[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

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

                                HEARING

                               BEFORE THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 20, 2002

                               __________

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



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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED 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

                              ----------                              
                                                                   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

                              ----------                              


                       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.*
---------------------------------------------------------------------------
    * The information referred to was not available at the time this 
hearing went to press.
---------------------------------------------------------------------------
    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.]

                                  
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