[Senate Hearing 107-1144]
[From the U.S. Government Publishing Office]
S. Hrg. 107-1144
H.R. 1542, INTERNET FREEDOM AND BROADBAND DEPLOYMENT ACT OF 2001
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HEARING
BEFORE THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
MARCH 20, 2002
__________
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii JOHN McCAIN, Arizona
JOHN D. ROCKEFELLER IV, West TED STEVENS, Alaska
Virginia CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon SAM BROWNBACK, Kansas
MAX CLELAND, Georgia GORDON SMITH, Oregon
BARBARA BOXER, California PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri GEORGE ALLEN, Virginia
BILL NELSON, Florida
Kevin D. Kayes, Democratic Staff Director
Moses Boyd, Democratic Chief Counsel
Jeanne Bumpus, Republican Staff Director and General Counsel
C O N T E N T S
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Page
Hearing held March 20, 2002...................................... 1
Statement of Senator Allen....................................... 13
Statement of Senator Boxer....................................... 12
Statement of Senator Breaux...................................... 8
Statement of Senator Brownback................................... 9
Statement of Senator Burns....................................... 6
Statement of Senator Carnahan.................................... 11
Statement of Senator Dorgan...................................... 12
Statement of Senator Ensign...................................... 16
Statement of Senator Fitzgerald.................................. 17
Statement of Senator Hollings.................................... 1
Statement of Senator Inouye...................................... 4
Prepared statement........................................... 4
Statement of Senator Kerry....................................... 14
Statement of Senator McCain...................................... 2
Statement of Senator Nelson...................................... 53
Statement of Senator Smith....................................... 10
Statement of Senator Stevens..................................... 5
Witnesses
Dingell, Hon. John D., U.S. Representative from Michigan......... 23
Prepared statement........................................... 26
Tauzin, Hon. W.J. ``Billy'', U.S. Representative from Louisiania. 17
Prepared statement........................................... 21
H.R. 1542, INTERNET FREEDOM AND BROADBAND DEPLOYMENT ACT OF 2001
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WEDNESDAY, MARCH 20, 2002
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 9:35 a.m. in room
SR-253, Russell Senate Office Building, Hon. Ernest F.
Hollings, Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. ERNEST F. HOLLINGS,
U.S. SENATOR FROM SOUTH CAROLINA
The Chairman. The Committee will come to order. We will
respond to our hearing on H.R. 1542, the Tauzin-Dingell measure
that has been sent over from the House side. I am going to put
this long statement that the staff has prepared for me in the
record, to cover all the points. Let me just try to cover one.
I notice that Senator Tauzin says that he wants to be assured
it is not a monopoly or monopoly controled and that the users
will not, as he said, suffer the penalties of monopoly
unregulated service.
I have the same concern. I am going to agree in a sense
with my distinguished Ranking Member that the 1996 Act had not
worked in that we have yet to take the major player, the Bell
Company, and deregulate them.
We thought at the time that we would use just exactly what
Judge Green had used in the long distance market. He required
that AT&T sell at a cold sale and there developed some 500 long
distance carriers; got to be very competitive. AT&T actually
downsized, made a bigger profit, and we saw the benefits of
competition.
However, we were totally deceived in that there has been
really no effort whatsoever to get into the Internet services,
the broadband service until recently and in some competition by
the cable. Because they have been holding onto their monopoly.
Let me give the representations that were given to us at
the very time in February 1996 when John Clendenin, the
Chairman of Bell South said, and I quote, ``Bell South intends
to aggressively compete for our customers' long distance
business. We are going full speed ahead and immediately
offering Bell South long distance service to our satellite
customers. And within a year or so, we can offer long distance
to our residential and business wire line customers.''
U.S. West, the head of that, I quote, ``Customers have made
it clear they want one-stop shopping for both their local and
long distance service. We are preparing to give them exactly
what they have been asking for. U.S. West will be able to reach
a reasonable solution on the builds checklist requirements in
the majority of its states within 12 to 18 months.''
Then the same with Ameritech Bell Atlantic. This is Jim
Cullen, and incidentally he was the negotiator for the Southern
Bell Company that I worked with over a 3-year period.
``This bipartisan bill can enable you to do one-stop
shopping for your local and long distance phone service, cable
service, and Internet access service. In short, we move closer
to the wondrous promise of the information age and look to Bell
Atlantic to take you there. The company would start offering
long distance service outside its traditional region
immediately and inside its region within a year.''
Seidenberg, again, said, ``Nynex will offer one-stop
shopping for a full array of communications services, local,
long distance, wire-line, wireless Internet, video
entertainment, information services; and customers will be able
to package what they want the way they want it.''
Pac Bell, I quote, ``Pacific Telesys said it plans to be in
the long distance market in 10 to 12 months.'' And then SBC,
``SBC's incentive is the freedom to enter markets such as long
distance that have been closed to us since the divestiture. The
key to achieving that freedom is opening the local telephone
market to competition.''
That is exactly what is guaranteed by H.R. 1542: namely
that it remain closed, and that is why it is not working. That
is our problem today. As was previously noted by the Federal
Communications Commission--the Bells still have 91 percent of
the last line. Finally, to make the point, none other than I
quote Chairman Tauzin on Page 576 of the Congressional Record
just a few weeks ago when the bill passed the House.
He was talking to Rep. Sensenbrenner. Quote, ``He and I are
equally committed to watch carefully and--at the performance of
these companies and others to make sure that consumers have the
benefits of competition and not the penalties of monopoly,
unregulated service.'' That is what we have is monopoly,
unregulated service.
And they are about to extend it to broadband where we have
got dynamic competition. Eighty percent of the country has got
it. They do not subscribe to it but that is the problem. And in
that sense, Chairman McCain, I agree with you. It had not
worked. That has been the big bottleneck. I yield to Senator
McCain.
STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
Senator McCain. I thank you, Mr. Chairman. And I thank you
for your commitment for many, many years to provide
telecommunications services to all Americans at a lower price.
If there has been a failure, it has not been because of
your lack of effort and dedication to this proposition. As you
and I have worked together for many years, the majority of our
agenda is taken up with telecommunications issues. And this is
a Committee that has very wide and broad jurisdiction, but
there are no more vital issues to the future of this country.
In 1996, Congress passed the first major overhaul of
telecommunications policy in 62 years. Supporters of the
Telecommunications Act argue that it would create increased
competition, provide consumers with a variety of new and
innovative services at lower prices and reduce the need for
regulation.
My principal objection to the Act at that time was that it
fundamentally regulated, not deregulated the telecommunications
industry and would lead inevitably to prolonged litigation. It
has been 6 years since the passage of the Act. Six years since
the passage of the Act but consumers have yet to benefit from
lower prices or a competitive marketplace as promised, as
promised by the Act's proponents.
In fact, local telephone rates are up 17 percent. Cable
rates are up 36 percent. And some companies are now raising
rates on basic long distance service. I believe that Congress
must face reality and deal realistically with these obvious
problems.
The latest effort in the telecommunications industry is
focused on purported need to accelerate the deployment of
broadband services. A 2002 Department of Commerce report
entitled ``A Nation Online'', states that less than 11 percent
of Americans currently subscribe to broadband services.
When it comes to these services, there is a stark
disagreement about whether there is a supply problem, a demand
problem, a combination of the two, or no problem at all. The
one thing all parties agree on is that Americans and our
national economy will benefit greatly from the widespread use
of broadband services.
Given broadband's great promise, I believe we should make
sure that the government is not impeding timely deployment of
broadband services to more Americans.
In order to accomplish this goal, a truly deregulatory
approach cannot be narrowly focused on one particular sector of
the industry. Rather, I believe that such an approach should
seek deregulatory parity among all segments of the
telecommunications industry and ensure that ultimately
consumers will have more choices, higher quality, and lower
prices.
Finally, I commend FCC Chairman Michael Powell for his
leadership in working to find ways to stimulate the roll out of
broadband services across all industry segments.
Under Section 706 of the Act, Congress instructed the
Commission to, quote, ``encourage the deployment on a
reasonable and timely basis of advanced telecommunications
capability to all Americans by utilizing regulatory
forbearance, measures that promote competition in a local
telecommunications market or other regulating methods that
remove barriers to infrastructure investment'', unquote.
I believe that the Commission is working diligently to
fulfill the obligations set forth by Congress in Section 706 of
the Act. I thank the Chairman for today's hearing. And I thank
our friends, Congressman Dingell and Congressman Tauzin for
appearing before us. And I hope that as a result we will work
closely together to deregulate the entire industry, which
should have been what happened in 1996 and unfortunately did
not, at least if you look at any measurable observations of the
effect of the Act. I thank you, Mr. Chairman.
The Chairman. Thank you. The Chairman and Ranking Member of
our Defense Appropriations Subcommittee have witnesses waiting.
I have got the permission then to, out of order, recognize
Senator Inouye.
STATEMENT OF HON. DANIEL K. INOUYE,
U.S. SENATOR FROM HAWAII
Senator Inouye. Thank you very much, Mr. Chairman. I
commend you for holding this hearing on this important measure.
Regretfully as noted, I must be leaving to conduct another
hearing. But before I do, I would like to say that I share your
concerns about this measure.
I ask unanimous consent that my full statement be made part
of the record.
The Chairman. It will be included.
[The prepared statement of Senator Inouye follows:]
Prepared Statement of Hon. Daniel K. Inouye,
U.S. Senator from Hawaii
A preeminent goal of the Telecommunications Act of 1996 is the
opening of the local telecommunications market to competition.
Competition is the key to sparking innovation, improving service, and
reducing prices for residents and businesses. It also is helping to
drive the rollout of broadband services.
Regrettably, we have yet to realize the enormous benefits of
competition, primarily because of the obstacles that have been placed
in its way by the bells since the passage of the 1996 act. The Bells
have dragged their feet every step of the way; instead of embracing
competition, the Bells have sought to squelch it by delaying access to
their networks by companies seeking to compete with them.
The record shows that when given a chance to compete, the new
competitive local exchange carriers--or CLECS--have made progress in
offering competition in the local markets. In New York, CLECS have
captured 23 percent of the local telecommunications market; in Texas
CLECS have gained a 14 percent market share; in Massachusetts 12
percent, and in Pennsylvania 13 percent. And what has been the result
of these developments: lower rates and a higher quality of service to
customers, as was reported in a survey by the Yankee Group.
Unfortunately, the success of CLECS has been limited by the fact that
former Bell companies have met the market opening provisions of the
1996 Act in only ten states.
With that said, H.R. 1542 passed the House in February. My reading
of the bill suggests that it assumes that competition should only be
between local phone monopolies and cable companies, on the ground that
consumers are best served by having two huge players in a market.
Having multiple players in a given industry results in consumers having
more choice, better service, innovative products, and lower prices.
Furthermore, the Bells claim they need the legislation in order to
more rapidly deploy broadband services. They argue it is too costly to
upgrade their infrastructure and at the same time open their network to
competitors. However, they make these claims, not withstanding the fact
that the Bells, in some cases, already have deployed DSL technology to
more than 70 percent of their market areas. This statistic alone
suggests that there is no need for the House bill.
The Bells claim that, through the House legislation, they are
merely seeking regulatory parity with cable companies. However, while
the cable industry is working, even in the absence of a statutory
requirement, to open their networks to competition, the Bells, on the
other hand, continue to stifle competition in their main markets.
Moreover, the Bells continue to dominate the lucrative business data
market--a market in which the cable industry does not compete and where
CLECS are the Bells' only real competitors. The reality is that the
Bells lag behind in the residential market only because they waited to
deploy DSL service--and deployed only after they were faced with
competition from CLECS and cable.
Having multiple players in a given industry results in consumers
having more choice, better service, innovative products, and lower
prices.
In the wireless industry, the companies are elbowing each
other out of the way to offer new calling and internet features
at lower prices;
as competition became intense in the long distance sector,
companies began offering a variety of calling plans, collect
call services, and discount cards; and
as the market opened in the satellite industry, satellite
television companies began providing free installation and
highly attractive programming packages.
We look forward to a day when consumers are courted in the same way
with competitive offers for local telecommunications voice and data
services--from multiple local telecommunications companies, multiple
cable companies, multiple satellite companies, multiple wireless
companies, and multiple internet service providers.
If our concern is for consumers, I believe our choice is clear--
simply allow state and federal regulators to enforce the law. State and
federal regulators, however, must have the courage to do just that.
Taking any action such as those proposed in H.R. 1542 would only be a
major step backwards from the ultimate goal of bringing competition to
the local market place, and truly unleashing the power of the Internet.
Senator Stevens.
STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
Senator Stevens. Thank you very much, Mr. Chairman. I too
must join Senator Inouye at the other hearing. I want the
record to show I have some serious problems with H.R. 1542. I
do not think that it is correct in its findings which state
that the 1996 Act was designed to promote competition for local
voice services only.
To me that is not correct. We had numerous hearings over
the four years before we passed the Telecom Act where we
discussed all facets of the communications system, fiber optics
packets, package switching, the Internet as a component of the
information highway.
We had 25 million people on the Internet in 1995, and
[Title II of the 1996 Act deals extensively with the Internet
and that pornography, which shows that we clearly knew about
the Internet and package switch networks that provide the
Internet services] when we finished the 1996 Act.
And it is no accident that the Telecom Act makes no
distinction between voice and data networks. We knew then that
data would surpass voice, and we wanted to be sure that pro-
competitive rules applied to all types of networks.
The statute specifically says regardless of the facilities
used in the definition of telecommunication service. And I
think it means just what it says.
This bill would allow the regional Bells into the long
distance markets without first opening their local markets to
competition, and that is just what we thought we were doing
when we passed the 1996 Act. The bill to me as it stands now
would send the wrong message. It would preempt all form of
federal and state regulation designed to carry out the purpose
of the Act in the name of deregulation.
I do think that we have to take a look at what this does,
because as a practical matter the core of the 1996 Act was
competition, regulatory parity, and universal service all
predicated on common carrier regulation with the underlying
networks and web being involved.
I am concerned. I disagree with Senator McCain. I do
believe the FCC is wrong to deregulate entirely the common
carrier facilities to provide Internet access. The net result
will be in my opinion that the universal service and pro-
competition divisions we adopted in the 1996 Act will cease to
apply to the service used to provide Internet access.
And the FCC then is going to have to devise its own rules
to safeguard consumers. We will be right back where we were in
1995 before the 1996 Act. And I do not think that is a good
result.
I do believe we should force the compliance with the 1996
Act and proceed from there. I do agree with the end objective
of Senator McCain, and that is to find a way to eliminate the
type of regulation that is unnecessary. But until we have a
concept that this law is being followed, I do not think we will
have that.
I do hope that we will find a way to work with our two
friends from the House. They have been very cooperative with us
in trying to seek out our common objectives in a series of
meetings we have had with members of the telecommunications
industry, but I just disagree with the basic finding of the Act
and the bill that was passed in the House.
And therefore, I could not support it as it stands.
The Chairman. Senator Burns.
STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Senator Burns. Thank you, Mr. Chairman. I thank you for
this hearing today.
I want to commend Chairman Tauzin and Ranking Member
Dingell for their hard work in passing H.R. 1542 in the House.
I know they have been tenacious about that and in trying to do
some things to ensure a build-out of broadband services into
our country.
I particularly applaud them for focusing attention on the
topic of vital national interest, how best to foster universal
broadband deployment. I remarked previously that the bill
deserves a full and fair debate in the Senate. And today's
hearing constitutes the beginning of that process.
I continue to have concerns about H.R. 1542 and do not
support this legislation in its present form. But the goal of
the bill is a worthy one. And I look forward to working with
both of you as this legislation moves down the line.
Clearly, broadband is the central defining
telecommunications issue of today. We are rapidly transforming
from an information society of text and words, to one of video
and dynamic multimedia.
The development of this rich media is only possible through
a national broadband network. And this network would be as
important to the national destiny as the building of the
railroads in the 19th century, and the Rural Electrification
Act in the 20th century.
Universal broadband should be the national priority early
in this century, the same way as putting a man on the moon was
a national priority in the last one.
The question then is how to achieve this vision of
universal broadband. As I remarked, I have several concerns
about H.R. 1542, particularly the preemption of all state
public service commission authority to regulate the rates,
charges, terms and conditions of high speed data services.
Given my experiences with the Bell Operating Company
currently serving Montana, I am not at all confident that this
full deregulation would serve the consumers.
In fact, until very recently, it had deployed advanced
services in a grand total of one Montana city. And that is in
Helena, despite years of promising more rapid deployment of
broadband.
In stark contrast, there will soon be 121 small Montana
communities that will have advanced services, courtesy of the
Montana's independent and cooperative telephone companies.
Included in this list are rural communities such as Circle,
Mulda and Plentywood. And let me tell you, those are not
metropolises.
[Laughter.]
Senator Burns. Now, given this positive history of smaller
operators, I fully support the Senate provision being
considered in the farm bill conference that provides stable
funding for low-interest broadband loans administered by the
Rural Utility Service.
The Senate bill takes the existing broadband pilot program
and makes it permanent and provides stable funding for the next
5 years. This is perhaps the most significant action that
Congress can take to stimulate broadband deployment in rural
areas.
The fact is that there are companies, local cooperatives
and new startups that want to serve rural America and deploy
those broadband services that will create jobs and stimulate
the economy. Low-interest loans are one of the most effective
ways to get broadband to rural America.
I should add that the RUS telecom program has never issued
a bad loan in over 50 years. The government has actually made
money off of those loans. Also because of existing RUS lending
rules, these loans do not go for services that are duplicated.
So we are not subsidizing a competitor against someone
else. The loans will only go to service what would otherwise
not happen.
Another approach I believe that has a lot of merit is
offering tax credits for rural build-out of broadband. I have
worked closely with Senator Rockefeller on S. 88 which would
create tax incentives for the deployment of high-speed Internet
services to rural, low-income and residential areas.
The bill would grant a 10 percent credit for expenditures
on equipment that provide a bandwidth of 1.5 megabytes per
second to subscribers in rural and low-income areas, and a 20
percent credit for the delivery of 22 megabytes to these
customers and other residential subscribers. This bill has over
64 co-sponsors.
Finally, I want to touch on the idea that has been offered
that the authors of the Telecommunications Act of 1996 somehow
never considered Internet during the debate surrounding the
bill. Well, folks, I was there, and as many of us were on this
Commerce Committee here. And this simply is not the case. In
fact, I authored Section 706 of the Act with the specific aim
of promoting broadband technologies in rural areas. And I think
it is important to keep this historical context of the Act in
mind when moving forward on critical issues.
Mr. Chairman, thank you for holding this hearing today. And
I look forward to working with all the principals----
The Chairman. Thank you.
Senator Burns.--so that we can ensure that broadband does
make it into rural areas.
The Chairman. Thank you. Senator Breaux.
STATEMENT OF HON. JOHN B. BREAUX,
U.S. SENATOR FROM LOUISIANA
Senator Breaux. Thank you very much, Mr. Chairman. Thank
you very much for having this hearing. I would not miss it for
all of the tea in China. You know, Washington may----
The Chairman. Let us get to the entertainment.
[Laughter.]
Senator Breaux. You are right. Washington may not get the
Mike Tyson heavyweight fight, but we have certainly got a
heavyweight battle today between long distance carriers and the
local carriers.
I think we all want to talk about how everybody is
committed to one thing. We all want to have a level playing
field. I must have heard the term, ``let us have a level
playing field for all the competitors'' since we started
working on this legislation back when we first passed it.
And we still continue to say, ``well, we want a level
playing field.'' And you ought to look at what is happening. I
know in my State of Louisiana in a local service area I have
got the cable companies, which are clearly monopolies,
providing video, movies, communications over cable, as well as
broadband Internet service.
They are a monopoly. They are not regulated. If the local
phone company wants to do that, they have to meet all kind of
rules and regulations and standards. You have got satellites
doing the same thing in local communities that are providing
broadband services, they are providing movies and videos. And
they are not regulated and no one is opposing that.
So it seems that what you have right now in fact is a very
unlevel playing field that the legislation is trying to
address. I am not sure it is the perfect answer to the problem
in creating a level playing field, but I think certainly
something has to be done in this area.
When local companies go into new broadband services having
to sell those services to competitors at less than the cost, is
that a level playing field? It does not seem like it is to me.
If I was in business and had to come out with something new
and innovative and had to sell it to my competitors for below
what it costs and then they say, well, go compete on a level
playing field, well, that is not a level playing field. And I
think that there ought to be some way to establish what I think
everybody can agree with and that is equal competitors. I want
competition. I do not want to have just one phone company. I do
not want to have just one cable company. But we have got that.
And I think that is patently unfair and look forward to the
testimony. Thank you, Mr. Chairman.
The Chairman. Senator Brownback.
STATEMENT OF HON. SAM BROWNBACK,
U.S. SENATOR FROM KANSAS
Senator Brownback. Thank you, Mr. Chairman. And thank you
for holding the hearing today. You did not have to do this, to
hold this hearing, but it is good that you did so that we could
get into this debate. And I think it is a good debate. We need
to have this debate.
As I look at how we can grow our economy in this country
over the next several years, I think this issue of broadband
deployment and high-speed Internet access is one of the key
ways that we can really grow this economy, along with issues
like trade and some other items there.
I think this is one of the really key debates. And we are
all, I think, kind of struggling with the past Act and we are
saying, well, it covered this issue, it covered that issue. It
did this. It did not do that.
I would ask, I think we all ought to look at where we are
today and how we can grow this economy and what do we need to
do to move forward, not whether somebody complied with what was
the intent of this Act or that one.
What we have got is a situation that is different today
than it was in 1996 when the Telecom Act passed. That is not to
say that we just look past the Telecom Act. We do not. It is
law. It is as it should be.
But we have got a different situation that is out there
today. And I would hope we could look just at that. Our society
is transitioning from an analog to a digital world
characterized by bandwidth intensive Internet applications and
broadband connections.
This transition I believe holds great promise for continued
industry innovation and productivity as well as opening up a
whole new world for consumer and community access to
information, entertainment, education, health care.
The digital revolution--the emergence of broadband
connectivity--could be the largest factor in the continued
economic growth and development of our nation in the 21st
century.
Broadband connections are having a powerful impact on
underlying service industries. 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.
Broadband connections will enable cable TV subscribers to
make phone calls over the cable network, and telephone
subscribers to watch multi-channel video over the telephone
network. Broadband could usher in a new era of intermodal
competition in telecommunications.
Incumbent local telephone companies are heavily regulated
in the broadband space. And their cable competitors are not.
This regulatory disparity saps incentives. Telephone companies
and consumers are the people that suffer for it.
Broadband services offered by incumbent phone companies are
available only sporadically and tend to be less capable than
the existing and anticipated services of their cable
competitors.
This ensures that phone companies that exist with existing
connections to most homes in America are not putting real
competitive pressure on their intermodal competitors.
These developments raise the ultimate question as put forth
by the Tauzin-Dingell bill and by legislation that I put
forward last year, the Broadband Deployment and Competition
Enhancement Act of 2001. And that is this question: How do we
balance our commitment to the Telecom Act's, local telephone
market opening provisions which everybody agrees with, yet also
recognize and provide for the continued deployment of
intermodal competition which everybody around this table would
agree is taking place at this point in time now.
I think that is the central question that we should focus
on. And I would hope that all of us working together could see
ways that we could come up with that solution.
I do not think that should be an overly difficult process
for us to do. I think tax credits are important as Senator
Burns talked about. Loan guarantees I think are important as
well on this as a number of other people have cited.
Yet, I also believe that regulatory reform is going to have
to serve as one of the cornerstones to be able to get this
done. And I would really hope that we as members looking at the
national economy (and I think all of us would agree this is one
of the major things that can grow this economy in the future to
make it a competitive force), we should be able to craft those
tools that we have (whether it is tax credits, loan guarantees,
regulatory incentives, or deregulation) to be able to come up
with a national broadband strategy that helps us move this
economy and this industry on forward.
I think we ought to seek to do it just that way. Thank you,
Mr. Chairman.
The Chairman. Let the record show I am a co-sponsor of the
Burns' bill. Senator Smith.
STATEMENT OF HON. GORDON SMITH,
U.S. SENATOR FROM OREGON
Senator Smith. Thank you, Mr. Chairman. I was not a Member
of this Committee in 1996 when the Act was passed. But I have
seldom encountered a more technical and complicated issue than
this. And so I am here to learn and listen and anxious to hear
our witnesses, so I will be very brief.
I think that access to broadband will truly determine
whether a community flourishes in the new economy or is left
behind. I thank you, sir, for this hearing because we are now
beginning to work on closing the digital divide that will help
ensure all Americans have choices for high-speed Internet
services.
I am concerned that the service disparity may be growing
wider and wider throughout this country and potentially
affecting rural America.
The Chairman. Senator Smith, if you would hold just a
minute. I understand, Billy, there is a vote on in the House
and there is about 10 minutes left. If you all want to make
that vote while we finish up with these opening statements?
Mr. Tauzin. I think it is a vote on the journal, Mr.
Chairman, and we are OK to pass on it.
The Chairman. Thank you. Excuse me. I apologize.
Senator Smith. That is fine. Mr. Chairman, I want to make
sure that no one is left behind in the new economy. Millions of
Americans in small towns and rural areas and inner cities are
blocked at the on-ramp to the information superhighway because
they just cannot get broadband services.
And while I am still weighing some of the difficult issues
implicated by the Tauzin-Dingell bill, I am certain of one
thing: public policy needs to encourage all potential providers
to deploy new last mile broadband facilities.
And that includes the incumbent phone companies and the
competitive local exchange carriers. We need to continue to
debate the issue to find ways to encourage more investment in
competition. Making high bandwidth, high-speed broadband
widespread and affordable is going to require tens of billions
of dollars of risky investment by any company in the
telecommunications industry.
The companies who take the risk of deploying the last mile
of broadband facilities should get the benefit if they succeed.
I thank Chairman Tauzin and Representative Dingell for
taking the time to appear before this Committee. And I thank
you, sir.
The Chairman. Thank you. Senator Carnahan.
STATEMENT OF HON. JEAN CARNAHAN,
U.S. SENATOR FROM MISSOURI
Senator Carnahan. Thank you, Mr. Chairman, for holding this
hearing today and for your leadership on these issues. I am
pleased that we are continuing to consider the issue of
broadband high-speed Internet services. As policymakers, we
must remain focused on how we can help our nation, our entire
nation, realize the vast benefits that high-speed Internet
services offer.
It is important that we do so while maintaining robust
competition in the provision of local telecommunications
services. First and foremost, we need to ensure that current
generation broadband services are available to all segments of
the population. We must look at how to ensure that the benefits
of broadband are available in rural America, in our inner
cities and to lower income Americans.
We should also consider how we can generate increased
demand for the services that are currently available. The
Congressional Record, I am sorry, the Congressional Research
Services reports that while approximately 85 percent of
households have access to broadband services, less than 15
percent choose to subscribe.
At the same time, Mr. Chairman, we should be looking ahead
at promoting the roulette of even more advanced broadband
services. We need to redouble our commitment to improving the
capability, reliability, and availability of high-speed data
networks.
In doing so, we should ensure that our policies reward
innovation, encourage investment and promote job creation.
Hastening the deployment and utilization of high-speed Internet
services has the potential of reinvigorating our economy and
fueling economic expansion.
Broadband can spur growth by creating jobs, educating our
work force and increasing productivity. If America is going to
continue to lead the way in the new economy, we must focus on a
pragmatic, common sense broadband agenda that we can enact now.
Again, Mr. Chairman, I appreciate your leadership on this
timely issue and I look forward to hearing from our witnesses.
The Chairman. Thank you. Senator Boxer.
STATEMENT OF HON. BARBARA BOXER,
U.S. SENATOR FROM CALIFORNIA
Senator Boxer. Mr. Chairman, I will be very brief. I want
to see affordable broadband deployment as soon as possible. I
agree with my colleagues who said this is crucial for our
economy. And I want to see it in rural areas and I want to see
it all over the country.
But I want to see it in a way that is fair to consumers and
that means competition. Mr. Chairman, in California 45 percent
of our people have no access to cable modem service, no access.
So if we get a situation where we freeze that and there is no
competition, 45 percent of my state is going to be
disadvantaged.
And we have 34 million people in our state. So this is a
very important point. So I am concerned about Tauzin-Dingell
because essentially we freeze in that monopoly situation in 45
percent of my state.
So in conclusion, three principles will guide me as we
reach a solution. That would be swift deployment, in other
words a policy that would lead to swift deployment, consumer
support for what we do, and competition. Thank you.
The Chairman. Thank you. Senator Dorgan.
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Mr. Chairman, thank you. There is a certain
pageantry about opening statements in the Senate, especially
when we have an audience of House colleagues.
I must say, as I said before, I am so tired of in the
morning standing before a mirror shaving with the television
set on and hearing about Tauzin-Dingell.
[Laughter.]
Senator Dorgan. The one side describes it as a cure for
hiccups and gout and virtually everything else that ails
mankind, and the other says it is a precursor to economic
collapse.
We have been listening to these claims for, what, 2 years
now. I have no idea how much money has been spent for and
against that bill, but simply the bill is not going to pass the
U.S. Senate. That is a starting point.
And I think my colleagues have described it, a circumstance
where we have all had some tough experiences with deregulation
in areas where we have had in North Dakota for example we
deregulated in this country the airlines, and we ended up with
less service that cost more. We deregulated the railroads, we
end up with less service that costs more. We have had really a
bellyful of deregulation. What we really want is an opportunity
to have the build-out of advanced services. And I must say to
my colleagues, I was dismayed to see in Congress Daily this
a.m. that Tauzin-Dingell supporters are sending a signal to
senators that they are going to strip this provision out of the
Ag Bill, as my colleague from Montana described.
They are going to do that so they will send a message to
Senators that they will not get anything on broadband without
accepting Tauzin-Dingell. There are a lot of ways to solve this
issue. There are many different approaches.
I have introduced The Broadband REA Program, part of which
is now in the Ag Bill and conference. That is one approach.
There is a tax credit approach. There are several different
ideas.
I think in the end all we care about is an aggressive,
robust build-out. And that is not going to happen in my
judgment with Tauzin-Dingell because that is not going to pass
the Senate. I am anxious to hear the witnesses. I will defer
the rest of my statement later.
The Chairman. Senator Allen.
STATEMENT OF HON. GEORGE ALLEN,
U.S. SENATOR FROM VIRGINIA
Senator Allen. Thank you, Mr. Chairman. Thank you for
calling this hearing today. And I want to thank both
Congressman Tauzin and Congressman Dingell for appearing here
today.
I want to associate myself with the sentiments expressed by
Senator Burns. They are pretty much the way I look at it, and
also Gordon Smith, having not yet made a decision on this as we
are trying to keep track of who is for and who is against it.
I think we all agree that the rollout of greater access to
broadband is absolutely essential for our country, for people,
for communications, for education, for medical services and in
making sure there is no digital divide based upon where people
live.
Looking though at the current landscape of broadband, the
number of subscribers continues to increase at a relatively
healthy rate. However, the number remains small in comparison
to the number of subscribers who have access to broadband
service.
It previously was mentioned that the FCC in particular
found that high-speed services were available in each of the 50
states. Approximately 78 percent of the ZIP codes in the U.S.
have access to high speed services.
However, only about 10 percent of households or
approximately 10 million people subscribe to broadband service.
Now, this would suggest a significant lack of consumer demand,
to some extent corporate demand, but mostly consumer demand
that I think needs to be addressed to further advance broadband
deployment.
This is clearly an economics issue. There is a major
investment necessary to deploy broadband, especially if you are
digging a lot of dirt, as Senator Burns says, with fiber optics
and you want to get a rate of return on it. If people do not
see a value in paying higher prices for monthly broadband
service than their current Internet service, that is simply a
consumer demand matter.
The point is that this is not a simple question of, if you
will, if you build it they will come. Because that is obviously
not happening.
Now, we are all eager to find ways to promote the build-out
of broadband capabilities. There are a host of other complex
issues beyond Tauzin-Dingell that have to be addressed such as
the availability of compelling content. Spectrum allocation
reform is clearly a part of it. And we had a hearing on
intellectual property protection that hopefully would be
handled by the private sector but nevertheless if we eventually
get more compelling content, then people will see a value in
purchasing broadband because it will be more valuable to them.
I also understand part of this bill is beyond the supply
side concerns. And it does have to do with competition. Most
people who have access to broadband currently--two-thirds I
believe receive it from cable sources, as Senator Boxer of
California talked about their situation in that state. I
understand that the incumbent local exchange carriers are
looking to change this by amending both the Communications Act
of 1934 and the Telecom Act of 1996.
I have not yet determined that by simply amending both
these communications acts, and providing the so-called ILECs
with deregulatory incentives will miraculously cure us of the
broadband deployment problem. I do think we need to take
reasonable action from a business economics perspective as well
as a rural community empowerment perspective.
And I think that, personally, Senator Rockefeller's bill is
a good approach with incentives to handle that.
But the point is that there are major stakeholders in this.
They all need to be considered. And I am not sure which we will
come out for. That is what we take votes for, to find what is
the best and most preferred route.
I thank you for having this hearing. And I look forward to
hearing comments in this hearing and many other hearings on how
we all can effectuate the goal we agree upon. We may disagree
on some of the methods of doing it. But thank you, Mr.
Chairman.
The Chairman. Thank you. Senator Kerry.
STATEMENT BY HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Kerry. Mr. Chairman, thank you very much both for
the hearing as well as for your long-term leadership on this. I
will not be too long but let me say a couple things, if I may.
I know that you, Senator McCain and others have said very
clearly how you feel about the road traveled with respect to
the Bells and their obligations and promises. I think everybody
here would agree that the expectations of 1996 have fallen
short in many regards. I support your observations with respect
to that, Mr. Chairman.
But I do think we have to also recognize, I mean, I
remember that 1996 debate as other members here do. And I think
the truth is that the world we were talking about then, and
despite some of the language have come back and reviewed it
that seems to embrace a broader understanding of the
marketplace.
The truth is we were mostly focused on telephony. We really
did not have the full vision in front of us of the world we are
operating in today.
And so we have some very powerful entities that are
fighting over the access to market share and ultimately the
distribution of revenue that will come from that. And we have
really got a couple of different worlds competing here and now.
I mean, it has changed. I do not support Tauzin-Dingell as
it is now, nor do you, Mr. Chairman, or other members here. But
I think that our friends in the House have frankly done us all
a significant service by bringing to the table a critical
debate for all of us about what the architecture is going to be
like now and what steps we are going to take to create a true
advanced network architecture.
You have got the Bells versus the competing carriers
struggling with telephony. And most of the focus, Mr. Chairman,
and so to your disappointment is in the field of telephony. But
then you have the Bells versus cable, satellite, wireless, et
cetera, in data.
And data, as we all know, is the battleground today. To
some degree I think it is honest to say that telephony is
perhaps even just an ancillary. There is still revenue there
but it is not what this battle is about.
And so for all of us here on this Committee, I would like
to see us think about this in a larger sense, if we could.
There are roughly 10 million homes that presently subscribe to
some form of high-speed Internet service. And that marketplace
is dominated by two industries: The cable industry with its
cable modem service and then the phone companies with DSL.
The cable companies have approximately 70 percent of market
share and they offer service to about 80 percent of American
homes. The phone companies have about 30 percent of market
share and they offer service to about 50 percent of American
homes.
Both of them provide offerings to consumers with bit speeds
of about 500 kilobytes per second which is OK. It is good for
speedy web browsing, but frankly it is limiting otherwise.
Now, the way I think we ought to sit through this is sort
of think of this a little in larger terms. And I agreed with
Senator Brownback. There has to be a way for us to find a way
through the pricing mechanisms and the regulations scheme
currently of the FCC.
A recent study by the OECD found that the U.S. is now
fourth in the world behind Korea, Canada and Sweden in per
capita broadband subscribership. In Japan, NTT, Tokyo Electric
Power and other companies are competing to roll out fiber to
the homes.
The Korean Government has an official policy to provide 20
megabytes per second to 85 percent of Korean homes by the Year
2005. Our situation is embarrassing by comparison.
As opposed to Korea which has a goal of the 20 megabytes
per second system, we seem to be satisfied with competing
systems that are less than 3 as valuable.
In contrast to Japan where companies are rolling fiber to
the home, we are still debating how to get fiber anywhere
outside the central office. And at the end of 2001, there were
only 16,000 fiber to the home residences in the United States.
Now, aside from the benefits of movies, high-definition
television and home entertainment, advanced speeds would
provide tremendous advances for our country in terms of
telemedicine, distance learning, worker training and a myriad
of other applications.
Some people say there is no market for that. I do not
believe that. And I do not think most people here do.
Another problem that is ancillary to that that we have not
yet dealt with is the question of the protection of what is on
broadband. One of the reasons some people who have the capacity
are not putting more interesting things on broadband is they
cannot protect it.
So this Committee has a very important obligation in front
of them, Mr. Chairman, which is to try to find the midstream in
a sense, that sort of fairness in how you impact and do not
choose winners and losers but in fact create a structure that
provides adequate incentive.
Pat Moynahan, Jay Rockefeller and I sat down to write an
incentive for the deployment of those systems. We came through
the tax credit group but there are other ways to do it. And I
hope, Mr. Chairman, these hearings, while this bill is not
going to pass in its current form, my hope is this Committee
working with you and under your leadership can find a way to
satisfy the remaining telephony needs but not shortchange the
longer-term broadband needs of the nation. And I thank you.
The Chairman. Thank you. Senator Ensign.
STATEMENT OF HON. JOHN ENSIGN,
U.S. SENATOR FROM NEVADA
Senator Ensign. Thank you, Mr. Chairman. I think that
holding this hearing today is very valuable. One of the most, I
think it was mentioned before, one of the most complex issues
that I have certainly come across simply because you have one
side telling you a set of facts and looking at it one way and
the other side saying virtually the same facts, sometimes maybe
with a little different spin on it, and the exact opposite
consequences as a result of those facts.
Our job, I believe, as policymakers is to determine what is
going to be the best policy for America citizens, American
business and as Senator Kerry was just talking about, for
keeping America competitive in the global marketplace.
You know it is--the term has been said build it, we use
this in Las Vegas, build it and they will come. I think if we
look at the deployment of broadband, it is deploy it and they
will invent it. There are so many technologies and applications
that we cannot even foresee today that if we have broadband
deployed in a much greater degree today than it is, that we
will have technologies we cannot even fathom today.
But also one of our jobs when we do this legislation is to
prevent that dangerous law, the most dangerous law of all it
seems up here, and that is the law of unintended consequences.
Sometimes we do things up here without knowing what the
adverse consequences of what our actions are going to have and
so we have to be very careful when we are messing with such a
huge part of the marketplace.
So I think that some of the stated goals here I would agree
with. Affordability for the consumer and having a lot more
competition in the marketplace. Those goals are laudable goals
and that is what we should be looking at doing.
And I think it is going to be important for all of us,
whichever position anybody stakes out is to be willing to work
together and look for the benefit of Americans when we come
with final legislation. And I will submit my official statement
for the record without objection.*
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* The information referred to was not available at the time this
hearing went to press.
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The Chairman. Senator Fitzgerald and Senator Lott, I have
got a note from Senator--as you have heard, Chairman Dingell
has to leave here momentarily. If you all would make it short,
I would appreciate it. Senator Fitzgerald.
Senator Lott. Let me just say, Mr. Chairman, I would like
to yield my time actually because I would like to hear the
witnesses.
The Chairman. That's fine. Good. How about Senator
Fitzgerald?
STATEMENT OF HON. PETER G. FITZGERALD,
U.S. SENATOR FROM ILLINOIS
Senator Fitzgerald. Yes. I just want to welcome you to the
Committee. The one thing I will be looking at is I am simply
concerned about the idea of kind of moving the goal post on
people who have already invested a lot of money, created
companies, done public offerings to create competitive local
exchange carriers, and I am concerned about the perception that
we are changing the rules in the middle of the game.
So I would appreciate your addressing that issue. And I
want to compliment you on the hearings you did on Enron over in
the House. I thought you both did a great job. Thank you.
The Chairman. Thank you. Chairman Tauzin and Mr. Dingell?
Chairman Tauzin, you ordinarily would go first if you want to
yield to----
Mr. Tauzin. I have suggested to my colleague----
The Chairman. We have a note there that you have to leave.
Mr. Dingell. I will wait my turn.
The Chairman. The Committee welcomes you both. There are no
two finer Congressmen, no two finer leaders in the Congress. I
have said time and again the only thing I like about H.R. 1542
are the authors.
[Laughter.]
The Chairman. Mr. Dingell, we welcome you and would be
delighted to hear from you at this time.
Mr. Tauzin. I think John asked that I go first.
The Chairman. OK.
STATEMENT OF HON. W.J. ``BILLY'' TAUZIN,
U.S. REPRESENTATIVE FROM LOUISIANA
Mr. Tauzin. Mr. Chairman, first let me express to you our
mutual respect and admiration of you and this Committee. Mr.
Dingell and I come as Mr. Brownback said, to a hearing that you
didn't have to call. And I want to thank you for calling this
hearing, giving us a chance to come and begin this debate.
Because it is a critical one for our country.
I also want to make it clear that we didn't come to blow
steam. We didn't come to do anything but agree with you that
our goals are mutual. We want competition both in the local
market and we certainly want to build a competitive frame upon
which broadband services can be built, delivered, and in fact
new services and contacts may be developed for the benefit of
our country.
And third, to my Cajun friend from Louisiana, Mr. Breaux,
we certainly don't expect the Tyson-Lewis fight here. Your ears
are safe, and so are ours, I hope.
[Laughter.]
Mr. Tauzin. We have struggled too hard to come here, Mr.
Chairman, and leave for a vote on the Journal, I assure you.
And we deeply appreciate the chance to visit with you.
Let me say, first of all, I know that he's left, but I
think Senator Kerry did a masterful job of laying it out. There
was a time, Senator Dorgan, when the Chairman of the Commerce
Committee preceded me, he said very clearly, that the Tauzin-
Dingell bill will never pass the House. And he was right.
The Tauzin bill in that form did not pass the House. The
House like the Senate takes suggestions, suggested legislation
from each one of us and works their will, Committee process,
change the bill mightily, the floor changed it again.
It is a different product than the Tauzin-Dingell bill that
the Chairman who preceded me promised would never pass the
House. It didn't. I don't expect the Tauzin-Dingell bill as it
came from the House to pass the Senate either.
I fully expect the wisdom of the Senate and the wisdom of
this Committee will be employed to find your own way of
achieving what we have all described today as mutual goals,
which is incentivizing competition and growth and development
content, all these new systems at the same time, making sure
the Bells do in fact open up their local markets in full and
vibrant telephone competition.
We gave our members on the House side a chance to speak and
271 of our colleagues joined my good friend John Dingell and I
in passing this bill to you for your consideration. And the
debate in the House was focused, was extremely focused on a
simple question. What's the best way to foster the rapid
ubiquitous deployment of broadband networks and services and
ensure that we have a vibrant, competitive marketplace where
the winners and losers would be picked by the consumers of
America, not by you and I; exactly as Senator Kerry said.
It required members to make a single determination, whether
they define competitive marketplace based upon facility-based
competitors, competing against each other using their own
infrastructure and their own different systems, and
technologies. Or was competition to be defined as multiple
competitors piggybacking on the Bells' network and the
facilities at below cost rates.
And I am going to quote an interesting gentleman to define
the terms of that debate. Senator Breaux, you put your finger
on it very accurately.
The Chairman, I'm going to quote the Chairman of AT&T,
Chairman Michael Armstrong. He said, this is a quote, ``No
company will invest billions of dollars to become a facility-
based broadband services provider if competitors who have not
invested a penny of capital nor taken an ounce of risk can come
along and get a free ride on the investments and the risk of
others.''
That, Mr. Chairman and Members, is what the House debate
was all about. And the House made it clear, if you are willing
to take the risk and spend the capital necessary to make
broadband services available to consumers in America, you
should not have to let your competitors get a free ride on your
investment at below cost rates as you said, Mr. Breaux.
That's the crux of H.R. 1542. It is to give everybody the
opportunity to take the risk, invest in broadband. And
everybody has that opportunity to then reap the rewards of
doing so as they build new content and new services for the
American public, again as broadly defined as Senator Kerry did,
not just voice and video and pictures and pretty HDTV signals
and movies, but long distance medicine, learning, and all the
massive amounts of new forms of competitive advantage our
country's companies can have in the world if we build these
efficient broadband networks for the companies and employees to
continue the growth of the American economy.
We are told if our bill passed, by one study at one point,
two million new jobs flows from it. As we begin to expand
rapidly the growth of these new inventions and the new products
that would come, if in fact we do this.
Let me add that H.R. 1542 has a stick as well as a carrot.
And Mr. Chairman, I hope you give this real thought as you
consider what you might do in the Senate side. H.R. 1542
requires that the Bell companies provide broadband to all their
subscribers within 5 years, a build-out to 100 percent of the
country in 5 years.
No other company or group of companies has had such an
unprecedented obligation imposed upon them. But this bill
imposes it.
We have all heard and seen on TV what the opponents say
about the bill. They say that if they can't use the Bells'
broadband facility under current regulatory framework, they'll
go out of business and the Bells will have a monopoly on
broadband. That, Mr. Chairman, is simply not true.
I cannot say it stronger. It is not true. The cable
industry controls today about 70 percent of the broadband
market. If we risk any group of companies gaining a monopoly
from broadband, it's the cable companies.
They are unregulated. And they have currently got the
dominant position in the marketplace. If we do not deregulate
the telephone companies and give them a chance to compete
against the cable companies, we risk having to come back here
one day, in a couple of years, and to reregulate broadband
services offered by the cable companies.
You and I don't want to have to do that. There is nothing
in the law or in this bill, Ms. Boxer, that prevents the cable
companies from reaching out to that 45 percent of California
and offering competition to the DSL service. It could be
provided by the Bells in even greater measure if this bill
passes.
This is about having wire competition as well as hopefully
nonwire and satellite and other forms of competition.
Second, H.R. 1542 does not prevent the Bells' competitors
from using the legacy parts of the Bells' network. I think it
was Senator Inouye who talked about the concern that,
Fitzgerald rather, talked about that nothing in our bill should
put some new goal post up, take away the rights of the CLECs
who are currently using the legacy systems.
Nothing in our bill does that. The bill continues the
ability of the CLECs to completely use the legacy systems under
rules and regulations covered and set by the Commission.
Furthermore, we added a Buyer-Towns Amendment to the bill
on the floor after tricky polymetric attempts to keep us from
offering it. That provision imposes upon the Bells the
obligation to allow its new broadband facilities, its new
wires, its new remote term lists, its new de-slams, allow all
those facilities to be used by the competitor CLECs at rates,
terms and conditions set by the Commission, not by the Bells.
So it not only preserves the CLEC's current rights to use
the Bells' wired legacy system, it gives them the rights under
terms, conditions set by the Commission and prices set by the
Commission to use the new facilities built by the Bells.
Don't let anybody tell you we moved the goal post back. It
just isn't true.
Competitors have also argued that they will go out of
business because after the deregulation provided in H.R. 1542,
there are no rules left to enforce. Well, there are plenty of
rules left to enforce. H.R. 1542 does not change any of the
rules for basic telephone service. None. Furthermore, in an
amendment offered by Mr. Upton, Mr. Chairman, it's a big
important amendment. It provides the hammer that the Commission
asked us here in Congress to give them.
It increases the penalties on nonperformance of the Bells
in offering competitors rights to use the systems in Montana,
Senator, by 10 times. It doubles those penalties if they are
repeat offenders to 20 times. And it gives the Commission
something it doesn't have today, cease and desist enforcement
authority to force the Bells in your community to treat the
CLECs right and open up the local markets. That is all new in
this bill added to the House floor.
Well, we finally heard that because only 10 percent or 11
percent of Americans subscribe to broadband, we really just
face a demand question. That's a question, Senator Allen, I
think you talked about.
Remember Pet Milk, Senator, in Louisiana? I know John has
heard of it. Louisiana people thought Pet Milk was the name of
canned milk, because it was the only form of canned milk
offered in the stores in my state in the country or where I
grew up along the bayous.
We didn't learn until much later there were other forms of
canned milk. And the reason we didn't know there were other
forms of canned milk, because when you have got one store in
town, they sell one product. You don't get that enriched
content. You don't get the other forms of products and services
when there is only one store in town.
You know what you get when you've got one store in town.
You get bad prices, bad terms, bad products, bad attitudes.
When you get more stores in town, you know what you get? You
get different forms of canned milk.
And you learn that Carnation makes a canned milk, not just
Pet. And you learn those. You learn about new products. More
importantly, you get a variety of new content in those stores.
And companies begin competing for shelf space and they
treat you better and prices go down. Look at the wireless
telephone marketplace. When we deregulated it, we compete and
created competition, competitive services, the rates plummeted,
giving phones away just so you use their service today. The
same thing can happen in broadband if we are smart enough to
deploy more, not less of the pipes that are needed to create
that rich content, Senator Allen, you and I want to see happen
in this country.
Finally, let me say, Mr. Chairman, we have two options. We
gave the House two options. We can either as Senator Breaux
said create a level playing field for these new participants in
these broadband services. We can do it one of two ways.
We can either say to the telephone companies, we are going
to deregulate you and let you compete against cable companies
so all of America has a chance to get service and products in
more than one store on the ground, or we are going to have to
come back here and regulate the cable companies, so that the
cable and telephone companies are similarly treated in this
country.
Now, I choose the former. And the House chose the former by
overwhelming number. It is better to have a competitive
marketplace where consumers regulate that market by picking the
winners and losers and choosing the best services and forcing
them to compete. That is the choice the House made.
Now, look, you guys are bright. You ladies are bright here,
just like the House members are bright. We don't have a human
monopoly on the wisdom of these two bodies.
If we haven't done it the way you want to do it, find a
different way. Find a better way. But in the end, let's create
that level playing field, John. Let's make sure that all
Americans have more than one store to shop in for these vital
services.
And let's make them fight so hard for our business that
they create all that rich content, all those new forms of Pet
Milk, and they give us all kinds of varieties and quality of
services that this country deserves, not just in pretty
pictures but all those things Senator Kerry described.
That is what this fight is about. Mr. Dingell and I are
tenacious indeed. Because we really believe, as I know all you
do, that these kinds of services are critical to America. They
have been bottled up too long.
It's time for us to open up that bottle and let the genie
out. And that is what our bill tries to do. If you have got a
better way to do it, sir, I am anxious to hear it and anxious
to work on it.
[The prepared statement of Mr. Tauzin follows:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin,
U.S. Representative from Louisiana
Chairman Hollings, Senator McCain, and other distinguished Members
of this Committee, thank you for the opportunity to appear before you
today to discuss with you H.R. 1542, the Internet Freedom and Broadband
Deployment Act. I appreciate your willingness to permit my good friend
John Dingell and I to explain this very important bill to you, and to
inform you of the key changes made to the bill on the House floor.
Three weeks ago today, 271 of our colleagues joined John Dingell
and I in voting to pass H.R. 1542. It was a hard-fought, well-
advertised battle to determine the future of our national broadband
policy framework.
Two hundred and seventy-three Members of Congress voted to keep the
Internet free from onerous, burdensome regulations. Two hundred and
seventy-three Members voted to keep the Internet out of the hands of
meddling state bureaucrats. Two hundred and seventy-three Members voted
to change how broadband services are regulated, and against the status
quo. Two hundred and seventy-three Members voted against applying
legacy telephone rules to broadband infrastructure.
The debate in the House was focused on a fundamental question: What
is the best way to foster the rapid and ubiquitous deployment of
broadband networks and services, and ensure that we have a vibrant,
competitive broadband market?
The debate in the House required Members to determine how they
define a competitive broadband market. Was it to be defined as
facilities-based companies competing against each other using their own
infrastructure and often different technologies? Or was competition to
be defined as multiple companies piggy-backing on the Bells' network
and facilities at below-cost rates?
Well, Mr. Chairman, the House decisively stated that real broadband
competition is facilities-based broadband competition. The House
declared that every company, not just newcomers, not just companies
using certain technologies, should be given the same incentive to
invest in broadband infrastructure. That incentive was summed up best
by AT&T--yes AT&T--Chairman Michael Armstrong. He said that ``no
company will invest billions of dollars to become a facilities-based
broadband services provider if competitors who have not invested a
penny of capital, nor taken an ounce of risk, can come along and get a
free ride on the investments and risks of others.''
That, Mr. Chairman, is what the House debate was about. And the
House made it clear: ``If you are willing to take the risk and spend
the capital necessary to make broadband services available to
consumers, you should not have to let your competitors get a free ride
on your investment.'' That is the crux of H.R. 1542--everyone has the
opportunity to take the risk necessary to invest in broadband and
everyone has the opportunity to reap the rewards. And that is why this
bill will lead to widespread broadband investment and innovation.
Let me add that H.R. 1542 has a stick as well as a carrot. H.R.
1542 requires the Bell companies to provide broadband to all of their
subscribers within 5 years--a buildout to 100 percent of the country.
No other company or group of companies has had such an unprecedented
obligation imposed upon them.
We have all heard, or seen on TV, what opponents say about H.R.
1542: They say if they can't use the Bells' broadband facilities under
the current regulatory framework, they will go out of business and the
Bells will have a monopoly on broadband customers.'' That, Mr. Chairman
is simply not true.
First, the cable industry controls 70 percent of the broadband
market today. If we risk any group of companies gaining a monopoly over
broadband, it is the cable companies, not the Bells. If we do not
deregulate the telephone companies, we risk having to come back here in
a couple of years to re-regulate the broadband services offered by the
cable companies.
Second, H.R. 1542 does not prevent the Bells' competitors from
using the legacy parts of the Bells' networks to offer broadband
services. Nothing in the bill prevents this. And the legacy parts of
the Bells' networks provide the platform upon which competitors can
build their facilities and provide broadband services.
In addition, with the passage of the Buyer-Towns Amendment on the
House floor, H.R. 1542 now goes even further in providing competitors
with access to the Bells' facilities than John Dingell and I had
originally envisioned. The Buyer-Towns Amendment ensures that
competitors get access to the ``last-mile'' fiber facilities deployed
by the Bell companies at FCC-regulated rates, terms, and conditions for
the provision of broadband services. So, under the Buyer-Towns
Amendment, the competitors don't have to build any ``last-mile''
facilities, even fiber, and the FCC still decides what the appropriate
cost of using the Bells' facilities will be.
Competitors have also argued that they will go out of business
because, after the deregulation provided in H.R. 1542, there will be no
rules left to enforce. Well, there are plenty of rules left to enforce
because H.R. 1542 does not change any rules for basic telephone
services and any rules for using the legacy parts of the Bells'
networks to provide broadband services. Furthermore, an amendment
offered by Fred Upton will actually increase the FCC's ability to
enforce those rules. The amendment increases the FCC's enforcement
authority by tenfold, giving Michael Powell the ability to punish
violators of the Communications Act.
We have also heard the assertion that, because only 10 percent of
Americans subscribe to broadband, we are really just faced with a
demand problem, not a supply problem. We have heard that cable
companies offering broadband pass 70 percent of the nation's homes, and
that the only reason that more people are not subscribing is because
there are no ``killer apps.'' Well, there are no ``killer apps''
because, among other reasons, content providers are not going to bother
to spend the money to create ``killer apps'' until there are enough
broadband pipes in the United States to carry bandwidth-heavy content.
When content providers look at the United States, they see, at best,
ONE broadband provider in most communities. That's not the vibrant,
competitive broadband market that will spur content providers to invest
in broadband content--or that will spur consumer demand.
Content is critical, and we need to do everything possible to
ensure that high -bandwidth content is developed. But high-bandwidth
content will not be developed if there is not an adequate supply of
pipes to deliver it.
And having the opportunity to obtain broadband service from one
company is not going to be attractive to most people. Everybody knows
that, when you have one grocery store in town, you get higher prices,
poorer service, and fewer choices of products. But when you have two,
three, or more stores in town, you get lower prices, better service,
and more choices. Broadband is still not being offered at a price at
which most consumers can afford the service. It is not until we have
facilities-based broadband competition that prices will be lowered
significantly.
Mr. Chairman, we have two options. We can deregulate all broadband
services and maximize all carriers' incentives to deploy broadband
networks as rapidly and ubiquitously as possible. This will give the
cable companies the competition they need to keep their dominance of
the U.S. broadband market in check. Only when cable companies face
real, unshackled competitors will they seek to serve all Americans at
the lowest possible price. All Americans will benefit from the race to
speed broadband deployment at affordable rates.
The other option is to re-regulate the cable companies.
H.R. 1542 chooses the first option. The legislation will stimulate
real, vibrant competition. Americans will have a choice among broadband
providers and have access to the many exciting applications that can
only be available through widespread high-speed Internet connections.
Mr. Chairman, we can keep the Internet free from unnecessary and
burdensome regulations and let it thrive, or we can stifle the growth
of broadband by keeping it saddled with rules designed for telephone
services. The House has chosen to keep the Internet free, and I hope
that the Senate will recognize the efficacy of that decision.
Mr. Chairman, thank you again for providing me with the opportunity
to appear before your panel today on what is a vital matter for the
future of our digital economy. I would be happy to answer any questions
that Members of the Committee may have.
The Chairman. Mr. Dingell.
STATEMENT BY HON. JOHN D. DINGELL,
U.S. REPRESENTATIVE FROM MICHIGAN
Mr. Dingell. Mr. Chairman, thank you. Members of the
Committee, thank you. Mr. Tauzin and I are delighted to appear
here this morning to testify about H.R. 1542, The Internet
Freedom and Broadband Deployment Act.
I want to endorse what my friend and Chairman Tauzin has
had to say to you this morning, and say I agree with him
thoroughly and I make to you the same offer. I would ask
unanimous consent that my full statement be inserted in the
record and be permitted to make just a few comments on these
matters.
The Chairman. It will be included and so will Mr. Tauzin's.
Senator Dingell. Mr. Chairman, we are here to talk not
about a vast squabble in the industry. We are here to try and
see how we best serve the interests of the country and the
interests of the American consumer public. That is what this is
all about.
As Mr. Tauzin has mentioned, you have your choice of two
ways of doing it. One, regulate everybody or, two, to allow
everybody to compete.
And I've heard a lot of discussion about H.R. 1542 this
morning, some of it, and it reminds me of an event that I
participated in way back when I was a young lawyer and as a law
clerk of a federal judge.
There was a collision in the Detroit River which occurred
between three lake vessels, freighters, if you please, all of
them with radar going, all of them going in the fog. And when
the judge heard--had heard the testimony and rendered his
decision, he said he couldn't understand how this accident
could have happened. Because in fact according to the
testimony, none of the vessels was within three-quarters of a
mile of point of impact.
What I've listened to and heard the debate on this
legislation is that I think it would do a lot of the people who
are talking about it good to look to see what the House has
done.
Now, I want to endorse very clearly the statement of Mr.
Tauzin. We, if you can do better than we did, we challenge you
to do it. We urge you to do it and we hope that you succeed.
I will tell you also that if you attempt that and you
succeed, we want to sit down and talk to you about seeing
whether we can both work together to come up with something
better than that which we have done today. Because obviously in
human entities like this Committee and our Committee, there is
room for working together and for trying to come up with
something that is going to be better from the standpoint of
all.
There really are just two areas where we go in and we
deregulate. We deregulate the last mile and we deregulate the
backbone. In the area of the backbone, that is the area where
there is substantial problem in terms of getting the speed up.
In the last mile, you will find that there really are only
about two people who can--or two entities that can reliably get
in there to provide service.
One is the long line people who are exempt from regulation
and can enter this without any hinderance. The other are of
course the cable people. Now, all of you will remember we had
to pass legislation to deregulate cable because of high-handed
and arrogant behavior.
I am hopeful that that will not be an exercise that I will
engage in at any time in the future. But I would point out that
if you want to get service to the people, H.R. 1542 will get it
there for broadband. And it will do it by allowing everybody to
fairly compete.
You are going to hear a lot of complaints from the CLECs
who are going to say, Oh, isn't this terrible. And you are
going to hear that all of the CLECs are opposed.
In point of fact, not all of the CLECs are opposed. Some of
them strongly support the legislation. And some of them support
it very strongly because they recognize that there are
significant other benefits to them in so doing.
I would note one thing that is of importance. The CLECs who
are opposed are those who are now getting service from the
Bells at reduced costs.
Interestingly enough, the question before us here is are we
going to see to it that everybody has a chance to compete. And
as Mr. Tauzin mentioned, the Chairman of AT&T came out and made
this point: ``No country is going to invest billions of dollars
to become a facilities-based broadband service provider if
competitors who have not invested a penny of capital, nor taken
one ounce of risk, can come along and get a free ride on the
investments and the risks of others.''
What we are suggesting here then is that we have protected
the rights of the CLECs. Those who are getting a free ride
today will continue to get a free ride on the things on which
they are getting a free ride. That is not changed. And we will
give them other special preferences. We will enable them to get
services from the Bells at regulated prices regulated by the
FCC. Fair price.
We have done something more. We were aware of the concerns
of everybody about the many regions of this country today that
don't have broadband service. My question to you is do you want
to let the people who have not provided broadband services to
those areas and who have not provided competition in other
areas to continue to enjoy the wonderful situation which they
now enjoy or do you want to do something about it.
First of all, our bill mandates that under substantially,
as mentioned, substantially increased penalties that the Bells,
if they get into this and if this legislation passes, to
provide service to every part of the country within 5 years.
You don't do something like that, Members of the Committee,
you are not going to see any services going to the rural areas
that you and Senator Burns were talking about. It is just not
going to buildup. You can sit back and say, well, we should
have done it in 5 years. But that service is not going to be
there.
We want to see that you get your constituent service. I've
got rural constituents who won't get service under this and I
want to see them have it. I also want to see them have an
option to have service provided by many so that we get
competition, so we get faster service, better service, service
at fair, competitive prices.
This Committee and our Committee in times past made the
judgment we were going to move from the kind of regulated
service to a new kind of unregulated service to afford better
considerations.
Now, you are going to hear a lot of complaints about, well,
the Bells are not going to open their local nets. The simple
fact of the matter is the Bells are going to remain under the
same kind of strictures on which they now suffer, in the
future.
We do not change that with regard to voice. What we change
is we open it with regard to broadband. We force competition
into two areas, backbone and the last mile.
And in so doing, we afford opportunities for everybody who
is not there, and we do so in addition by requiring that the
Bells proceed to provide service to every part of this country
by the end of 5 years. And we put sanctions and penalties and
painful provisions for them into the legislation if they do not
do so.
Now, I just want to conclude by repeating this. We
challenge you to do better than we did. We challenge you to
have a proceeding here.
Here are the people who are involved. I would ask, however,
that you read the bill. You look to see what it is we have
done.
There are a lot of high-priced lobbyists in this town that
make a fine living running around lying about what the House
bill does and what we did. And I do not have any objection to
them making a fine living, but I do think, gentlemen, that you
have the capacity to gather the truth by looking at the
legislation and by conducting a fair and an open hearing of the
kind that you have begun.
And I want to commend you for that, Mr. Chairman. And I
want to suggest that proceeding down this course and meeting us
in an honest conference to discuss the real differences will
result in a better piece of legislation than we have done and
an opportunity for us to all serve the public interest. Mr.
Tauzin and I have been working on this business in
telecommunications for a long time. I introduced the first
legislation, and it got pounded and changed beyond any
recognition by me.
And the following year we found it changed even a little
bit more, not a lot but a little. And it is better legislation
because of the process.
And the Senate and the House sat down in this room, as many
of you will remember, to discuss the differences between the
two bills and to come up with something which has the capacity
to serve the country better.
I would note that there is a lot of complaint about
monopoly. Well, if you want to look at monopolies, take a hard
look at the cable folks. They've got about 70 percent. If you
want to take another look at monopolies, take a hard look at
the local Bells. But also take a look at the long line folks,
their monopolies.
And the whining I've heard from them is very interesting.
Because all they are telling me is we just want to continue
suffering along with a fair advantage over all of our
competitors. And I don't--somehow or other I think that is
inconsistent with the purposes of my friends on this Committee.
In any event, Mr. Chairman, and Members of the Committee,
we have a chance to write a good bill. I hope we can. I am
satisfied from my knowledge of all of you up there that is what
you want.
I would say one thing to my old friend, Mr. Dorgan. I don't
remember ever hearing any member of the House talk about how we
are going to give a lesson to the Senate. I would say in all
honesty, that is beyond my capacity.
But I would observe to you that we would be very happy to
sit down and discuss with you a meaningful piece of legislation
and one that we can all be proud of instead of listening to a
lot of high-paid, fat cat lobbyists who are pushing a situation
that does not benefit the United States.
Let's let the passengers get out of there and do a little
bit of honest competition and see if we are not all a little
better for it. Thank you, Mr. Chairman.
[The prepared statement of Mr. Dingell follows:]
Prepared Statement of Hon. John D. Dingell,
U.S. Representative from Michigan
Good morning, Chairman Hollings, Senator McCain, and Members of the
Committee. Thank you for inviting us to testify about H.R. 1542, the
``Internet Freedom and Broadband Deployment Act.'' As you know, the
bill recently passed the House with both a majority of Democrats and
Republicans voting for it.
When my friend, Chairman Tauzin and I first introduced this bill
back in 1999, the notion of ``broadband'' was little known and even
less understood. Much has changed since then. High speed Internet
connections are now believed to be crucial in getting high technology
companies back on their feet, creating over a million new high paying
jobs for American workers, and paving the way for more robust content
to make its way to the Information Superhighway.
The debate is no longer whether broadband connections are needed,
but how best to get it done. This is a huge step forward. And we even
have new terms that have recently entered the lexicon of this debate.
Some argue that the so-called ``supply-push'' approach is the best way
to spur broadband deployment; others say that the ``demand-pull''
approach is the better solution.
The supply-push proponents say that more facilities need to be
constructed, and that will happen only with greater investment
incentives and less regulation of the broadband industry. These
concepts are, of course, at the core of the Tauzin-Dingell bill.
The demand-pull advocates argue that the way to stimulate broadband
is to give greater intellectual property protections to content owners
so that more high value content will be available on the Web. When that
happens, they say, more people will subscribe to high speed Internet
service, and the resulting demand stimulus will spur deployment.
In my judgment, both groups are right; they are two sides of the
same coin. I would observe that this is not a chicken or the egg
question where one thing will necessarily drive the other; the two
approaches are inextricably linked.
Focusing solely on content protections won't do the job because the
current state of technology will not allow the richest applications to
traverse the net. The pipes simply aren't fat enough. And, if left only
to the cable companies, they may never be. Head-to-head competition
between facilities providers, both cable and telephone, is critical. We
must foster an environment where innovation and investment will
constantly drive Internet speeds faster and faster. And without
effective competition, cable companies not only will have little
incentive to innovate, but they actually have a disincentive to do so.
Because as Internet speeds increase, cable broadband service will begin
to steal revenues from their traditional cable television business.
That is why H.R. 1542 must be a critical component of any national
broadband policy. The bill will create regulatory parity between cable
and telephone companies so that each will have similar incentives to
innovate and invest. The Rush-Sawyer amendment will require telephone
companies to build-out broadband service to 100 percent of their
serving areas within 5 years. That provision alone is the most
important step Congress has taken to close the digital divide since the
inception of the Internet. And it will mandate that telephone companies
provide ``open access'' to unaffiliated Internet Service Providers, or
``ISPs'', like AOL, Mindspring or Earthlink. That will give consumers
the freedom to choose their favorite ISP, something they currently do
not enjoy when they subscribe to broadband service from most cable
companies.
The current regulatory scheme for broadband Internet service is in
disarray. The FCC is partly to blame, but so are we. When Congress
wrote the 1996 Act, we established a panoply of rules designed to open
the Bell companies' monopoly local phone networks to competition. And
that was the right thing to do. What we didn't contemplate was that at
some point in the future these same rules would be applied to brand
new, advanced services for which no monopoly exists.
Similarly, in the 1996 Act, Congress deregulated cable companies.
Not just for the cable television services that constituted their main
business at the time, but for anything and everything they might offer
in the future. In my view, this approach to regulation was a mistake:
Congress imposed a regulatory scheme based not on the type of service
provided, but on the type of company providing it.
Now we find ourselves in the awkward situation of having telephone
and cable companies offering virtually identical services--high speed
Internet--but under very different sets of rules. It is simply bad
telecommunications policy--it results in significant economic
distortions and, just as important, it deprives the public of the
enormous benefits that normally come from fair and fierce competition
between firms offering similar services to consumers.
Mr. Chairman, I congratulate you for holding this hearing today. It
is a first step toward creating a fair and rational broadband policy,
which is so important for the health of the economy and the public
good. I hope and believe we can strike the right balance quickly and
with minimal discord if we work together toward this common goal.
I look forward to answering any questions the Committee may have.
The Chairman. Thank you. They both commented about a
balanced approach. Let the record show that that is what this
hearing intended in the original instance. We had, as you know,
Mr. Marquis, so we would have a balanced approach.
But Mr. Tauzin said he'd rather prepare just without him.
And then when we had the local public service commissions
comment, because we had a panel after you two, again Mr. Tauzin
said that they would be sandbagging and ambushing him, and even
the title, I've got a letter to make that part of the record
that we were trying to ambush--you are all uptight.
Chairman Tauzin, you remind me a lot of Michael Armstrong.
You both have been quoting him. And I do not know when he made
that statement, but of course, and a lie, that is a bunch of
baloney in the sense that we heard that when you two voted and
supported the 1996 Act.
We had quite a debate. And we said, you know, Judge Green
was pretty smart. He opened up the long distance market for
access where they would pay not only the cost but a reasonable
profit.
If you both look at page 97 of the 1996 Act, you will see
that is exactly what we did with respect to our deregulation.
We said in Section 252 on Page 97, sell at cost plus a
reasonable profit.
Now we noticed and we had the experience of long distance.
And boy, they have had a viable competition. And not only--not
an advantage or unfair advantage or whatever else that the
gentlemen refers to; on the contrary, they are on the ropes
financially.
You talk about taking a risk. There is no risk to the crowd
I refer to, namely the Bell companies. There is a risk, yes,
the cable companies are private investors, not government-
instituted monopoly, but on the contrary, there are 1,080 cable
companies.
And let me go right on into the services that they have to
provide and what have you, their regulations, but more
particularly to what they have, Chairman Tauzin. You and I
agree, let us see if we can make 2 apples and 2 apples equal 4
apples. There are 85 percent that now have access to broadband.
You disagree.
Mr. Tauzin. Absolutely.
The Chairman. Why do you disagree?
Mr. Tauzin. Because what the cable companies are saying is
that they pass 85 percent of American homes. You have got to
understand that if you are going to deliver broadband service--
--
The Chairman. I am talking about cable companies and, you
know, the telephone companies and the Bell companies. The Bell
companies are in there like gangbusters right now.
Mr. Tauzin. No. I disagree with that and we have got the
numbers to show it. The marketplace right now is about 89
percent vacant of the services. Let me ask you a question.
The Chairman. Yes, I'd like you to answer that question.
Where do you find less than 85 percent?
Mr. Tauzin. The problem is that the numbers you hear cited
do not take into account that for the cable companies to
provide true broadband services, high-speed broadband services,
they have to go in on those systems and add an extensive amount
of investment. It's called nodes.
As more and more people sign up to a broadband cable--I am
on broadband cable in Northern Virginia--as more of my
neighbors sign up, the cable company has to come in and make
substantially new investments because the speed goes down as
more cable subscribers sign on.
And unless the cable companies come in and put new nodes in
to build the speed back up, those systems are incapable of
serving the 85 percent of the people that are passed by these
wires.
The Bell companies likewise have to make significant
investments in new remote terminals, new fiber systems in order
to make their lines accessible for really high-speed services,
as Mr. Kerry described them.
So, you know, their lies and statistics, I am afraid we are
dealing with some interesting statistics here. The truth is----
The Chairman. Well, what statistic do you have? It passes
85 percent of the homes.
Mr. Tauzin. These are the facts.
The Chairman. I cannot read that stuff. My eyes are not
that good.
[Laughter.]
The Chairman. But do not worry about that. I mean, you can
make these pretty little charts. We can play that game over
here too. You deny that 85 percent broadband passes homes right
now.
Mr. Tauzin. Yes, I deny that.
The Chairman. Well, what percent do you say, excuse me,
what percent--do not give me all of that----
Mr. Tauzin. I don't know. But it's a lot less than 85
percent.
The Chairman. Well, what is your percent, Mr. Dingell?
Mr. Dingell. Well, I do not have any percent. All I'll tell
you is you are right. It goes by----
The Chairman. That is right. Now, I knew I would get some
help from John.
Mr. Dingell. The problem----
The Chairman. That's right. It goes by. And you are right,
Mr. Dingell and it only goes to the home----
Mr. Dingell. The problem is they go right by. They don't
stop.
The Chairman. That is right. And they do not stop on
account of demand. And they do not stop because they cannot dig
up the streets.
Mr. Dingell. No, they don't stop----
The Chairman. Wait a minute----
Mr. Dingell. They don't stop because the investment has not
been made.
The Chairman. That is right. You and I agree. The
investment has not been made because they cannot dig up and go
to those businesses.
So the cable we are talking about is predominantly just
residential. It does not even go to the business. You and I are
right. They cannot make the investment.
But let us see who can make the investment now. We have got
85 percent and only 10 percent have it. I am just quoting you,
you just used that figure. So that is 10 percent of the 85
percent and restricted to residential. So 90 percent of the
market is out there still for competition.
I mean, you act like the cable has taken it all. They have
10 percent of--they only passed 70 percent, 10 percent of 70
percent of residences alone and not businesses.
Mr. Tauzin. Senator, let me, if I can, let me first address
your opening comments. You are the only person I know in this
town who has ever called me tight. And I want to tell you, I am
as loose a guy as you ever found here. John Breaux and I come
from a loose kind of culture. So I don't buy that argument.
[Laughter.]
Mr. Tauzin. Second, we come here as open and as willing to
work with you in any kind of new proposals and ideas you have.
What I suggested to you in organizing this hearing when you
called me to come, was that I had been invited to lunch many
times but I didn't intend to come to be the meal. I wanted a
fair chance to tell you what we did, and if you want to have
those other folks around in 20,000 hearings, I invite you to do
that. But, so I just want to put that on the record.
The Chairman. That's right. You had those five hearings and
six mark-ups, and I guess we will have to do that again. Do not
come around here in September and claim I am delaying this.
Mr. Tauzin. OK.
The Chairman. Thank you.
Mr. Tauzin. The point is, we will come back if you need us
again. Let me try to say it again as clearly as I can. The
numbers that the Commission and cable companies put out to us
about homes passed do not take into account that even if the
cable is broadband adequate today, that it cannot serve this
vast amount of Americans they passed without substantial new
investments.
They will tell you that. They have to go build all kinds of
new investments if in fact demand increases on the systems.
Because every new customer lowers the speed until new nodes are
put in.
Second, what we did, Senator, in this bill was simply say
that these old lotto lines, these old lines that prevented the
Bell companies from doing what the cable companies can do today
to reach out across these lines the judge drew on the map long
before the 1996 Act, that they can reach out and extend their
broadband systems across those lines.
And as John said, make the investments in that last mile.
And we've added the provision that even when they do that,
Senator, they have to make those facilities available at rates
set by the Commission for the competitors.
That's a fair way of doing it. Again, if you have got a
fairer way, please tell us what it is.
The Chairman. Well, a better way is told by just people
that you represent ought to take it over, those that do not
have a risk. Let me just state exactly what they are doing.
Verizon spent nearly 18 billion last year and they
increased the number of DSL customers by 666,000 to 1.2
million. SBC invested billions in heavily promoted Project
Pronto. They got 146,000 more.
And Bell South has put in 33 billion--I have got way more
but I am cutting it short because my time is limited--33
billion during the 1990s. And they are going like gangbusters.
And let me quote Duane Ackerman right there in my own
backyard and I want Ms. English to listen to this. ``Some
companies have suggested that before DSL can be deployed,
substantial investments need to be made in the network. I think
the good news is for Bell South a large part of that investment
has in fact already been made. You will see Bell South continue
to drive investment into DSL on a per customer basis. And the
reason is simple. DSL is growing and DSL is profitable.''
You have got 85 percent already passing the homes. We will
all agree on that. And they are fighting over the 15 percent,
and then DSL has gotten all the business. And they will put the
CLECs out and take the market power and take over the poor
little cable that is trying to give competition we did not
have.
I described the Bell companies for 3 years after they said
they were going to go into long distance in a year's time. For
3 years they kept us in coats. They did absolutely nothing.
They are still only in 40 states in long distance, four-fifths
of the country.
If you worry about broadband, four-fifths of the country
does not have that kind of competition. That is the big problem
before this Committee right now.
My time is limited. Let me yield to Senator McCain, or
Senator Burns.
Mr. Dingell. Before you do, would you permit me to make an
observation?
The Chairman. Please do.
Mr. Dingell. I applaud your remarks. I thank you. The
simple fact of the matter is we are all agreed on one thing. We
want to get service to the people.
These things may seem to be easy. And you may be looking at
broadband and the lines that provide broadband as being
something which can absorb any load. And the simple fact of the
matter is that they aren't.
As Mr. Tauzin mentioned, the more traffic you put in, the
slower they move. It is also so that you have to have
significant investment to get that 85 percent from the point
where the line passes the house to the home of--or the
business. And all of them, and these lines pass both homes and
businesses, so that you can get the service into the home or
the business.
This is going to take an investment. And the question is
how are you going to get the investment. And who are you going
to get to make the investment. Now, Senator, you are an
intelligent man. You are not going to sit there and tell me
that a CLEC that has no investment in equipment is going to
have either the capital or the resources to go in and to
provide the service to that home.
You've got to find somebody that has got the means to
provide the necessary investment. And all I am going to do is
quote Mr. Anderson, a well-known proponent of this legislation,
or Mr. Armstrong rather, in saying nobody's going to make that
investment if they don't have a chance of getting some return
on it.
So what we are suggesting is let the people in who can and
will invest. Let everybody invest. CLECs can go in if they
want.
And the ones who are getting a free ride on everybody
else's back can still get it. They are going to get the same
rights they have with existing services. Those are not being
taken away.
And on any new investment, they are going to get the right
to go in and to get those services provided by the Bells on the
basis of fair prices under regulations issued by the FCC.
And I repeat, if you can come up with a better way of
speeding this process up, I am for it. But do remember that you
only have a small percentage of the people in this country
actually receiving the service. Our debate this morning should
be about how we are going to get service to the American people
and how we are going to catch up on the Japanese and Koreans
and others.
Now, let me just mention this to you. The homes that you
say are having these wires passed, are having the wires pass
them. But the thing you've got to know is we want to have--we
want to have more than one who will go into that home.
We want to see that we make it a wise and intelligent
business judgment by the people who are making the investment
that they ought to go in so we have competition, not that the
American consumer is saddled with a situation where there is
only one person.
He is not benefited by that situation. He just remains a
victim if that kind of situation is obtained.
The Chairman. And that, as you and I both agree, there is
no broadband problem. It passes 85 percent of the homes right
now. And I have just pointed out how the Bell Companies are in
there like gangbusters because----
Mr. Dingell. Senator, you are absolutely wrong.
The Chairman. Wait a minute. Can I please make a statement
too, that by gosh, as Mr. Duane Ackerman says, DSL is
profitable. So they are getting out there like gangbusters.
Now, on services the big problem this Committee has is just
a concern expressed by our fearless leader Chairman Tauzin who
says consumers must have the benefits of competition and not
the penalties of monopoly unregulated service. And that's what
H.R. 1542 gives is monopoly unregulated service.
Mr. Tauzin. Let me assure you, Senator, that comment is
made about the cable companies who are unregulated and have
monopoly of provision of services today.
The Bell Companies are in fact deeply regulated in their
provision of services. We have added new requirements on them
and new hammers by the FCC. Again, if you have got a better way
of making sure they open their markets, come tell us. We'll
work with you.
The Chairman. Nearest thing to immortality on earth is a
Bell Company. The poor little cable companies have got a 5-year
contract down where I live and a 15-year contract here with
Comcast in Washington. And Comcast is trying to get just a 10-
year contract.
I can tell you right now they are struggling. Mr.
Armstrong, that you quoted, said I cannot make it and I am
ready to sell it in order to by gosh get some kind of job done.
Senator Conrad Burns.
Senator Burns. I am not real sure I want to jump in on
this.
[Laughter.]
Senator Burns. I do not think I want the football. No, I am
very interested in making this thing work. That is Number 1.
That is the way I am going to approach it. OK.
But tell me, in today's world of ones and zeroes, and we
talk about inter-LATA relief, how do we tell that it is voice
or data?
Mr. Dingell. The answer is you can't. The bits that carry
one or the other are going to carry either, and you can't tell
by looking at the bit if you can do that. What I want to do is
just see to it that we regulate the service. You can still
regulate the service which is what we do under H.R. 1542.
Mr. Tauzin. Voice service is still regulated.
Mr. Dingell. We don't change the regulation of voice. That
remains as it is. Data is deregulated and I think very frankly
it should be. And everybody who has studied the question of the
Internet says let them be deregulated.
Senator Burns. But if we cannot distinguish the difference
between voice and data, how do we enforce it?
Mr. Dingell. You regulate the service. You regulate the
provider of that service.
Mr. Tauzin. And the bill does that.
Mr. Dingell. Where he provides voice, you regulate him. And
you do it by looking at his books. And you require him to keep
proper books.
You do not regulate the data transmission and you--and that
is good. But you can identify the difference between the
service. You do not look at the bit and say this bit is a voice
bit and this bit is a data bit.
You regulate the service. And you go in and you look at the
guy's books and you say you are doing this and we are here to
regulate. You are doing this. This is not subject to----
Mr. Tauzin. Let me try quickly, Senator Burns, the bill
provides that the Bell companies under this Act cannot sell,
market, nor collect any dollars for voice services.
Second, the bill does not take away the FCC's authority to
examine under performance measures the operations of the Bell
companies. And it keeps in the local PUCs and at the FCC the
authority to regulate those voice services.
So the agencies have the power under performance standards
examination to see that the Bells in fact are enforced on the
provision that says you can't sell nor market nor collect a
dime for voice services except under the provisions of the 1996
Act.
Senator Burns. Now another little question here before my
time runs out. Would IP telephony be a data service, not
subject to competitive checklist, or a voice service that is?
Mr. Dingell. It depends on how it is denominated by the
regulatory agency and by the provider. It would be regulated as
a service as opposed to being regulated as a particular stream
of bits going across a wire.
Senator Burns. Well, these are the areas I have concerns
about, and also the areas in Section 4 and I think in Section 6
just going through this thing. And I am sure that we can work
these things out. I mean, I do not--maybe we cannot but I think
that I am just going to highlight those areas of which I have
great concerns and maybe on some other provisions of this mark.
But I think Section 4 and Section 6 really concerns us a
lot. And I've forgotten what----
Mr. Tauzin. Senator, can I?
Senator Burns. Yes, go ahead.
Mr. Tauzin. Can I make a comment too. I know of your
concern in Montana.
Senator Burns. Yeah, but we are really whizzing right along
there that DSL, you know, one city here and one user.
[Laughter.]
Mr. Tauzin. Let me go through some of the problems, one
user at a time. What we have seen is that your Bell Company out
there has in fact sold a lot of its rural areas off.
Under the provisions of universal service laws and rules
and regulations that are currently existing, when a company
owns both a dense urban area that helps subsidize a rural area
and also owns a rural area that is getting subsidy, the
subsidies flow inside the company.
When a company can sell off a rural area and another
company can simply buy a rural area, the subsidies come from
another company to them. And they tend to be able then to go
ahead and with those resources improve those networks and
deploy DSL, whereas the ILEC, which was subsidizing itself, had
a more difficult time doing it. That is a fact out west.
Second, all the universal service laws and regulations are
kept intact. We don't change them one iota. I know that was one
of your concerns. Those are still intact.
The companies that buy off a region or area, a rural area
from an ILEC out there end up getting the benefits of that
universal service provision. And because they don't have to
subsidize themselves, they tend to be in a better position to
actually deliver the services. That is what's happening out
west.
Senator Burns. Well, I will visit with you on this and we
will work it out. But do not fiddle with my RUS either.
Understand we are--I got my pistol cocked on that. OK?
Mr. Dingell. This is the room we have to work with. We will
be very happy to work with you on this.
Senator Burns. OK. But those are the areas of our most
concern on this. And I would just like to say we are not going
to close our mind on this thing because I think we want to get
to the same place. There is no doubt about it. And how best we
do it.
The experience that we are having in Montana is not a very
positive experience which makes us wonder about the deployment,
even if they were given inter-LATA relief, we do not see a
great rush to deploy DSL or VDSL.
Mr. Tauzin. They won't have a choice under our bill,
Senator. They don't have a choice. We mandate deployment in
areas where they are currently not going.
Senator Burns. Well, we thought that would happen in
another section of the 1986 bill too, or the 1996 bill. But
that did not happen, and so----
Mr. Dingell. We are offering you a better mechanism today.
If you can improve on it, we are willing to listen. Because I
want to see this mandated. I've got some rural areas of my own.
Senator Burns. Well, we are going to sit down in a
different venue and environment and try to work this out. We
guarantee you that.
The Chairman. Senator Brownback.
Senator Brownback. Thank you, Mr. Chairman. Again, thank
you for holding the hearing. You did not have to do this and I
appreciate you doing it.
If I could, what I hear people talking about, and I think
you both have done an excellent job in putting forward the
case, and the Chairman has put forward his case well, is that
we have--and I think Senator Kerry outlined it pretty well with
this too, is how we balance our commitment to the
Telecommunications Act, competition and telephony, and yet open
up competition in this other area when we have got two
different spheres of competing influence.
You have got phone companies competing over here, and you
have got a phone company and cable and others competing over
here.
Mr. Chairman, if I might submit, I wonder if there would be
a way for us in crafting a piece of legislation that would
strengthen the telephony competition section, which I believe
that you believe you have done in your bill anyway. You think
you have given real teeth now in a telephony competition
section in your bill, so you are open to doing that.
Mr. Tauzin. Yes.
Senator Brownback. No problem with strengthening that,
which has been a lot of the difficulty that you, Mr. Chairman,
have had with this bill, that Senator McCain, Senator Burns,
Senator Dorgan, a lot of people around have had with this,
whether we could not craft this for you, really strengthen and
put teeth and try to correct the inequities that have taken
place there and the actual operation of it.
At the same time, opening up in the competition field in
this, in the other area where you have got competition taking
place between other groups, whether it is with cable, or
wireless, or satellite. So you do not limit our ability to
create facilities-based competitors, particularly from the
phone companies in that last mile, and the backbone, but
particularly that last mile of getting high-fiber, high-speed,
high-quality.
We ought to be going where the Koreans are with this; to be
able to get the access to the really fast high-quality delivery
of services. And I think if we do that, you are going to see a
flourishing of services that would be available with that.
I do not know what--I would take it you would be open to
that sort of negotiation and discussion with it? I believe you
have created one just that way.
Mr. Tauzin. Let me comment, Senator. That is exactly
correct. What we added wasn't just a tenfold increase in
penalties or even a twentyfold for repeat bad behavior. What we
have given the Commission under our bill is cease and desist
authority which is to say for the first time instead of the
Commission having to wait for a Bell Company to come in and say
I'd like to get in long distance, and here's what I've done to
open up my market, it gives the Commission to chance to examine
whether they have opened the market and whether they are trying
to do something with it just or not, and to say you are not
treating the competitors, the CLECs, correctly. You are not
opening up your markets. You are not exchanging customers the
way you should be exchanging customers.
You are not treating the CLEC's customers the same way you
are treating your own customers, and we order you to cease and
desist or we'll take you to court with an injunction if you
don't.
You can't do that on the current law. Our bill would give
them that new authority. If there are other ways to improve on
that sanction, Senators, to make sure that the Bells, whether
they want to get long distance or not, fairly treat competitors
in the local system, we are very open to work with you to
strengthen it, improve it, build a different mousetrap if you
want.
Mr. Dingell. I would like to echo that. I would like to
say, Senator, you put your finger on a very important point and
I want to thank you for it. I would like to make this
observation in addition to what Mr. Tauzin said.
The powers we have given the FCC are exactly the powers
that the chairman of the FCC said he and the Commission have to
have to open up the local service net of the Bells to assure
that the problems that concern the Chairman, Mr. Hollings,
finds so oppressive.
And I would also note one thing, that until the Bells have
addressed the problems that the FCC has, they are not going to
get into long distance voice communications. It's just not
going to happen.
And I would note that they are compelled to submit and have
been to the Commission as many as 270,000 pages of exhibits
alongside which the Commission has rested most tranquilly and
given no decision on, after enormous expenditures by people who
are applying for relief from their government, and on which
they receive no advice from the Commission as to what it is
that's wrong. They say if you want to get some relief, submit
us another 270,000 pages. Seems to me not to be a wise way to
run the company.
Mr. Tauzin. If I can add one more thing that I think we
ought to have on the table, that is when it comes to local
competition, one of the problems is that in the residential
market as opposed to the commercial market where there is a
good profit margin, that incentivizing a competitor to come in
and compete in a low margin marketplace where price is already
subsidized through universal service is a difficult task.
The competitor, you may say my market is open to that
competitor. He may choose not to compete. In fact in many of
the CLECs don't even try to offer telephone service,
residential telephone service. All they are trying to do is get
into broadband services.
And so they use the high frequency part of the copper wire
to deliver broadband services and they don't offer telephone
service at all. Check the record. That's a fact.
And the reason they don't is because in residential areas
there is not a lot of money to be made. It's a high-cost, low-
margin area that we end up subsidizing in order to make sure
people in sparsely populated areas in America get that service.
But when it comes to broadband service, let me make this
point. It's important. Distance becomes irrelevant. Everything
about the old regulations on the telephone systems of America
were about distance, how far we lived from one another, how far
was a call going.
On the Internet, it doesn't matter whether you live in
Tokyo or whether you live in South Carolina or Michigan or
Louisiana. You can speak commonly to anyone on that system
without regard to distance.
It's a distance irrelevant system. It makes no sense for us
to continue distance relevant regulation on a distance
irrelevance system.
Senator Brownback. If I could in my remaining time, Mr.
Chairman. I think we have had a chance for a two-fer here,
actually to create competition in that local market sector,
where there has been a lot of difficulty here, and in crafting
this such that it gives some real teeth to the FCC. And you
really give a chance to people to get at a problem that was
not, frankly, as people thought it was, addressed in the
Telecom Act.
At the same time, we can then create a quality of broadband
deployment and competition that we need to have. Because right
now we just do not have it out there. We have got some cable
companies that are pretty much dominating the field. They need
to have more competitive pressure.
There is competitive pressure we can get there. We can get
that fiber, the last mile, which is going to be expensive, very
expensive to do. It is a low-margin area when you go in
residential, that last mile with fiber or in my state to be
able to get a build-out into rural areas which your legislation
requires it would have to be done over a period of 5 years.
That is a real expensive matter to string that out to my
parents that are a few miles away from town. And that would
require them to do that.
So I look at this and see we have got a chance, really, to
do something that is going to spur the economy on
substantially, and to correct an inequity in a prior act. We
could take advantage of both of those. I hope--I would like to
go to work with the Chairman to do just that. Thank you.
The Chairman. Senator Dorgan.
Senator Dorgan. Thank you. Let me ask a question about the
issue of the Ag Conference. Because I mentioned in my opening
comments that there is a report in Congress Daily A.M. this
morning that the provision that was put in the Ag Conference
dealing with incentivizing the build-out of broadband is a
provision that is under some assault. And my understanding is
the two of you have actually become conferees to the farm bill.
Congratulation.
Mr. Dingell. We will make it better.
Senator Dorgan. Long recognized experts on wool and
commodities programs.
[Laughter.]
Mr. Tauzin. I grew up on a farm, Senator Dorgan.
Senator Dorgan. But I understand you are there because you
are concerned about the RUS provision. And let me--let me ask
this question. You indicated that this is a marketplace of
ideas.
You have won. You have passed it through the House. If we
have other ideas, you are interested in hearing them and
embracing them.
One of those ideas in the farm bill that comes from the
Senate to conference is to provide some low-interest loans
under certain circumstances to help accelerate the build-out of
broadband.
My understanding is that, Congressman Tauzin, your staff is
making some impassioned pleas in opposition to that provision
in the farm bill and conference. Is that accurate?
Mr. Tauzin. We have two problems with the provision drafted
in the formula, one is in the formula. It is extraordinary that
we have to be on that conference. We shouldn't have to be. It's
a telecommunications matter which hopefully will be decided in
the telecommunications conference.
Second, we have problems with the whole idea of giving some
of the competitors low-interest loans and not others. And that
is what the provision does. It provides low-interest loans for
some in this marketplace but not for all.
And I know you disagree with that. We believe that that is
what it does. And so we have to have that cleared up as well.
Let me also say, Senator Dorgan, the quotes you have made
though about us sending you a signal, telling the Senate you
won't get anything without accepting Tauzin-Dingell, that is a
quote by one of our opponents. I hope you recognize that. I'd
like the record to reflect that.
Senator Dorgan. The first quote is a Tauzin spokesman. We
are sending a message that we are the Committee of
jurisdiction.
Mr. Tauzin. Yes.
Senator Dorgan. That's a Tauzin spokesman.
Mr. Tauzin. That is accurate.
Senator Dorgan. That is not an opponent of yours.
Mr. Tauzin. That is accurate. We have a jurisdictional
problem with the form, legislators of the Congress writing
telecommunications policy. We have had that problem in past
years. We have it today.
We are not saying that the policy may be wrong in the end.
But when it came time for us to provide low-interest loans, for
example local into local, for rural communities, it came
through our telecommunications Committee, not through the form
agricultural Committee.
Senator Dorgan. But we have had a real telephone co-op
program for 50 years in the Agriculture Bill. Do you not agree?
Mr. Tauzin. Which is a part again of the telecommunications
policy of the country. And as I said, when it came time for us
to put together low-interest loans for rural parts of America
to get local into local satellite service, that properly came
through the jurisdictional committees of the telecom.
And that's our argument here. We stand by that. We would
not like the Agricultural Committee deciding broadband policy.
It's that simple.
Senator Dorgan. My only point here is that if you come to
us and say, look, if there are other ideas out there, let's
hear them. I've introduced a broadband REA program which is
low-interest loans for the deployment of broadband.
The telephone program in RUS has been there since 1949.
This is not some new thing. And I guess when you say to us
let's hear new ideas, we have got one in an Ag conference. And
you are the one that's sending a spokesperson down there, I
guess not that you do not go down there, and say I oppose it.
If you really want to build-out a broadband, why not
embrace a range of ideas including the tax credit, Rockefeller
proposals, the broadband REA program, the provision at RUS. Why
would you oppose any of them?
Mr. Tauzin. The answer is we don't oppose the ideas.
Senator Dorgan. But you are trying to kill it.
Mr. Tauzin. We oppose it on jurisdictional grounds.
Senator Dorgan. But you are trying to kill the provision;
are you not?
Mr. Tauzin. No, sir. We are not saying that the provision
properly addressed in a telecommunications broadband bill is
not a good provision.
Senator Dorgan. You are trying to kill the provision----
Mr. Tauzin. We are trying to say that it doesn't belong in
the Farm Bills.
Senator Dorgan. But you are trying to kill the provision in
the Ag conference; are you not?
Mr. Tauzin. We are trying to say get it out of the Farm
Bill. Yes.
Senator Dorgan. That is all I am asking.
Mr. Tauzin. We are also trying to say that if you are going
to write a provision like that, it needs to be written in a way
as we did the satellite low-interest loan program, local and
local, it has to be written in a way that all the participants
in that business have a chance----
Senator Dorgan. Well, that is exactly the way this is
written. This is technologically neutral. But my point is this:
Do not say to us we want to embrace a lot of other ideas and
then be over in that conference trying to kill that provision.
But I guess that is a subject for another day.
Mr. Tauzin. It is not the idea, it is where the idea is
located. We suggest that----
Senator Dorgan. If it is not your idea, it is not worthy?
Mr. Tauzin. No. We are saying that it ought to be addressed
as part of broadband policy, not foreign policy.
Senator Dorgan. But people who do not get access to
broadband because this provision gets killed are going to have
a hard time understanding, well, the issue really was just
jurisdiction between Congressman Tauzin and Senator Hollings.
The fact is we are interested in doing a lot of things that
work. And this is one. And I would hope very much in conference
the two of you will not deign to----
Mr. Tauzin. We will visit with you. But you came from the
House, Senator Dorgan. And you know there is a difference in
the way we operate. We have rules, jurisdictional lines that
our committees and subject matters come under.
We understand that it's different here. We understand that.
But when it comes to the way we proceed and we write broadband
policy, we are simply saying that this ought to be part of
broader broadband policy, not simply something done for one
segment under an Agricultural Bill.
Senator Dorgan. Congressman Tauzin, that--these kinds of
provisions dealing with telephone and especially the build-out
in rural areas have been in the Agriculture Bill since 1949.
There has never been a default in the rural telephone co-op
program.
But I just, I urge you take a new look at that. Do not be
in there trying to kill that. If you want to work with us, work
with us on a wide range of issues, including that.
Mr. Dingell. Let me make a comment because I've not had
anything to say about this matter, and my staff has not had
anything to say about it. I just would make a couple of
observations I think are useful.
First of all, I think as a Member of this Committee, you
want to see to it that something in this country is done, it is
done right. Second of all, as a Member of this Committee I
think you want to see that if anything is done that it relates
intelligently to the rest of our telecommunications policy.
I do not think there is anything wrong with either one of
those positions. Those make eminent sense. We enforce those
kinds of situations in the House by seeing to it that we
protect our jurisdictional concerns of the committees. Because
the committees usually know better what they are doing on their
particular subject matter than do other committees.
Now, having said that, it is very clear to me that the
Senate wants to discuss this. Mr. Tauzin and I are prepared to
discuss this with the Senate as conferees on behalf of the
House. And we are prepared to try and work with you on these
matters.
But we do want to make it very clear and very sure that I
think you and we want to see to it that this is done in a way
which doesn't conflict with other policies. If that is done, I
don't have any objection at all to making loans to assist this.
This makes good sense.
But I would just note one thing for the benefit of
everybody in the room, and that is if you look carefully,
you'll find that all of this comes out from somebody who is
opposed to Tauzin-Dingell. And I would say that talking to
Tauzin and Dingell might give you a better way of getting an
appreciation of both what Mr. Tauzin and Dingell think but also
it would give us a better chance of having an intelligent
discussion in which the matter could be properly dealt with.
Senator Dorgan. And the paragraph says, ``We are sending a
message that we are the Committee of jurisdiction when it comes
to telecommunications issues,'' says a Tauzin spokesman,
talking about the issue of the conference Committee.
Mr. Dingell. It comes out of the lips of an opponent.
Senator Dorgan. No. No. You are wrong about----
Mr. Dingell. Said that the devil may talk----
Senator Dorgan. You are talking about a different
paragraph, my friend. You are wrong about that.
So I've just read the paragraph, we are sending a message
that we are the Committee of jurisdiction, said a Tauzin
spokesman. But I understand the paragraph you are reading, but
understand the one I am reading as well.
Let me ask a question, if I might, about how deregulation
would do anything to change the status quo in a state like
North Dakota. Because obviously I have a parochial interest
here and this is national policy, but I have an interest in
North Dakota.
Let me describe to you what has happened in North Dakota.
We have had DSL being offered now by 157 of the 231 rural
exchanges in North Dakota. The end of next month another 13
will be bringing that total to 170 out of 230.
These are the rural telephone co-ops in most cases, and
independent phones. And with respect to Qwest that has sold off
many of its exchanges in our state, they offer DSL in 4 of the
24 exchanges it has.
Now, can I get your opinion, why would Qwest, a big old
company that has done a lot of business in North Dakota over
many years prior to selling some 60 or so exchanges, 76
exchanges, why would it offer DSL do you think in only 4 of 24
exchanges.
Mr. Dingell. First of all, I am not an officer, employee or
shareholder of Qwest.
[Laughter.]
Mr. Dingell. So I haven't the vaguest damned idea why Qwest
does things. And I don't think anyone else in this room unless
they work for Qwest does.
I would only tell you that if you want to get service and
you want to propel them to offer this service, there is a good
way to do it. And it is in H.R. 1542.
First of all, Tauzin-Dingell requires them to provide that
service. Second of all, it eliminates obstacles to investment
by Qwest in that. So we give you two things. One, we give you
the carrot; and two, we give you the stick.
Senator Dorgan. And what is the obstacle that exists with
respect to Qwest providing DSL service beyond four exchanges?
Mr. Dingell. I'll quote a well-known authority, Michael
Armstrong, November 2, 1998. ``No company will invest billions
of dollars and become a facilities-based broadband services
provider if competitors who have not invested a penny of
capital nor taken one ounce of risk can come along and get a
free ride on the investment and risks of others.'' And that
does not apply to rural exchanges why, Mr. Tauzin?
Mr. Tauzin. That statement applies everywhere.
Mr. Dingell. It applies everywhere.
Senator Dorgan. No. I am talking about the lack of
incentive that apparently exists with the Qwest company does
not apply to the local exchanges in North Dakota, the rural
telephone co-ops in the rural exchanges.
Mr. Tauzin. No, it applies to them. The only difference is
that when----
Senator Dorgan. They are building out.
Mr. Tauzin. Yes. When they buy one of these areas, because
they are basically buying a rural area only and they don't have
an urban area as well in the service area, they are actually
getting subsidies under the universal service fund from another
company, not themselves, which then allows them to make some of
the upgrades and services that they in all likelihood may not
be deemed to be profitable at the time.
So the idea that they sell these off the company that can
because of universal service rules actually pick up--universal
service funds to help them do it, is probably a good thing in
your area.
Mr. Dingell. We have got two situations. First of all, let
me remind you that your small local service companies are not
compelled to meet the same tests that the Bells are compelled
to meet. So this does affect them.
Senator Dorgan. Well, we don't have a traffic jam with
competition in these areas.
Mr. Dingell. The only situation you confront here is the
local service companies, the little independents, they are not
compelled to provide these services. The Bells are.
But the interesting thing is that the question you should
really be asking is why can't and don't these small local
companies then offer the service. I can explain why the Bells
don't. You have got to ask the question.
Senator Dorgan. My point is they are offering the service.
That is exactly what I said to you today.
Mr. Tauzin. Senator Dorgan, there is an exemption.
Senator Dorgan. There is an exemption in 251F that also can
be taken away when the companies receive the bonafide request
for interconnection services and network elements in the
future. So----
Mr. Tauzin. It is up to BUC to make that decision.
Senator Dorgan. But that is in your bill. And my point is
the same disincentive would apply to a rural telephone exchange
that's going ahead and making the investment for broadband
deployment. The same disincentive would apply with 251F because
at some point they might say, you know, somebody is going to
come in and make a request, and I have got to share here.
And you are saying that is why the Bells are not building
out because of that disincentive. My point is rural telephone
companies are. The Bells are not.
Mr. Tauzin. The answer is they are exempt to that and they
are not covered.
Senator Dorgan. They are exempt under 251F which--but they
have jeopardy under that if someone later after they build the
system wants to use it. And my point is----
Mr. Dingell. They are not now covered.
Senator Dorgan. But my point is in your legislation in
251F, it describes conditions under which they could be covered
if someone wants to come in and require the sharing of that
system. Now, you are getting a lot of advice here on this
question----
Mr. Tauzin. But the question, Senator, is how many times
has a CLEC gone to BUC and asked that the exemption been
waived? Zero.
Senator Dorgan. My only point is this----
Mr. Tauzin. There is no jeopardy right now.
Senator Dorgan. My time is about up. But in North Dakota,
Qwest has been serving North Dakota. It moved off 74 exchanges,
sold them. You are saying it did that in order to avoid the
responsibility of universal service so it could come out of a
different fund.
Mr. Tauzin. No. No. No. I did not say that. What I said was
that for Qwest to upgrade those systems, it has to use moneys
that are subsidized within it own system from urban consumers.
When they sell off one of those areas and the company owns
just the rural area, then the subsidies come from Qwest, from
some other company. So that company can then use those
subsidies not generated in its own company to actually make
those improvements.
They tend to have a better economic position to make those
improvements. Second, they enjoy an exemption. So they are more
likely to do it.
Senator Dorgan. I guess I wanted to ask a series of
questions about universal service which I think is the most
important issue for me and I think will be an area that is a
very serious problem with respect to your bill.
I unfortunately have another hearing I have to attend, but
I--let me, Mr. Chairman, just make one final comment. I have
taken more time than perhaps I am owed.
My experience in North Dakota is that the Qwest company, it
has very little interest in building out DSL, just very little
interest. Now, I think we have got a lot of great companies
around this company, including the old baby Bells, and the new
CLECs and others. They are all great companies.
Every company must do what is in its self interest. That is
the way life works. That is the way it is with those companies.
Mr. Dingell. We agree.
Senator Dorgan. And so what happens is Qwest decides in
North Dakota we are not going to build-out DSL. What we are
going to do is we are going to create a circumstance where we
can get somebody to come to Congress and get rid of 271, and
get rid of other provisions of the 1996 Act.
And they say, if we can just get these folks to do that,
guess what happens. We get out from under something that they
required in 1996 by which at some point we are going to have
local competition that is aggressive.
Mr. Dingell. We are not letting them out from under 271.
Under 271 they remain under the constraints of 271 for all
voice services.
Senator Dorgan. But that is the mixed message here.
Mr. Dingell. And they also remain under 271 which is
substantially identical.
Senator Dorgan. But that is interestingly enough the mixed
message here. You want regulation, in fact I think you might
have said even more regulation for voice transmission, but you
are in here with a bill that talks about deregulation.
Mr. Dingell. We are not addressing voice.
Senator Dorgan. Is the value of one not the value of the
other? I do not understand the message I guess.
Mr. Tauzin. To answer, we have not increased regulations on
voice transmission. We increased the authority of the
Commission to enforce the current regulations.
Senator Dorgan. Which means nothing of course.
Mr. Tauzin. Second, if you really want Qwest to deploy,
vote for this bill. Under our bill they are mandated to deploy
over a 5-year period to every community in South Dakota.
Mr. Dingell. If you want everybody in South Dakota covered,
vote for our bill. If you do not, vote against it. Very simple.
Senator Dorgan. I guess your bill is what Qwest has been
angling for. That is the reason for their not deploying, I
suppose.
Mr. Tauzin. Qwest backed off of the coalition in support of
the bill for the most part because of the mandate. Because they
don't think they can afford it. The fact is the mandate in the
bill will force Qwest or any provider in the country among the
Bells to actually deploy over 5 years. Qwest doesn't
particularly like that provision.
Senator Dorgan. I will tell you what I want. I want
aggressive, robust competition in local exchanges, Number 1.
Number 2----
Mr. Dingell. Then vote for H.R. 1542.
Senator Dorgan. I want--well, you know, I had said when I
started, I have heard that every morning while I was shaving,
vote for Dingell-Tauzin, Tauzin-Dingell whichever it is. But I
want robust, aggressive competition in local exchanges.
Mr. Tauzin. So do we.
Senator Dorgan. We are only going to get that if we keep
pressing on this issue on the 1996 Act. And second, I want
ubiquitous broadband deployment everywhere in the country, just
as we did with electricity.
And I again will end where I started. I regret that at
least one idea by which we might enhance the lives of some with
respect to the RUS provision in the Ag bill, I hope very much
that I will not have to regret your trying to kill that.
Go into that conference Committee, you two people on the--
--
Mr. Tauzin. You read a lot of the quotes. Did you read the
one that says we are not trying to kill the provision per se.
Read the quotes.
Senator Dorgan. Yes, well, read the quotes of your staffer
that is in the conference, in the staff conference saying----"
Mr. Tauzin. It says we want to protect our jurisdiction.
No.
Senator Dorgan. Well, I'm sorry.
Mr. Tauzin. It says we want to protect our jurisdiction. We
are going to do that.
Senator Dorgan. All right. First of all, thank you for
coming.
Mr. Tauzin. Thank you, sir.
Senator Dorgan. It was really good to have you here.
[Laughter.]
Mr. Tauzin. It was good to be had.
[Laughter.]
The Chairman. My list shows Breaux, Allen, Nelson and then
Hutchison.
Mr. Dingell. Mr. Chairman, I apologize, but I do have other
business. Thank you very much for having us here.
The Chairman. We appreciate very, very much your
appearance. Senator Breaux.
Senator Breaux. What round are we in, Mr. Chairman, about
our 14th, 15th round here? I will, again my line of questions
to my good friend and colleague, Congressman Tauzin, starting
where I left off, and where I left off was I think one thing we
can all agree on, that everybody wants a level playing field
and for people to compete. And we all want competition.
And then everybody departs about what we think will bring
about fair competition in these areas of broadband services and
others. I happen to think that, it seems to me, and I want to
ask my friend, I have got a list, I guess we got it from the
local carriers and the DSL providers, but what they did, and I
would like to ask you now is consent to make this chart a part
of the record, because I know you have the intentions made----
The Chairman. Admitted.
[Information referred to follows.]
Senator Breaux.--and I want to--I want to ask Congressman
Tauzin some of the questions. As I understand, I mean, I have
got one cable that provides all my cable service. I cannot find
anybody else to provide cable service. It is one cable, it is a
monopoly.
And they provide video and movies. And they provide
telephonic communications. They provide broadband service. And
there is no competition for them.
The same thing if you have a satellite, it provides movies
and also broadband. There is no real competition for them or
for a fixed wireless service. And the chart I have is almost
unbelievable to me with regard to the regulatory requirements
is what applies to the local phone companies trying to operate
in this competitive mode as applies to what regulations applied
to cable, satellite and fixed wireless.
I take it, Congressman Tauzin, that the regulatory
requirement of the common carrier duty to provide service at
just and reasonable prices for high-speed Internet service does
not apply to cable and does not apply to satellites and it does
not apply to wireless but it applies to the local phone
companies.
Mr. Tauzin. That's essentially correct. There is a
proposal, there is still an open area about whether the
Commission might at some time in the future require the cable
companies to carry another Internet service provider. For
example, they have not made that decision.
As we sit here today, they have decided just last week that
broadband services are essentially not telecommunications
services, but data services, information services.
Senator Breaux. Is there a common carrier duty prohibiting
discriminatory treatment that applies to the local phone
companies but not to satellites and not to cable?
Mr. Tauzin. That is correct.
Senator Breaux. Is there a duty to provide network to
Internet service providers that applies to the local phone
companies but not to cable nor satellites?
Mr. Tauzin. That's correct.
Senator Breaux. Is there a duty to file tariffs for the
local phone companies but not to cable and not to satellite?
Mr. Tauzin. That is correct. In fact, one of the members,
Mr. Chairman, came to tell me yesterday on the floor that his
local cable provider doubled their broadband rates the day our
bill passed, just a monopoly taking advantage of their monopoly
situation as long as they can.
Senator Breaux. Here is what I really--what I really want
you to elaborate on. Is there a duty to interconnect with
competitors at below-cost prices that would apply to local
companies but not to----
Mr. Tauzin. It applies to telephone but not to cable.
Senator Breaux. As I understand it, even under new
broadband equipment that would be added to the system,
henceforth forward, that the price that you would--that local
companies would have to sell to their competitors would not be
the just and reasonable standard but it could potentially and
in some cases is a requirement to sell below their actual cost
of installing new equipment?
Mr. Tauzin. It's true on the old legacy system, on the old
copper system. In our bill we would say insofar as----
Senator Breaux. But without your bill?
Mr. Tauzin. Without our bill, they could theoretically be
obliged to share their new investments at below cost, which is
kind of nutty.
Senator Breaux. We all talk about the level playing field
and we all agree with it. And I think what I would like, I want
competition. I do not want one phone company. I do not want one
cable company, which we have.
I do not want one satellite service, which, you know, I
want the competition and I think it has to be balanced
competition. I do not want to vote for a bill that only helps
one phone system.
But I think that what we have here is one that I am very
concerned that the current system does not provide the balance
that even competition, that is our goal for all of us.
Would the bill still require the local phone companies to
provide access to the new equipment under a just and reasonable
standard?
Mr. Tauzin. Yes. Our bill would say that as to all the new
investments and fiber to the homes, the last mile, the remote
terminals, all the equipment by which the CLEC which is
currently using the legacy systems at below cost would need if
they didn't want to make their own investments in that right
away that they could use the Bell Company systems at rates,
terms and conditions set by the Commission.
That is important, not just the price but the terms and
conditions. In other words, they could define the speed
requirements for the competitor as well as the conditions of
service and connection. All of that is still required under our
bill at rates, terms, conditions set by the Commission.
Senator Breaux. And is that where the just and reasonable
standard comes into play?
Mr. Tauzin. Yes, sir.
Senator Breaux. Without the bill, I mean, I heard the
companies say, Look, we are not going to go out and build all
this stuff if we have to give access to our competitors at
below the cost of building. We are just not going to do it.
Without the bill is that where the problem is, one of the
problems?
Mr. Tauzin. There are two problems, that problem and the
cost of the LATA lines, the inability to cross those LATA
lines.
It would be a little bit, Senator Breaux, like you and I
lived on the same street. It's like all our neighbors coming to
you and saying, Look, Mr. Breaux, we'd like you to buy a new
car that the neighborhood would like to use, but understand you
won't be able to use it except to get up and down the driveway.
But we can take it anywhere we want and we can use it at
below your cost. But you can't use it except to go up and down
your driveway. Would you buy that car? The answer is no.
No company would make those kind of investments without
being able to use it, Number 1, and equally as anyone else.
Number 2, they certainly wouldn't make it so that they have to
give it away at below cost. It's that simple.
Senator Breaux. So the legislation then would I guess if--
my last question--if the companies, the local exchanges build
new broadband equipment, they would still be required to give
access to that new system to their local competitors but at a
just and reasonable standard as opposed to what the----
Mr. Tauzin. That is correct. In fact, we give the
competitors an additional option. If they want to build their
own system inside of that right-of-way, the Bells have to allow
them to do it. They can either use the Bells' systems, all
these investments they make, at just and reasonable rates set
by the Commission, or they can build their own facilities in
those right-of-ways provided by the Bells' companies.
Senator Breaux. And the charges would still be, for the
access would still be FCC determined?
Mr. Tauzin. FCC would determine it, not the Bell Company.
Senator Breaux. All right. Thank you.
Mr. Tauzin. Thank you.
The Chairman. Senator Allen.
Senator Allen. Thank you, Mr. Chairman. Let me followup on
a variety of issues that have been raised, since you are the
sole one here, Congressman Tauzin.
Again, I think you are seeing out of this Committee
unanimous views that obviously we are looking at the best way
to make broadband available in all communities. It is mostly in
rural communities. The key is for businesses, Number 1.
If those businesses are going to survive, they need to have
access to broadband. To a secondary extent but still important,
syndication, medical. And then consumers simply aren't going to
it as much as people would expect.
What I am trying to figure out in all of this is listening
to all the different perspectives and one of the things that is
just a basic disagreement seems to be an understanding of the
factual basis we are starting from. Now, granted, that may be,
say, broadband penetration is only 10 percent, true. But on the
other hand, there is a disagreement with the Chairman and also
apparently with the FCC's views that 78 percent of all the zip
codes have access to broadband, but you still have the 10
percent accessing it.
Then we have gotten into not only that difference, a
perspective of what the situation is right now, but then
arguing over Committee processes and so forth and merits of
ideas seem to be ignored in the midst of this. I am one who
doesn't care about process or politics, I like the merits of
ideas.
And I have, as Chairman of the High-tech Task Force in the
Senate for the Republicans, we have made, Senator Ensign is on
our task force, made broadband a top priority.
Mr. Tauzin. I saw that.
Senator Allen. We have worked for the broadband tax credit
on Senator Rockefeller's bill. That is a bipartisan effort. And
that bill, just for your information, one of the things I
wanted before I signed onto it, wanted to make sure was that it
was technology neutral.
Now, let me widen this discussion and get your views on
this. And you mentioned, and I very much appreciate it, the
concept of new ideas. If you do not like what we are doing,
come up with something better or maybe add on, or draft it, or
make some changes. And understand that in my Commonwealth of
Virginia there is a lot of CLECs that have relied on the laws
and those concerns are I think understandable and legitimate.
Now, as far as broadband, they can be delivered by cable.
They can be delivered by DSL where there are CLECs or the
Bells. What are missing in a lot of this discussion are
satellites and wireless.
One thing that I would be interested in hearing your
opinion on is the issue of spectrum management reform,
specifically reallocating or freeing up more spectrum for the
use of wireless technologies as an alternative means of
delivering broadband capabilities.
The very same reason why there is not cable in all areas,
mountainous areas of West Virginia or Southwest Virginia or
elsewhere is because there is too much dirt to dig. And so
there are satellites for it.
But the same sort of concept or paradigm seems to me to be
out and hopefully applicable to try and deliver broadband,
maybe not by fiber, but by wireless or satellite capabilities.
What are your views on spectrum management reform?
Mr. Tauzin. Well, you actually touched on a number of
topics including that one that need to get addressed if we are
going to get content, rich content in these systems. One the
Chairman is vitally interested in is content protection, which
I share very much the Chairman's views on pushing the industry
as rapidly as possible to settle those content issues with the
recognition of fair use for consumers being considered, that is
the right for us to make copies in our homes on our home video
systems, et cetera.
We have got to work that out quickly. And, Senator, we are
having meetings every week with the industry trying to push
them as you have, you were talking about legislation to push
them as well. So content protection and recognition of consumer
rights are key issue spectrum, key issue.
Just recently the Commission issued an order on ultra
broadband wireless technology. I think it was much too narrowly
placed. I think it has much more potential than the Commission
has yet to authorize but they are up against the Defense
Department. They are up against the Transportation Department
and others who have resisted this new technology because they
obviously are concerned about spectrum invasion, spectrum
interference.
We've got to settle those issues. This ultra broadband
wireless technology could be one of the ways in which we settle
that last mile concern and get the last mile connections from
cable heads or telephone or de-slam systems into homes.
It is a key ingredient. So working the problems out with
the Defense Department and others who have an awful lot of
spectrum, we'd love to work with them to get more out in the
public so we can have new wireless systems, particularly these
ultra broadband wireless technologies available is something I
am keenly interested in, and our Committee on the House side is
aggressively pursuing.
Second, we are trying to get the digital transition
completed. Part of what the Chairman of your Committee is doing
with his potential legislation and what we are doing at
hearings is to push the technology side of the equation hard so
that the broadcast side can meet their mandate deadlines.
If we can get the digital transition done, if we do that,
then we can have the kind of rich, hot, sexy content provided
to broadband that Americans are going to want to sign up for.
It is that simple.
If we have the protections built in, if we have the
industry in the digital age speaking computer language, we'd
have spectrum available for new technologies to come in, we are
well on our way with a combination of a bill that deregulates
and opens up more competition.
I want to make one other point to you because I know of you
and Senator Ensign's work on your committees. I've got two
letters that I want to leave with you. One is from the TIA and
one is from the ITI, the two high-tech industry associations in
this town representing the great bulk of all the high-tech
industries who depend upon these new technologies for their
existence.
Both of them came out against the attempt in the House to
give the CLECs below-cost access to these new systems the Bells
would deploy. Both of them urged the House not to adopt the
Cannon Amendment, in fact to oppose them rigorously. And I
share these amendments with you.
They are basically saying they agree that the broadband
deployment is critical, along with these other issues you have
raised. And they are basically saying for heaven's sakes, don't
disincentivize the Bell companies for building these systems by
forcing them to sell them at below-cost rates.
Senator Allen. These are important letters and I leave them
with you for your consideration. Thank you.
The Chairman. This is--I think it is Senator Ensign.
Senator Ensign. Thank you, Mr. Chairman. This is, and I
think we are seeing it today, and I mentioned in my opening
statement, about the complexity of the issue. When we talk to
some of the IXCs, they complain about the jurisdiction we had
taken out of the local authorities and put into the FCC--and we
know how efficient the FCC is in getting back to things. Given
this rapidity or lack thereof with the FCC, do you think this
is an appropriate place for adjudicating issues dealing with
the IXCs?
Mr. Tauzin. Well, first of all, the only exemption we've
given the local regulations is in Internet area. And that is a
question I hope you think about in your conference, is that
whether or not we ought to make a policy in broadband that says
that local regulators can regulate the Internet.
I would hope we decide as we do in this bill that, no, that
ought not be the function of local regulators. The Internet is
not only international, interstate, it is international is my
point.
It is not something that ought to be the subject of rate
terms and conditions set by a local BUC. Second, the FCC is the
most appropriate agency to make sure that Bell carries out its
provisions requiring the open access to CLECs and other
competitors under these new systems again. Because they have
literally been the enforcers of the rights and responsibilities
for the Bells when it comes to the CLECs enjoying their rights
on the current legacy systems. We think that's appropriate.
Again, we are talking about--we are not talking about local
phone services between two towns in Louisiana and Nevada. We
are talking about Internet service.
Broadband is essentially rich content Internet. I've been
asked to explain it to people back in the hunting camps,
fishing camps back home; what is all this broadband talk.
And I try to give them a simple example. It's like going to
the refrigerator under the current Internet world and finding
your refrigerator off. You open it up and your beer is hot.
And you have got to turn it on and wait for the beer to get
cold. And you are sitting there waiting, waiting. Finally, you
dial it up and it gets cold and you enjoy your beer.
But broadband is like going to a refrigerator that is
always on, is always cold. And when you open the door, it is
like beer city.
[Laughter.]
Mr. Tauzin. You have got every variety of beer you could
possibly want, all of the wonderful rich content that you
deserve when you are at a good fishing camp in Louisiana.
The bottom line is that that's what we are talking about.
We are talking about Internet services essentially, data
information services, not the old world local telephone. And
you have got to separate that when you think about regulations
and freedom.
We have entitled our bill the Internet Freedom and
Broadband Deployment Act because it does both. It keeps the
Internet free of the hands of all these regulators who would
love to tax it, regulate it, set terms and conditions, what you
have got to carry and what you don't have to carry, who gets on
and who doesn't get on.
It keeps it out of the hands of all these regulators. And
second, it fosters, it incentivizes much more deployment of the
systems by which all this content, hopefully will get
protected, get enhanced and get deployed in a digital
television world.
Senator Ensign. Mr. Chairman, we don't have the Nevada
analogies to be able to compete with cajun analogies, so
hopefully we'll have some South Carolina analogies that----
Mr. Tauzin. Well, I think, you know, this is a gamble.
[Laughter.]
Senator Ensign. Yeah, maybe we can pick up all the casino
analogies. OK.
Mr. Tauzin. Roll your dice.
Senator Ensign. I just hope we do not get a seven out.
The Chairman. I was wondering how Billy passed that bill in
the House. That house crowd is hungry for entertainment.
[Laughter.]
Mr. Tauzin. Senator, that is why we enjoined your visit to
that Committee. You entertained us for about I think an hour
and a half under our 15-minute rule, which we really
appreciate.
Senator Ensign. Anyway, I have another question. We have
heard from some of our CLECs, especially the small CLECs in our
state, under the Buyer-Towns Amendment. Do you think that--they
do not think that they will be able to compete with your bill.
And they think that they are going to actually go out of
business. How do you address that?
Mr. Tauzin. Well, I can only take you back to the National
Academy of Sciences study. They said if you really want
competition, you have to have facility-based competition.
The idea of someone coming into your store and trying to
sell your products at below your cost is a weird business
proposition. You want to look at why so many have failed
already, it's because they are building their business on a
model that doesn't work.
If they are coming into a store in that case, if the
product's already subsidized below cost, the residential phone
market, and trying to sell those products in your store. The
National Academy of Sciences, there have been a number of
excellent studies done.
Kato just did a beautiful study on the idea of poverty
rights tapings. Why would we in Congress approve a law that
says companies can go out and build brand new systems, that's
their property, that's their shareholders' property, and then
have to give it away below cost.
They won't build them. What shareholder would support a
president of the board that did that. We'd have some more Enron
hearings, I suspect.
So the bottom line is if you really want competition in
this marketplace, encourage facility-based. That's what the
bill does. It says you are encouraged to build your facilities
inside the Bell right-of-ways.
Now, if you want to use their investment, you can do that
too but so long as you pay a just and reasonable rate for doing
that. Now, what is wrong with that? What is wrong with that in
America to say that while somebody can come and use your
property, that they at least pay you a just and reasonable rate
when they use it.
And again, all of the IT companies, all of them said for
heaven's sakes, don't force an investor to give away his
property at below-cost rates. He just won't make the
investment. And we'll all lose out.
Senator Ensign. Mr. Chairman, I'll just close with this,
and that is, and it gets to the heart of the difficulty on the
politics, you know, both sides accuse the other side of having
a monopoly. And obviously, but yet both sides say that they
want competition.
And I think that our challenge is going to be truly getting
to that competition because everybody wants to have competition
in the other guy's marketplace but they would like to have a
monopoly in their own marketplace. And the key to us is to make
sure that the legislation, whatever the final piece of
legislation that we have, truly opens up everything.
Because everybody benefits, including the companies, when
there is true competition. They get better.
Mr. Tauzin. Do you remember when all of us got together and
passed the Satellite Viewers Rights Act, beside the Cable Act?
Was that in 1992? We passed over----
Senator Ensign. We weren't there.
Mr. Tauzin. Anyway, but we had to do it over the
Presidential veto. It was essentially the same issue. Did you
want the cable company to be the only provider of television
services to so many homes in America or did you want to give
them another choice, an option in the sky. We had to fight, to
duke that thing out. And the same interests were raised. I was
told when I went to Florida, that amendment in the House,
forget it.
Just like Senator Dorgan said. You are never going to pass
this. You cannot pass this bill. There are too many big
companies arguing against you.
Well, the House voted for it. And the Senate voted for it.
I think Senator Al Gore was in charge here in the Senate. And
we overrode a Presidential veto to make a law.
And today, now 16-19 million Americans now enjoy a
different choice of television programming than the cable
company. I want to make sure they have the same choices in
broadband, that they have a second store in town, Senator, a
chance to go find some different content, something brand new.
That is the least we can do for American consumers. We
can't--we can't create a job for everybody with this
legislation, but we'll create 1.2 million jobs according to one
study.
We'll get this economy going. And we'll give Americans
control of this marketplace again, instead of all these big
companies that are running Tauzin-Dingell ads and interrupting
our shaving hour in the morning.
Senator Ensign. Well, Mr. Chairman, I think we all have the
same goals. It's just a question of how we get there that will
be the fascinating thing to watch. And I appreciate you holding
these hearings here today.
The Chairman. Yes, sir. Thank you. Senator Nelson.
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Nelson. Thank you, Mr. Chairman. Mr. Tauzin, having
just been to New Orleans just before Mardi Gras, I now
understand why you use imagery of beer-filled refrigerators.
Mr. Tauzin. You know, I was asked why the travel to New
Orleans only dropped 3 percent after 9/11 when it dropped so
dramatically around the country. And the only answer I had was
that when people come to New Orleans, they expect to die.
[Laughter.]
Mr. Tauzin. I mean, it's a great place.
Senator Nelson. Well, I will tell you when I was jogging
down on Bourbon Street at first light of day around six
o'clock, they did not look very dead down there.
I have got a number of questions for the record and I will
not be long, Mr. Chairman. Because I know the time is moving on
here. A GAO report of February 2001 found that most people did
not want to pay a lot for broadband services.
Mr. Tauzin. Correct.
Senator Nelson. And most households with access to the
Internet were not--not planning on subscribing to broadband
services at the current price range of around 45 to 50 bucks
per month.
Mr. Tauzin. Fifty bucks, yes.
Senator Nelson. Tell us about if your bill will lead to
more demand and lower prices?
Mr. Tauzin. You could have made the same survey when it
came to cellular phones when they were initially deployed in
America. When there was only one cellular phone company or two
perhaps because we made the good judgment to make sure there
was a wired and a non-wired line distributor, the same
arguments pertained.
But then there were three, then there were four, then there
were five eventual companies. The price war erupted. And the
same thing can happen in broadband.
If you want to bring prices down, get another store in
town. It's as simple as that. It is no more complex--they say
this is such a complex issue. It is not, when you really get
down to it.
It's a simple question of whether or not consumers are
better off when there is only one store in town and that store
sets all the prices, or whether they are better off when there
is a second and third and fourth store coming to town and all
of a sudden those folks are fighting for your business.
And the prices come down in the price wars. And the
services improve and the content improves as they keep bringing
in new products to attract you to their store. It's a simple
proposition, Senator. You create more stores, you help
consumers.
Senator Nelson. All right. Let me ask you about that chart.
That chart seems to be the opposite of our experience in
Florida. The Public Service Commission Chairman has written and
says that Florida ranks well above the national averages in
broadband deployment.
And as I understand that chart, you are saying that there
is no broadband in about 89 percent of the consumers. It says,
According to FCC data, 87 percent of Florida zip codes are
served by at least one broadband provider, 69 percent are
served by one to three providers.
And it says these percentages are above the national
averages of 59 percent and 49 percent respectively. Is there a
disconnect there with your chart because they are talking about
zip codes here and you are talking about something else there?
Mr. Tauzin. Absolutely. I think if America was one zip
code, 100 percent of America would be served by broadband. Does
that make sense? The fact is you could have one customer----
Senator Nelson. What is that? That is on all customers?
Mr. Tauzin. That is the percentage of customers in America
on broadband. If there's one customer, generally a business
customer in a zip code, that zip code is countered as being
broadband served under those statistics. You have just got to
watch how you read them.
Senator Nelson. Is it of your knowledge that Florida is
served, more consumers are served in Florida as compared to
other states?
Mr. Tauzin. As compared to some other states you are. I
think Florida is as advanced in deployment as the best of the
states. But I don't think it's necessarily better than the rest
of the country. I think the other parts of the country do
compare with Florida.
Senator Nelson. All right. Mr. Chairman, I would like to
proffer a series of questions, if we could get just short
answers. These are questions that have been proffered from the
Chairman of our Public Service Commission and I would like to
get your answers on the record.
Mr. Tauzin. That is fine.
Senator Nelson. Does the bill undermine the incentives for
Bell operating companies to open their local markets to
competition?
Mr. Tauzin. We don't think so. I mean, they have made that
argument. What we have done is not only kept the carrot of long
distance service under 271 in order to encourage them to open
up their local market, we have added a stick.
So today we are operating just under a carrot and it's not
working very well. We've only got a few states that have been
through the process. What we are saying is maybe we need a
stick too. We have added a stick.
Senator Nelson. All right. Number 2, would the regional
Bell operating companies lose their incentives to open up their
markets if the data traffic were allowed across LATA
boundaries?
Mr. Tauzin. The long distance market is about a $100
billion market, nothing to sneeze at. That's pretty good
incentive. Second, whether they have an incentive to or not, we
have added power to the FCC to force them to open up their
markets.
Senator Nelson. Number 3, does the bill harm rather than
help competition in broadband deployment? That is what we were
talking about.
Mr. Tauzin. There is no question in our mind it enhances
dramatically competition. If you don't--if you like the current
situation where you have got a 70 percent dominant player and
the Bell companies are really reluctant to deploy because they
would have to sell their new investments at below cost, then
this is what you get. I think we deserve better than this.
Senator Nelson. Next question, while the Florida Public
Service Commission does not regulate the Internet, would the
preemptive language in the bill keep the PUC from overseeing
the nondiscriminatory application of terms and conditions in
tariffs for high-speed data services?
Mr. Tauzin. Yes. It eliminates any regulation by the PUC of
terms and conditions of service on the Internet. That's
correct. It frees the Internet from local regulation and it,
however, it continues the power to examine the performance
standards of the Bells.
Senator Nelson. Last question, does in your opinion the
bill, how does it affect the regulatory leverage to spur the
Bell companies to open up their markets?
Mr. Tauzin. It increases regulatory leverage. The
Commission, Mr. Powell came before us and asked for exactly
what he gets in our bill, which is a ten-fold increase in
fines, twenty-fold increase for repeat bad behavior and the
power to go to court under cease and desist authority to force
the Bells to behave when they misbehave.
Senator Nelson. OK. Thank you, Mr. Chairman.
The Chairman. Chairman Tauzin, the hour is late. The
disconnect, Senator Nelson, is from the truth. It is just
exactly the opposite of that. Eighty-five percent, it passes
the homes all over America. It is the lack of demand.
Yes, there is a monopoly. Cable has got a temporary
monopoly. The Bell Company has a permanent one. The cable one
is by way of a franchise fee for 5 to 10 years. The Bell
companies do not pay a franchise fee.
The cable company has got to provide governmental services,
schools and everything else. And they have got to have a good
reasonable price or they are going to lose the contract. In
fact, there is some price overview and changes in the city's
contracts on everything else of that kind. And they know they
will lose the contract. There never is going to be the end of a
Bell Company.
Mr. Tauzin. Excuse me, Senator, there is no cable franchise
fee on the broadband service.
The Chairman. Let me tell you this, going right down there,
I will yield to you in just a second because I have a hard time
keeping up.
The 271 you just gave the excuse about your competition of
long distance. 271, Senator Conrad Burns asked a question about
the difference between data and voice. None. Both of you all
said absolutely none.
On Page 18, Section 6, line 13, you repeal 271 for data,
and thereby since it is no different with voice, you repealed
271 for both. You go right down to comply. Verizon, Bell South,
they are already into the third year and that is no 5-year
requirement because they are pell-mell trying their best, as
Duane Ackerman of Bell South says, going as fast as we can. It
is profitable.
And even if they did not comply, the penalties are a joke.
They have paid 2 billion in penalties----
Mr. Tauzin. Senator, I've got 2 minutes.
The Chairman. I will yield in just a second.
Mr. Tauzin. No. No. Listen----
The Chairman. All I ask you to do is, I will give you----
Mr. Tauzin. I've got to vote.
The Chairman. All right. You have got to vote. And then,
well, you have got the authority to the FCC, just and
reasonable and everything else. But that power is not given to
the FCC except on appeal. And you give the authority to--we
had, Billy, a contest for an insurance company down in South
Carolina. And the winning slogan was, ``Capital Life will save
the day if the small print on the back don't take it away.''
And that is exactly this bill. I had the staff study it. I have
looked at it. And every time I have said if Chairman Tauzin
told me now he has got some amendments and it will be
acceptable and everything else like that, you have got to fill
it out with your lawyers drawing this darned thing.
It is still the worst thing I have ever seen because it
really does turn it over to a total monopoly.
Mr. Tauzin. We disagree on that.
The Chairman. And I mean, the little bit of competition
that the cables have given hasn't gone up at all.
Mr. Tauzin. We disagree on that, sir. That's a valid
disagreement. I can only tell you that when we presented our
bill to the delegation of South Carolina in the House, all but
one of the members voted for it. So there is even disagreement
within your state.
The Chairman. You are right. And in fact I have got way
more Bell friends in South Carolina. I cannot tell who the AT&T
fellow is down there. You keep saying I am shilling for AT&T. I
do not know who represents them in South Carolina. I know all
of them in Bell South. They are far more influential.
Mr. Tauzin. Trust me, Senator, I never said you shill for
anyone. No one would ever claim that. What I do know is that
when we presented these amendments, these changes in the bill
to the delegation from South Carolina, we were very successful
in getting the support of the vast majority of the members.
Only one voted against it. I'm saying that's a legitimate
difference of opinion. Let us leave it there and let's continue
to talk and work. I think I've heard a lot of expression today
that--of agreement on the general things we want to accomplish.
And I will reiterate again, Senator, that Mr. Dingell and I
are absolutely dedicated to working with you and all your
members, if there are better ideas, better ways to achieve the
goals I think we have all mutually expressed.
The Chairman. Very good. Thank you very much for your
appearance. It has been very helpful for us today.
Senator Nelson. Mr. Chairman, I want to clarify, and as we
get into the discussion on this, because the suggestion of that
chart, I am looking at the Federal Communications Commission,
third report. And they make a statement on Page 49, ``Analysts
estimate that high-speed Internet access is available in about
75 to 80 percent of U.S. households via DSL and cable modem
service.'' And so there is a disconnect between statements like
that and that chart that over the course of your hearings I
would like to figure it out.
The Chairman. Very good, Chairman. The Committee will be in
recess. Thank you.
[Whereupon, at 12:15 p.m., the Committee was adjourned.]