modem models from dozens of vendors.
    In a similar and parallel effort, CableLabs has worked hard to 
reduce the technical barriers to the delivery of digital and HDTV 
television and to encourage the commercial availability of cable set-
top boxes and other equipment that works with cable systems. CableLabs' 
members, the leading companies in the cable industry, have been very 
clear in their instruction to us. These members supported the DOCSIS 
effort that successfully created a retail market in cable modems. They 
want the same thing to happen with cable set-top boxes and integrated 
DTVs.
    The process of developing the digital set-top box standards has 
proved immensely more complicated, as we have attempted to reconcile 
the often competing interests of hundreds of parties from outside our 
industry. But with a lot of give and take among the players, we've now 
done it.
    I would like to give you a sense of how complex an undertaking this 
is, and of just how much progress has nevertheless been made.
    First and perhaps foremost, it is important for you to understand 
that cable systems can deliver--and today are delivering--broadcasters' 
digital signals (including high definition signals) to DTV sets owned 
by cable customers. In short, there is no technical impediment to 
current generation DTVs working with cable. ``High-definition'' digital 
cable set-top boxes which allow cable operators to provide digital 
broadcast signals (including high definition signals) to consumers 
exist and are being deployed today. Therefore, in those areas where 
cable companies have reached agreements with broadcasters to carry 
their digital signals over the cable plant, there is no technical 
``compatibility'' problem with the delivery of those signals. A number 
of cable companies including Comcast, AT&T, AOL Time Warner, Cox and 
Charter are currently providing such services or have announced plans 
to do so in the near future.
    The cable industry has also worked with the consumer electronics 
industry to develop an ``integrated'' DTV set which would allow the 
cable set-top box to be incorporated within the DTV--so that no 
external cable set-top box is needed. To this end, the National Cable & 
Telecommunications Association (NCTA) and the Consumer Electronics 
Association (CEA)-representing all major manufacturers-reached 
voluntary agreements in February 2000, that will allow consumer digital 
television sets to be connected directly to digital cable systems. The 
features agreed to by CEA and NCTA for these types of DTV models are 
specifically spelled out in the agreement. The agreements detail the 
technical specifications that will enable these sets to work with cable 
systems. Those specifications, developed by CableLabs, were adopted as 
U.S. standards in November 2001, although manufacturers could develop 
products based on the specifications even before the standards were 
adopted as some did.
    In fact, these specifications have been available to manufacturers 
for over 2 years and some manufacturers have developed prototype 
integrated DTV receivers. One such device was on display at the January 
2001 Consumer Electronics Show, connected to and working with the local 
Cox cable system in Las Vegas. In short, just as there is no technical 
barrier to a consumer receiving digital signals over the cable plant, 
there are no technical barriers for a manufacturer to build an 
``integrated DTV'' model with the features described in the CEA-NCTA 
technical agreement.
    In a related area, the FCC has implemented the provision in the 
Telecommunications Act of 1996 calling for the commercial availability 
of navigation devices such as set-top boxes. Consistent with the 
congressional direction that the security of the cable operator's 
signals not be jeopardized while fostering the commercial availability 
of set-tops and other devices, the FCC rules require that separable 
security modules for set-top boxes must be available from cable 
operators to support ``integrated television receivers'' as well as 
set-top boxes in the retail market. These removable ``point-of-
deployment'' or ``POD'' security cards handle conditional access and 
encryption of premium cable channels. They foster the portability of 
digital set-top boxes and other POD-enabled devices since the devices 
may be sold nationwide and will work with POD modules supplied by 
various cable operators to accommodate their particular conditional 
access systems. Leading cable operators--including the two companies 
here today--have publicly affirmed that their systems will support set-
top boxes and integrated DTV equipment built to these specifications, 
including integrated DTV sets contemplated by the February 2000 NCTA-
CEA agreement.
    CableLabs developed the removable security modules as part of its 
OpenCable project. The cable industry has invested millions of dollars 
to develop specifications and support for the ``POD module'' for one 
reason--to facilitate the retail availability of digital set-top boxes 
and integrated digital television receivers. The specifications needed 
to produce devices accommodating the separate security POD modules were 
also adopted as U.S. standards last year, although they have been 
available since 1999. Moreover, to further promote retail sales of set-
top boxes, in October 2001, the cable industry launched an initiative 
that provides customers with the option of purchasing from 
participating retailers the exact same set-top boxes they can lease 
from their cable operator.
    In addition to the OpenCable hardware specifications mentioned 
above, the OpenCable project has recently published an open 
specification for middleware (software)--the OpenCable Application 
Platform (``OCAP'') specification--that will promote the retail 
availability of fully portable digital set-top boxes and integrated DTV 
sets that will support a wide range of applications. For example, OCAP 
will permit the downloading and execution of applications, such as 
program guides, to any OCAP-enabled devices by any cable system 
supporting OCAP. This will enhance the portability of set-top boxes and 
DTV sets which the OpenCable POD modules already foster. Because OCAP 
is based upon an existing European specification, tremendous economies 
of scale and scope can be achieved. Once again, Comcast, AT&T and other 
cable operators have committed that their systems will support 
CableLabs certified, OCAP enabled devices.
    The CableLabs process is open, cooperative, and as efficient as 
possible. We work to keep equipment development time to a minimum. To 
fulfill this goal we modeled our OpenCable effort on our successful 
DOCSIS effort. As we did with DOCSIS, we work with equipment designers 
and manufacturers--over 500 companies in all--to cooperatively prepare 
and approve the specifications. Over the last 3 years, the OpenCable 
project has released specifications which provide the details necessary 
to build set-top boxes and integrated DTV sets that will function 
seamlessly on cable systems.
    We are convinced that by attracting additional manufacturers, 
competition will add features to, and reduce prices of, set-top boxes 
for consumers as well as cable operators. Our goals are to issue 
specifications that will unleash market forces to promote innovation 
and competitive offerings. (In fact, our License Agreements explicitly 
assure manufacturers that our specifications are not a ceiling on 
innovation, and invite them to add other features and functionalities.)
    Finally, I would like to briefly mention that we are also pursuing 
a similar approach to remove technical barriers for the deployment of 
telephone services over cable networks. The PacketCable project at 
CableLabs has issued specifications, now worldwide standards, 
supporting telephone services using advanced voice over the Internet 
technologies. Thus, in the near future, we believe consumers will 
benefit greatly from lower cost equipment and competitive telephone 
services delivered over cable networks in an even wider fashion than 
currently is the case.
    In closing, CableLabs has been working to remove technical barriers 
inhibiting the deployment of innovative new services over cable 
systems. Through the efforts I described above, we are assisting the 
cable industry in developing a new wave of innovative products that we 
hope will keep cable services attractive to consumers in an 
increasingly competitive environment. I hope that this has helped to 
clarify some issues of interest to the Committee. Thank you again for 
this opportunity to testify this afternoon. I'd be pleased to answer 
the Committee's questions.

    Chairman Kohl. We thank you, Mr. Green.
    Now, we turn to Mr. Haverkate.

  STATEMENT OF MARK HAVERKATE, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, WIDEOPENWEST, CASTLE ROCK, COLORADO, ON BEHALF OF THE 
            BROADBAND SERVICE PROVIDERS ASSOCIATION

    Mr. Haverkate. Mr. Chairman, Senator DeWine, thank you very 
much for allowing me to participate in this important hearing 
today. I am the President of WideOpenWest and I represent today 
my company, as well as the Broadband Services Providers 
Association, which is a group of 13 entrepreneurial companies 
across the country that have been out building brand new high-
speed residential broadband networks for the last several 
years.
    In effect, when the Congress passed the 1996 Cable Act, 
they passed us the ball. We caught it and we ran with it. Since 
that time, we have been working as hard as we can to build new 
networks and provide competition to the local incumbent cable 
and telephone companies in as many markets as possible.
    Since that time, we have invested collectively over $5 
billion in building these new high-speed networks. We are up to 
about 1 million customers together, so we feel like we have 
made substantial progress from a ground-zero start back in 
1996. But even with that tremendous progress, we are still only 
about 5 percent the size of an AT&T-Comcast, just to put things 
in perspective.
    A few months ago, my company, WideOpenWest, stepped up to 
the plate to preserve competition when no one else would and we 
acquired the properties that Ameritech built in the Midwest, 
the competitive cable TV properties that were built in the 
States of Ohio, Illinois, and Michigan.
    Since acquiring those properties, we have been aggressively 
adding digital services, aggressively rolling out high-speed 
Internet, and now are providing competitive choice for all 
those products to over 1.3 million households in those three 
States, much to the delight of the municipalities, because now 
they have a competitive choice today and going forward, 
hopefully.
    I am pleased to report not only from WOW but also from the 
other Broadband Service Providers Association members that, in 
fact, the demand for broadband is very strong. We have 
tremendous support for the services that we offer. The 
penetrations that we are getting are generally on target with 
our business plan. In fact, our business model is a good 
business model.
    One example of innovation I would like to bring up is on 
the Internet side. A lot of people consider us more on the 
cable TV or phone side, but not only WOW but the other 
companies have put a lot of attention on the roll-out of high-
speed Internet service, and we are doing it in a different way 
than the cable industry has done it so far.
    In WOW, for example, we have three different options for 
the customer on price and speed. So depending on whether the 
residential user is a high-bandwidth user or a home 
telecommuter and they need the highest possible speed and 
performance, we have that option available. We also have an 
option as low as $19.95 a month for ``always on'' high-speed 
Internet for the customer who just wants to have an ``always 
on'' connection to the Net. So we actually have broadband 
services available for prices less than a dial-up connection.
    Before I move into talking about our concerns with the 
AT&T-Comcast merger, I would just like to point out that I 
personally, and I am sure many other members of the BSPA, have 
tremendous respect for the Roberts family. Just like Mr. 
Roberts, Sr., who was an entrepreneur years ago and built a 
great communications company, that is what we aspire to do 
today, so in many ways we look up to that. But we do have 
issues with the conduct of the corporation and I would like to 
use the rest of my time to point out some of those things. It 
is not just Comcast, but AT&T as well, as well as some of the 
other MSOs.
    We think that there has been a decision made that the best 
time to try to eliminate the local broadband competitors from 
the market is right now. Everyone knows that the capital 
markets are a little bit weak. There are big companies 
combining together. There is talk about competition between the 
cable industry and the telephone industry. It is a good time 
now to look around and say we have 13 entrepreneurial companies 
out there that really pose a serious competitive threat to us 
on the Internet side, on the digital services side, on the 
video-on-demand side coming up. Maybe now is the time to really 
put the pressure on and see what we can do.
    So two things are happening. One is on the program 
exclusivity side. Everyone knows that Comcast and AT&T have 
control and ownership interests in a lot of different channels, 
not only the basic cable channels but sports teams and the 
channels that distribute those sports teams, video-on-demand 
programming. They are moving into control over all sorts of 
programming.
    Even one possibility is the purchase of broadcast stations. 
If they end up owning broadcast stations, and all this clout 
combined, the risk that we have, all 13 of our companies, is if 
we can't have equal access to all the programming that is 
available on fair, economic terms, that is a trump card that 
they automatically win. We cannot possibly compete with a 
company that has all this programming and control of it and 
doesn't make it available to us, or if they do make it 
available, they make it on harsh terms, and expect to be able 
to hold on to our customer base.
    The second issue that I would like to point out before I 
close is a current practice that should cause concern for the 
subcommittee because it is certainly a concern for the 
competition, and that is that there are now two rates that are 
being used in the market.
    Historically, in the cable television business, ever since 
Mr. Roberts, Sr., was in it in 1963, the common practice is to 
have one rate. You notify the municipality, you notify the 
customers, and everybody in that municipality pays the same 
rate. It is not like a flea market or an eBAY where everybody 
gets a different rate.
    But now there is a strategy that is being deployed, we 
feel, directly targeting us, and that is to have two rates in 
the same municipality for the same service, one rate that their 
customers pay, their big, large base of customers pay, and then 
a second rate that is 35 percent less, or sometimes more, that 
is directed at our customers or any of their customers that 
consider switching over to Comcast.
    So now you have two rates in the same market for the same 
services, next-door neighbors getting the exact same services 
paying different rates. And you ask, well, why is that? Is that 
good competition? Well, it is not. It is clearly designed by a 
big corporation to try to squeeze out the competition, and we 
are here to object to that and to bring it to the 
subcommittee's attention.
    So are we in favor of the merger or not? For us, it is not 
an issue about size. For us, it is an issue about corporate 
behavior and whether it is in the best interests of this 
country, after all the work that was done by Congress, by the 
municipalities, and by all these entrepreneurial companies to 
build these networks and really have local competition be at 
its height. Is it really in our best interests to allow some of 
this bad behavior to jeopardize that whole process? We suggest 
that it isn't and we ask for some attention to be put to this 
so that our entrepreneurial dreams can come true.
    Thank you very much.
    [The prepared statement of Mr. Haverkate follows:]

  Statement of Mark Haverkate, President and Chief Executive Officer, 
 WideOpenWest, on behalf of the Broadband Service Providers Association

    Mr. Chairman, Members of the Committee, my name is Mark Haverkate, 
and I am the Chief Executive Officer of WideOpenWest, a broadband 
communications company providing residents and small businesses in 5 
States with cable television, high speed internet, and telephone 
services.
    I appear today on behalf of my company, and also on behalf of the 
Broadband Service Providers Association (``BSPA''), an organization 
founded in October 2001, and consisting of 13 pioneering companies 
committed to building competitive broadband networks in communities 
across the country.\1\
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    \1\ The member companies of the BSPA are Altrio Communications, 
Carolina Broadband, ClearSource, Everest Connections, Gemini Networks, 
Grande Communications, Knology, RCN, Seren Innovations, Starpower 
Communications, Utilicom Networks, WideOpenWest, and WinFirst.
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    We appreciate your invitation to participate in this hearing. We 
have great concerns about the proposed merger between AT&T and Comcast, 
and look forward to discussing them with you today.

                              Introduction

    Ten years ago, neither my company, nor any of the members of the 
BSPA, existed in the form they do today. Their creation was in direct 
response to the Telecommunications Act of 1996--which brought down 
barriers to competition among telephone, cable, and data service 
providers--and to advances in fiber optic and other technologies that 
made it possible to provide all of these services through ``one wire.''
    Through this marriage of law and technology, the means has been 
borne to bring the great benefits of competition to consumers 
everywhere: as the FCC has proved, where consumers have a choice 
between providers of communications services, they pay lower prices, 
get better service, and have a greater range of more advanced offerings 
to choose from.
    For example, WideOpenWest--or WOW as most of our customers call 
us--began operations in March of 2000, connecting our first customers 
in the Denver metropolitan market, where we continue to operate a 
digital cable and high speed Internet system in direct competition with 
AT&T Broadband. We are proud of the innovation we brought to the 
residential communications market, being the first cable television 
operator to champion the cause of open access for ISPs, the first 
company to offer flat rate unlimited long distance telephone service, 
and the first company to offer residential Internet customers a choice 
of three speed and price options.
    In November of last year, WOW stepped forward when no one else 
would to acquire Ameritech's extensive competitive cable television 
systems in the Midwest markets of Chicago, Columbus, Cleveland, and 
Detroit. We are now adding digital and Internet services to those 
networks in order to bring residents there unprecedented--and much 
appreciated--consumer choice.
    My company, and all the members of the BSPA, are bringing these 
benefits to consumers in dozens of communities around the country 
today.
    Yet we are far from satisfied. Our goal is to expand much further, 
bringing the benefits of competition to every community that wants it.
    To do so, however, we face significant challenges. As we build our 
systems it is imperative that we:
     Can count on vigorous enforcement of the Nation's 
antitrust and communications laws, to ensure that incumbents do not use 
their vast market power to stifle competition before it can become 
fully established.
     Have fair access to video programming that customers want 
to watch.
     Have fair access to utility poles and conduits.
     Have fair access to residents of multiple dwelling units--
often the first toehold for competitors entering a market.
     Are not discriminated against in the application of 
franchising, tax and other laws.
    The proposed merger between AT&T and Comcast has significant 
implications with respect to each of these areas. Whether that merger 
occurs, and under what conditions, will therefore have a major impact 
on whether the promise of the broadband industry is met, and consumers 
in other parts of the country have real choice in the purchase of cable 
television and other communications services in the future.

              The Proposed Merger Would Reduce Competition

    In many of our markets, the incumbent we face is either Comcast or 
AT&T Broadband. As a group, the members of the BSPA today have 
franchises to build systems in communities with more than 15 million 
households--nearly half which are now being provided service by either 
Comcast or AT&T. For some companies this number is much higher. In the 
case of WideOpenWest, for example, more than 75 percent of our 
territory is now being served by systems owned by either Comcast or 
AT&T. For other members of the BSPA, that percentage is even higher.
    The members of the BSPA are highly concerned about the adverse 
effects of the proposed merger between Comcast and AT&T. I want to 
discuss two of the reasons for our position with you today.
    First, the merger parties now control several key programming 
channels that all residential customers want access to. In the future, 
they will control more, including many sources of interactive and ``on 
demand'' programming. Yet they have already shown themselves willing to 
use their control over that programming for anticompetitive purposes. 
We fear the merger only will make this situation worse.
    Second, the merger parties have shown that they are willing to 
resort to unfair and anticompetitive pricing tactics to prevent us from 
doing business in their communities. We fear that the merger would lead 
to even greater use of these tactics, in a targeted and coordinated 
way, with even more damaging results.

  Merger Would Reduce Competitors' Access To Key Programming Services

    As the Chairman of the FCC has recognized, ``content is king'' in 
the broadband world. Unless a competitor carries what subscribers want 
to watch, it cannot survive.
    Comcast and AT&T today own numerous national and regional 
programming services that BSPA members need in order to compete. The 
merger parties have also announced their intention to use their 
combined resources to gain control over additional programming 
services. They have also shown that they will use their control over 
programming as a sword against competitors, and to undermine efforts to 
enter the merged entity's markets.
    For example, Comcast owns, either in whole or in part, seventeen 
programming services carried by it and other cable television systems. 
These services comprise 6 percent of all those distributed nationally. 
Some of these services are extremely popular with certain segments of 
the population.\2\
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    \2\ In re Annual Assessment of the Status of Competition in the 
Market for the Delivery of Video Programming, Sec. 158, CS Dkt No. 01-
129 (rel. Jan. 14, 2002)(``Eighth Annual Report.'')
---------------------------------------------------------------------------
    These services include three regional sports networks: Comcast 
SportsNet, which is carried on Comcast systems in the Philadelphia 
market; Comcast SportsNet Mid Atlantic, which is carried on Comcast 
systems in the Washington and Baltimore markets; and Comcast Sports 
Southeast, which is carried on Comcast Systems in various markets in 
the Southeast. All three networks feature real-time sporting events 
played by local professional and collegiate teams, as well as sports 
news and discussion shows. Comcast has exclusive rights to much of the 
programming carried on these networks.\3\
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    \3\ In re Applications for Consent to the Transfer of Control of 
Licenses, Comcast Corporation and AT&T Corp., Transferors, to AT&T 
Comcast Corporation, Transferee, Applications and Public Interest 
Statement, at 14 (filed Feb. 28, 2002)(``Applications and Public 
Interest Statement.'')
---------------------------------------------------------------------------
    Comcast also owns two other regional programming services, the 
Comcast Network and the Sunshine Network. Its other programming 
interests include QVC, E! Entertainment, Golf Channel, Discovery Health 
Channel, iN DEMAND, Outdoor Life, and style.\4\
---------------------------------------------------------------------------
    \4\ Applications and Public Interest Statement, at 15.
---------------------------------------------------------------------------
    AT&T holds positions in three national programming services: E! 
Entertainment, style, and iN DEMAND. It also has equity in three 
regional ones: Fox Sports New England, New England Cable News, and 
Pittsburgh Cable News Channel.\5\ By virtue of its approximately 25 
percent interest in Time Warner Entertainment, it has ownership 
interests in several more: Home Box Office, Cinemax, Comedy Central, 
and CourtTV.\6\
---------------------------------------------------------------------------
    \5\ Applications and Public Interest Statement, at 25. AT&T spun 
off its Liberty Media subsidiary last summer, and with it AT&T's 
attributable interest in numerous additional programming services 
formerly owned by Tele-Communications Inc. Whether and the extent to 
which AT&T has exclusive or preferential terms for carriage of these 
services today is unknown.
    \6\ Applications and Public Interest Statement, at 25, 53. AT&T 
also has a slightly less than 5 percent ownership interest in 
Cablevision Systems Corp., which owns numerous important programming 
services, including American Movie Classics, Bravo, Fox Sports Net, and 
the MSG Network. See id at 20 & n.27.
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    BSPA members must have equal access to the programming services 
controlled by Comcast and AT&T if they are to compete effectively in 
their markets, and provide the benefits of that competition to 
consumers.
    This is particularly true with respect to the regional sports 
programming networks, which have long been recognized as ``must have'' 
programming. Many potential customers care deeply about sports, and 
will not subscribe to the service of any competitor that does not carry 
the sports programming they want to watch.\7\ This fact has been borne 
out by hard data by BSPA member RCN: according to a survey it 
conducted, 40-58 percent of cable subscribers indicated that they would 
be less likely to subscribe to cable service if it lacked local sports 
programming.\8\
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    \7\ Eighth Report, Sec. Sec. 171-74; See also In re Annual 
Assessment of the Status of Competition in Markets for the Delivery of 
Video Programming, Sec. 183 (``Seventh Annual Report''); Impact of 
Sports Programming Costs on Cable Television Rates, GAO/RCED-99-136, at 
3 (June 1999.)
    \8\ In re Annual Assessment of the Status of Competition in Markets 
for the Delivery of Video Programming, Sec. 184 n.650 (``Sixth Annual 
Report.'')
---------------------------------------------------------------------------
    For the same reason, iN DEMAND is considered an essential offering, 
since it features not only films and other entertainment programs, but 
sports packages as well. HBO, too, is considered a ``marquee'' 
programming service, and one that competitors must be able to offer 
their customers.
    The other programming services owned by the merger parties are also 
of great importance to the competitiveness of BSPA members. QVC, in 
particular, is key because it is the most popular home shopping service 
on cable television today, and is also a source of revenue for systems 
that carry it.\9\ Others are as well--at least to certain segments of 
the population. To individuals in these groups, the ability to watch 
certain golf tournaments, or more extensive coverage of the Tour de 
France, is important enough to control their choice of broadband or 
cable service provider.\10\ While the number of such subscribers would 
vary among service areas, the experience of the BSPA members is that 
some number of customers in each would cancel their service if they 
could no longer watch this programming.\11\ If access to several such 
services were denied, the total number of customers lost could be 
highly significant.
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    \9\ QVC is carried to over 77 million homes. See Eighth Annual 
Report, App. D, Table D-6. Systems that carry QVC are paid a portion of 
the gross revenue generated from sales to buyers within their franchise 
areas. Where more than one system serves a particular area, these 
payments are divided in proportion to each system's number of 
subscribers as a percentage of the total number of subscribers within 
the franchise area.
    \10\ The Golf Channel is reportedly of immense importance to golf 
enthusiasts. The Outdoor Life Channel also appeals to core groups of 
sports enthusiasts; for example, several years ago it obtained 
exclusive rights to cover the Tour de France bicycle race in the United 
States.
    \11\ See Statement of Brian Roberts, President, Comcast 
Corporation; (Golf Channel), ``People thought nobody would ever want to 
watch a golf channel. Golf Channel is probably one of the best brands 
in television if you happen to like golf.'') (Joint analyst 
meeting)(Dec. 21, 2001.)
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     Merger Parties Have Withheld Programming To Defeat Competition

    The merger parties have previously shown they are willing to use 
their control over programming to suppress competition in the market 
for multichannel video distribution services.
    For example, it is well known that access to sports programming is 
crucial for any new entrant to this market. Comcast knows that, too, so 
in the late 1990s, when it was establishing Comcast SportsNet, it 
assiduously refused to allow RCN (or DirecTV or EchoStar) to carry that 
service on any of its systems in the Philadelphia area. The DBS 
providers both filed complaints against Comcast with the FCC, but 
because the programming service is not distributed by satellite, and is 
instead distributed by terrestrial means, neither was able to persuade 
the FCC to order Comcast to grant it access to this programming. RCN 
was able to avoid this fate but just barely--it now has access to 
SportsNet programming, but only for 3 months at a time.
    AT&T, too, has not been above using its own exclusive access to 
programming as a sword against competition. For example, in Kansas City 
the incumbent cable operator--a joint venture between AT&T and AOL Time 
Warner called Kansas City Cable Partners (``KCCP'')--has refused to 
allow BSPA member Everest Connections to carry Metro Sports, a local 
sports network KCCP has established.\12\ This service has exclusive 
rights to certain popular sports programming, such as the basketball 
games played by the University of Missouri, other college basketball 
and football games, professional soccer matches, high school sporting 
events, and more. Everest's efforts to gain access to this programming 
service have been stymied by the fact that KCCP distributes it by 
microwave transmission, not satellite.\13\
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    \12\ AT&T and Time Warner are both 50 percent owners of KCCP. In 
addition, Time Warner's interest is mainly held through its subsidiary, 
Time Warner Entertainment, in which AT&T owns about 25 percent. See 
Applications and Public Interest Statement, App. 7.
    \13\ The FCC's program access rules protect--to some extent--
competitors' access to satellite delivered programming owned by 
vertically-integrated cable programming vendors. It does not extend to 
programming delivered by terrestrial means.
---------------------------------------------------------------------------
    Since Everest is not allowed to carry Metro Sports, it is 
effectively prevented from signing up residents for whom watching 
sports is a priority. This is true, as Everest's marketing staff has 
found out, even for residents who are otherwise dissatisfied with 
service from KCCP.\14\ To add insult to injury, KCCP allows Comcast--
which provides service in several adjacent suburbs, but which does not 
compete with KCCP--to carry this programming.\15\
---------------------------------------------------------------------------
    \14\ Some of the sports programming that appears on Metro Sports is 
produced by Mizzou Sports Properties (``Mizzou.'') Because KCCP has 
refused to allow Everest to carry Metro Sports, Everest has tried to 
obtain this programming directly from Mizzou so Everest could produce 
its own sports programming channel for its systems. Yet, KCCP, 
anticipating this response, has locked up this programming by means of 
an exclusive contract with Mizzou.
    \15\ The communities in the Kansas City metropolitan area served by 
Comcast include Olathe in Kansas, and Raytown, Independence and other 
communities in Missouri.
---------------------------------------------------------------------------
    The proposed merger could lead to an expansion of the programming 
tactics Comcast and, to a lesser extent, AT&T have used to impede 
competition in their markets, and increase the adverse impact of these 
tactics on both BSPA members and consumers. It would provide an 
incentive for both Comcast and AT&T to discriminate in the sale of 
their programming not only to benefit their own systems, but those of 
their new partner as well. It would also provide additional leverage to 
obtain exclusive access to programming owned by third parties, which 
the merged entity could use to pressure its competitors in multiple 
markets.
    The merger parties have also expressed their intention to develop 
new programming services, which they have strongly implied they do not 
intend to share with competitors. As the parties have recently stated 
to the FCC, ``Comcast's established expertise in producing local and 
regional programming will enhance the ability of the merged entity to 
offer AT&T Broadband customers the kinds of community-oriented coverage 
that Comcast already provides today to many of its customers. [This 
programming] offers potential customers a reason to sign up for 
Comcast's services, and offers existing customers one more reason to 
continue to subscribe.'' \16\
---------------------------------------------------------------------------
    \16\ Applications and Public Interest Statement, at 42, 44.
---------------------------------------------------------------------------
    To the extent such services were the sole source for regional 
sporting events and other highly popular programming, new entrants 
could be denied access to the ingredients that are most critical to 
their success as competitors.

                     Secret, Selective Discounting

    Over the past year many members of the BSPA have been subjected to 
extreme, targeted discounting by Comcast and AT&T in order to drive us 
out of business. These discounts are huge, and they are only offered to 
our customers or residents in our communities that want to switch to us 
from the incumbent. They are not advertised or made available 
generally--they are granted secretively over the telephone or in the 
doorways of our customers' homes. For example:
     Throughout southeastern Michigan, in markets where 
WideOpenWest competes with Comcast, residents we sign up for service 
are being offered rate discounts of between 33 and 50 percent to switch 
back to Comcast. They are also being offered free digital service, free 
pay per view, and other giveaways. Existing Comcast customers that try 
to cancel their service to sign up with us are being offered similar 
benefits not to do so. Importantly, these offers are not publicized, 
nor are they made available to anyone other than our existing customers 
and those Comcast customers who have asked to be disconnected in order 
to switch over to us.
     In Austin, Corpus Christi, and other markets in Texas, 
both Grande and ClearSource are being subjected to deep discounting by 
AT&T, through its joint venture with AOL Time Warner, Texas Cable 
Partners.\17\ In Austin, for example, TCP is offering discounts of 
between $16 to $28 per month to customers of these competitors in order 
to lure them back to the incumbents' own service.\18\
---------------------------------------------------------------------------
    \17\ Texas Cable Partners owns cable systems across Texas, and is 
50 percent owned by AT&T. The remainder of the partnership is owned by 
a partnership controlled by and AOL Time Warner subsidiary, Time Warner 
Entertainment.
    \18\ See, e.g. Time Warner Cable Discounts Draw Fire From City, 
Competitor, Austin American-Statesman (Feb. 19, 2002.)
---------------------------------------------------------------------------
     In Kansas City, Everest is being subjected to comparable 
tactics by AT&T, through its joint venture with AOL Time Warner, Kansas 
City Cable Partners. In that market, however, KCCP has gone even 
further than its Texas affiliate--promising Everest customers 
additional payments of $200 if they switch back to KCCP, and even more 
if they agree to write testimonials in favor of KCCP's service. KCCP 
has also made so-called customer ``loyalty test'' offers to residents 
in areas where Everest is building out its system, through which 
customers in these neighborhoods are guaranteed discounts on service 
prices if they agree to stay with KCCP or 12 months. To fund these 
discounts, KCCP has raised the price of service for other neighborhoods 
served by its system.
     In Augusta, Georgia, Comcast is offering discounts in 
excess of 50 percent for basic and digital cable, high speed data, and 
other services--but only in areas where Knology offers competitive 
services. These offers are not made generally throughout Comcast's 
service area, but are instead mailed directly to Knology customers and 
new residents in competitive neighborhoods.
    Secret, selective discounting like this will destroy competition if 
it is allowed to continue. Giving big discounts to a chosen few is a 
cheap way for incumbents to exact the greatest possible toll on new 
entrants. And while that relative handful of customers gets a big 
financial benefit, once the competitor is forced from the market they--
with the rest of their neighbors--will resume paying the pre-
competition, monopoly rate: just like customers do in the communities 
where competitors have not yet entered.
    In truth, the merger parties are waging a behind-the-scenes hostile 
take-over of our company and the entire competitive broadband 
industry--one customer at a time. It is a clever strategy, and one that 
is likely to work if it is allowed to continue. Moreover, once they 
achieve this goal, they will also have complete control over the huge 
market for cable modem Internet access, and again know no restraint in 
what they charge for it.
    The Federal Communications Commission recognizes these facts, and 
publicly stated that secret and selective discounting threatens to 
destroy broadband competition. In its recent report on the state of 
competition in the cable television industry, the Commission reviewed 
these actions and concluded:
    The vast resources of a large MSO may simply prove too much if 
brought to bear in a targeted fashion against a single system entrant. 
Moreover, we are concerned about the signal such targeting may send to 
others who would compete in the MVPD market, and particularly to the 
financial markets to which a new entrant may well be dependent for 
resources. [S]uch practices. . .tend to limit competition and 
discourage new entry.\19\
---------------------------------------------------------------------------
    \19\ Eighth Annual Report, Sec. 209.
---------------------------------------------------------------------------
    These tactics will only get worse if the merger is approved. 
Combining the resources of both AT&T and Comcast, without preventing 
the merged entity from targeting BSPA members in this manner, will 
allow the new company to coordinate and intensify these actions--with 
lethal effect on competitors. If this is allowed to happen, it will be 
too much for many of our companies to endure.\20\ The result would 
undermine competition in the market for broadband services across the 
country.
---------------------------------------------------------------------------
    \20\ For example, the merged company could use these predatory 
tactics simultaneously in multiple markets served by a particular 
competitor, thereby forcing that competitor to fight battles, and 
expend scarce resources, in each of these markets at the same time.
---------------------------------------------------------------------------
         Merger Parties Engage In Other Anticompetitive Conduct

    The selective discounting programs now being used by the merger 
parties against BSPA members are not the only means they are using to 
prevent entry, impede competition, and deny consumers choice. Numerous 
other tactics are also being employed, and are producing comparable 
results.
    These tactics include efforts to prevent competitors from getting 
franchises, or to saddle them with onerous or unrealistic terms. They 
include securing exclusive contracts for certain programming services 
that they do not own--and that are not owned by other MSOs, or are not 
delivered by satellite, thereby making it impossible for the competitor 
to gain access through use of the FCC's program access rules. They 
include taking action to impede or slow competitors' ability to build 
their systems, get access to utility poles, and serve multiple dwelling 
units.
    All of these tactics impose substantial financial burdens on BSPA 
members, and directly reduce the level of competition they are able to 
provide. The merger parties plainly pursue them to eliminate from the 
market the only competitor they have that can match them for quality 
and value, and can provide consumers with a more complete range of 
communication services than they themselves can.
    BSPA members believe that, given the track record of the merger 
parties, combining their assets and management would lead to 
coordinated campaigns in multiple markets targeting one or more of them 
to achieve this goal. If that were to happen, competition would 
suffer--if not disappear altogether. Entry would be prevented, 
expansion would be delayed, consumers would be denied choice, prices 
would rise, and the market would be denied all the other benefits that 
competitive communications providers provide.

                               Conclusion

    I want to be very plain that our company is ready for competition. 
So are all the members of the BSPA. That competition may well be bare-
knuckled, and we expect that. But the tactics we are seeing today go 
well beyond a fair fight. They are the equivalent of a bully slipping 
on brass knuckles before the fight begins. No competitor can long stay 
in the ring under these circumstances.
    Six years ago Congress adopted as Federal policy the goal of 
bringing facilities-based competition to the national markets for 
multichannel video, telephony, and data services.\21\ WOW and the other 
members of the BSPA have answered this call, and are now in the process 
of bringing all of its benefits to consumers around the country. But we 
are now at a crossroads: If we cannot put a stop to the tactics 
Comcast, AT&T and other incumbents are using against us, and if we 
cannot get fair access to the programming customers want to watch, then 
this goal will either be long delayed in its achievement, or undermined 
altogether.
---------------------------------------------------------------------------
    \21\ See, e.g., S. Rep. No. 104-230, at 1 (1996)(Congress seeks to 
accelerate the ``deployment of advanced telecommunications services to 
all Americans [and open[] all telecommunications markets to 
competition'')(conference report for Telecommunications Act of 1996.)
---------------------------------------------------------------------------
    If this happens, then all your hard work, and of the FCC, and of 
the many, many local franchising authorities around the country with 
which we have worked to bring competition to their communities, will 
have been for nothing.
    Thank you again for inviting me here today. We stand ready to work 
with this Committee in any way we can to ensure that the fruits of 
competition are within the reach of consumers everywhere.

    Chairman Kohl. We thank you, Mr. Haverkate.
    Now, we ask Mr. Perry to make his statement.

   STATEMENT OF ROBERT A. PERRY, VICE PRESIDENT, MARKETING, 
   MITSUBISHI DIGITAL ELECTRONICS AMERICA, IRVINE, CALIFORNIA

    Mr. Perry. Thank you, Chairman Kohl and Senator DeWine, for 
having me here this afternoon. I appreciate the opportunity to 
address you. I would also like to thank you, Chairman Kohl, for 
your fifth point, which is in the 1996 Telecommunications Act 
the FCC was to promote the availability of retail set-top boxes 
to create this vast competitive environment for new products 
and innovation. So I appreciate you bringing that up; it was 
obviously lacking in some of the statements that have been made 
here today.
    First and foremost, my name is Robert Perry. I am the Vice 
President of Marketing of Mitsubishi Digital Electronics 
America. My responsibilities include produce development, 
government affairs, and dealing with the retailers who sell our 
products across the country.
    My goal in life is quite simple. It is to sell large 
volumes of advanced digital television receivers and other 
products as quickly, inexpensively and effectively as possible. 
One out of every five HDTVs in consumers' homes today is a 
Mitsubishi. But despite the best efforts of the members of this 
committee to introduce competition, my competitors and I are 
still unable to offer a single consumer product of any sort 
that connects directly to any digital cable system. The 
dominance of the AT&T-Comcast deal can either seal this market 
from competition or finally open it. This power will all be in 
the hands of one of my colleagues at this witness table.
    The prepared statements of Comcast and AT&T for today's 
hearing do not even address the device market, nor does their 
oral testimony, but 10 years of leaving this issue to CableLabs 
has not enabled competitive entry. For such entry to have a 
chance, it must be actively embraced and supported by the CEOs 
before you today.
    For 10 years, the Congress has tried to open this market to 
competition. In 1991, Senator Leahy pointed out that cable 
systems do not really support the operation of television 
receivers. In 1996, Congress explicitly instructed the FCC to 
assure the competitive commercial availability of any product 
necessary to receive any service offered by a cable operator.
    In 1998, the FCC accepted an offer from CableLabs and its 
MSO owners to draft and support necessary technical 
specifications by July 1, 2000. These specifications turned out 
to be late, inadequate, incomplete, and not sufficiently 
tested. Mr. Green barely refers to them in his testimony today.
    Recently, a competitor of ours asked CableLabs to certify a 
prototype DTV receiver built essentially to the July 2000 
specifications, but CableLabs refused to consider certifying it 
because it does not also rely on newer specifications that are 
still under development and revision. So CableLabs' first try 
was deemed good enough for the FCC, but not good enough for an 
actual product.
    CableLabs' newer specification, known as OCAP, may be an 
improvement, if and when it is complete and reliable. But today 
it is untested, far from ready, and even farther from being 
relied upon. In fact, in recent public statements they have 
commented that OCAP may not even be ready in time to support 
the digital television transition.
    In addition, at present we have no assurance that the 
products built to this specification would actually work when 
connected to cable systems. The cable MSOs themselves, such as 
Mr. Roberts and Mr. Armstrong, have been unwilling to say that 
they will rely on this specification in the devices that they 
themselves lease to customers.
    Moreover, both OCAP 1.0 and OCAP 2.0 provide that 
competitive product features such as recording, games, program 
guides, telephony, and home networking might not work or could 
be disabled at will by the MSO. CableLabs has referred to this 
issue as ``tools, not rules.'' As we all know, no one orders 
tools without intending to use them.
    We face another show-stopper in the so-called POD-host 
interface, or PHILA license, which any entrant must sign in 
order to compete with MSOs in the device market. Elements of 
this license are anti-competitive and profoundly anti-consumer. 
Such provisions include turning off home network interfaces by 
remote control, reducing the resolution of high-definition 
content, turning off consumer home recording via technical 
means, and requiring CableLabs certification prior to sale at 
an unlimited per-product certification fee.
    While we try to fight through this obstacle course, cable 
MSOs say they distribute about 135,000 digital set-top boxes 
per week, about 25 million to date, all proprietary, and none 
which conform to the standards set for competitors or are bound 
by this license. Not a single competitive product has been sold 
or even certified for manufacture by CableLabs. The competitive 
score to date is cable MSOs $10 billion in commerce, 
competitive entrants zero.
    AT&T-Comcast will be CableLabs' largest owner and 
Motorola's biggest customer. I believe this committee can and 
should insist on a commitment here and now that the enormous 
power resulting from this merger be used to deconstruct 
monopoly, not consolidate and perpetuate it.
    Here are the minimum commitments that I urge this 
subcommittee to demand from my colleagues at this witness 
table. As to standards and specifications, a simple and 
authoritative pledge from AT&T-Comcast that by a date certain 
their devices will live by the same rules and specifications 
they set for competitors, and that specifications will not 
discriminate against competitive entrants. This would go an 
enormous way to build confidence in manufacturers, retailers, 
and consumers to enter this marketplace.
    As to product certification, while my colleagues and I like 
and respect Mr. Green, MSO policies and resource constraints on 
CableLabs have led to certification practices that in many 
cases are discriminatory, under-funded, over-priced, non-
transparent, inefficient, and unpredictable. It is up to AT&T-
Comcast as the dominant cable MSO to build confidence that 
CableLabs will drop any requirement that they approve 
competitive products for sale.
    As to the PHILA license, the POD-host interface license, 
this license is a public trust originating in the Congress. A 
reasonable license would not threaten the 2.5 million HD 
displays now owned by consumers with degraded resolution or 
with interfaces being shut off and screens going dark, or with 
the unconstrained ability to stop home recording by technical 
means.
    AT&T-Comcast will have the power to insist on reasonable 
license terms that a manufacturer could sign without having to 
apologize to its past, present, and future customers. 
Accomplishing this would fulfill Mr. Armstrong's commitment 
here today not to violate any FCC regulation, as well as 
complying with the will of Congress.
    On behalf of my company, I thank you very much for having 
invited me today.
    [The prepared statement of Mr. Perry follows:]

  Statement of Robert A. Perry, Vice President, Marketing, Mitsubishi 
                   Digital Electronics America, Inc.

    My name is Robert Perry. I am Vice President, Marketing, of 
Mitsubishi Digital Electronics America. My professional goal is to sell 
large volumes of advanced digital television receivers, as quickly, 
inexpensively, and effectively as is possible. While I have enjoyed 
some success in doing this, I face a massive and frustrating 
competitive obstacle that also afflicts 70 percent of my customers. 
Despite the efforts and instructions of the Congress and the FCC, my 
competitors and I are still unable to offer a consumer product, of any 
sort, that connects directly to any digital cable system. The power to 
be conveyed by the merger of Comcast and AT&T Broadband can be used to 
make this obstacle insurmountable, or finally to clear it away. If the 
merger goes through, this power will all be in the hands of my 
colleagues at this witness table.
    One out of every five HDTVs in consumers' homes today is a 
Mitsubishi. But even with this leadership, we are unable to make 
headway in offering products that connect to digital cable systems. And 
I see competition from others repressed as well. Although I appear 
today on behalf of my company, I am also the chairman of the Video 
Board of Directors of the Consumer Electronics Association, a Board 
member of the Home Recording Rights Coalition, and a Board member of 
HAVI, a corporation devoted to digital home networking software 
systems. In each capacity I have learned how and why consumers are 
still denied the benefits of competition mandated by the Congress 6 
years ago.
    A little history:
     In 1991, Senator Leahy complained that cable systems do 
not adequately support the operation of TV receivers. His attention to 
this issue led to legislation in 1992, telling the FCC to ``promote'' 
the availability of competitive remote controls and set-top boxes.
     In 1996, Section 304 of the Telecommunications Act more 
explicitly instructed the FCC to assure the competitive commercial 
availability of any product necessary to receive a service offered by a 
cable operator--not just set-top boxes, but also DTV receivers and 
other new products that consumers want and expect, such as digital 
video recorders.
     In 1998, FCC regulations gave the cable industry until 
July 1, 2000, to support the operation of competitive devices bought by 
consumers from independent manufacturers and retailers. CableLabs, the 
research consortium of the cable industry, offered to draft the 
necessary technical specifications, and the FCC accepted this offer.
     Today, in the second quarter of 2002, there is no 
competitive entry on the horizon. The July 1, 2000 standards were late, 
inadequate, incomplete, and not sufficiently tested. Recently a 
competitor of ours did ask CableLabs to certify a prototype DTV 
receiver built to this specification, as subsequently modified and 
improved. But CableLabs refused to consider certification of such a 
product, because it does not incorporate newer specifications that are 
still under development and revision.
     The newer specification--the ``Open Cable Access 
Platform,'' or OCAP, is software-based and may be an improvement if and 
when it is complete and reliable. But it is untested, far from ready, 
and even farther from being relied upon. Why? Because at present we 
have no assurance that products built to this specification would 
actually work when connected to cable systems. The cable operators 
themselves have been unwilling to say that they will rely on this 
specification in the devices that they, themselves, lease to customers. 
Moreover, as now written, this specification enables cable operators 
and program suppliers to remotely and unilaterally suppress competitive 
features of multi-purpose products. Product features such as recording, 
games, program guides, telephony, and home networking, might not work 
or could be disabled at will if they are provided in a consumer 
electronics device connected to digital cable.
     In 2000, a new and persistent legal barrier emerged--a 
license offered by the consortium of major cable MSOs, take it or leave 
it. Due to copy protection considerations advanced by the motion 
picture industry, any competitive entrant must sign this license, 
offered by CableLabs. Elements of this license are not only 
anticompetitive, they are also profoundly anti-consumer. It includes 
provisions for:
     Turning off home network interfaces by remote control.
     Reducing the resolution of high definition content by 
three-fourths on designated programs.
     Allowing consumer home recording to be turned off via 
technical means on an unrestricted basis.
     Requiring ``certification'' of these products by CableLabs 
prior to their sale, at an unlimited per-product ``certification'' fee.
    The only companies that have signed this license are Motorola, 
Scientific Atlanta, and Pace--all entrenched suppliers of set-top boxes 
to cable operators themselves, who are not bound by its terms.
    So, Mr. Chairman, as Comcast and AT&T Broadband appear today to 
defend their proposed aggregation of power in all markets, you should 
be aware that their industry thus far has used its concentrated power 
to frustrate the competitive entry legislation launched a decade ago by 
the chairman of your own parent committee:
     Cable operators distribute about 135,000 digital set-top 
boxes per week; they own about 25 million proprietary set-top boxes, 
none of which conforms to or relies on competitive standards, or the 
proposed CableLabs standards for attachment to cable systems.
     Not a single competitive product has been sold to any 
consumer, nor has any yet been manufactured or even certified by 
CableLabs for manufacture. The fox does not simply rule the henhouse; 
it is owner and sole tenant.
    A merged AT&T and Comcast will be by far the biggest, most 
powerful, and most influential cable operator in the markets for both 
cable services and cable devices. Today, both companies procure their 
set-top boxes from the same supplier, which already dominates its 
market. The merged AT&T and Comcast will be CableLabs' largest owner, 
and Motorola's biggest customer. Its combined intentions and single 
checkbook will determine whether this product market remains closed to 
viable competition, or finally becomes the open and competitive market 
that Chairman Leahy envisioned in 1992, and that the Congress demanded 
in 1996.
    You could, of course, simply approve this aggregation, and rely on 
the FCC to insist on compliance through closer regulation. There are 
proposals pending at the FCC for it to demand compliance with existing 
regulations, and I support them. But in the face of the concentrated 
cable industry power that already exists, the FCC has been pushing a 
string. In my view this Committee can and should insist on a 
commitment, here and now, that the enormous power resulting from this 
merger be used to deconstruct monopoly, rather than to consolidate and 
perpetuate it.
    Here are the minimum commitments I believe this Subcommittee should 
demand of my colleagues at this witness table:
    As to standards and specifications: I don't see how I can ask my 
company to invest millions of dollars in a new product line, or my 
customers to invest over three thousand dollars in an HDTV receiver, if 
the cable operators who wrote the software and specifications governing 
the product's operation are unwilling to rely on them in the products 
that they distribute themselves. A simple and authoritative pledge, 
from the individual who will run the combined AT&T-Comcast, that by a 
date certain (preferably 2003) their devices will live by the same 
rules and specifications they set for competitors, and that these will 
not discriminate against competitive features, would go an enormous way 
to build confidence that those who buy products from competitive 
entrants will not be disappointed or abandoned in their investment.
    As to product certification: I don't understand how the July 1, 
2000 CableLabs specification could be adequate to satisfy FCC 
regulations, but not adequate for CableLabs certification of an actual 
product. The CableLabs certification practice is in many cases 
discriminatory, underfunded, overpriced, nontransparent, inefficient, 
and unpredictable--at least as it is encountered by those who would 
compete with CableLabs' MSO owners. A pledge from the merged Comcast-
AT&T to look very seriously into these complaints, and to work 
expeditiously toward self-certification, as we enjoy in other standards 
areas, would go a long way.
    As to the ``PHILA'' license that competitive entrants must sign: 
The ability to license competitors is a public trust that the FCC has 
granted to CableLabs, albeit perhaps in error, and that CableLabs 
continues to abuse. How can CableLabs be shielded from antitrust 
scrutiny, but not public accountability, in exercising it? A reasonable 
license would be one that did not threaten the 2.5 million displays now 
owned by consumers with degraded resolution, or with interfaces being 
shut off and screens going dark, or with the unconstrained ability to 
stop home recording by technical means. Even the motion picture 
industry has disavowed so-called ``selectable output control,'' by 
which high-definition outputs, home network connections and recordable 
interfaces can be shut off in this manner. But in April 8 letters to 
Senators Leahy and Hatch, the President of CableLabs refused to disavow 
selectable output control. I call upon the prospective head of the 
merged AT&T-Comcast, here and now, to disavow selectable output 
control, and to pledge to sit down and work out, expeditiously, a 
license that manufacturers could sign without having to apologize to 
their past, present, and future customers.
    Mr. Chairman, I know that this subcommittee has been looking into 
the competitive issues that I've discussed today for quite some time, 
and that it has inquired of Chairman Powell of the FCC about them on 
more than one occasion. I believe you have performed a great public 
service in doing so. We are fortunate that this merger transaction, 
which would further aggregate monopoly power in the distribution of 
devices and in the setting of technical standards for their 
procurement, is within the jurisdiction of this Subcommittee, as are 
the regulators who must rule on it. On behalf of my company, I thank 
you very much for having invited me today.

    Chairman Kohl. We thank you, Mr. Perry, and we will begin 
asking a few questions.
    Mr. Roberts, your statement was very well written and very 
well delivered. We appreciate it very much, but I was 
disappointed that you didn't seem to have answered any of the 
points and questions that I felt were most pertinent and that I 
noticed as I spoke you were at least to some extent marking 
down.
    So, first of all, will this merger offer consumers any 
relief from continually rising cable rates--the first question, 
if you would mark that down.
    The second question: Won't, Mr. Roberts, this merger make 
it more difficult for small, competitive cable operators like 
our witness here today, WideOpenWest, to compete with you and 
other giant cable companies, as Mr. Haverkate has attested?
    Third, Mr. Roberts, how can independent programmers ever 
hope to distribute their programs over cable lines? Won't large 
cable companies like yours prefer to get their content from 
their own affiliated companies? Specifically, shouldn't the 
program access rule be extended past this October?
    Fourth, why won't you agree in a legally binding manner to 
allow access to your high-speed Internet connections by 
competing companies, as AOL-Time Warner did as a condition of 
their merger?
    Fifth, how do you respond to Mr. Perry, and what assurances 
can you give us that the law with regard to the set-top boxes 
will actually be implemented soon with your full approval?
    Mr. Roberts. Thank you, Mr. Chairman. As I mentioned in the 
opening statement, I look forward to the chance to address 
specifically all five of those issues.
    So, taking it from the beginning, cable rates: As you know, 
two-thirds of our cost comes from the programming cost that we 
pay to the programming channels, the 100 channels that we 
carry, or more. Last year, in Comcast, and the year before, our 
programming costs went up about 15 percent per year, and you 
see today in New York City, with the New York Yankees' dispute 
with Cable Vision, a real-live example of the terrible dilemma 
facing a cable operator.
    It is a product that clearly many people want, and at the 
same time a new cost above and beyond all your existing costs 
have been reported of around $2.00 a month for one channel. So 
in our case and in AT&T's case, we launched that channel and we 
have recently announced a rate increase, and that rate increase 
is substantially more than inflation.
    Another cable company has chosen not to carry the new 
product and they have significant competitive problems with 
full-page ads being run by dish competitors saying switch your 
cable over and you can get the Yankees. So this is a 
competitive business today and your principal competitor is the 
satellite industry, who also has many of the same channels, and 
in many cases their programming costs have gone up as well and 
they have raised rates.
    So the complexity of what happens to the consumer from 
their cable company has to be looked at at a couple of levels. 
One, what are your programming costs? Two, we have been able to 
rebuild all of our systems and offer new products like digital 
and modems, as you have heard here today. All of those products 
are optional, so all consumers get a better cable system, but 
many have chosen to take incrementally more services.
    Finally, the issue of how do you put a package together to 
compete with your satellite brethren or companies like 
WideOpenWest? In our case, our rate increases have been about 5 
percent each of the last several years, and our programming 
costs have gone up double digits. If it wasn't for the new 
services, our business would be going backward. So that is No. 
1.
    Chairman Kohl. How will this merger affect your rates? How 
will this bring down rates to your customers who are listening 
to you today?
    Mr. Roberts. I think that the ability to accelerate the new 
products so we can get more of the incremental revenues takes 
pressure off the basic rate. If it had not been for digital and 
modems, I don't believe you could pay 15 percent more for 
programming, which is two-thirds of your costs, and only have a 
5-percent increase, which we acknowledge is higher than the 
inflation rate as it is already. So the first problem is can 
you get more new products to consumers to not have to raise 
basic rates?
    No. 1, will there be an ability between the two companies 
to reduce costs and be able to then pass some of that or all of 
that through in some form of consumer benefit, whether that is 
an acceleration of new products or directly in rates or in 
giving better service and competing as a better competitor. So 
that is hopefully responsive to question No. 1, and Mr. 
Armstrong may want to add to that.
    No. 2, will it be more difficult for small companies or 
small entrants to compete with us? I don't believe the merger 
affects that question because the markets are different 
markets. So AT&T is Boston and Comcast is in Michigan, where we 
compete with WideOpenWest. The reality is that this is a very 
different cable business than your father's cable business, if 
I can steal the line from the commercial.
    Since 1992, with the cable law of 1992, there was the 
creation of the satellite industry. Today, we have two 
competitors in satellite and many local competitors such as 
WideOpenWest, and in other cities we have wireless competitors. 
But nationwide, everywhere, there are two competitors from 
satellite. There is price competition. They run specials and 
marketing promotions. It is the customary practice in a 
competitive business, very different than pre-1992, where the 
only way to get ESPN or HBO was through cable. That is not the 
case today. You can get a free satellite dish and in many cases 
6 months of very discounted service at $9 a month.
    So we have to match that new marketing offer on the ground. 
In those cases, three out of four new sign-ups appear to be 
going to satellite, and their growth rate has been faster the 
last several years than cable. So I don't believe the merger in 
any way changes the competitiveness today in each of the local 
cities where we compete.
    We have a national competitor in every one of our markets, 
and in many of the markets where WideOpenWest is, and other 
facilities-based competitors, we are competing and I think all 
of our behavior is customary and we basically meet their price. 
We have to build an entire franchise. In many cases, they do 
not or have not, and we have sometimes additional burdens put 
on us by the local municipality that they may or may not have.
    On the question about independent programmers and won't you 
discriminate against small, independent programmers, I actually 
think this deal has the potential to be an enabler for the 
content and technology community to galvanize and incubate new 
development. Why do I say that?
    We have paid a lot of money in this merger. There is 
pressure for us to innovate and to create new services. Now, 
not all those ideas are going to come from Comcast employees, 
and so we have gone out and will go out and try to say to any 
new entrepreneur, especially given our roots, can you come and 
with one contract with this company really make your business 
plan come alive and become real?
    Some of the examples like the Outdoor Life Network that you 
mentioned--there was a group of entrepreneurs that founded that 
channel and they were able to make deals. There is a 
competitive channel; we carry that competitor. You mention QVC. 
We carry the Home Shopping Network, which we do not have any 
financial interest in.
    We have a competitor in satellite, just using that for the 
moment, in every one of our markets. If we don't carry the best 
programming, we are going to lose our customers, and therein 
lies the debate in New York City right now. So as people have 
new ideas, whether it is things like cable modems, there is a 
pressure on us to make sure we are innovating and finding new 
revenues that are optional to the consumer and something that 
causes them to want to stay with Comcast.
    You asked about Internet service providers and whether we 
should have a condition like AOL. I would submit that we are 
not AOL. AOL has a huge market force in narrow-band Internet. 
More than 50-percent penetration of all the people who get 
Internet connections do so through AOL. Comcast has a total of 
1 million Internet connections. AOL has 30 million. So we are 
an innovator in the space of high-speed broadband.
    Dr. Green, who helped us innovate cable modems--I can 
remember many times when people said cable modems will never 
work. And even though it may sound harmless to put a condition 
on, it chills the financial capital that went into a brand new 
service like cable modems, where we have less than a 10-percent 
market share of homes. But of total Internet connections, it is 
a much lower number. This is an early entrant.
    Now, to the specific of EarthLink and other multiple ISPs, 
we have said for some time we want to do business with as many 
connective points as possible so that consumers have the choice 
that they want because if they don't take it from us, they are 
going to take it from DSL, our competitor. Every one of our 
products is competitive today, including high-speed modems, 
with DSL and wireless.
    So we were in an exclusive arrangement with Excite@Home 
when we invented cable modems. The contract terminated when 
Excite@Home went bankrupt in December. In January, we 
transitioned, with great pain, 1 million customers off of 
Excite@Home in a hurry-up way onto the Comcast high-speed 
network, and in February announced that we wanted to get 
started on our commitment to do multiple ISPs.
    The first arrangement we made was with United Online, who I 
believe has sent you a letter, and that is Net Zero and Juno. 
AT&T announced an arrangement with EarthLink. The reason we 
begin in two cities is we want to get it right for our 
customers and make this work. But you have my commitment, and I 
reaffirm what I have said before, which is it is absolutely our 
intention, because we think it is good business, to get 
multiple ISPs in commercially reasonable ways throughout our 
company. We want to get it done. We just transitioned 1 million 
customers.
    I don't think it should be a condition of this deal because 
we don't have a gatekeeping service today. We have a brand new 
competitor and we don't want to get the financial community 
concerned that there are going to be regulations on something 
we just invented.
    On Mr. Perry's concerns, he is technically knowledgeable 
and Dr. Green is technically knowledgeable, so I would like to 
defer some of that. But let me specifically address the big 
picture of set-top boxes which was on your list in the 
beginning.
    I went to the consumer electronics show with a number of 
cable operators this January and I was amazed at what I saw. 
Everywhere is high-definition sets, as Mr. Perry is talking 
about, and that is clearly a very real possibility that that is 
what Americans want. Every one of those sets was connected to 
satellite.
    I walk into Circuit City and I see all they want to do is 
sell you a satellite dish and sell you a high-definition or 
flat-screen monitor. It is critical to the cable industry that 
we have a competitive offering. So I came away from that saying 
we have to accelerate our relationships with the set-top 
manufacturers and get these set-top boxes available at retail 
so that our competitor's product, who does offer some of these 
functions and features, isn't the only place.
    I met with the CEO of Circuit City last week, the first 
time we had ever met. In cable modems, we have all the Circuit 
City stores carrying our cable modems. In cellular telephone, a 
previous business Comcast has been in, and AT&T as well, we 
offered all of our products at retail. Cable television has 
traditionally not done that. That has to change for business 
reasons because our competitor has an advantage over us and if 
the consumer, as they replace these sets, is being told by the 
consumer electronics industry and by the retail industry to 
switch to satellite, I am the loser and Comcast is the loser.
    So we are going to try to fix that, and Dr. Green will tell 
you all the steps that the cable industry came home from that 
consumer electronics show and said let's accelerate our 
activities there. So hopefully that addresses some of your 
issues.
    Chairman Kohl. You have, and I appreciate your frankness. 
My sense in listening to your testimony and to your response is 
that you are doing an outstanding job in representing your 
company's best interests, and I think that is what you should 
do and I appreciate that.
    Whether nor not that is in the best interests of the 
consumers of America is, of course, open to debate, I am sure, 
as you would agree, and open to question. I am always 
concerned, as I was, as you know, in the case of the satellite 
television companies who wanted to merge. I am against it, and 
when you appeared in our office we discussed it and I made it 
very clear that I thought that that was not in the best 
interests of consumers to take the two biggest satellite 
companies and merge them.
    I have forgotten your specific response, but I thought you 
understood what I was saying and were somewhere sympathetic to 
some of the arguments that I made about consolidation.
    I am going to pass it on to Senator DeWine. Before I do, I 
would just like to ask Mr. Green, Mr. Haverkate, and Mr. Perry 
to respond briefly, but respond to some of the things that Mr. 
Roberts has said.
    I will start with you, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. I welcome the 
opportunity to respond.
    Specifically on set-top boxes, we are disappointed, as you 
are, that the retail market has developed so slowly. We have 
worked very, very hard to try to solve the technical problems 
that may have been part of this issue. Specifically, I want to 
set the record straight with respect to the performance of 
cable in producing the POD modules.
    In other words, there were a series of agreements. First, 
in February of 2000 there was an agreement between the Consumer 
Electronics Association and the National Telecommunications 
Association in which we agreed on the specifications for 
interconnection. In July of 2000, the FCC required that we 
prepare a module that could be inserted in a television set or 
a set-top box to provide interoperability, the separation of 
the security module.
    We were on time. We delivered that product. It works and it 
was certified. Mr. Perry is incorrect in saying late, 
inadequate, and not complete. Those modules are available and 
as proof of that, at the consumer electronics show there were 
two manufacturers that showed television sets that accepted the 
POD module, were connected to the Cox Cable television system 
in Las Vegas and they worked. So it is not true that these 
specifications were not complete.
    In addition to that, we worked with Mr. Perry's group to 
define the interfaces for a digital television receiver. We 
published those specifications. These specifications are 
American national standards. They are not just CableLabs 
specifications. They are standards.
    Following that, we worked within the cable industry and 
working with manufacturers to develop the next generation of 
specifications, which are software. We are very interested in 
developing an attractive retail product, so that the software 
and the applications that need to run on a set-top box or a 
television set are very important.
    The Open Cable specification, OCAP, provides that software. 
It is a fair and open specification which provides a set of 
interfaces that anyone can write to. It is available to anyone 
for development. We have issued two sets of the specifications 
Mr. Perry referred to, and we hope that this will also help to 
provide an attractive retail product moving forward in the set-
top box.
    Thank you, Mr. Chairman.
    Chairman Kohl. Mr. Haverkate.
    Mr. Haverkate. Mr. Chairman, Brian Roberts made one comment 
on the programming issue. I think I got the quote down exactly 
right. He said if we don't carry the best programming, we will 
lose our customers. I think that is exactly the point that I am 
trying to make relative to our relationship and our ability to 
compete with Comcast-AT&T, where they have control over what 
programming is available and have the ability to restrict 
access to that programming to us.
    So I couldn't agree more on that point with Mr. Roberts 
that if we don't carry the best programming, we will lose all 
of our customers. But if it is their programming and they get 
our customers, then they have certainly an incentive to 
withhold that programming, and they have shown in the past that 
they will.
    The second point on the issue of this rate discrimination 
and improper practices in the markets themselves--Brian 
referred to it as customary promotions, I think was the term 
that he used. That is not the case. A promotion is something 
designed to try something new, but at least it is a public 
promotion. I have never once seen an ad, and I don't expect I 
will see an ad that says please call Comcast and say that you 
are interested in switching your service to WOW and we will 
reduce your rate by 35 percent.
    This price strategy is being done undercover; it is being 
done in secret. It is not a promotion. It is designed to 
restrict the ability of a competitor like us to succeed. They 
can call it a promotion if they want. Look it up in the 
dictionary. It is not a promotion and the intent is clear.
    In fact, I think basically what is happening here, Mr. 
Chairman, is they are conducting a hostile takeover of our 
industry one customer at a time. They probably wouldn't be 
allowed to buy our companies, so they have decided to buy it 
one customer at a time by going out to our customers and 
offering whatever price they have to to take it over. And if it 
is allowed to continue, I think it is going to be successful.
    With the company of the size that they have and the 
resources that they have, and the young stage of development 
that our industry is in, there is no way--no matter how good we 
are, no matter what products we offer, no matter how good our 
Internet service is, going up against that kinds of odds is 
impossible. So I would certainly appreciate any advice or 
attention to this matter that could be given.
    Thank you.
    Chairman Kohl. Thank you.
    Mr. Perry, do you have a comment?
    Mr. Perry. Yes, sir, and thank you for giving me an 
opportunity to respond.
    In addition to my duties at Mitsubishi, I am also the Chair 
of the Video Division of the Consumer Electronics Association, 
as well as a member of the executive board of directors. I also 
am pleased to serve on the Home Recording Rights Coalition, 
which is a grass-roots organization that is dedicated to 
preserving consumers' normal and customary recording practices. 
We happen to believe, in this transition from analog to 
digital, that you didn't give up any of your rights.
    That being said, I would like to respond to some of these 
points very specifically, but still not get into an engineering 
discussion. I am not one, and I don't even play one on TV.
    Having said all that, Mr. Green's response about the 
specification--he is referring to the POD specification. The 
POD is essentially an access card that slides into the front of 
some kind of a set-top box. That specification is essentially 
complete. The other specifications that are required to build a 
complete product are not. They are not, and we cannot build to 
them, and this belies kind of a central underpinning of what we 
are in the business of doing.
    What we do in the consumer electronics business everyday, 
myself and all of my competitors, is we try to develop the 
latest, coolest products that consumers want, and they get to 
vote in the stores. What we do as manufacturers is quite 
literally bash each other's heads in lowering prices and 
increasing ingenuity and new features.
    In fact, if you were to look at the projection television 
business as an example, in 1997, just as we were starting the 
digital transition of our country's infrastructure, a 50-inch 
projection television, a big-screen TV, sold for a little more 
than $2,000. Today, the HD version of that television sells for 
under $2,000. We do that everyday in our business.
    So it is a little bit disingenuous to assume that there is 
a specification out there that we can build products to, but we 
simply don't. What we want to make are products that connect 
directly to the wall, don't require set-top boxes, or we want 
to make set-top boxes for those consumers who may need one for 
secondary televisions and other televisions in the home.
    Those specifications and the license agreements that go 
with them--the specs are not complete and the license terms are 
egregious. Let me explain how egregious one of those license 
terms is.
    In this PHILA license, we are being asked to agree to allow 
the content provider, by encoding their digital content before 
they sell it to an MSO, or to allow the MSO to send a signal to 
turn off outputs of those products. There are two kinds of 
outputs on products. There are those outputs that I can record 
at home and enjoy my customary home recording rights, and then 
there are the other outputs that I can't record.
    The specification and its associated license agreement 
specifically require us to relinquish that right to the MSO. If 
they want to keep all the recording capability in a set-top box 
so they can charge--in other words, pay every time you press 
``play''--they can do it under these specifications. These are 
some of the issues in a very, very complex document which 
frankly have to be addressed before manufacturers will risk 
capital.
    Another key point which has not been spoken about is there 
are two sets of specifications. There is this very complex 
specification that requires paying tribute to CableLabs in the 
form of licensing fees and certification fees. It is very 
complex. It makes a very expensive consumer product.
    Then there is another specification which the cable MSOs 
themselves can use which is simple. No cable MSO has appeared 
and said we will abide by the specifications issued by our 
scientific organization, CableLabs. None of them have agreed to 
follow their own specification. That should be a pretty clear 
indicator of really what is going on here.
    I applaud the fact that Comcast is a good supporter of 
HDTV. They have had a number of great announcements recently 
and it is wonderful. Our country is trying to transition to a 
digital infrastructure. The unfortunate part is, as we 
transition, we need to make sure that the set-top box issued by 
the cable company is not a gatekeeper that is designed to 
abridge normal consumer recording rights, the ability to 
network, and all these kinds of new technologies that can 
happen in the home and benefit consumers.
    We haven't heard any conversations about how does the cable 
MSO unlock their monopoly for set-top boxes. If a specification 
truly existed that didn't come with egregious licensing terms 
that required us to effectively pay a competitor, you can bet 
we would be making those products today. Those are truly the 
issues.
    Thank you.
    Chairman Kohl. We thank you, Mr. Perry.
    I am going to turn this over to Senator DeWine right now. I 
need to go to another meeting, a conference committee on the 
bankruptcy reform bill. So I want to thank you all for coming 
and I will turn this over to the ranking member of this 
subcommittee, Senator Mike DeWine.
    Senator DeWine [presiding]. Thank you, Mr. Chairman.
    The FCC's recent report on cable prices indicated that when 
consumers have effective competition in cable, they enjoy lower 
prices. That certainly shouldn't come as a shock to anybody. 
The competition from over-builders, though, has come from new 
entrants and relatively small providers of cable services.
    Let me ask you all, and we will start with Mr. Roberts, why 
is it that the larger cable companies have not moved into other 
large companies' markets to bring consumers the benefits of 
head-to-head competition? We really haven't seen that. Why?
    Mr. Roberts. Well, in our case----
    Senator DeWine. And let me just say, is this merger going 
to make that any more likely?
    Mr. Roberts. Well, heretofore, because you served the 
entire community and because you have now two national 
competitors in satellite, it has not proven to make a lot of 
money. Ameritech, as was mentioned earlier, went into the 
business, and before them Florida Power and Light and others, 
large, substantial companies who wanted to go into other 
markets where you have to wire up the entire community or some 
substantial amount of homes and then see how many customers you 
get.
    Satellite and wireless have proved to be a quicker and 
easier way to get a large footprint. So in our case, when that 
happened, satellite occurred, we put $5 billion, as I mentioned 
in my testimony, in the last 5 years into upgrading our 
existing facility to try to sell new products and to have a 
more competitive offering so that customers would retain with 
us.
    Senator DeWine. Mr. Armstrong.
    Mr. Armstrong. Senator, I think that having pursued, first, 
the acquisition of TCI and then MediaOne, and now putting 
together AT&T-Comcast, we are probably the most aggressive in 
believing in and committing to enormous amounts of capital to 
deploy broadband services.
    Second, this is a very, very high fixed-cost business, 
whether you are an entrepreneur starting it up or whether you 
are transforming what is already there. I have been in three 
forms of networking in my career--data communications with the 
IBM Company for 3 decades, then 6 years with Hughes in 
satellite communications and wireless communications, and now 
wire line and cable communications--and there are some common 
denominators to those businesses.
    One is that they are very capital-intensive and have an 
extremely high fixed-cost nature to them, and you have got to 
get as much content going over those infrastructures that you 
spent all that money to make go fast and connect to customers 
as you can. So we have been concentrating on clustering our 
assets so that we can leverage our capital so that we can bring 
more services to more people sooner.
    In that respect, we hope we can converge the interests of 
the consumer, as was spoken to before, with the interests of 
the cable company, because if we can bring more services at 
better prices in better bundles sooner to the consumers because 
we have clustered these properties, we will be as competitive 
as we can possibly be.
    Senator DeWine. Anyone else on the panel?
    Mr. Haverkate. Senator, there are, I think, two references 
now that implied that the new broadband companies are not 
building entire communities. Generally speaking, that is not 
the case at all. The franchises that we have in the Midwest 
have been completely built out. We are providing services to 
100 percent of the communities there, and we are providing 
similar franchise requirements as the incumbent MSO and we 
certainly don't believe that we are getting any special 
treatment in that respect.
    There has also been an implication that our business is not 
a viable business, but it certainly is. While we are still 
young, we still have several members of the Broadband Service 
Providers Association that are turning into a positive cash-
flow situation. We are right on the edge of becoming successful 
companies, and I think if we can prove that this is a viable 
business model and that there is room for a second local 
network in these markets, considering the explosion of Internet 
and digital services, I think that will lead to more 
competition, including the possibility of big companies 
competing with each other.
    So I would certainly not give up on the goals of the Cable 
Act in having this local competition, because we are not, and 
we think we have an excellent opportunity as long as there are 
some ground rules that are established now going forward.
    Senator DeWine. How are things going for you, Mr. 
Haverkate, in Columbus and in Cleveland?
    Mr. Haverkate. We have about 21 to 22 percent penetration 
in those markets, so 1 in 5 households is connected to our 
network. When Ameritech built it, they built an excellent 
analog cable network, but they were slow to introduce digital 
services and they didn't introduce Internet at all because they 
had a DSL strategy.
    When we took over, we accelerated the roll-out of digital 
cable and Internet services, so now we have a comparable suite 
of services as Comcast or Time Warner does, or Adelphia Cable 
does. So we are doing very well on increasing the range of 
services that we are providing to our existing customers, but 
we are having some serious difficulty in fighting this issue on 
rate discrimination that I mentioned before, where our 
customers are being targeted and asked to switch for a big 
payoff.
    Senator DeWine. Let me ask Mr. Armstrong, Mr. Roberts and 
Mr. Haverkate the following question. Cable franchise 
agreements often require cable providers to have uniform 
pricing for consumers in their franchise area, at least for 
basic cable services. Many cable over-builders have noted that 
when they enter into a specific neighborhood that the incumbent 
cable provider will offer free programming, discount prices, 
and cash rebates in that area to prevent their customers from 
switching to competing services. Obviously, the customers who 
receive these benefits and this competition have benefited from 
the competition.
    Let me ask you, do these types of discounts and promotions 
violate the franchise agreements, and also will the ability to 
offer these types of discounts harm consumers in the long run 
if new entrants are unable to establish a sufficient customer 
base and remain viable?
    Mr. Armstrong, do you want to start?
    Mr. Armstrong. First, Senator, I don't think it will harm 
consumers. I think competition is pretty darn good. We spend a 
lot of time competing with dish.
    Senator DeWine. Long run, as well as short run, they will 
be better off? Clearly, in the short run they are going to be 
better off.
    Mr. Armstrong. Sure, and I think in the long run they are 
going to be better off, also. We spent a lot of time competing 
with dish in my old outfit, DirecTV, as well as over-builders, 
as well as Bell companies, and as Brian mentioned, in some 
cases some wireless outfits. I don't think it violates, to my 
knowledge, being competitive.
    I do think it is wrong if people start to price below cost 
in order to keep them long term. That is very bad and that is 
not the right thing to do at all. I know at least in our 
company's case, we have never, never approached that.
    So the bottom line, Senator, is I think it is good to have 
competition. I think we have got a lot of competition, and 
over-builders aren't the only ones we are reacting to day by 
day.
    Senator DeWine. Mr. Haverkate, any comment?
    Mr. Haverkate. Yes. I don't believe I responded to the 
question about franchise requirements, but for them most part 
the franchises do address the issue of discriminatory pricing 
and charging uniform rates and publicly disclosed rates across 
the entire customer base. So in most cases, this practice that 
I have been talking about today certainly appears to be in 
violation of the franchise agreements that municipalities have.
    Senator DeWine. It would be?
    Mr. Haverkate. It would be. It is in violation, yes, 
because rates are supposed to be publicly disclosed, which they 
are not, and uniform, which they are not.
    The second thing is certainly it is hard to argue against a 
lower rate. Certainly, everyone wants to get a deal, but if the 
price of allowing this activity to happen is the elimination of 
competition, be assured that rates will go up faster in the 
future. Choices of Internet service will be reduced. 
Competition in the digital arena will not exist.
    We are not talking about a short term/long term like 3 
years from now. If this issue isn't addressed immediately and 
some stop isn't put to it, companies of this size, if they have 
the intent, have the ability to put us out of business, not 
next year but this year. So it is a very serious issue.
    They keep talking about the satellite industry. Well, I 
want to talk about the local network industry that has spent so 
much money, time and effort to put themselves in place and now 
are at risk.
    Senator DeWine. Mr. Roberts, any comment?
    Mr. Roberts. Thank you. A couple of points. First of all, I 
have tremendous admiration for a fellow entrepreneur. The 
Ameritech Company, which is now part of SBC, built some of 
these markets, and I believe your company was able to buy them 
for substantially less than they had spent to build them. So 
that is the entrepreneurial model at work, and he is absolutely 
entitled to pursue his business and I wish him good luck.
    The reason we keep referring to satellite as a major 
competitor is that is where the vast--first of all, it is 
available everywhere in the country, not market by market. And, 
of course, in the last couple of years Congress has passed a 
law, the Satellite Home Viewer Act, to allow satellite to have 
all the local broadcast signals.
    I believe what has been referred to in the local franchise 
of one rate is the level of service that includes the local 
broadcast signal, the so-called B-1, and I believe if there is 
a certain community where there is some behavior, then you 
could complain to that community or complain to the FCC.
    So, again, I guess I would step back and say I don't see it 
as a merger issue. The satellite industry and the over-build 
industry are competing, and we are responding, in turn, by 
upgrading our networks, investing, clustering, as Mike 
mentioned, and hopefully creating a compelling proposition to 
the consumer.
    Senator DeWine. Senator Specter.
    Senator Specter. Thank you very much, Mr. Chairman.
    One of the concerns which I have involves the tie-ins 
between sports teams and cable. Two examples come to mind, or a 
number of examples come to mind. One example is the Braves 
network, another example is the Yankees network.
    I heard recently that a substantial charge was being added 
to the cable subscribers of Yankees' games and the 
interrelationship of this arrangement is that enormous revenues 
go to teams like the New York Yankees. They are able to buy 
pennants and buy World Series championships almost at will.
    Mr. Haverkate, you are nodding in the affirmative. I think 
I will start with you. You appear to agree with me.
    Mr. Haverkate. Well, I agree 100 percent with your comments 
so far.
    Senator Specter. Well, what is the extent of major sports 
teams' ability to control cable television to acquire more 
funds, which then in turn can be used to buy players and buy 
pennants?
    Mr. Haverkate. Well, they have an enormous ability there. 
The example that you are using in New York--while WOW doesn't 
operate in New York, I know that RCN and other members do. 
Typically, the negotiations go something like this: We have 
decided to put this number of games on this channel and this is 
what the rate is and you have until Friday to agree to it.
    If you are a competitive provider like we are or like the 
satellite industry is and you have a lower market share and you 
are doing everything that you can to try to hold on to the 
customers that you have, the last thing you need is to not have 
programming like the New York Yankees. So, in effect, we agree 
to whatever demands they have, no matter what the price is.
    Generally speaking, the cable MSOs have had to do the same 
thing because if they don't do it, then they are painted as the 
bad guys and withholding key programming from consumers. 
Occasionally, there is a company like Cable Vision that says no 
and takes the heat on it. But generally speaking, all the 
leverage in that negotiation is with the sports owners and the 
sports channel, and the cable companies have very little to do 
with it, in my experience.
    Senator Specter. Do the Yankees own a cable network?
    Mr. Haverkate. I believe they do. Since I don't operate in 
the New York market anymore, I have only been following this 
particular issue through the trade press. So maybe Mr. Roberts 
or Mr. Armstrong would know the details more than myself.
    Senator Specter. Does anybody know for sure whether the 
Yankees own a network?
    Mr. Roberts. It is 50-50.
    Senator Specter. Mr. Armstrong, you are looking with an 
affirmative nod.
    Mr. Armstrong. It is 50-50.
    Mr. Roberts. I think they own 50 percent of the network and 
they sold the other 50 percent to some investors recently in 
the last year.
    Senator Specter. Mr. Perry, what do you think Congress 
ought to try to do about that, if anything?
    Mr. Perry. Well, sir, I think that concentrations of power, 
as commented very early, I think, in some of the opening 
comments, are not necessarily bad if, in fact, there is 
oversight and if an environment is created where this power can 
be put to tremendous use of allowing for competition and 
allowing for equal access and allowing for lots of entrants to 
innovate and bring technology to the party, which is something 
that we do in our business.
    Senator Specter. How can you have oversight, or how can you 
have competition? It is a full circle. The Yankees own the 
system or 50 percent of it. They must have had a good reason 
for bringing in investors. That produces revenues because 
people like to watch the Yankees because they are good, and 
that enables them to acquire a lot of money to buy more players 
who are good. What happens to competition in the American 
League?
    I am frankly more worried about Atlanta because they are in 
our division, but let's stick with the Yankees.
    Mr. Perry. As we discussed earlier, being a Burks County 
boy and actually having taught economics at a couple of 
colleges in the Burks County area, it is a fact of like that 
all companies as they grow tend to desire to stifle competition 
and to exert more market power.
    I believe that is why the 1996 Telecommunications Act was 
passed. I believe that is why the Federal Government has a wide 
range of legislation and regulatory oversight on all of these 
issues, and I believe that that oversight has to be properly 
employed, and vigilantly.
    Senator Specter. Do you think oversight could do something 
about the Yankees' practices?
    Mr. Perry. I am not so sure whether there is specific 
legislation or regulatory authority to address that issue. 
However, this specific issue that you bring up, while it is not 
particularly an issue that our industry focuses on, does have 
an effect of being exclusionary, and let me explain how that 
works.
    Today, while we have two DBS satellite providers, one 
offers sports programming packages that are highly attractive, 
and the other cannot. They cannot because the arrangements for 
the provisioning of programming are exclusionary. They, in 
fact, are used as a competitive weapon, and that is market 
power at work which a lot of us would probably say is probably 
inappropriate use of market power.
    That is going to flip to the cable side fairly quickly. It 
has been commented on that they have a national competitor 
called satellite. Well, our country is in the middle of this 
digital television transition. In fact, all of the local 
broadcasters in the Philadelphia market have transitioned.
    This transition allows the local broadcasters to deliver 
high-definition, very high-quality pictures, and broadcasters 
like CBS and ABC deliver their prime-time schedules in high-
definition. Well, one of the things that is not being brought 
up here today is that cable has a very natural advantage in 
this marketplace. Even if Echostar purchases DirecTV, they 
cannot offer HD programming in all their markets. They will 
relegated to 12 channels of HD and then lower-resolution 
programming across the rest of the country, where cable, 
because they are a wired, on-the-ground system, will be able to 
deliver, if they wish, high-definition programming in every 
market of the country. So while, in fact, they are competitors, 
they don't necessarily compete on equal footing.
    So I went a little bit over the answer to your question, 
sir, but these are part of the intricacies that affect how 
these business models work and whether they are really fair to 
the consumer. Our company, and frankly our industry, really 
doesn't have a position for or against this merger. Our 
position is that the regulatory and legislative authorities 
that are already there should be enforced to ensure that if 
this goes forward that the consumer is treated fairly and they 
have all this access and they have the right to get this 
variety of programming and services without the set-top box or 
contracts creating exclusionary environments to control them.
    Senator Specter. Mr. Betty, do you agree that cable has 
that kind of an advantage over satellite?
    Mr. Betty. I really don't have an opinion on the subject.
    Senator Specter. Well, that is refreshing.
    [Laughter.]
    Senator DeWine. Mr. Armstrong.
    Mr. Armstrong. Senator, could I take a shot? And I find 
myself very uncomfortable doing this, but I was 6 years in the 
satellite industry and we started DirecTV. The satellite 
industry can provide more capacity by advanced satellite 
technology, better use of frequency on the transponders, and 
reuse of the spectrum. It is called a spot beam technology that 
will enable them to, in fact, implement the same frequency in 
different geographies from a geosynchronous satellite system. 
So while I think that we in the cable industry have some 
advantages over satellite, I just don't buy into that is one of 
them.
    Mr. Perry. I would point out, sir, if I could, that the 
people who are promoting the deal between Echostar and DirecTV, 
I believe, when they have come to the Hill have talked 
specifically about a commitment to deliver, I believe, local-
to-local broadcasts in standard definition in all TV markets 
and 12 channels of HD. If it was part of their business plan to 
deliver HD in every market, I am sure that would have been 
offered up.
    Senator DeWine. Mr. Perry, let me just interrupt Senator 
Specter for a moment and let me just say that we will be 
certainly interested in getting the answer to that question.
    Senator Specter. Well, I am concerned about the impact on 
sports which is readily apparent. There are a lot of other 
questions which are on the table which defy analysis and are 
very hard to figure out.
    There is a sense of unease in the Congress, or at least in 
this member, on mergers and acquisitions, but unless there is a 
violation of the antitrust laws, lessening of competition--and, 
candidly, there does not appear to be that here--there is no 
legislative reach to object.
    A number of us have wrestled with what has happened not 
just here, but everywhere, on gigantic concentration. There is 
a sense, as Jefferson said, about a feeling of discomfort with 
the size, with the gigantic nature in so many, many of the 
lines. We see the import in a number of ways. We see it in 
sports, where America has a love affair with sports, and I have 
seen this cable operation work to the disadvantage of most of 
the teams.
    We have a franchise in western Pennsylvania, in Pittsburgh, 
doing very well right now, but a small-market team has a very, 
very tough time surviving, and the big-market teams, where they 
tie into cable, really have it made. We wrestled on this 
subcommittee with the problem of franchise changes, and while 
this does not directly affect the issues here, it does in an 
indirect way as to cable's import on helping teams like the 
Braves or the Yankees, where the franchises are extracting 
enormous sums of money--$1 billion in public money for stadiums 
in Pennsylvania.
    I introduced legislation which would require Major League 
Baseball or the NFL to pay for three-quarters of the cost of 
stadium construction. The NFL has a $17.6 billion, multi-year 
television contract. It doesn't go over cable, but the 
extortion of the big cities is just overwhelming and we are 
trying to put our hand around the issue.
    Does anybody have any ideas as to what we might do on the 
examples we have on the table, the Yankees or the Braves?
    Mr. Armstrong, you have been in this business a long time. 
What do you think?
    Mr. Armstrong. I don't think that qualifies me, but I do 
think that there is a very natural market tug between the love 
affair, as you have rightly put it, with sports teams and 
American consumers. We love our sports, we idolize our heroes, 
and we do a pretty good job, whether it is from the sky on the 
ground, of bringing that action to everybody, almost too much 
of it some weekends. But right now, we have a difficult tug.
    By the way, Senator, it is not just the NFL and the NHL and 
the NBA. Also, you have things like ESPN who have rate 
increases every year that are very high, double-digit rate 
increases for what they bring, as well. And what we are trying 
to do, to the best of our ability, is to tier them so we can 
price them to the people who want to watch them, and to try to 
mitigate the impact on the basic service that many people take 
as their fundamental service.
    So I hope over time that market forces lead us to, if 
people are going to want to watch it that much and the teams 
are going to charge that much for people to watch it, we can 
evolve to the ability to tier it so that the people who do 
watch it pay for it and not all the other people. I hope the 
market will enable that to happen over time.
    Senator Specter. Well, I didn't get any part of your answer 
to the issue of how to break up the Yankees.
    [Laughter.]
    Mr. Armstrong. Or beat them.
    Senator Specter. Mr. Roberts, I know that there is an 
element with Comcast and the sports teams with which you have 
an interest. Would you comment on the ways you see your 
practices evolving with the Flyers or the other sports teams 
and I think some activities in Washington, too, to ameliorate 
this kind of an issue?
    Mr. Roberts. Well, I think you put your finger on the pulse 
of a quagmire, and I don't know that anybody has the answer or 
we all would be chasing it right today. We recognize that love 
affair and want to be associated with it, but at the same time 
it is a cost and there is an unevenness, as you point out. I 
think you probably need to talk league by league on that 
unevenness, because in some leagues there is a cap or some sort 
of less extreme disparity between teams.
    At the same time, our behavior in the sports business is 
pretty consistent with the norm of the industry. It is not a 
market leader the way the Yankees are right now, or the Braves 
on a national basis with having their games available 
everywhere, and that creates extra revenue. You are right; for 
years, they have done better, so there is a cause and effect.
    I think the point you made about stadiums--we know from 
Philadelphia that that is exactly the tough problem for what to 
do, and if we didn't have it, then the teams may have moved. I 
don't know, but I think it is worthy, and going back to the 
earlier discussion on cable rates, at least that there is an 
understanding that this is a complicated, multi-layered 
problem, not just somebody desiring to raise rates 5 percent 
and, gee, that is great. In fact, the cost of sports is going 
up way greater than that amount of money, as you know.
    Senator Specter. Mr. Armstrong, I am advised that you are 
to be the chairman of the board of AT&T-Comcast. There is a 
provision that the chairman cannot be removed without the 
approval of 75 percent of the board before the year 2010 that 
is more job security than Senator DeWine and I have. We have to 
run and can be defeated more often at a lower figure.
    Is it true that you will be the chairman of the board, or 
that is the plan, and can't be retired without a vote of 75 
percent of the board?
    Mr. Armstrong. That provision is currently in there, 
Senator. It does not apply to me, however, until 2010. It 
applies to me until the spring of 2005, and it applies so that 
I will be able to help with this transition to assure the 
success of this company in coming together deliver on the 
synergies that we promised the shareholders. So for me, it is a 
transitional vehicle.
    Senator DeWine. Just until 2005?
    Mr. Armstrong. Yes.
    Senator Specter. Well, why is the provision in there, then? 
Is it only applicable to whoever takes over after you, until 
the year 2010?
    Mr. Roberts. I think it applies to, in all probability, 
myself. As you may know, the Roberts family has 88 percent, 
approximately, of the votes in Comcast. In the merger 
discussions between ourselves and AT&T, it was negotiated that 
we would reduce that voting percentage from hard control, if 
you will, north of 51, to 33\1/3\. So it was a balanced package 
of governance to say, since we are now below, it would require 
three-fourths of the board so that there would be stability 
that the vision that we painted out, which is going to take 
many years to fulfill, could happen; that our investment had 
been with a number of years since we went public for 29 years.
    My father has had hard control of the company, and in 
giving that up, which was a huge line to cross, but in order to 
help create this company this was a negotiated balance and will 
be put before all the AT&T shareholders to see whether they 
like this deal or whether they don't, and we will live with 
that outcome.
    Senator Specter. Are you saying, in effect, because you 
have so many obligations under this arrangement, you want to be 
sure that you are in a position to operate the company to make 
sure that the company and you can fulfill your commitments?
    Mr. Roberts. That was the basis of us wanting to go forward 
with making this large investment in this new company for our 
family's investment.
    Senator Specter. Thank you very much. My time has expired 
long since, actually.
    There is a letter which has been written by the AFL-CIO to 
the Securities and Exchange Commission raising quite a number 
of issues, and you have probably already responded to it. I 
would like to have this made a part of the record, Mr. 
Chairman.
    Senator DeWine. Without objection, it will be made part of 
the record.
    Senator Specter. And also to have your responses to the 
issues which were raised here. To repeat, I believe you have 
already responded to them, but I think that our record here 
ought to have those responses as well.
    Senator DeWine. I would advise all the members of the panel 
that members of the subcommittee have the opportunity to submit 
written questions and those can be submitted.
    Senator Specter, anything else?
    Senator Specter. That concludes my questioning.
    Senator DeWine. I am going to jump around a little bit with 
a few additional questions. I want to get back to the issue 
about exclusive contracts in regard to programming and maybe 
get some comments about that.
    The ability of any program distributor to get access to 
programming is obviously a key element of being a valid 
competitor in this business. Let me ask you what you believe 
would be appropriate concerning the program access rules in 
regard to the exclusive deals for programming. A good example, 
of course, would be DirecTV's deal with the NFL, the Sunday 
package, the NFL Sunday Ticket, where if you want to watch any 
football game in the country, about the only way you can really 
do that is to buy that package. You can't buy it from cable, 
you can't buy it from anybody else but DirecTV.
    Mr. Armstrong, you are smiling. Let's get your comment.
    Mr. Armstrong. I am smiling, Senator, because when I was at 
DirecTV we negotiated the arrangement with the NFL.
    Senator DeWine. So you are responsible for that?
    Mr. Armstrong. I used the word ``we.'' They own it now. The 
company at the time paid quite a premium to put that package 
together and at the time we were betting a lot on would we have 
the kind of package that would differentiate us in the 
marketplace.
    The NFL felt they were clearly within the rules of the road 
in program access to cut such a deal with a satellite carrier. 
On the same token, after coming to AT&T and getting in the 
broadband cable business, I realized how outrageous this was.
    Senator DeWine. You saw it from a little different 
perspective?
    Mr. Armstrong. Absolutely, and so I can only say that I 
think the program access rules, as interpreted by the FCC, have 
held up that transaction. I think now Chairman Powell and the 
Commission are taking that under review and we have yet to 
learn their direction.
    Senator DeWine. Although that has been in effect, though, 
since when?
    Mr. Roberts. 1992.
    Senator DeWine. What year?
    Mr. Roberts. 1992, so basically it has been in effect for 
10 years and it said that the FCC at the end of that period 
would review it and that is the process we are in.
    Senator DeWine. That is where we are now.
    Mr. Roberts. And I think that that is an appropriate point, 
because it doesn't apply to the satellite industry and it does 
apply to cable and it has, I think, worked in today having 16 
million customers who now have satellite dishes. The question 
is is it still appropriate or does it need to be modified, and 
that process is ongoing.
    Senator DeWine. Staying with you, Mr. Roberts, the D.C. 
Circuit Court recently ruled that the 30-percent cable 
ownership cap was not valid and needs to be revisited by the 
FCC. What do you think about that? Do you think a cable 
ownership cap is important, and what would be the level?
    Mr. Roberts. Well, I don't know that I have an answer as a 
number. I would defer to what is going on in other industries.
    Senator DeWine. You all would not be violating that, right?
    Mr. Roberts. Well, that was what I was going to say.
    Senator DeWine. You are close.
    Mr. Roberts. Well, we would be right at about 30 percent if 
you assume that we are able successfully, and we plan to--and I 
want to confirm what Mike had said earlier about the Time 
Warner interest that we are going to dispose of that 
partnership. The remaining company, based on the old rules, 
would be right around 30 percent, I think slightly under. That 
has, as you said, been remanded.
    I think one of the reasons that I think this transaction 
hopefully doesn't present difficulties--somebody mentioned 
earlier, well, what about broadcast stations, what about 
newspapers? Today, in Comcast-AT&T, none of that is there, and 
I think you have to do all these rules in their totality.
    What is the number of TV stations that can be owned? What 
is the number of networks? So I think you have to look in the 
totality, and the same in the phone industry. But I don't think 
this transaction, even if the old rules were in place, would be 
violative. So we are hopeful to participate in that process 
with the FCC to help them set kind of a set of rules that both 
the courts uphold and apply uniformly.
    Diversity of voices which somebody mentioned earlier--I 
think that is a critical thing to safeguard. I would submit 
that cable television has added more to the diversity of news 
and information over the last 25 years in this country than 
almost any single industry contribution.
    Senator DeWine. So the summary of your answer is what?
    Mr. Roberts. The summary of the answer is I think something 
higher than 30.
    Senator DeWine. I guess so.
    Mr. Roberts. At least 30.
    Senator DeWine. At least 30, OK. Forty?
    Mr. Roberts. I really don't know, honestly.
    Senator DeWine. Mr. Armstrong, a comment at all?
    Mr. Armstrong. I think it ought to have a minimum of 4 in 
front of it. I wouldn't even think that 3 was appropriate. No. 
2, I hope they do away with the attribution rules which lend to 
the counting of subs when they set this thing. That would be a 
good step forward.
    Senator DeWine. Mr. Haverkate.
    Mr. Haverkate. While size isn't a factor for the broadband 
services providers, generally speaking, either one of these 
companies in their current size are already large enough to 
take actions to trample our business. So we are concerned more 
about the rules of the game and the actions and behaviors that 
are permitted than we are about the size of the company.
    Senator DeWine. Senator Specter, anything else?
    Senator Specter. No, thank you.
    Senator DeWine. Well, I have got a couple more here.
    Both AT&T and Comcast own programming, not as much as some 
other cable systems, but nonetheless this merger will increase 
vertical integration. There are a number of concerns associated 
with this type of consolidation.
    For example--and I mentioned this in my opening statement--
independent programmers may find it more difficult to gain 
access to cable systems as cable companies own more 
programming. In addition, competitors may have difficulty 
gaining access to programming owned by the incumbent cable 
system.
    Concerned with issues such as these, the Department of 
Justice imposed conditions on the Liberty-TCI transaction, 
requiring that the company not discriminate against independent 
programmers or competing program distributors.
    Let me ask the panel, would similar non-discrimination 
provisions relating to programming be appropriate in this 
merger?
    Mr. Haverkate.
    Mr. Haverkate. Well, I would certainly think that would be 
a good idea. But in addition to that, if you were an 
independent programmer and you were trying to get access on the 
AT&T-Comcast network and they said to you one of the terms and 
conditions of you getting on our system is that you are an 
exclusive on our system and you are not allowed to sign an 
agreement for carriage on our competitor, believe me, that is 
what they will do because getting on that large of a network is 
key to their business. Getting on our network is not key to 
their business.
    So this issue of kind of collecting these programming 
assets and holding them in tight control is a key issue on 
whether this competition is going to last in the marketplace or 
not. Especially going back to Senator Specter's point where a 
company actually owns the sports teams in the same market where 
they can say we are going to carry these only on our network 
and we are not going to sell them to our competition in the 
network, that basically locks out all competitors in that 
market.
    Mr. Betty. Senator DeWine, I think similarly, when you look 
at the opportunity to provide customer choice of ISPs, having 
non-discriminatory access to things like video streaming or 
restrictions on provisioning that content over the pipe coming 
into the home also will be important in order to maintain 
competition in an open-access environment.
    Senator DeWine. Mr. Roberts.
    Mr. Roberts. Thank you. Between the two companies, I think 
we have about 6 percent or less of the cable networks. As you 
mentioned, it is not very many. I think we pride ourselves on 
the good relationships we have with both large content 
companies, but also small and medium-size companies. We have a 
relationship with News Channel 8 right here in the District, 
with the Weather Channel, Word Network, with, as I mentioned 
earlier, Outdoor Life Channel, and many others.
    I really think if you are on a pro-competitive path, any 
regulatory restrictions have consequences, and I think today 
there are safeguards in place and we are in a competitive 
business. We have very few exclusive agreements with 
independent programmers such as you are referring to, and 
virtually none that I can think of against WideOpenWest. So I 
do think the marketplace is working.
    Senator DeWine. Mr. Armstrong and Mr. Roberts, last year it 
was reported that at least one cable company attempted to 
require a popular programmer to agree not to permit its 
programming to be delivered over the Internet. As high-speed 
Internet access becomes available to more consumers either 
through cable companies, phone companies or other providers, 
many people believe that video streaming over the Internet 
could bring competition into the multi-channel video market in 
coming years. Yet, established distributors of video 
programming such as cable companies may have an incentive to 
prevent this emerging competition.
    Let me ask you, will a merger such as the one that you 
propose that increases the market power of individual cable 
firms enable the ability to block or delay video distribution 
from these emerging competitors? Do either of your companies 
have agreements in place today that prevent or limit 
distribution of content over the Internet, and will you commit 
not to enter into such agreements?
    Mr. Armstrong. Senator, let me try that. The answer is yes, 
video streaming indeed will be enabled by Web sites. There are 
a couple of billion Web sites out there, everything from maybe 
you and I doing some video streaming with full motion pictures 
of family, to people who have servers that, in fact, charge, 
pay-per-view kinds of services that come from video streaming.
    It is very difficult to monitor those bit streams as they 
come through in terms of the content that they are carrying. On 
the other hand, we can now monitor with our networks how much 
consumption people are using. You might be interested to know 
that in the Excite@Home days when we did an analysis with over 
3 million subscribers to a broadband service Excite@Home 
offered, 5,700 consumed 30 percent of the network. We tended to 
call them the Net Hogs, and they are obviously using a lot of 
capacity that we are spending a lot of capital on.
    So what the industry is going to have to migrate to, and 
the technology is there to do it, is to understand what the 
consumption is that is causing us to spend so much capital to 
keep the performance levels up, the reliability there, and the 
service levels appropriate, and charge for it.
    I look at it as a business opportunity. If Web sites want 
to video-stream, if ISPs want to video-stream, if portals want 
to video-stream, terrific. I would just like to get paid for 
that consumption and the capital I have got to put forward to 
let that happen.
    Mr. Roberts. I totally want to just agree on that point 
that as a business model we are trying to take 10 percent of 
consumers and give them more than 10 percent, a reason to buy a 
cable modem. This hearing, I believe, is being streamed on C-
SPAN III, and that is a practice now that is very common and 
that is one of the benefits of cable modems. So we absolutely 
want to encourage it. Mike's point about finding a way to 
charge for different consumption models is very logical.
    I think the second point you raised is sort of akin to a 
broadcaster if they were streaming one of the big networks, and 
yet the local broadcaster said what about the integrity of what 
I have purchased or my business relationship? So I think what 
you are referring to is probably if we are being asked to pay 
for a channel that is then given for free over the Internet, is 
that a good business model?
    So we are not ever blocking any Web sites. We have never 
done that. Excite@Home never did that, to my knowledge. What I 
think you are referring to is just--and there have not been any 
contracts where this has been a dispute with our company or 
that any programmers ever raised with me. I think we are going 
to try to, as this becomes more prevalent, find an acceptable 
business model so that they can begin to stream the content, if 
that is what the consumer wants, and find a secure way for them 
to get paid and to make sure that there is an integrity to the 
product.
    Senator DeWine. Well, Mr. Roberts, I know that your company 
started as a family-owned business and remains a family-owned 
business. It was started by your dad and your dad has been 
seated very quietly behind you during this whole hearing. I 
just, before we close, want to see if he might have any brief 
comment before we close this down.
    Mr. Roberts. It is my honor to turn it over to the elder 
statesman.
    Senator DeWine. Mr. Roberts.
    Mr. Ralph Roberts. Thank you very much, and I am slightly 
prepared. I want to thank you for giving me this chance to say 
a few words. Pardon my throat.
    Senator DeWine. Well, my throat, as you can tell, Mr. 
Roberts, has been bad throughout the hearing. So you are doing 
very well, sir.
    Mr. Ralph Roberts. Thank you. I have had a lot of 
experiences in my life, but this is the first time I have had 
an opportunity to talk to a congressional committee.
    Senator DeWine. They are to be avoided, Mr. Roberts.
    [Laughter.]
    Mr. Ralph Roberts. I learned how to avoid them for 60 
years.
    I am really quite thrilled to be here today, and I know you 
have heard from Brian and Mike what an incredible vision we 
really have for what Comcast and AT&T Broadband can become. 
What is especially wonderful for me personally is that I have 
had the opportunity to work side by side with my son, Brian, 
and seeing him sort of taking a family business that I founded 
over 30 years ago and seeing it grow into a leader in the cable 
and broadcast community industry--a long distance from Tupelo, 
Mississippi, where we started.
    Brian and I think of ourselves as entrepreneurs. We think 
that that is the spirit that makes American business the best 
in the world. Being an entrepreneur means understanding your 
customer, being willing to take risks, but to do it 
intelligently so that you can build and grow something that 
customers really want. We will keep that spirit in this new 
company and we will deliver the quality and the value that 
Comcast customers have come to expect. We will continue to 
create the kind of competition that you in Congress want to 
see.
    I was very interested in the many questions you asked and I 
hope you received clear answers. I also hope that you share our 
belief that this merger is really a good thing for America's 
consumers.
    Thanks again for giving me this few moments.
    Senator Specter. Mr. Chairman, if I may comment, I am glad 
I stayed until the very end.
    You should have been the lead witness.
    [Laughter.]
    Senator Specter. This would have been a much shorter 
hearing had you said that at the outset. I complimented you at 
the start, Mr. Roberts, and I would compliment you at the 
conclusion for what you have done and your comments on 
entrepreneurship. You are certainly Exhibit A, and Brian is 
Exhibit A-plus.
    Mr. Ralph Roberts. Well, thank you very much.
    Senator Specter. You have done a great job on your own and 
a great job in producing your successor.
    Mr. Ralph Roberts. Thank you.
    Senator Specter. Thank you. Thank you, Mr. Chairman.
    Senator DeWine. Mr. Roberts, thank you very much. Senator 
Specter, thank you. Let me thank all of our witnesses for their 
testimony today.
    There are clearly some points of disagreement about 
specific issues related to this merger. The Department of 
Justice and the FCC must look closely at program access issues 
and consumer choice regarding ISPs. They should do what is 
necessary to protect consumer choice.
    I encourage the agencies to look closely at media 
consolidation, in general, and put in place rules to protect 
the marketplace of ideas that is so vitally important to this 
democracy of ours. Should this merger be approved, we expect 
AT&T-Comcast to live up to the promises that they have made 
today in terms of new services and faster deployment.
    I again thank the members of the panel, I thank our 
audience, and the hearing is adjourned.
    [Whereupon, at 4:49 p.m., the subcommittee was adjourned.]
    [Submissions for the record follow.]
    [Additional material is being retained in the Committee 
files.]

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