[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



    HOW INTERNET PROTOCOL-ENABLED SERVICES ARE CHANGING THE FACE OF 
           COMMUNICATIONS: A LOOK AT VIDEO AND DATA SERVICES

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

                                HEARING

                               before the

          SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 20, 2005

                               __________

                           Serial No. 109-19

                               __________

       Printed for the use of the Committee on Energy and Commerce


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

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
20-748                      WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001


                    ------------------------------  
                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas                 JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida             Ranking Member
  Vice Chairman                      HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky               SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia             BART GORDON, Tennessee
BARBARA CUBIN, Wyoming               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING,       ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman           GENE GREEN, Texas
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania        JIM DAVIS, Florida
MARY BONO, California                JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                  HILDA L. SOLIS, California
LEE TERRY, Nebraska                  CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey            JAY INSLEE, Washington
MIKE ROGERS, Michigan                TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho          MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee

                      Bud Albright, Staff Director

        David Cavicke, Deputy Staff Director and General Counsel

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

                                 ______

          Subcommittee on Telecommunications and the Internet

                     FRED UPTON, Michigan, Chairman

MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida                 Ranking Member
PAUL E. GILLMOR, Ohio                ELIOT L. ENGEL, New York
ED WHITFIELD, Kentucky               ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming               MIKE DOYLE, Pennsylvania
JOHN SHIMKUS, Illinois               CHARLES A. GONZALEZ, Texas
HEATHER WILSON, New Mexico           JAY INSLEE, Washington
CHARLES W. ``CHIP'' PICKERING,       RICK BOUCHER, Virginia
Mississippi                          EDOLPHUS TOWNS, New York
VITO FOSSELLA, New York              FRANK PALLONE, Jr., New Jersey
GEORGE RADANOVICH, California        SHERROD BROWN, Ohio
CHARLES F. BASS, New Hampshire       BART GORDON, Tennessee
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE FERGUSON, New Jersey            BART STUPAK, Michigan
JOHN SULLIVAN, Oklahoma              JOHN D. DINGELL, Michigan,
MARSHA BLACKBURN, Tennessee            (Ex Officio)
JOE BARTON, Texas,
  (Ex Officio)

                                  (ii)




                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Champion, Lea Ann, Senior Executive Vice President, IP 
      Operations and Services, SBC Services, Inc.................     7
    Cohen, David L., Executive Vice President, Comcast 
      Corporation................................................    17
    Gleason, James M., President, New Wave Communications, 
      Chairman, American Cable Association.......................    29
    Ingalls, Robert E., Jr., President, Retail Markets Group, 
      Verizon Communications.....................................    20
    Mitchell, Paul, Senior Director and General Manager, 
      Microsoft TV Division, Microsoft Corporation...............    11
    Perry, Jack, President and Chief Executive Officer, 
      Decisionmark Corporation...................................    40
    Schmidt, Gregory, Vice President of New Development and 
      General Counsel, Lin Television Corporation, on Behalf of 
      National Association of Broadcasters.......................    23
Additional material submitted for the record:
    Champion, Lea Ann, Senior Executive Vice President, IP 
      Operations and Services, SBC Services, Inc., letter dated 
      May 18, 2005, enclosing response for the record............    82
    Cohen, David L., Executive Vice President, Comcast 
      Corporation, letter dated May 24, 2005, enclosing response 
      for the record.............................................    85
    Gleason, James M., President, New Wave Communications, 
      Chairman, American Cable Association, response for the 
      record.....................................................    80
    Ingalls, Robert E., Jr., President, Retail Markets Group, 
      Verizon Communications, letter dated May 24, 2005, 
      enclosing response for the record..........................    88
    Mitchell, Paul, Senior Director and General Manager, 
      Microsoft TV Division, Microsoft Corporation, letter dated 
      May 24, 2005, enclosing response for the record............    91
    Perry, Jack, President and Chief Executive Officer, 
      Decisionmark Corporation, letter dated May 17, 2005, 
      enclosing response for the record..........................    93
    Schmidt, Gregory, Vice President of New Development and 
      General Counsel, Lin Television Corporation, on Behalf of 
      National Association of Broadcasters, letter dated May 23, 
      2005, enclosing response for the record....................    94

                                 (iii)

  

 
    HOW INTERNET PROTOCOL-ENABLED SERVICES ARE CHANGING THE FACE OF 
           COMMUNICATIONS: A LOOK AT VIDEO AND DATA SERVICES

                              ----------                              


                       WEDNESDAY, APRIL 20, 2005

              House of Representatives,    
              Committee on Energy and Commerce,    
                     Subcommittee on Telecommunications    
                                          and the Internet,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:10 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Fred Upton 
(chairman) presiding.
    Members present: Representatives Upton, Stearns, Gillmor, 
Whitfield, Cubin, Shimkus, Pickering, Radanovich, Bass, Walden, 
Terry, Ferguson, Sullivan, Blackburn, Markey, Doyle, Gonzalez, 
Inslee, Boucher, Towns, Gordon, Rush, Eshoo, and Stupak.
    Staff present: Howard Waltzman, chief counsel; Neil Fried, 
majority counsel; Will Nordwind, policy coordinator; Jaylyn 
Jensen, senior legislative analyst; Anh Nguyen, legislative 
clerk; Kevin Schweers, communications director; Jon Tripp, 
deputy communications director; Peter Filon, minority counsel; 
Johanna Shelton, minority counsel; and Turney Hall, staff 
assistant.
    Mr. Upton. Good morning. Today's hearing is entitled ``How 
Internet Protocol-Enabled Services Are Changing the Face of 
Communications: A Look at Video and Data Services.''
    Video and data are the second and third legs of the three-
legged IP-enabled stool. Recently, we examined Voice over IP, 
which is the other leg. And as we modernize our Nation's 
communications laws, it is my goal to ensure that all three 
legs of the IP-enabled stool are covered by whatever we do. 
Anything short of that could hamper deployment of the widest 
range of IP-enabled services to the American people and thwart 
the widest range of intermodal competition in the 
communications marketplace.
    When video is sent in an IP format through a broadband 
connection, it enables the provider to send just the content 
that the subscriber wants at that particular time, as opposed 
to cable or satellite technology, which typically requires all 
channels to be available to each subscriber at the same time, 
waiting for the subscriber to change the channel. As a result, 
IP delivered over broadband enables a much more efficient use 
of a provider's capacity and thus enables that capacity to be 
used to offer more content and more services. In addition, when 
video is sent in an IP format through a broadband connection, 
it enables more interactively, which, in turn, enables more 
customization of the subscriber's video experience. Moreover, 
it enables voice and data to be combined with a video offering, 
which many subscribers may find attractive.
    At issue today is what the proper regulatory framework for 
IP-delivered video should be. Of particular interested to me is 
whether IP-delivered video services should be treated the same 
way as cable in terms of existing local franchise law. 
Shouldn't the FCC's determination that Vonage's VoIP service is 
uniquely interstate in nature and therefore not subject to 
State regulation guide our logic when we discuss local 
franchise authority over IP-delivered video services? Moreover, 
couldn't certain IP-delivered video services be so distinct 
from today's cable service to warrant a distinction in the law 
regarding local franchise authority?
    I look forward to exploring these and other issues with our 
witnesses today. And with that, I yield to the ranking member 
and my friend, Mr. Markey from Massachusetts, for an opening 
statement.
    Mr. Markey. I thank you, Mr. Chairman. And I thank you so 
much for calling this hearing this morning on the policy 
questions raised by the Internet Protocol-based video and data 
services. This morning, we will receive testimony on IP-enabled 
data services and video services.
    Microsoft's Xbox, for example, is not only a widely popular 
game application for broadband networks, but also provides 
voice services as a feature. Policy makers will need to address 
what happens when IP applications combine multiple services, 
such as voice, with other data information for purposes of 
determining proper regulatory treatment.
    We also need to enact strong protections ensuring the 
consumers are not thwarted from utilization the applications of 
their choice over the Internet and that innovators and 
entrepreneurs are not frustrated in their ability to offer 
innovative new services to consumers over broadband networks.
    Today's hearing raises a number of important policy issues 
on video-related issues as well. The cable market today remains 
highly concentrated. Consumers continue to pay too much for 
cable service. An independent cable operator is almost an 
oxymoron, as the overwhelming majority of cable channels are 
either owned by major television networks or the cable 
operators themselves. When cable operators are questioned 
annually about why rates continue to rise annually, they note 
that they have spent large sums upgrading their networks for 
additional services and channels.
    There is no question the cable networks have been upgraded 
and that they increasingly offer an array of services to 
customers, including much-needed voice competition. 
Additionally, cable operators often point to increases in 
programming costs as a key reason consumer rates keep rising. 
The programmers, in turn, often point to rising costs in the 
sports marketplace. Policy makers have been hoping for years 
that competition would arrive to ameliorate some of these 
unhealthy dynamics in the marketplace, but for millions of 
consumers, effective competition has not yet arrived.
    Which brings us to the Bell Telephone utilities. As the 
Bells roll out IP video services, policymakers must determine 
whether such services represent a qualitatively distinct 
service of services now offered for cable operators. If so, we 
will also need to determine whether that also means that must-
carry rules, sports blackout rules, community access channels, 
local franchises, franchise fees, consumer privacy protections, 
and other obligations to which we currently hold cable 
operators should be ignored in whole or in part for the Bell 
companies.
    The benefits of competitive IP-based services are manifold 
in terms of consumer choice and possible job creation and 
innovation. But we must remember that consumers can only derive 
the benefits of such new broadband services if they can 
actually afford a broadband connection and only if providers 
offer such services in their neighborhood in the first place. 
With this in mind, it is particularly troubling that SBC and 
Verizon have deployment plans that skip over or avoid the very 
communities in their service territories which could most 
benefit from an affordable alternative in the marketplace. It 
is unusual, in this context, to receive requests for 
forbearance from the public interest obligations the cable 
operator's discharge from providers whose current deployment 
plans arguably widen rather than bridge the digital divide, 
which remains in our society.
    An argument that rules need to be bent or waived so that 
service can reach the most affluent sooner is simply not a 
compelling public interest case to make. I hope that these 
companies will reflect on their plans and needs of their own 
customers and recalibrate their deployment plans so that all 
sectors of our society are appropriately served. In the end, 
this is not only good telecommunications policy, it is also 
good economic policy for our country.
    I want to thank Chairman Upton so much for this hearing, 
and I look forward to hearing from our witnesses.
    Mr. Upton. Mr. Whitfield?
    Mr. Whitfield. Mr. Chairman, thank you very much.
    We, I noticed, have a distinguished panel here of seven 
people, so I will waive my opening statement.
    Mr. Upton. Mr. Shimkus.
    Mr. Shimkus. Pass.
    Mr. Upton. Mr. Walden.
    Mr. Walden. Thank you, Mr. Chairman.
    Since I am dressed like the chairman of the Oversight and 
Investigations Subcommittee, I, too, will waive.
    Mr. Upton. Mr. Ferguson.
    Mr. Ferguson. Thank you, Mr. Chairman. I have a different 
suit on, so I will offer an opening statement.
    Thank you for holding this hearing on Internet Protocol-
related services. These hearings have been a great opportunity 
for all members, particularly new subcommittee members, like 
myself, to get the full picture of the exciting new services 
being made available to our constituents. They have also given 
us guidance on how our committee should treat these services as 
we consider a rewrite of the communications act.
    Voice over Internet Protocol has already permeated the 
American marketplace, providing new ways for people to 
communicate outside traditional telephony and wireless cell 
phones. IP video, the subject of today's hearing, is a new and 
exciting product poised to enter the marketplace and to have a 
major impact on the video services industry. IP video, some 
already available and some in development, will fundamentally 
change the way we watch television and receive other video 
content. This new option will also directly compete with other 
established offerings, such as cable and satellite. With these 
options available to the consumer, this committee will need to 
consider how to ensure that a level, competitive playing field 
exists for all industries.
    We also need to determine whether and how these new 
services fit into the current regulatory landscape and what it 
takes to get them deployed quickly with the least amount of 
government interference. I welcome the witnesses present here 
today. I look forward to hearing your varied perspectives on 
what Congress's role should be as we move forward in this 
exciting new area.
    Mr. Chairman, with that, I yield back. And I thank you.
    Mr. Upton. Mr. Doyle.
    Mr. Doyle. Thank you, Mr. Chairman.
    I want to thank you for holding this hearing, and I also 
want to thank each witness for agreeing to appear before us 
today.
    This is our third hearing on IP-enabled services, and in 
the time that we have looked at this issue, I have only become 
more convinced that the revolutionary effect this medium will 
have on every aspect of communications.
    It is truly an exciting time in the telecom world, exciting 
both for consumers who will benefit from increased choice and 
value, and also for companies that will use IP-enabled services 
to compete for new business opportunities. I have always 
believed that the role of this subcommittee should be to try to 
pass legislation that will promote and increase competition 
within industries in order to yield greater benefits for 
consumers. And it is clear to me that if we can craft and pass 
good legislation, one major area where consumers will see 
significant benefits is in the area of choice. Consumers will 
have multiple choices to make when determining from whom or 
where to purchase voice, data, and video services.
    VoIP calls for a cable provider, video services through a 
phone company, and data services through a satellite provider 
are all closer than most people might think. In fact, these 
services are here, and they are growing in popularity. And in 
order for them to continue to grow in popularity, it is 
incumbent upon us to provide legislative clarity to both 
industry and consumers. It is clear to me that the speed with 
which IP-enabled services have changed the telecommunication 
industry requires that we craft legislation that places more 
emphasis on regulating the services companies offer as opposed 
to regulating the manner in which they are delivered.
    Regulatory parity across platforms seems like a sensible 
goal for us to strive toward. Some issues that have always been 
the subject of regulation may have grown in importance as this 
technology has advanced. Because the extent that a consumer can 
benefit from this new IP-enabled technology is entirely 
dependent upon that consumer's access to broadband networks. 
All communities should have access to the benefits of IP-
enabled services. We must do more to promote the deployment of 
broadband services, and we must ensure that those services are 
available in all of our communities, not just the most affluent 
ones. For this technology to truly create opportunities, it 
must be available to everyone.
    I look forward to hearing from our witnesses today. I want 
to specifically welcome Mr. David L. Cohen, Executive Vice 
President of Comcast Corporation to the subcommittee this 
morning. I have had the pleasure of knowing David for many 
years, dating back to his Chief of Staff days to then mayor of 
Philadelphia and know our Governor, Ed Rendell. David's civic 
and charitable activities make him an asset both to Comcast and 
also to the State of Pennsylvania. David, welcome.
    Welcome to all of the panelists.
    Mr. Chairman, thank you, and I yield back.
    Mr. Upton. Mr. Sullivan.
    Mr. Pickering.
    Mr. Pickering. Mr. Chairman, I just want to thank you for 
having this hearing, and I will waive my time.
    Mr. Upton. Mr. Terry.
    Ms. Eshoo.
    Mr. Gordon.
    Mr. Gordon. Mr. Chairman, this is an important hearing, and 
I welcome the opportunity to hear from our witnesses today.
    Mr. Upton. Mr. Boucher.
    Mr. Boucher. Well, thank you very much, Mr. Chairman. I 
want to compliment you for focusing the subcommittee's 
attention this morning on a matter of far-reaching consequence 
for the telecommunications marketplace.
    The arrival of advanced communications over the Internet, 
including Video over Internet Protocol, promises a broad 
transformation in the market for multi-channel video 
programming services. Internet-based video will bring digital 
clarity and a wider array of service offerings to consumers.
    As the private sector both welcomes and accommodates these 
dramatic changes, a new regulatory framework is required. That 
is why our colleague, Mr. Stearns, and I have introduced 
legislation that would treat all advanced Internet 
communications with a light regulatory touch. It is noteworthy 
that our bill would apply the new regulatory framework to IP 
video as well as to VoIP and other more commonly known 
applications that are Internet-based. Our view is that the 
scope of the new law should be broad and not be limited just to 
VoIP.
    After hearing this morning from our witnesses about the 
dramatic new IP video services that are now on the horizon, I 
hope that the members of the subcommittee will agree that these 
services should also be within the coverage of the new, light-
touch regulatory framework. Within that framework, IP services 
would be declared to be interstate in nature and the States 
would be prohibited from regulating.
    At the Federal level, regulation would truly be minimal. 
Legacy regulations applicable to the public-switched telephone 
network would not apply. The FCC would be empowered only to do 
the following and only with regard to VoIP, which substitutes 
directly for regular telephone service: provide for E911 
access, provide for disability access, provide for access 
charges where the call is terminated on the public switched 
telephone network, provide for Universal Service payments, and 
provide for technically feasible law enforcement access.
    We face a number of questions, including the need for 
network neutrality, to prevent platform owners from 
discriminating in favor of their own content to the 
disadvantage of unaffiliated content providers, and how to 
address the video franchising requirements imposed by local 
governments.
    Perhaps our witnesses this morning will address some of 
these matters during their comments.
    Thank you very much, Mr. Chairman. I yield back.
    Mr. Upton. Mr. Stupak passes.
    That concludes our opening statements. I would just make 
unanimous consent that all members will be able to put their 
opening statements in as part of the record. I would note that 
the House is in session, and we are taking up a very important 
energy bill on the House floor, so members will be in and out. 
Other subcommittees are meeting as well.
    [Additional statement submitted for the record follows:]

 Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy 
                              and Commerce

    Mr. Chairman, thank you for holding this hearing. Last month we 
examined how Internet Protocol is revolutionizing voice services. Today 
we examine how Internet Protocol and broadband technology is 
revolutionizing video services.
    Many of you are probably already aware of video streaming 
technology. Companies such as RealNetworks have for some time been 
enabling consumers to watch news clips and other video content over 
computers using the Web and browser-type interfaces.
    One advantage to delivering content in IP format and over broadband 
connections is that it uses capacity more efficiently. Cable and 
satellite operators have traditionally had to make all their channels 
available to each subscriber simultaneously, regardless of which 
channel the subscriber was watching at a particular time. Internet 
Protocol allows a provider to transmit only the content that a consumer 
is watching, freeing capacity on the network to offer more content to 
more consumers as well as additional services and applications. And 
broadband networks are increasingly providing more bandwidth, enabling 
the provision of new, content-rich services.
    Another advantage of IP is its increased interactivity. By 
converting video to an IP format and adding two-way broadband 
connectivity, providers can tailor programming to each specific viewer, 
and allow the viewer to alter specific components of that programming 
in real time. IP also facilitates the introduction of voice and data 
functionality into the video product.
    As we look toward modernizing the Communications Act, we will need 
to consider what the appropriate statutory framework should be for IP-
delivered video services. Should they be governed by existing 
provisions in the Communications Act, such as the franchising, must-
carry, and program access rules, even though those provisions were 
drafted without IP technology in mind? Is it even possible to apply 
those rules to video delivered over the geographically boundless 
Internet? What is the right statutory framework that will increase 
competition, allow innovative services to flourish, and enable all 
industry participants to benefit from the advantages of IP technology?
    I look forward to today's testimony, and welcome our witnesses' 
help in examining the technological, business, and legal implications 
of IP-delivered video.
    Today we stand on the threshold of a new age in communications. The 
1996 Telecommunications Act served an important purpose, but technology 
has moved on. This year, one of my high priorities is to update the old 
act and to do it well. The right approach will invigorate the tech 
sector and produce jobs, growth and opportunity for its workers. 
American consumers will get an array of services and choices that were 
unimagined just a few years ago. I can't wait to get started.
    I yield back.

    Mr. Upton. As all of my colleagues indicated, we do have a 
very distinguished panel of witnesses for today's hearing. And 
we are joined by Ms. Lea Ann Champion, Senior Executive Vice 
President of IP Operations and Services for SBC; Mr. Paul 
Mitchell, Senior Director and General Manager of Microsoft TV 
Division; Mr. David Cohen, Executive Vice President of Comcast; 
Mr. Robert Ingalls, President of the Retail Markets Group for 
Verizon; Mr. Greg Schmidt, Vice President of New Development 
and General Counsel for LIN Television Corporation; Mr. James 
Gleason, President of New Wave Communications; and Mr. Jack 
Perry, President and Chief Executive Officer of Decisionmark. 
We appreciate you sending your testimony up yesterday, at least 
I got it yesterday, in advance. I would note that your 
testimony is made part of the record in its entirety. I 
understand a couple of you have video presentation in 
conjunction with your remarks, and we would like to think that 
you could keep your opening statement to no more than about 5 
minutes.
    Ms. Champion, we will begin with you. Welcome. You need to 
turn that mic button on.

     STATEMENTS OF LEA ANN CHAMPION, SENIOR EXECUTIVE VICE 
PRESIDENT, IP OPERATIONS AND SERVICES, SBC SERVICES, INC.; PAUL 
  MITCHELL, SENIOR DIRECTOR AND GENERAL MANAGER, MICROSOFT TV 
DIVISION, MICROSOFT CORPORATION; DAVID L. COHEN, EXECUTIVE VICE 
    PRESIDENT, COMCAST CORPORATION; ROBERT E. INGALLS, JR., 
   PRESIDENT, RETAIL MARKETS GROUP, VERIZON COMMUNICATIONS; 
GREGORY SCHMIDT, VICE PRESIDENT OF NEW DEVELOPMENT AND GENERAL 
  COUNSEL, LIN TELEVISION CORPORATION, ON BEHALF OF NATIONAL 
 ASSOCIATION OF BROADCASTERS; JAMES M. GLEASON, PRESIDENT, NEW 
WAVE COMMUNICATIONS, CHAIRMAN, AMERICAN CABLE ASSOCIATION; AND 
JACK PERRY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, DECISIONMARK 
                          CORPORATION

    Ms. Champion. Very good. Thank you very much.
    Thank you Chairman Upton and members of the committee for 
offering me this opportunity to speak with you today. My name 
is Lea Ann Champion and I am Senior Executive Vice President 
for IP Operations and Services at SBC Communications, Inc.
    And it is a pleasure to be with you here today to talk 
about the seismic shifts that are reshaping the communications 
and entertainment industries and how SBC is building a powerful 
new Internet Protocol platform to meet customers'. Today, 
customers do want more choice. They want the ability to control 
their communications and entertainment experience. They want to 
be able to communicate, to gather information, and to enjoy 
entertainment when they want it, how they want it, and on what 
device they want it.
    That is why it is important for us to invest into new 
technologies. It is not enough to repackage the same old stuff. 
We must bring a new level of integration and functionality to 
our customers.
    We will do that by using Internet Protocol, or IP-based, 
services. The simple elegance of IP technology is that it 
allows various broadband applications to communicate and work 
together to enhance the capabilities of otherwise separate 
services. This is because, with IP, the digital bits all look 
the same whether they are carrying video, voice, or data, 
music, photos, high-speed Internet, or wireless services, no 
matter what the device.
    Through Project Lightspeed, we plan to invest $4 billion 
over the next 3 years in our network, operations, customer 
care, and IT infrastructure. We are working with companies like 
Alcatel and Scientific-Atlanta, to deploy a two-way, 
interactive, switched IP video network and extend approximately 
40,000 miles of new fiber optics. In existing neighborhoods 
across our 13 States, we will extend fiber to within 3,000 feet 
of a home on average. And in most new developments, we plan to 
take fiber all of the way to the premises. The initial 
deployment will reach more customers, 18 million households, 
faster than any other company with a fiber deployment plan in 
the United States.
    Our plan is to deliver a single IP network connection 
providing high-quality TV viewing, super high-speed Internet 
access, and integrated digital voice services, a single IP 
address to every home for video, voice, and data.
    Now let me show you some of the features that will be 
available in the initial or later stages of our product.
    [Video.]
    Customers will be able to scroll through and preview other 
channels in a picture-in-picture guide, without leaving the 
channel that they are watching, something that they can not do 
today with traditional cable services.
    Customers will be able to enjoy the customized and 
personalized content of their SBC Yahoo! service on their TV 
screens, such as personalized sports, weather, and stock 
information, something they can not do today with traditional 
cable services.
    Through IPTV technology, our whole-home DVR, digital video 
recorder, goes beyond what standard DVRs do today. You can 
record a program in one room and then watch it on any TV in the 
house, something that can not be done today with traditional 
cable services.
    With IP-based picture-in-picture technology, the 
entertainment experience will move from passive TV viewing to 
an interactive one. And I would like to show you an example, 
courtesy of our friends at Major League Baseball and Microsoft. 
Today, with traditional cable services, you watch baseball like 
this, one game with a few stats. Here is how you will watch it 
with IPTV. Even the Cubs, who are ahead in the eighth inning 
there, five to one, Mr. Chairman. Here is how you will watch it 
with IPTV. With this new TV viewing capability and experience, 
watching sports will never be the same.
    The IP-based platform will allow customers to access and 
program services even when they are away from home. As an 
example, customers will be able to use their Cingular phone to 
access a list of shows, watch a commercial for the show right 
there on their phone's screen, and then schedule to record that 
show. And the customer will be able to see a notification both 
on their Cingular phone as well as on their TV back at home 
that the show has been set to be recorded. This is something 
that customers can not do today with traditional cable 
services.
    There are other applications in development, using our 
ability to deliver on-demand data, that will deliver a better 
TV experience.
    With our IP platform, customers will have instant access to 
the program they select, eliminating the annoying delay 
experienced with today's current digital cable services.
    And IPTV allows new levels of interactivity. Let us say you 
are watching a commercial with a cliffhanger ending. Instead of 
going to a website, you could just press a button for more 
information about what comes next. Or, if you are viewing a 
talk show and want to order the ``book of the month'' just 
discussed, you can order it through your television, again, 
something that can not be done today with traditional cable 
services.
    In short, we are not building a cable network nor do we 
have any interest in being a cable company offering traditional 
cable services. Instead, we intend to offer customers a new, 
unique, total communications experience, one that they can 
customize and personalize to suit their family's needs and 
tastes. Likewise, our super high band with IP platform will 
offer broadcasters and programmers a more nimble and 
sophisticated alternative to take content to the future.
    So we are building very aggressively to reach half our 
customers' homes in 3 years with this new IP network, but we 
are not stopping there. We are also creating another integrated 
solution to compete for customers in the video space. Through a 
joint venture with 2Wire, a Silicon Valley-based company, we 
will integrate satellite video with our high-speed Internet 
access service through a combination set-top box, available to 
the majority of our customers later this year.
    The service will allow various capabilities to work 
together. For example, via SBC Yahoo! DSL Internet connection, 
Internet-based entertainment services can be downloaded and 
viewed. Customers will be able to use their stereo system to 
listen to their music that is stored on their PCs and will be 
able to view digital photos that have been stored on their set-
top box or saved on a networked PC right on their TV screen. 
And as with IPTV, customers can even control their 
entertainment experience while they are away from home. They 
may remotely program their set-top box to record a show, change 
parental controls, download movies, access their photos and 
personal music collection.
    With these two video initiatives, we plan to bring a new 
level of interactivity and integration to customers.
    With Project Lightspeed, we have decided to put billions of 
dollars of private investment at risk. We can move forward with 
greater confidence due to the progress that has been made in 
the public policy and regulatory arena. The FCC and Congress 
have so far employed a light touch approach to regulating the 
Internet and IP-based services, and we applaud you for your 
forward-thinking efforts. We need to extend this minimal 
regulation approach applied to VoIP, only now the ``V'' stands 
for video.
    SBC will be a new entrant in the video space, providing a 
competitive alternative to incumbent cable operators. And we 
intend to move quickly. Public policy should reduce any 
roadblocks and unnecessary rules to encourage new entry into 
the video services market. In particular, new entrants should 
not be saddled with the legacy regulation applicable today to 
incumbent providers. Only then will consumers benefit from the 
innovation and choice that is just around the corner.
    Thank you very much for the opportunity to be here today, 
and I would be happy to take any questions.
    [The prepared statement of Lea Ann Champion follows:]

     Prepared Statement of Lea Ann Champion, Senior Executive Vice 
     President--IP Operations and Services, SBC Communications Inc.

    Good morning. Thank you, Chairman Upton, and Members of the 
Committee for offering me the opportunity to speak with you today. My 
name is Lea Ann Champion, Senior Executive Vice President--IP 
Operations and Services for SBC Communications Inc.
    It is a pleasure to be here to talk about the seismic shifts that 
are reshaping the communications and entertainment industries and how 
SBC is building a powerful new Internet Protocol platform to meet 
customers' needs. Customers today want to have choice. They want to 
control their communications and entertainment experience. They want to 
communicate, gather information and enjoy entertainment when they want 
it, how they want it and on which device they want it.
    That's why it is important for us to invest in new technologies. It 
is not enough to repackage the same old stuff. We must bring a new 
level of integration and functionality to our customers.
    We'll do that by using Internet Protocol or IP-based services. The 
simple elegance of IP technology is that it allows various broadband 
applications to communicate and work together to enhance the 
capabilities of otherwise separate services. This is because, with IP, 
the digital bits all look the same whether they are carrying video, 
voice, music, photos, high-speed Internet access, or wireless 
services--no matter the device.
    Through Project Lightspeed, we plan to invest $4 billion over the 
next three years in our network, operations, customer care and IT 
infrastructure. Working with companies such as Alcatel and Scientific-
Atlanta, we will deploy a two-way, interactive, switched IP video 
network and extend approximately 40,000 miles of new fiber optics. In 
existing neighborhoods across our 13 states, we will extend fiber to 
within an average of 3,000 feet of the home. In most new developments, 
we plan to take fiber all the way to the premises. This initial 
deployment will reach more customers--18 million households--faster 
than any other company with a fiber deployment plan in the United 
States.
    Our plan is to deliver a single IP network connection providing 
high-quality TV viewing, super high-speed Internet access and 
integrated digital voice services. Let me show you some of these new 
features that will be available in the initial or later stages of the 
product:

 Customers will be able to scroll through and preview other channels 
        in a picture-in-picture guide--without leaving the channel they 
        are watching.
 Customers will be able to enjoy the customized content of their SBC 
        Yahoo! service on their TV screens, such as personalized 
        sports, weather and stock information.
 Through IPTV technology, our whole-home DVR--digital video recorder--
        goes beyond what standard DVRs do today. You can record a 
        program in one room, and watch it on any TV in the house.
 With IP-based picture-in-picture technology the entertainment 
        experience will move from passive TV viewing to an interactive 
        one. I'd like to show you an example, courtesy of our friends 
        at Major League Baseball and Microsoft. Today, you watch 
        baseball like this--one game with a few stats. Here's how 
        you'll watch it with IPTV. With this new TV viewing experience 
        . . . watching sports will never be the same.
 The IP-based platform will allow customers to access and program 
        services when they are away from home. As an example, customers 
        may use their Cingular phone to access a list of shows, watch a 
        commercial for the show right on the phone's screen, and 
        schedule to record it. The customer will see the notification 
        that the program is set to record in two places: on the 
        wireless phone and on the DVR guide at home.
    There are other applications in development--using our ability to 
deliver on-demand data--that will deliver a better TV experience.

 With our IP platform, customers will have instant access to the 
        program they select--eliminating the annoying delay experienced 
        with today's current services
 And IPTV allows for new levels of interactivity. Say you're watching 
        a commercial with a cliffhanger ending; instead of going to a 
        Web site, you can press a button for more information about 
        what comes next. Or, if you're viewing a talk show and want to 
        order the ``book of the month'' just discussed, you can order 
        it through your TV.
    So, we're building very aggressively to reach half our customer 
homes in three years with this new IP network--but we're not stopping 
there. We are also creating another integrated solution to compete for 
customers in the video space. Through a joint venture with 2Wire, a 
Silicon Valley-based company, we will integrate satellite video with 
our high-speed Internet access service through a combination set-top 
box, available to a majority of our customers later this year.
    The service will allow various capabilities to work together. For 
example, via SBC Yahoo! DSL, Internet-based entertainment services can 
be downloaded and viewed. Customers will be able to use their stereo 
system to listen to music stored on their PCs. And, customers will be 
able to view digital photos stored on the set-top box or saved on a 
networked PC right on their TV screens. As with IPTV, customers can 
even control their entertainment experience while away from home. They 
may remotely program their set-top box to record a show, change 
parental controls, download movies, and access their photos and 
personal music collection.
    With these two video initiatives, we plan to bring a new level of 
interactivity and integration to consumers.
    With Project Lightspeed, we have decided to put billions of dollars 
of private investment at risk. We can move forward with greater 
confidence due to the progress made in the public policy and regulatory 
arenas. The FCC and Congress have so far employed a light-touch 
approach to regulating the Internet and IP-based services, and we 
applaud you for these forward-thinking efforts. We need to extend this 
minimal regulation approach applied to VoIP--only now the ``V'' stands 
for video.
    SBC will be a new entrant in the video space, providing a 
competitive alternative to incumbent cable operators--and we intend to 
move quickly. Public policy should reduce any roadblocks and 
unnecessary rules to encourage new entry into the video services 
market. In particular, new entrants should not be saddled with the 
legacy regulation applicable to incumbent providers. Only then will 
consumers benefit from the innovation and choice that is just around 
the corner.
    Again, thank you for the opportunity to be here today. I would be 
happy to answer any questions you have.

    Mr. Upton. Thank you.
    I made a mistake in the beginning. I did not see Mr. 
Gonzalez to my left. I apologize. Would you like to make--I 
know that this was a constituent from Texas. Did you want to 
say something?
    Mr. Gonzalez. No, I was going to waive opening except for 
the extent that I wanted to welcome the witness, Ms. Champion 
from SBC, which, obviously, is headquartered in the very heart 
of my District and of course commend all of the efforts SBC 
does in the community. And it is truly a model corporate 
citizen.
    Other than that, I yield back.
    Mr. Upton. Mr. Mitchell.

                   STATEMENT OF PAUL MITCHELL

    Mr. Mitchell. Thank you, Mr. Chairman, Mr. Markey, and 
members of the subcommittee.
    I am Paul Mitchell, and I am the Senior Director and 
General Manager for the Microsoft TV Division----
    Mr. Upton. Can you just pull the mike just a little closer 
to you?
    Mr. Mitchell. I am the Senior Director and General Manager 
for the Microsoft TV Division at Microsoft.
    This hearing is important, because it asks how current 
Internet technologies are transforming the consumer experience 
and what, if any, obligations should apply.
    Microsoft is not a network provider. Instead, we offer a 
variety of Internet products and services that ride atop of and 
use a broadband transport. Our products and services that make 
use of the Internet and IP technologies include Windows XP and 
Media Center Edition, MSN, the Xbox, and Microsoft TV IPTV 
division.
    My division, Microsoft TV, offers technology solutions to 
infrastructure providers, including Comcast, SBC, and Verizon. 
We have Microsoft TV Foundation Edition for traditional cable 
networks and our advanced IPTV edition products for advanced IP 
networks, DSL, cable, or wireless.
    The emergence of IP technology is finally delivering the 
long-promised convergence of Internet service and products. Ten 
years ago, the then-Chairman of this subcommittee predicted 
that in the future, you will be able to watch your phone, 
answer your PC, and download your television. And today, these 
notions are a reality.
    We are moving from a time when consumers looked at the 
Internet as a distinct medium to a world where consumers simply 
make calls, watch TV, and obtain information without realizing 
that the service is being provided in an IP format. The Xbox 
Live Service demonstrates how IP technology can transform the 
consumer experience, in this case, gaming. It allows gamers to 
compete with each other over the Internet and the gaming 
experience is enhanced by allowing them to talk to their 
competitors. This ancillary VoIP feature associated with an 
Xbox and the Xbox Live Service, does not allow for connection 
to the public switch network, does not use numbers, can only be 
used with an Xbox game console, and can not be used with a 
phone.
    This use of Voice over Internet Protocol technology 
highlights the challenge that is faced by policymakers as they 
contemplate Internet services. VoIP implementations encompass a 
great range of capabilities, from a feature supported by a 
gaming console such as the Xbox, to a full substitute for 
telephone service that is connected with the public switch 
network.
    As Congress considers how to treat VoIP services that are a 
substitute for a traditional phone service, it must ensure that 
other VoIP products or implementations are not inadvertently 
swept into the mix, because no one would cancel their landline 
phone just because they bought an Xbox and subscribed to the 
Xbox Live Service. The service clearly stands outside of the 
communications act.
    As this subcommittee considers the shape of future laws, we 
think that a look back is constructive. In 1996, this committee 
wrote into the act the following statement: ``It is the policy 
of the United States to promote the continued development of 
the Internet and to preserve the vibrant and competitive free 
market unfettered by Federal or State regulation.'' That policy 
has served the Nation well over the past 10 years, and we 
believe that it remains sound policy today.
    Because Microsoft provides products and services and not 
broadband transport networks, we will not address all of the 
questions facing the subcommittee, but we do have some core 
principles for your consideration.
    First, Internet services and products should remain largely 
unregulated. The Internet has been a remarkably successful tool 
for consumers and business. Congress should proceed carefully 
so it does not inadvertently disturb this accomplishment. You 
should ask whether any proposed law or regulation that burdens 
Internet services and products is necessary for the public 
good.
    Second, consumers should be able to continue to use and 
access any site and any lawful application or device with a 
broadband connection. In his speech last fall, the former FCC 
Chairman, Michael Powell, listed four Internet freedoms: the 
freedom to access content, the freedom to use applications, the 
freedom to attach personal devices, and the freedom to obtain 
service plan information. And those freedoms have clearly 
helped shape the tremendous success of the Internet to date, 
and they remain of vital importance in a broadband environment.
    Third, if policymakers act, they should maintain a light 
touch. The regulatory light touch approach of the past decade 
that has been embraced by Congress and the FCC triggered the 
explosion of new services and applications that fueled the 
Internet economy. In the Internet marketplace, it is 
exceedingly difficult for government regulations to keep pace 
with technology, so it is important to remember this: the 
unfolding world of Internet services will not neatly map to all 
of the existing regulations. So if legacy rules are applied 
indiscriminately, they will hold back innovation. Before 
applying existing regulatory concepts, some of which date back 
70 years, to Internet services, it is important to first test 
whether the rule benefits the public now in a broadband world.
    And finally, if regulated at all, Internet services should 
be subject exclusively to Federal jurisdiction. Congress should 
protect Internet services from conflicting and overlapping 
State regulation. Internet services are used in interstate 
commerce, they do utilize global networks, and they generally 
require the transmission of bids across State lines. Therefore, 
Congress should make certain that where subject to regulation, 
Internet services should fall exclusively within Federal 
jurisdiction.
    In conclusion, let me emphasize that Microsoft is very 
excited about its role in bringing innovative Internet products 
and capabilities to consumers. And we stand ready to work with 
this subcommittee to ensure that any legislation accomplishes 
these goals.
    Thank you.
    [The prepared statement of Paul Mitchell follows:]

   Prepared Statement of Paul Mitchell, Senior Director and General 
         Manager, Microsoft TV Division, Microsoft Corporation

    Mr. Chairman, Mr. Markey, and Members of the Subcommittee: My name 
is Paul Mitchell, and I am Senior Director and General Manager for the 
Microsoft TV Division at Microsoft Corporation. I am pleased to appear 
before the Subcommittee as it works to understand how current Internet 
technologies are transforming the consumer experience, and as it turns 
to the critical job of reviewing existing laws and rules in an effort 
to determine how new ones need to be written so that these new 
technologies can flourish and consumers can receive and enjoy new and 
innovative Internet services and products.
    We see the emergence of broadband platforms and Internet Protocol 
(IP) technology as delivering--finally--the long promised convergence 
of Internet service and products. Ten years ago, at a hearing much like 
this one, the then-Chairman of this Subcommittee predicted that in the 
future you will be able to watch your phone, answer your PC, and 
download your television. These notions are no longer theory. Today, 
they are a reality. IP services and products today enable the delivery 
of voice, data, and video in new and innovative ways and represent a 
transition in how consumers communicate, since it allows consumers at 
work, at home or on the go to access content, services, and 
applications through a greater diversity of devices, including PCs, 
TVs, mobile phones, and handheld devices. We are moving from a time 
when consumers looked at the Internet as a distinct medium (they looked 
for information ``on the Internet'' or made ``Internet calls'') to a 
world where consumers simply make calls, watch TV, and obtain 
information without realizing that the service they receive is being 
provided in an IP format.
    We are excited about this development because Microsoft offers a 
variety of Internet products and services that use broadband transport 
connections to create new and innovative consumer experiences. In our 
world, Internet or IP services and products generally mean those 
services and products that ride atop or are connect to broadband 
transport networks. For example, we provide software used to run the 
Windows Media Center Edition PC which is available in the market today 
and enables consumers today to access an analog or digital broadcast 
video service, an analog multichannel cable video service, photos, 
music, Internet services, and all the other features of a PC. We are 
currently in talks with the cable industry to enable the Media Center 
Edition PC, hopefully in a short timeframe, to access digital cable and 
interactive services. In the future, we expect the Media Center Edition 
PC also to enable consumers to access IPTV services. Media Center 
Extenders and Portable Media Centers allow consumers to enjoy this 
content and these services throughout the home and on the go. MSN 
delivers to the computers and wireless phones and handheld devices of 
consumers a variety of content, including news and entertainment, as 
well as other services such as downloadable music and video offerings. 
In addition, consumers can sign up for Hotmail, a free email service, 
and MSN Messenger, a free instant messaging product. Microsoft Live 
Meeting enables a group of people in an enterprise environment or other 
setting to enjoy new options for real-time collaboration, to increase 
productivity, using Microsoft software and a broadband transport 
connection. Our Xbox Live Service offers another example of how IP 
technology can be used to improve a consumer experience, in this case 
gaming, by allowing gamers to compete against each other over the 
Internet and enhancing their gaming experience with a VoIP feature.
    In addition to the products just mentioned, my group, Microsoft TV, 
offers technology solutions to infrastructure providers. We developed 
Microsoft TV Foundation Edition, currently being deployed by Comcast, 
which brings advanced guide functionality with digital video recording 
and a client applications platform to traditional cable networks. We 
also developed the IPTV products that SBC and Verizon are deploying, 
which deliver a high-quality interactive video content service to 
consumers. These products can be deployed over a variety of networks 
including a broadband telephony, cable, or wireless network. Our IPTV 
products will offer new interactive features for consumers, and we 
think consumers will find this a very compelling experience.
    We may hear today about VoIP, which is the delivery of voice 
communication over an IP based platform. VoIP is a technology that can 
be used in a variety of ways and as such highlights the challenge for 
policy makers. VoIP encompasses a great range of capabilities--from a 
feature in a gaming console such as Xbox, to a computer-to-computer 
communication, to a full blown telephone service that is capable of 
interconnecting with the PSTN. Even Internet radio programs are, in 
some sense, VoIP services. As Congress considers the appropriate 
regulatory treatment for those VoIP services that consumers use or that 
are offered as a substitute for their traditional phone services--what 
I will call a VoIP Telephony service--it must ensure that other VoIP 
services or features are not swept inadvertently into the mix. No one 
sees the VoIP feature that can be used with our Xbox Live gaming 
service as a substitute for your landline phone. The Xbox Live VoIP 
feature does not use telephone numbers, cannot be used in conjunction 
with a phone, cannot connect to the PSTN, can only be used if you have 
an Xbox game console, and users are identified solely by their gamer 
tags and not their names. In short, the Xbox Live VoIP feature is 
simply too limited to be of use to consumers outside the gaming 
experience. Essentially, you are not going to give up your regular 
phone connection to the PSTN just because you have an Xbox.
    The Subcommittee will hear today about tremendous innovations which 
result from billions of dollars of investments by Microsoft and other 
high tech companies as well as upgrades by the network transport 
providers represented here today. The investments in innovative 
software, devices, services, and applications are, in fact, major 
drivers of the tremendous investments being made in network capacity. 
As Congress has indicated, policy makers should avoid any action that 
slows, disrupts, or distorts that innovation. This suggests Congress 
should proceed cautiously before creating new rules and avoid expanding 
the scope of regulation unless and until it is demonstrably needed.
    Indeed, in writing the Telecommunications Act of 1996, this 
Subcommittee recognized that an overarching policy goal is to preserve 
the vibrant Internet marketplace unfettered by unnecessary regulation, 
in order to encourage innovation, create jobs, and stimulate the 
economy. That principle, embodied in Section 230(b) of the 
Communications Act, is a testament to the vision of the Members of this 
Subcommittee, who stated ten years ago that, ``It is the policy of the 
United States . . . to promote the continued development of the 
Internet . . .; [and] to preserve the vibrant and competitive free 
market that presently exists for the Internet and other interactive 
computer services, unfettered by Federal or State regulation . . .''
    We believe that this overarching policy statement has served our 
nation well over the past ten years, and we think that policy remains 
sound today. The hard questions come when Congress moves beyond this 
policy statement, which we think Congress should reaffirm in any new 
legislation, to specific provisions of existing law and how new 
technologies fit, or don't fit, into those legal schemes. Because 
Microsoft provides products and services that rely on broadband 
connections, but does not operate broadband transport networks, we sit 
in a different place than many other companies testifying today. 
Consequently, we do not have answers to all of the important questions 
facing network operators and this Subcommittee as communications 
networks migrate to the widespread use of IP technology. But we do come 
to this debate with certain core principles and want to share them with 
you today:

1. Internet services and products should remain largely unregulated.
    Internet services, that is, those services and products that ride 
atop or connect to the underlying broadband transport services, should 
remain largely unregulated and not be subject to the Communications 
Act. The success of the Internet as a tool for consumers and business 
has been remarkable, and Congress should proceed carefully so it does 
not inadvertently disturb this accomplishment. The choice of content 
and services available over the Internet overwhelms all of us, and that 
stands out as a huge accomplishment of this medium. Thus, Congress 
should ask whether any proposed law or regulation that touches upon 
this tremendous variety of Internet services and products is necessary 
for the public good. No question that our information technology and 
communications networks are changing rapidly, but it is wise for this 
Subcommittee to pause and ask whether the evolution of technology 
requires an expansion of our laws into new realms.

2. Consumers should be able to access any site and use any lawful 
        application or device with a broadband connection--just as they 
        have been able to do in the narrowband world.
    At a speech last fall, Chairman Powell stated that as we continue 
to promote competition among high-speed platforms, ``we must preserve 
the freedom of use broadband consumers have come to expect.'' He then 
went on to challenge the broadband network industry to preserve what he 
called ``Internet Freedoms.'' Specifically, these are:

 Freedom to Access Content. First, consumers should have access to 
        their choice of legal content.
 Freedom to Use Applications. Second, consumers should be able to run 
        applications of their choice.
 Freedom to Attach Personal Devices. Third, consumers should be 
        permitted to attach any devices they choose to the connection 
        in their homes.
 Freedom to Obtain Service Plan Information. Fourth, consumers should 
        receive meaningful information regarding their service 
        plans.1
---------------------------------------------------------------------------
    \1\ Michael Powell, Remarks at the Voice on the Net Conference 
(Oct. 19, 2004) (available at http://hraunfoss.fcc.gov/edocs--public/
attachmatch/DOC-253325A1.pdf).
---------------------------------------------------------------------------
    We see these consumer freedoms as fundamental to the success of the 
Internet. Those freedoms, which have been at the core of the 
telecommunications world for the past three decades or longer, shaped 
the dial-up Internet world, and we firmly believe these principles 
should be carried forward to the broadband future.
    As a Commerce Department study found, availability of value-added 
businesses and consumer applications at competitive prices is a key 
demand-side driver of broadband.2 Preserving an environment 
for innovation and competition among services and devices that connect 
to broadband networks will, in turn, encourage further investments in 
these networks. Thus, we hope that everyone at this table and this 
Subcommittee agree that these consumer freedoms must continue to hold 
true for the Internet to succeed.
---------------------------------------------------------------------------
    \2\  Department of Commerce, Office of Technology Policy, 
Understanding Broadband Demand: A Review of Critical Issues, at 14-17 
(Sept. 22, 2003).
---------------------------------------------------------------------------
3. If policy makers act, they should maintain a ``light touch'' and act 
        only with respect to those services that give rise to present 
        day policy questions.
    Since passage of the Telecommunications Act of 1996, the FCC and 
this Subcommittee have stayed the course on the principle that the 
Internet services should be unregulated or at most lightly regulated. 
We firmly believe that this regulatory ``light touch'' approach 
triggered the explosion of new services and applications that has 
fuelled the Internet economy that we have today. Rapid change and 
technological advancement in the IP services market mean that it is 
exceedingly difficult for government regulations to keep pace with 
technological advances in the IP marketplace. That reality counsels 
caution in expanding the scope of regulation or in writing overly 
prescriptive rules.
    In order to avoid constraining the continued growth of IP services, 
any regulation imposed on IP services should focus on objectives, not 
means, and should allow implementers flexibility in how to technically 
meet those objectives. For example, policymakers should retain as a 
policy objective that consumers should be able to obtain, at retail, a 
variety of innovative devices for accessing IP services over a 
broadband connection, while allowing industry and appropriate standards 
bodies to develop the solutions for connectivity of such devices.
    An area which this Committee may consider is how these new services 
may affect the existing telecommunications infrastructure and the 
support systems, such as universal service, that accomplish important 
social goals. The local telephone network is currently subsidized 
through massive implicit subsidies as well as explicit subsidies which 
involve telecommunications carriers making payments into the universal 
service fund. Plainly, the system that finances the universal service 
fund is under strain today, because it is funded by interstate telecom 
revenues, and demand for subsidy payments is growing at the same time 
that those revenues are shrinking. Thus, we encourage the Subcommittee 
to consider alternative means, such as assessing a universal service 
fee on telephone numbers if you want to fund the telephone service or 
assessing it based on connections if you want to fund the underlying 
infrastructure. In addition, the existing system for compensating 
telecommunications carriers that exchange traffic is deeply flawed and 
has been the subject of reform efforts for years. Those efforts should 
come to conclusion and the system should be fixed before it is applied 
to IP services, or else innovation will suffer.
    This example illustrates an important point: Old rules will not map 
neatly to the unfolding world of Internet services and will hold back 
innovation. The transformative nature of IP services, including IP 
transport services, means that existing regulatory or legislative 
concepts, some of which have not been reconfigured in seven decades, 
should not be applied without first analyzing whether the legacy rule 
still benefits the public in the broadband world.
    Regardless of the legislative approach this Committee takes, we 
think it is instructive to learn from the FCC's light touch in 
developing a policy toward the Internet over the past ten years. We 
also believe that the existence of certain core consumer safeguards 
provide key signals to all those who use the Internet--network 
operators, content developers, consumer equipment manufacturers, 
software developers, and consumers--that their investment will be 
protected and that their innovation may be rewarded. Any legislative 
drafting must be done carefully so as not to overreach, and we hope to 
work with the Committee to clarify the scope of any legislation.

4. Where subject to regulation, Internet services should be subject 
        exclusively to Federal jurisdiction.
    Lastly, Congress should protect IP services from conflicting and 
overlapping State regulation. IP services are used as an integral part 
of interstate commerce, they utilize interstate or global networks, and 
they generally require the transmission of bits across state lines. As 
a consequence, where subject to regulation, they should be exclusively 
within Federal jurisdiction. The FCC has correctly decided that VoIP is 
an interstate service, and that conclusion should apply to other IP 
services that are subjected to regulatory treatment. Accordingly, where 
this Committee subjects an IP service to the Communications Act, it 
should make clear that the IP service is subject only to Federal 
jurisdiction.
    In conclusion, IP services are beginning to deliver to consumers a 
world of content and communications that will dramatically improve 
economic and social welfare. Investment and innovation in these 
services thrives in an environment in which these services are 
unregulated or lightly regulated, and where certain core principles 
regarding the freedom of use that broadband transport customers have 
come to expect are preserved. To the extent IP services have to be 
regulated, if at all, it should be done exclusively at the Federal 
level, and only then to the degree necessary to achieve core government 
interests that the marketplace cannot solve.

    Mr. Upton. Mr. Cohen.

                   STATEMENT OF DAVID L. COHEN

    Mr. Cohen. Good morning, Mr. Chairman and members of the 
committee.
    Mr. Upton. You just need to move that.
    Mr. Cohen. Good morning, Mr. Chairman and members of the 
committee. It is a pleasure to be here today.
    One of the favorite stories of Comcast Chairman and CEO 
Brian Roberts relates to a conversation he had with Bill Gates 
of Microsoft in early 2002. Mr. Gates said he was more excited 
than ever about cable's potential to bring new services to 
America because of IP. The next day, when Brian returned to 
Philadelphia, he called in all of his engineers and said, 
``What is this IP that Bill was talking about?'' Well, 3 years 
later, we all know what IP is. It is a powerful technology that 
is changing the world of communications. And the cable industry 
has embraced IP. As an industry, we have now invested nearly 
$100 billion since 1996 to bring an IP-enabled broadband 
network to nearly every doorstep in America. For Comcast, our 
part of that investment has been about $39 billion, and we will 
use that infrastructure to bring advanced digital voice service 
to nearly every one of the 40 million homes that we pass over 
the next 2 years.
    Congress and the FCC are now considering how IP may change 
the competitive landscape and what the implications are for 
that for regulation. Some phone companies want to use IP to 
bring another competitive video choice to consumers. And we 
say, ``Welcome.'' The video marketplace is already robust with 
competition, and now phone companies and others plan to offer 
even more. This additional competition warrants a comprehensive 
reexamination of the rules regulating cable, rules adopted in a 
far less competitive era.
    At least one phone company is arguing, ``IP video is a 
different technology. Exempt us from everything,'' which 
invites some fundamental questions. On what basis do we 
regulate? Do we make regulatory distinctions based on 
technology? Or should we treat like services alike?
    In January of this year, my friend and your former 
colleague Tom Tauke of Verizon made the following comment to 
the Nation's mayors, and I quote: ``It is not logical to treat 
different sectors of the communications marketplace differently 
based on what technology they use when they are all delivering 
the same service.''
    We think he is right. If the consumer views the video 
service delivered by a phone company to be essentially the same 
as what they get from a cable company, the law should not treat 
them differently based on whether they use a lot of IP, a 
little IP, or no IP at all. Like services should be treated 
alike, and everybody should play by the same rules.
    As the phone companies have described their IP video ideas 
to date, they clearly seem to be just like cable services. The 
demonstration you saw here today, for those of you who were at 
the cable show less than a month ago, you saw very similar 
demonstrations, picture-in-picture, customized TV, whole-home 
DVRs demonstrated on Comcast cable network in the Bay area as 
you saw on the demonstration today. As such, those services 
today should be governed by the cable provisions of the 
communications act. And that is not to say that they would be 
regulated identically to incumbent cable operators.
    Title VI of the act applies lesser economic regulation to 
new entrants, including freedom from all price regulation. 
However, Title VI generally applies service non-economic rules 
to all competitors, including the need to obtain a local 
franchise and the responsibility to bring the benefits of 
competition to every American, rich or poor.
    A cable operator may not discriminate based on the economic 
characteristics of a community. Every cable operator in 
business today, large and small, has been required to build out 
its systems to avoid redlining and so should all new entrants.
    Now let me be clear. We do not oppose a review of Title VI. 
In fact, we think the level of competition today justifies 
elimination of many of the requirements of Title VI for all 
providers, and we applaud the chairman and the committee for 
taking up this issue.
    Similarly, we supported efforts in the last Congress to 
establish new rules for all VoIP providers. And while VoIP 
services are now widely available in the marketplace, we still 
lack clarity about the rules that will apply. So we also this 
committee to complete its important work on VoIP policy as 
quickly as possible.
    In contrast, no one is providing IP video services in any 
significant way today in the commercial marketplace. There is 
no IP video market that is being held back by current policies, 
and there are unique policy issues raised by IP video that do 
not apply to IP voice, including issues of localism and content 
rights management, in addition to the redlining issue I 
mentioned earlier. Therefore, this is a great time for Congress 
to comprehensively review the regulatory framework for all 
multi-channel video services, given the substantial growth in 
video competition. And if the rules are to be changed, I think 
it is clear that some of the rules need to be changed, then 
they should be changed for all providers.
    Mr. Chairman, for years the phone companies have protested 
that the law treats their DSL service differently from the way 
it treats cable's high-speed Internet service. ``Treat us like 
the cable companies,'' they have said. And I would note that 
Comcast, for one, has never objected to that position.
    Now that the phone companies plan to offer video, I suggest 
that they should get their wish. They should be treated like 
the cable companies, and whatever rules apply to us should 
apply to them, too.
    Thank you very much, and I am also looking forward to 
taking your questions.
    [The prepared statement of David L. Cohen follows:]

Prepared Statement of David L. Cohen, Executive Vice President, Comcast 
                              Corporation

    Good morning, Mr. Chairman and Members of the Committee.
    Comcast's Chairman and CEO Brian Roberts tells the story of two 
conversations he had with Bill Gates of Microsoft that represented 
turning points for our company.
    The first was in 1997, when Mr. Gates agreed to invest a billion 
dollars in Comcast to help jump-start our industry after a severe 
downturn.
    The second was in early 2002, at the Consumer Electronics Show. Mr. 
Gates said he was more excited than ever about the potential of the 
cable industry to bring new services to America because of ``IP.'' The 
next day, Brian returned to Philadelphia, called in his engineers and 
said, ``What's this IP that Bill was talking about?''
    Well, three years later, now we all know what IP is. It's a 
powerful technology that's changing the world of communications. And 
the cable industry has embraced IP. We have now invested nearly 100 
billion dollars to bring an IP-enabled broadband network to nearly 
every doorstep in America. And at Comcast, we will use our IP 
infrastructure to provide advanced digital voice service to 40 million 
homes in the next two years.
    Congress and the FCC are now considering how IP may change the 
competitive landscape, and what the implications are for regulation. 
Some phone companies want to use IP to bring another competitive video 
choice to consumers. We say, ``Welcome.'' The video marketplace is 
already robustly competitive, and entry by more competitors can bring 
more consumer benefit. And we believe that this additional competition 
warrants a comprehensive reexamination of an existing regulatory 
framework adopted when the video marketplace was far less competitive.
    But at least one phone company argues, ``IP video is a different 
technology. Exempt us from everything.'' Which leads to some 
fundamental questions: On what basis do we regulate? Do we make 
regulatory distinctions based on technology? Or do we treat like 
services alike?
    In January, my friend Tom Tauke of Verizon made the following 
comment to the nation's mayors: ``It's not logical to treat different 
sectors of the communications marketplace differently based on what 
technology they use when they're all delivering the same service.''
    We think he's right. What matters to consumers, and what should 
matter to this Congress, is not the technology used to provide 
services, but the services themselves. If the consumer views the video 
service delivered by a phone company to be essentially the same as what 
they get from a cable company, there is no basis for the law to treat 
them differently based on whether they use a lot of IP, a little IP or 
no IP. Like services should be treated alike, and everyone should play 
by the same rules.
    Today, the law permits a phone company to offer video programming 
in one of four ways--as a common carrier, as a wireless provider, as an 
open video systems provider, or as a franchised cable operator. Based 
on what we understand of the business models planned by the phone 
companies here today, they will fall into that fourth category--they 
would be franchised cable operators, governed by the cable provisions 
(Title VI) of the Communications Act.
    Title VI already contains reduced obligations for new entrants, 
such as freedom from price regulation, but, in general, it does not 
distinguish among competitors in imposing certain non-economic rules--
including the need to obtain a local franchise, and the responsibility 
to bring the benefits of competition to every American, rich or poor.
    A cable operator may not discriminate based on the economic 
characteristics of a community. Therefore, as a condition of granting a 
local franchise, a city government may insist that every neighborhood 
is to be served within a reasonable period of time. Every cable 
operator in business today lives under this rule and has built out its 
systems to avoid redlining. By the way, that's also how we're rolling 
out our IP-powered ``digital voice'' service as well--when we provide 
this service in a community, we will quickly serve the whole community. 
And we will offer it to every home in the franchise area, whether or 
not that home is currently a video or data customer.
    Let me be clear. We do not oppose a review of Title VI. In fact, we 
think the level of competition today justifies elimination of many of 
the requirements of Title VI for all providers.
    Mr. Chairman, we supported efforts in the last Congress to 
establish new rules for VoIP. That job is not yet done--and while VoIP 
services are now widely available in the marketplace, we are left 
waiting for clarity about the rules that will apply. We believe that 
VoIP deserves the prompt attention of this Committee. And our position 
on VoIP is consistent with our position on IP video: for VoIP, we 
support minimal economic regulation while ensuring that all VoIP 
providers satisfy E911, CALEA, universal service and disabilities 
access requirements.
    By contrast, there is no one providing IP video services in any 
significant way today. There is not an IP video market that is being 
held back by current policies. Many of the issues raised by IP video 
have no parallel in IP voice and so have not been part of the debates 
over the proper framework for voice offerings. Legislating or 
regulating in advance of a careful consideration of these issues, such 
as localism, content rights management, and redlining, could 
inadvertently undermine important public policies. Responsibility for 
some of these issues has been placed at the local franchise level, and 
Congress and the FCC may or may not want to shift that responsibility 
to other levels of government.
    Instead of having a debate about IP technology, we believe Congress 
should consider how all multichannel video services should be regulated 
in the future. Congress should consider the current state of 
competition and the additional competition that IP video could bring--
and, if the rules are to be changed, they should be changed for all 
providers.
    Mr. Chairman, for years the phone companies have protested the 
disparity between the way the law treats their DSL service and the way 
it treats cable's high speed Internet service. Their plea has been, 
``Treat us like the cable companies.'' And I would note that Comcast 
has never objected to that.
    Now that the phone companies plan to offer video, we say ``welcome 
. . . and we agree--you should be treated like cable companies, because 
that is what you are.'' And whatever rules apply to one should apply to 
all.
    I would like to thank the Committee for the opportunity to appear 
here today, and I look forward to answering any questions.

    Mr. Upton. Thank you.
    Mr. Ingalls.

               STATEMENT OF ROBERT E. INGALLS, JR.

    Mr. Ingalls. Chairman Upton, Ranking Member Markey, and 
members of the subcommittee, thank you for the opportunity to 
testify today. My name is Robert Ingalls. I am President of 
Retail Markets at Verizon, and I am responsible for the sales 
and marketing of Verizon's products and services, including 
broadband, to our residential and small business customers.
    And I want to tell you about the exciting new broadband and 
video experience Verizon is ready to deliver to its consumers. 
We are deploying a fiber optic network called FiOS, and we have 
prepared a short video to introduce to you these capabilities.
    I think we have a video. We have a technical glitch.
    [Video.]
    Thank you. So Verizon is the first broadband network to use 
fiber to the premises architecture. And FiOS is capable of 
delivering 100 megabits downstream and up to 15 megabits 
upstream, which will make it the fastest, most interactive 
network deployed anywhere in America.
    FiOS gives consumers a super-fast broadband data 
experience. It has speed up to 30 megabits downstream and 5 
megabits upstream. As we move forward, the bandwidth and 
upstream capacity of the fiber system will allow us to offer 
consumers a number of other exciting services, including FiOS 
TV.
    FiOS TV will provide consumers with a video experience that 
is different from anything they have today. The tremendous 
capacity of the fiber system gives us all kinds of room for 
hundreds of digital video channels, local programming, high-
definition and on-demand content. Digital video recording 
options will allow content to be distributed throughout the 
home.
    What we think the consumers are really going to like about 
FiOS is the upstream capacity of the system that will connect 
them to a world of multimedia and interactive possibilities. 
Families will be able to quickly and easily produce, store, 
send, and share home videos and share pictures with friends 
across the country. Other interactive possibilities include 3-D 
gaming, video-on-demand, online shopping, real-time polling, 
even setting camera angles while watching sporting events.
    I think you see why Verizon is so excited and why our 
customers are so eager for this broadband and video choice to 
reach the market.
    We are deploying FiOS in more than 100 communities across 
the country right now. We have begun to introduce FiOS Data, 
our super-fast Internet services, with excellent results. Our 
plan is to pass three million homes by the end of 2005, with 
further expansion as fast as technology and the marketplace 
will allow.
    We are making all of the necessary preparations for the 
commercial launch of FiOS TV this year. We are obtaining 
franchises. We are signing content deals with broadcasters and 
programmers, working with the software programmers on 
interactive features and with the hardware developers on our 
set-tops.
    The result will be a compelling video experience for 
consumers and the true video choice for the marketplace.
    Regulatory issues, however, are affecting how soon we will 
enter the video market on a wide scale.
    First, current law does not serve innovation well. The law 
was written for a world where telecom and cable were different 
technologies and distinct services. In the converged world we 
are in today, those distinctions make less and less sense.
    We need a national broadband policy that does not shoehorn 
new technologies into old categories. This national policy 
should promote broadband deployment, new technologies, and 
increased investments by any provider.
    Second, as a local telephone company, Verizon has a 
franchise to deploy and operate networks. Yet we are being 
asked to obtain a second franchise to use those same networks 
to offer consumers a choice in video. We believe this redundant 
franchise process is unnecessary and will delay effective video 
competition for year unless a Federal solution is enacted soon.
    Verizon is sensitive to the needs and concerns of local 
communities regarding such matters as franchise fees, local 
access, and public interest content, and we will continue to 
work to address them. But we believe a streamlined, national 
franchise process is the fastest route to a much-needed choice 
and competition in the video market.
    The era of broadband video has arrived. Verizon is eager to 
deliver it to our customers. We are also excited by the 
opportunities with software and hardware companies, content 
developers, and distributors to tap the full potential of this 
great new technology. Together, our efforts will empower 
consumers, transform communities, and encourage innovation and 
economic growth across America for years to come.
    Thank you very much. I look forward to answering any 
questions you may have.
    [The prepared statement of Robert E. Ingalls, Jr. follows:]

 Prepared Statement of Robert Ingalls, Jr., President, Retail Markets 
                     Group, Verizon Communications

    Chairman Upton, Ranking Member Markey, and members of the 
subcommittee, thank you for the opportunity to testify today. My name 
is Robert Ingalls, President of Retail Markets at Verizon. I am 
responsible for sales and marketing of Verizon products, including 
broadband, to residential and small business customers.
    I want to tell you about the exciting new broadband and video 
experience Verizon is ready to deliver to consumers. We are deploying a 
fiber optic network called FiOS, and we have prepared a short video to 
introduce you to its capabilities.
    FiOS is the first broadband network to use a fiber-to-the-premises 
architecture. FiOS is capable of delivering 100 megabits downstream and 
up to 15 megabits upstream--which will make it the fastest, most 
interactive network deployed anywhere in America.
    FiOS gives consumers a super-fast broadband data experience, at 
speeds of up to 30 megabits downstream and 5 megabits upstream. As we 
move forward, the bandwidth and upstream capacity of the fiber system 
will allow us to offer customers a number of other exciting services, 
including FiOS TV.
    FiOS TV will provide consumers with a video experience that's 
different from anything they have today. The tremendous capacity of the 
fiber system gives us all kinds of room for hundreds of digital video 
channels, local programming, high-definition and on-demand content. 
Digital video recording options will allow content to be distributed 
throughout the home.
    What we think customers are really going to like about FiOS is the 
upstream capacity of the system that will connect them to a world of 
multi-media and interactive possibilities. Families will be able to 
quickly and easily produce, store, send and share home videos and share 
pictures with friends across the country. Other interactive 
possibilities include--3-D gaming, video-on-demand, online shopping, 
real-time polling, even setting camera angles while watching sporting 
events.
    I think you can see why Verizon is excited and why our customers 
are so eager for this broadband and video choice to reach the 
marketplace.
    We are deploying FiOS in more than 100 communities across the 
country. We have begun to introduce FiOS Data, our super-fast Internet 
service, with excellent results. Our plan is to pass 3 million homes by 
the end of 2005, with further expansion as fast as technology and the 
marketplace allow.
    We are making all of the necessary preparations for the commercial 
launch of FiOS TV later this year:

 Obtaining franchises,
 Signing content deals with broadcasters and programmers,
 Working with software programmers on interactive features, and
 Working with hardware developers on set-tops.
    The result will be a compelling video experience for consumers and 
true video choice for the marketplace.
    Regulatory issues, however, are affecting how soon we will enter 
the video market on a wide scale.
    First, current law does not serve innovation well. The law was 
written for a world where telecom and cable were different technologies 
and distinct services. In the converged world we're in today, those 
distinctions make less and less sense.
    We need a national broadband policy that does not shoe-horn new 
technologies into old categories. This national policy should promote 
broadband deployment, new technologies and increased investment by any 
provider.
    Second, as a local telephone company, Verizon has a franchise to 
deploy and operate networks. Yet we're being asked to obtain a second 
franchise to use those same networks to offer consumers a choice in 
video. We believe this redundant franchise process is unnecessary and 
will delay effective video competition for years unless a federal 
solution is enacted soon.
    Verizon is sensitive to the needs and concerns of local communities 
regarding such matters as franchise fees, local access and public 
interest content, and we will continue to work to address them. But we 
believe a streamlined, national franchise process is the fastest route 
to bringing much-needed choice and competition in the video market.
    The era of broadband video has arrived. Verizon is eager to deliver 
it to our customers.
    We are also excited by the opportunities to work with software and 
hardware companies, content developers and distributors to tap the full 
potential of this great new technology. Together, our efforts will 
empower consumers, transform communities, and encourage innovation and 
economic growth across America for years to come.
    Thank you. I look forward to answering any questions you may have.

    Mr. Upton. Mr. Schmidt.

                  STATEMENT OF GREGORY SCHMIDT

    Mr. Schmidt. Thank you, Mr. Chairman and members of the 
committee. My name is Greg Schmidt. I am LIN Television's Vice 
President of New Development and General Counsel. We own 24 
local broadcast television stations.
    Let me begin by expressing local broadcasters' enthusiasm 
for the possibilities being discussed today. Video-over 
broadband has the potential to introduce much-needed 
competition into the multi-channel video marketplace. Doing so 
will provide cable subscribers, who are currently locked into a 
structure of subscription rates that have escalated 40 percent 
in just 5 years, with additional options. It will also give 
broadcasters additional options to distribute their local 
programming. In short, we welcome any technology that enhances 
competition to cable.
    As broadcasters, we are no strangers as to how technology 
evolves to meet better consumer needs. Imagine for a moment if 
I told you about a new cutting-edge technology that would be 
digital, would be wireless, and would provide local news and 
weather in real time, and, best of all, would be free. That 
technology exists. We call it broadcasting. In short, local 
broadcasters were wireless before wireless was cool.
    Some tend to forget, our industry innovated radio and then 
brought about television. Broadcasters proposed and then built 
the first digital video distribution system. We developed the 
tantalizing images of HDTV broadcasts. I don't have any video 
for you today, but I will remind you that 7 years ago this 
month, in this room, we brought the first local sports event in 
HD, an opening day game of the Texas Rangers versus Chicago 
White Sox, and displayed it live in this room from Arlington, 
Texas. Broadcasters also created the additional programming 
options of digital multi-casting. So as an industry, we see 
great potential in the development of video-over broadband.
    As Congress unlocks the potential of IP video, it must, 
however, be careful to continue advancing its long-standing 
goal of preserving a free, over-the-air television system. 
Local television remains essential to the fabric of this 
country. From its beginning, Americans have turned to 
television and broadcasting for vital news and information. In 
weather emergencies, like last year's hurricanes in Florida, 
when cable and satellite systems were unavailable, local 
stations offered a lifeline of information. Viewers turn to us 
for coverage of local news and political programming. Our 
stations cover the high school sports that communities rally 
around. We raise billions for local charitable causes and give 
a voice to community organizations. In short, local television 
stations are integral to the communities they serve, and the 
people we serve, our audience, are the same people you serve. 
Your constituents are our viewers. With that in mind, as 
Congress examines the regulatory framework for Video-over 
broadband, it should continue to hold a robust system of local, 
over-the-air television as a paramount goal.
    As the technology evolves, government regulation of IP 
video may someday in the future become completely unnecessary. 
For the time being, however, Congress should ensure that new 
entrants into the market operate under the existing ground 
rules that have enhanced competition, encouraged diversity of 
content, and protected the intellectual property rights of 
content creators.
    At minimum, a few key protections that currently exist 
should be extended into any future regulatory framework. First, 
Congress has long honored network affiliate stations' 
contractual rights to be the exclusive providers of network 
programming in their markets. Congress and the Commission have 
also recognized the importance of stations' exclusivity for 
syndicated programming. The local advertisements sold by a 
station during popular network programming, such as CSI or 
Alias or syndicated programming, such as Seinfeld, help fund 
our local programming. Congress has applied similar thinking 
that supports blackout rules, and these protections, too, 
should be extended as Congress moves forward.
    Ultimately, if other video providers were permitted to 
offer duplicative network and syndicated programming, stations 
would lose audience share and advertising dollars. And these 
dollars fund the local programming that makes local 
broadcasting so valuable. It is, therefore, vital that as 
Video-over broadband regulatory model develops, it continue to 
respect network non-duplication and syndicated exclusivity.
    Second, the retransmission consent and must-carry rules 
must continue into the digital age to ensure the continued 
liability of the over-the-air model. In 1992, when passing the 
Cable Act, Congress recognized that video services that sell 
advertising have a direct incentive to delete, reposition, or 
even refuse to carry local television broadcast stations. 
Congress also recognized that a vibrant over-the-air system 
requires access to cable households. The fundamental policies 
and basic facts that drove Congress to adopt must-carry and 
retransmission consent are as sound today as they were in 1992.
    Mr. Chairman, Congress has wisely stood by these principles 
over the years to ensure that cities as large as New York all 
of the way down to communities as small as Glendive, Montana 
can have their own unique broadcasting voices. This committee, 
in particular, has repeatedly recognized the value of broadcast 
localism when writing the first Satellite Home Viewer Act of 
1998 and reauthorizing the act in 1999. And again this year and 
last year, the committee made clear its strong support for 
localism.
    Our industry stands ready to work with the committee in 
developing the regulatory framework that fosters additional 
competition to cable and satellite operators while 
simultaneously strengthening and sustaining America's unique 
system of local broadcasting.
    Thank you.
    [The prepared statement of Gregory Schmidt follows:]

     Prepared Statement of Gregory Schmidt, Vice President of New 
      Development and General Counsel, LIN Television Corporation

    Good morning Mr. Chairman, Ranking Member Markey, Members of the 
Committee. I am Gregory Schmidt, Vice President of New Development and 
General Counsel for LIN Television Corporation. I appear today on 
behalf of the National Association of Broadcasters.
    Let me begin by articulating how enthusiastic local television 
broadcasters are about the possibilities being discussed in this 
hearing today. We are excited about new and innovative Internet 
services such as video over broadband. Broadcasters, like many others, 
see great promise in what this new platform has to offer. Video over 
broadband has the potential to introduce much needed competition into 
the multi-channel programming distribution marketplace. We see this as 
a positive development for consumers and broadcasters.
    As we embrace new technologies, however, it is vital that the 
policies you adopt continue to recognize the importance of maintaining 
a robust system of local, over-the-air television. Competition may 
eventually lead to deregulation of all video media, but until it does, 
existing policies designed to promote competition, diversity and 
intellectual property rights must extend to all multi-channel 
platforms. Thus, I encourage you to explore important questions such 
as: How will policies designed to protect and promote public access to 
important local information be realized for this new service? How will 
local rights to content such as sports, network and syndicated 
programming be protected? These are questions that you asked and 
answered as cable and satellite technology developed. They are once 
again questions to be asked as you address public policy issues related 
to this new service. And they should be asked in two contexts. First, 
how will these policies affect content providers such as broadcasters, 
and second how will they affect competition among context distributors 
such as cable satellite, and now potentially new distribution 
technologies.

                            LOCAL TELEVISION

    The American television system is an integral part of the fabric of 
this country. Television is not just an entertainment medium. From its 
very beginning, Americans have turned to television and over-the-air 
broadcasting for vital news and information. Indeed, often in the case 
of weather emergencies, when the multi-channel systems such as cable 
and satellite are unavailable, over-the-air broadcasting is the only 
way to get life-saving information to the public. Thus, it is not 
surprising that Congress, the courts and the Federal Communications 
Commission (``FCC'') have consistently recognized that public access to 
a healthy, free-over-the-air broadcast system is an important federal 
interest.
    Our country has made a substantial investment in free, local over-
the-air service. Unlike many other countries that offer only national 
television channels, the United States has succeeded in creating a rich 
and varied mix of local television outlets through which more than 200 
communities can have their own local voices. But over-the-air local TV 
stations--particularly those in smaller markets--can survive only by 
generating advertising revenue based on local viewership. If new 
technologies can override program exclusivity rights of local stations 
by offering the same programs on stations imported from other markets, 
or effectively block their subscribers access to local signals, the 
viability of local TV stations--and their ability to serve their 
communities with the highest-quality programming--is put at risk.
    To preserve this public access to free-over-the air television, 
policy-makers must continue to support the principles of localism and 
of local station program exclusivity. These are the principles that 
underlie the policies of syndicated exclusivity, network non-
duplication, must-carry and retransmission consent. These policies help 
preserve the health of the free-over-the air television upon which the 
American public relies.

                                LOCALISM

    The fundamental policy of localism has been embedded in federal law 
since the Radio Act of 1927.1 The objective of localism in 
the broadcast industry is ``to afford each community of appreciable 
size an over-the-air source of information and an outlet for exchange 
on matters of local concern.'' Turner Broadcasting Sys. v. FCC, 512 
U.S. 622, 663 (1994) (Turner I); see United States v. Southwestern 
Cable Co., 392 U.S. 157, 174 & n.39 (1968) (same). As pointed out by 
the Supreme Court, that policy has provided crucial public interest 
benefits.
---------------------------------------------------------------------------
    \1\ Satellite Delivery of Network Signals to Unserved Households 
for Purposes of the Satellite Home Viewer Act, First Report and Order, 
14 FCC Rcd 2654, 2659 (1999); see Satellite Delivery of Network Signals 
to Unserved Households for Purposes of the Satellite Home Viewer Act, 
Notice of Proposed Rulemaking, 13 FCC Rcd 22977, 22979 (1998) (``The 
network station compulsory licenses created by the Satellite Home 
Viewer Act are limited because Congress recognized the importance that 
the network-affiliate relationship plays in delivering free, over-the-
air broadcasts to American families, and because of the value of 
localism in broadcasting. Localism, a principle underlying the 
broadcast service since the Radio Act of 1927, serves the public 
interest by making available to local citizens information of interest 
to the local community (e.g., local news, information on local weather, 
and information on community events). Congress was concerned that 
without copyright protection, the economic viability of local stations, 
specifically those affiliated with national broadcast network[s], might 
be jeopardized, thus undermining one important source of local 
information.'')
---------------------------------------------------------------------------
        Broadcast television is an important source of information to 
        many Americans. Though it is but one of many means for 
        communication, by tradition and use for decades now it has been 
        an essential part of the national discourse on subjects across 
        the whole broad spectrum of speech, thought, and expression. 
        Turner Broadcasting Sys. v. FCC, 117 S. Ct. 1174, 1188 (1997).
    Thanks to the vigilance of Congress and the FCC over the past 50 
years in protecting the rights of local stations, over-the-air 
television stations today serve more than 200 local markets across the 
United States, including markets as small as Presque Isle, Maine (with 
only 28,000 television households), North Platte, Nebraska (with fewer 
than 15,000 television households), and Glendive, Montana (with only 
3,900 television households).
    This success is largely the result of the partnership between 
broadcast networks and affiliated television stations in markets across 
the country. The programming offered by network affiliated stations is, 
of course, available over-the-air for free to local viewers. Although 
other technologies offer alternative ways to obtain television 
programming, tens of millions of Americans still rely on broadcast 
stations as their exclusive source of television programming and 
broadcast stations continue to offer most of the top-rated programming 
on television.
    The network/affiliate system provides a service that is very 
different from nonbroadcast networks. Each network affiliated station 
offers a unique mix of national programming provided by its network, 
local programming produced by the station itself, and syndicated 
programs acquired by the station from third parties. H.R. Rep. 100-887, 
pt. 2, at 19-20 (1988) (describing network/affiliate system, and 
concluding that ``historically and currently the network-affiliate 
partnership serves the broad public interest.'') Unlike nonbroadcast 
networks such as Nickelodeon or USA Network, which telecast the same 
material to all viewers nationally, each network affiliate provides a 
customized blend of programming suited to its community--in the Supreme 
Court's words, a ``local voice.''
    America's local television broadcast stations make an enormous 
contribution to their communities because broadcasters are uniquely 
positioned to help community organizations promote their causes, 
through media saturation and attention from local on-air talent. 
Broadcasters help give an organization a voice, and are the main 
conduit for members of a community to discuss the issues of the day 
amongst themselves. A broadcaster can help an organization make its 
case directly to local citizens, to raise its public profile in a 
unique way, and to cement connections within local communities. A 
broadcaster can help an organization better leverage its fund raising 
resources and expertise, its public awareness and its educational 
efforts.
    Community-responsive programming--along with day-to-day local news, 
weather, and public affairs programs--is made possible, in part, by the 
sale of local advertising time during and adjacent to network programs. 
These programs (such as ``CSI'' and ``American Idol'') often command 
large audiences, and the sale of local advertising slots during and 
adjacent to these programs is a crucial revenue source for local 
stations.

                       LOCAL PROGRAM EXCLUSIVITY

    The FCC has recognized the need for strong and effective rules 
enabling television stations to preserve the exclusivity of programming 
in their local markets since the earliest days of cable. The first 
cable rules, for example, were non-duplication rules to protect both 
network programming and syndicated programming for which local 
broadcasters had negotiated exclusive exhibition rights.2 
The basic principle was that non-duplication was ``something to which a 
station is entitled, without a showing of special need, within its 
basic market area.'' 3 The FCC explained:
---------------------------------------------------------------------------
    \2\ Amendment of Subpart L, Part 11 to Adopt Rules and Regulations 
to Govern the Grant of Authorization in the Business Radio Service for 
Microwave Stations to Relay Television Signals to Community Antenna 
Systems, First Report and Order, 38 FCC 683 (1965).
    \3\ Id., at 719.
---------------------------------------------------------------------------
        Our aim . . . is not to take any programs away from any CATV 
        subscriber, but to preserve to local stations the credit to 
        which they are entitled--in the eyes of the advertisers and the 
        public--for presenting programs for which they had bargained 
        and paid in the competitive program market.4
---------------------------------------------------------------------------
    \4\ Id., at 715 (emphasis added).
---------------------------------------------------------------------------
    In 1972, the FCC adopted its first rules authorizing stations that 
had purchased local exclusive exhibition rights to syndicated 
programming to demand that cable systems located in their service areas 
delete such programming from imported distant signals.5 
While these rules were repealed in 1980 6, eight years later 
the FCC reinstated a revised set of syndicated exclusivity rules as 
well as revising and strengthening the network non-duplication 
rules.7 The FCC concluded that:
---------------------------------------------------------------------------
    \5\ Amendment of Part 74, Subpart K, of the Commission's Rules and 
Regulations Relative to Community Antenna Television Systems, and 
Inquiry into the Development of Communications Technology and Services 
to Formulate Regulatory Policy and rulemaking and/or Legislative 
Proposals, 36 FCC 2d 141, 148 (1972) (hereinafter cited as ``Cable 
Television Report and Order''), recon. granted, 36 FCC 2d 326 (1972) 
(hereinafter cited as ``Reconsideration Order'').
    \6\ Cable Television Syndicated Program Exclusivity Rules, Report 
and Order, 79 FCC 2d 663 (1980) (hereinafter ``1980 Report and 
Order'').
    \7\ 1988 Report and Order.
---------------------------------------------------------------------------
        The restoration of syndicated exclusivity protection will 
        enhance competition in the video marketplace by eliminating 
        unfairness to broadcasters. It will increase incentives to 
        supply the programs viewers want to see and it will encourage 
        the development of a pattern of distribution that makes the 
        best use of the particular advantages of different distribution 
        outlets. It will encourage promotion of programming. Although 
        cable operators may have to make some changes in the way they 
        do business, compliance costs will not be burdensome and, in 
        any event, are outweighed by benefits. Specifically, television 
        viewers generally will be exposed to richer and more diverse 
        programming.8
---------------------------------------------------------------------------
    \8\ Id., at  89. See Amendment of Parts 73 and 76, of the 
Commission's Rules Relating To Program Exclusivity in the Cable and 
Broadcast Industries, Memorandum Opinion and Order, 4 FCC Rcd 2711,  
24 (1989) (``In reinstating our syndex rules, we are attempting to 
remove unnecessary impediments on broadcasters' right to contract 
(thereby enhancing competition) and to provide an environment that is 
more conducive over the long run to the production, diversity, 
responsiveness, quality and distribution of programming in order to 
ensure that consumers receive an optimal mix of programming.'').
---------------------------------------------------------------------------
    In addition to reinstating the syndicated exclusivity rules, the 
1988 Report and Order also expanded the scope of protection that 
network affiliates could enforce under the network non-duplication 
rules. Quoting approvingly from CBS' comments, the FCC concluded that:
        In a word, the relationship between broadcast network and its 
        affiliates is one of intense symbiosis. It is fundamentally 
        premised both on the network's ability to acquire exclusive 
        rights from its suppliers, and on the affiliated stations' 
        ability to enjoy program exclusivity in their respective 
        marketplaces. This vital feature of the system of free over-
        the-air television has been true for over forty 
        years.9
---------------------------------------------------------------------------
    \9\ Id., at  116. The FCC cited to record evidence that when a 
small market Palm Springs affiliate lost non-duplication protection, it 
lost half of its audience to an imported distant affiliate. Id., at 
117.
---------------------------------------------------------------------------
    In a similar vein, when Congress crafted the original Satellite 
Home Viewer Act in 1988, it emphasized that the legislation ``respects 
the network/affiliate relationship and promotes localism.'' H.R. Rep. 
No. 100-887, pt. 1, at 20 (1988). It also found that ``depriving local 
stations of the ability to enforce their program constraints could 
cause an erosion of audiences for such local stations because their 
programming would no longer be unique and distinctive.10 And 
when Congress extended the distant-signal compulsory license in 1999, 
it reaffirmed the importance of localism as fundamental to the American 
television system. For example, the 1999 SHVIA Conference Report says 
this:
---------------------------------------------------------------------------
    \10\ H.R. Rep. No. 887 Part 2, 100th Cong. 2nd Sess. 26 (1988).
---------------------------------------------------------------------------
        ``[T]he Conference Committee reasserts the importance of 
        protecting and fostering the system of television networks as 
        they relate to the concept of localism . . . [T]elevision 
        broadcast stations provide valuable programming tailored to 
        local needs, such as news, weather, special announcements and 
        information related to local activities. To that end, the 
        Committee has structured the copyright licensing regime for 
        satellite to encourage and promote retransmissions by satellite 
        of local television broadcast stations to subscribers who 
        reside in the local markets of those stations.'' SHVIA 
        Conference Report, 145 Cong. Rec. H11792 (daily ed. Nov. 9, 
        1999).
    In addition, the legislative history of SHVERA reinforces the 
importance of program exclusivity, particularly to broadcast localism. 
For example, Congressman Dingell noted during floor debates regarding 
SHVERA:
        [T]he act will protect consumers and foster localism by 
        ensuring that satellite customers receive all of their local 
        broadcast signals when these signals become available via 
        satellite. Local broadcasters provide their communities with 
        important local programming. Whether it is local news, weather, 
        or community events, these broadcasters are there, on the 
        ground serving their friends and neighbors. See Congressional 
        Record, H8223, October 6, 2004, H.R. 4518
    The FCC has clearly articulated how localism and the ability of 
local television stations to fulfill their public interest obligations 
are inextricably linked to their ability to enforce local market 
program exclusivity. In its 1988 Report and Order, the Commission said:
        In fulfilling our responsibility under Sections 301, 307(b), 
        and 309, we believe the public interest requires that free, 
        local, over-the-air broadcasting be given full opportunity to 
        meet its public interest obligations. An essential element of 
        this responsibility is to create a local television market that 
        allows local broadcasters to compete fully and fairly with 
        other marketplace participants. Promoting fair competition 
        between free, over-the-air broadcasting and cable helps ensure 
        that local communities will be presented with the most 
        attractive and diverse programming possible. Local broadcast 
        signals make a significant contribution to this diverse mix. As 
        we documented previously, the absence of syndicated exclusivity 
        places local broadcasters at a competitive disadvantage. Lack 
        of exclusivity protection distorts the local television market 
        to the detriment of the viewing public, especially those who do 
        not subscribe to cable. Our regulatory scheme should not be 
        structured so as to impair a local broadcaster's ability to 
        compete. Restoration of our syndicated exclusivity rules will 
        provide more balance to the marketplace and assist broadcasters 
        in meeting the needs of the communities they are licensed to 
        serve.11
---------------------------------------------------------------------------
    \11\ 1988 Report and Order, at  74.
---------------------------------------------------------------------------
    From a policy perspective, there is no benefit--and many 
drawbacks--to delivery of distant signals with programming that 
duplicates local station programming. Unlike local stations, distant 
stations do not provide viewers with their own local news, weather, 
emergency, and public service programming. Viewership of competing 
programming on distant stations provides no financial benefit to local 
stations to help fund their free, over-the-air service. To the 
contrary, duplicative distant signals, when delivered to any household 
that can receive local over-the-air stations, simply siphon off 
audiences and diminish the revenues that would otherwise go to support 
free, over-the-air programming.
    The need for local station program exclusivity in medium and small 
sized markets is particularly acute. Many of these markets operate in 
areas overshadowed by larger markets and have relatively spare and more 
diffuse population densities. That is why the Commission, early on, 
provided smaller markets with an extra wide zone of program exclusivity 
protection.
    None of the facts or premises underlying the FCC's determination 
that this extra zone of protection was needed 12 has changed 
since 1975. If anything, the position of broadcasters has become more 
precarious; especially for affiliates in hundred plus markets that 
usually operate on a slimmer profit margin and are less likely to be 
profitable.13 The erosion of even a few percentage points of 
revenue caused by a reduction in the non-duplication protection zone 
will undoubtedly affect the service they can provide to their 
communities.
---------------------------------------------------------------------------
    \12\ Id.
    \13\ In 2004 the profit margins for the average affiliate station 
in ADI markets 101-125, 126-150, 151-175, and 176 plus were 8.4%, 0.6%, 
10.6%, and 1.4%, respectively, and the average Pre-Tax profits for 
affiliates in these markets were $616,000, $30,000, $475,000, and 
$39,000, respectively.
---------------------------------------------------------------------------
                   MUST CARRY/RETRANSMISSION CONSENT

    Must-carry and retransmission rights are also an important part of 
the local broadcast equation. In the Cable Television Consumer 
Protection and Competition Act of 1992,14 Congress expressed 
its belief that revisions in the law was necessary to ensure the 
continued viability of: (1) free-over-the-air television broadcast 
service, and (2) the benefits derived from local origination of 
programming. Congress recognized that because cable systems and 
broadcasters compete for advertising revenue and programming, and 
because cable operators would have an interest in favoring affiliated 
programmers, the cable provider would also have an incentive to delete, 
reposition, or refuse to carry local television broadcast stations. At 
the same time, Congress also recognized that cable systems had, in many 
instances, received great benefits from local broadcast signals in the 
form of subscribership and increased audience for cable programming 
services even though they had been able to exploit a broadcaster's 
signal without its consent. Accordingly, the 1992 Cable Act adopted a 
mechanism whereby stations could elect between assured carriage (must 
carry) and no compensation, or retransmission consent, where the 
station and the cable operator negotiated over the terms and conditions 
of carriage.
---------------------------------------------------------------------------
    \14\ See Pub. L. No. 102-385, 106 Stat. 1460, codified at 47 U.S.C. 
 521 et seq.
---------------------------------------------------------------------------
    In upholding the must carry rules, the Supreme Court recognized the 
``important federal interest'' in ``protecting noncable households from 
loss of regular television broadcasting.'' 15 The Court 
described the interest in ensuring public access to the multiplicity of 
programming . . . services . . . that over-the-air broadcasting offered 
as ``governmental purpose of the highest order.'' 16 And, 
both Congress and the Court have acknowledged that the legitimate 
public policy goal would not be ``satisfied by a rump broadcasting 
industry providing a minimum of broadcast service to Americans without 
cable.'' 17
---------------------------------------------------------------------------
    \15\ Turner, 520 U.S. at 190 (quoting Capital Cities Cable, Inc. v. 
Crisp, 467 U.S. 691, 714 (1984)).
    \16\ Id.
    \17\ Id. at 1187.
---------------------------------------------------------------------------
    The fundamental policies and basic facts that cause Congress to 
adopt must carry requirements are as sound today as they were in 1992. 
Some 20.3 million U.S. households receive television service solely 
over-the-air. Many of these viewers choose not to subscribe to pay 
television services for well thought out and legitimate reasons. For 
example, they do not want to be locked into the ever-increasing costs 
of pay television service and they have additional sets that are not 
hooked up to cable or satellite, among others. They feel well-served by 
the locally-oriented and public interest programming they receive over 
the air and do not see the need for expensive pay television services.
    But there are also a large number of viewers who cannot afford pay 
television. Twelve percent of American households fall below the 
poverty line.18 They should not be forced by government 
policy into paying subscriber fees that only escalate over time and 
that they cannot afford. They deserve as an option a vibrant, over-the-
air service that provides the benefits of new digital technologies. 
Must-carry is necessary to preserve this option.
---------------------------------------------------------------------------
    \18\ See Census Bureau says 1.3 million more slipped into poverty 
last year; health care coverage also drops, CNN Money (Aug. 26, 2004), 
available at http://money.cnn.com/2004/08/26/news/economy/
poverty_survey.
---------------------------------------------------------------------------
    A station's second option under the 1992 Cable Act, retransmission 
consent, has also worked well. Many stations, including some of LIN's 
stations, have used retransmission consent to create and improve 
mechanisms that better serve their local communities and regions. LIN 
has used retransmission consent in some of its markets to launch 
separate cable channels providing local weather information. Here in 
the Washington, D.C., area, Albritton Communications, owner of ABC 
affiliate Channel 7, has used retransmission consent to launch News 
Channel 8 that provides ten hours of local news, weather and public 
affairs programming zoned separately for Washington and its suburbs.
    In short, the must carry/retransmission consent regime in the 1992 
Cable Act has worked as Congress intended in protecting the free over-
the-air broadcasting system and providing a mechanism to help that 
system improve service to the local communities it serves.

                               CONCLUSION

    Because broadcast television is universally available and is the 
only service used by millions of Americans, when considering public 
policies to apply to new technologies such as video over broadband, we 
urge you to adopt the same principles of local market program 
exclusivity, must carry, and retransmission consent that have served 
broadcasting and its local viewers so well for the last thirteen years. 
This will not only help ensure the continued viability of a free over-
the-air locally oriented broadcasting service, it will also provide a 
level playing field whereby existing video production delivery services 
and any new services play by the same rules.

    Mr. Upton. Thank you.
    Mr. Gleason.

                  STATEMENT OF JAMES M. GLEASON

    Mr. Gleason. Thank you, Mr. Chairman and members of the 
subcommittee.
    My name is Jim Gleason, and I am President of New Wave 
Communications, an independent cable business serving nearly 
20,000 customers in the Midwest and Southeast.
    As this committee investigates how to deploy new and 
advanced video services, it is essential to address two major 
components of a successful rollout. What most people seem 
focused upon is the first question: Who will deploy these 
services? In short, our view is that no industry should be 
artificially shackled by the failed policies of the current 
regulatory regime while others are allowed to run around 
unfettered. Therefore, outdated policies should be reformed or 
discarded so that creative competition can be unleashed to the 
benefit of consumers.
    While that facet is important and merits consideration, 
there is a second item that merits equal time: What content 
will those services be able to provide?
    Based on my extensive experience in the cable business, I 
am certain you do not want to carry many of those rules that 
have governed the analog world into the IP world. Between the 
DTV transition and the telecom rewrite, you have a unique and 
historic opportunity to address the significant problems that 
exist in multi-channel video competition, including growing 
media consolidation, increases in programming prices, forced 
tying of channels, and retransmission consent abuse. If you do 
not address these problems concurrently, I believe you will not 
achieve the flexibility, choice, and price you want for the new 
world.
    So what should you do?
    Now is the time to discard current rules that, if left in 
place, will, one, constrain access to programming; two, force 
consumers to take programming they don't want; three, allow 
media consortiums to raise prices with no regard to what 
consumers value; four, hide the reasons for higher rates from 
Congress, the FCC, local franchising authorities, and 
consumers, and fail to harness the greatest of American tools, 
a free market.
    Specifically, I want to highlight three changes that must 
be made if your goal to provide competition to multi-channel 
video at prices consumers will pay in the IP world. They are: 
one, treat video services alike, regardless of the means of 
delivery; two, change retransmission consent rules to remedy 
the imbalance of power caused by media consolidation; and 
three, correct rules that allow for abusive media behavior and 
control of content.
    Point one: Congress must reduce or at least equalize the 
regulatory burdens so that all providers of like services are 
treated alike. For example, you should either extend or 
eliminate, for all providers, franchise fees and other 
franchise requirements. Leaving only one provider with this 
burden would distort what should be a free and open competitive 
environment.
    Point two: retransmission consent. Cable operators must, in 
essence, purchase the right to carry free, over-the-air local 
television signals owned by the big four media conglomerates: 
Disney, Viacom, Fox, GE, and other broadcast groups and 
stations. This year, broadcasters will leverage retransmission 
consent rules to extract nearly $1 billion from consumers 
served by ACA members alone for programming that is freely 
available over the air. Additionally, some conglomerates use 
retransmission consent rules in one market to force cable 
operators to carry affiliated programming in entirely separate 
markets. This means that consumers who won't even see the 
broadcast signal are unknowingly forced to pay for it.
    There is an easy solution to this problem. When a 
broadcaster seeks payment for retransmission consent in cash or 
a carriage of programming, give operators the ability to shop 
for a lower-cost network station. This would finally allow 
competitive markets to establish a fair market value for 
signals that are currently protected by antiquated government 
rules that now have an anti-competitive and anti-consumer 
effect.
    Point three: media consolidation has permitted the 
following abuses. The first is lack of local choice. Today, the 
big four restricts choice by forcing all of their channels onto 
the basic or expanded basic tiers. Two, price discrimination 
against smaller and medium-sized cable companies. We often pay 
30 to 50-percent higher prices than larger competitors for 
exactly the same programming. Three, the media giants cloak 
these arrangements with strict confidentiality and non-
disclosure obligations. These clauses prevent Congress, the 
FCC, local franchising authorities and consumers from knowing 
what programmers are really charging cable operators for 
programming. As a result, Congress must address these market 
problems and update rules to give local providers more 
flexibility to tailor programming offerings to consumer needs.
    In conclusion, media consolidation has rendered the current 
1970's-era programming laws and regulations outdated and anti-
competitive. You have the ability to update these laws to 
protect your constituents with exciting new programs, content, 
and flexibility while finally allowing free market to spur 
competition. Please seize the opportunity by avoiding the 
mistake of carrying a broken regulatory regime and an anti-
competitive programming market into the IP-enabled world.
    Thank you, Mr. Chairman.
    [The prepared statement of James M. Gleason follows:]

  Prepared Statement of James M. Gleason, President and COO, Newwave 
                          Communications, Inc.

                              INTRODUCTION

    Thank you, Mr. Chairman and members of the subcommittee.
    My name is Jim Gleason, and I am president and chief operating 
officer of NewWave Communications, an independent cable business 
currently serving 20,000 customers in Missouri, Tennessee, Arkansas, 
North Carolina and South Carolina. My company provides cable 
television, digital cable, high-speed internet, local phone VOIP 
service, digital video recorders and other advanced services in 10 
smaller systems and rural areas throughout the Midwest and Southeast 
United States.
    I am also the chairman of the American Cable Association. ACA 
represents nearly 1,100 smaller and medium-sized independent cable 
businesses. These companies do one thing--serve our customers. They 
don't own programming or content; nor are they run by the large media 
companies. Collectively, ACA members serve nearly 8 million customers, 
mostly in smaller markets. ACA's constituency is truly national; our 
members serve customers in every state and in nearly every 
congressional district, particularly those of this Committee.
    To begin, I want to commend you for holding this hearing. My 
testimony today details what I think has gone right and what has gone 
wrong in the video services industry over the past decade, and I will 
offer my thoughts on what lessons should be transferred into the 
digital IP world. I believe you stand at an historic moment, when we 
shift from the 1970s-era policies of the analog world to the exciting 
and enticing future that the digital revolution can provide. I strongly 
urge this Committee to seize this moment and to adopt what has worked 
in the past and to discard what has outlived its purpose. In short, I 
believe it is time for the balance of power between programmers, 
operators, media consortiums and broadcasters to be recalibrated for 
the digital world so that each is subject to the creative power of 
competitive market forces.
    I have been in the cable business for 20 years, and I have seen 
firsthand the effect that growing media consolidation, rising 
programming increases, forced tying and bundling of channels, and 
retransmission consent have had on my company and, most importantly for 
you, on your constituents. As you analyze what rules should be in place 
in an IP-based market place, I believe you must review whether the 
current analog rules are really providing consumers with the ``best 
television money can buy.'' Now is the time to discard the rules that: 
1) force consumers to take programming they do not want; 2) allow media 
consortiums to raise prices with no regard to what consumers value; 3) 
hide the reasons for higher rates from the Congress, the Federal 
Communications Commission, the local franchising authorities and 
consumers alike; and, 4) fail to harness the greatest of American 
tools, a free market to spur diverse and new programming. Digital 
platforms may provide consumers with a wondrous world of new and 
valuable programming. But if you allow the old rules stay in place, it 
will just be more of the same. Wouldn't it be a shame to clog the 
healthy and robust arteries of the new IP infrastructure when you have 
the chance to inject new vitality into this space? To provide consumers 
with the greatest benefit, it is imperative that you break with the 
past and recognize that some old ideas no longer serve the greater 
good.
    Before describing my views on how to craft the best market 
structure, I want to offer one other cautionary point about smaller 
markets and rural communities.
    Out in the smaller communities ACA members serve from Pennsylvania 
to Nebraska to Oregon to Mississippi, it is our core video business 
that allows us to finance and provide the high-speed services that 
everyone wants in order to bridge the Digital Divide. But unlike 
independent cable, satellite providers, telephone giants and major 
cable companies are not rushing into these communities to offer high-
speed data or other advances services. The headlines you read about new 
services and suites of services are offered to larger communities. If 
ACA members' video service cannot survive, I can assure you no one of 
us will be around to offer the cable modem services these communities 
need. In short, video programming is not ``just'' about programming 
choices and rates, but it is also the foundation upon which advanced 
services are built.
    As I see it, there are four fundamental and specific changes that 
need to be made if your goal is to provide the greatest diversity of 
video services at prices consumers will pay in the IP-enabled world. 
These steps have been detailed extensively in the ACA's recent comments 
in the FCC's programming inquiry, ACA's petition for rulemaking on 
retransmission consent that was recently opened by the FCC, and in 
ACA's comments on the Satellite Home Viewer Extension and 
Reauthorization Act. I urge each of you to review these filings because 
I believe they embody the core elements of what is wrong with today's 
market and provide solutions for a better market tomorrow. The four 
changes are:

1. Update And Change The Current Retransmission Consent Rules To Help 
        Remedy The Imbalance Of Power Caused By Media Consolidation.
2. Treat Video Services Alike As Much As Possible, Regardless Of The 
        Means Of Delivery.
3. Make Access To Quality Local-Into-Local Television Signals 
        Available.
4. Correct Rules That Allow For Abusive Behavior Because Of Media 
        Consolidation And Control Of Content.

What needs to be changed and why:
1. Current Retransmission Consent Rules Must Be Updated To Help Remedy 
        The Imbalance Of Power Caused By Media Consolidation.
 The current retransmission consent and broadcast exclusivity laws and 
        regulations limit consumer choice and impede independent cable 
        operators' ability to compete in smaller markets and rural 
        America by permitting distant media conglomerates to charge 
        monopoly prices for programming. This situation must not be 
        carried forward into the IP world or in the post-DTV world.
    The current laws and regulations governing retransmission consent 
and broadcast exclusivity limit consumer choice and significantly 
impede independent, smaller and medium-sized cable operators' ability 
to compete in rural America by permitting distant media conglomerates 
to mandate the cost and content of most of the services that these 
operators provide in local small markets. We estimate that this year 
broadcasters will leverage retransmission consent rules to extract more 
than $860 million from consumers served by ACA members. Remember, this 
is cash out of consumers' pockets to pay for programming that is freely 
available over-the-air. And broadcasters don't only demand cash for 
carriage. Some members of the largest media conglomerates even require 
our cable companies to carry affiliated satellite programming in 
systems outside of the member's local broadcast market. In this way, 
ownership of a broadcast license is used to force carriage of, and 
payment for, affiliated programming by consumers who do not even 
receive the broadcast signal at issue.
    The programmers can get away with these abuses because the pricing 
of retransmission consent does not occur in a competitive market. Under 
the current regulatory scheme, media conglomerates and major affiliate 
groups are free to demand monopoly ``prices'' for retransmission 
consent while blocking access to readily available lower cost 
substitutes.
    They do so by two methods:

 First, the network non-duplication and syndicated exclusivity laws 
        and regulations allow broadcasters to block cable operators 
        from cable-casting network and syndicated programming carried 
        by stations outside of the broadcaster's protected zone. For 
        example, a Disney/ABC-owned station that broadcasts in a small 
        town or rural area can use the broadcast exclusivity rules to 
        block a cable operator from cable-casting a station owned by a 
        local ABC affiliate in the next market. In other words, the 
        conglomerate-owned station makes itself the only game in town 
        and can charge the cable operator a monopoly ``price'' for its 
        must-have network programming. The cable operator needs this 
        programming to compete. So your constituents end up paying 
        monopoly prices.
 Second, the media conglomerates require network affiliates to sign 
        contracts that prevent the affiliate from selling their 
        programming to a cable operator in a different market. Again, 
        the conglomerate-owned and operated stations are the only game 
        in town.
    In these situations, the cable companies' only defense is to refuse 
to carry the programming. This has virtually no effect on the media 
conglomerates, but it prevents your constituents from receiving must-
have network programming and local news. This result directly conflicts 
with the historic goals and intent of the retransmission consent and 
broadcast exclusivity rules, which were to promote consumer choice and 
localism.
    There is a ready solution to this dilemma. When a broadcaster seeks 
a ``price'' for retransmission consent, give independent, smaller and 
medium-sized cable companies the ability to shop for lower cost network 
programming for their customers.
    Accordingly, in our March 2, 2005, Petition for Rulemaking to the 
FCC, ACA proposed the following adjustments to the FCC's retransmission 
consent and broadcast exclusivity regulations:

 One: Maintain broadcast exclusivity for stations that elect must-
        carry or that do not seek additional consideration for 
        retransmission consent.
 Two: Eliminate exclusivity when a broadcaster elects retransmission 
        consent and seeks additional consideration for carriage.
 Three: Prohibit any party, including a network, from preventing a 
        broadcast station from granting retransmission consent.
    On March 17, 2005, the FCC released ACA's petition for comments. By 
opening ACA's petition for public comment, the FCC has acknowledged 
that the current retransmission consent and broadcast exclusivity 
scheme requires further scrutiny. Before codifying a new regulatory 
regime for video services utilizing IP, Congress should ask similar 
questions and make the important decision to update current law to 
rebalance the role of programmers and providers.
    Congress, too, should revisit the retransmission consent laws to 
correct the imbalance caused by the substantial media ownership 
concentration that has taken place since 1992. One solution is to 
codify the retransmission consent conditions imposed on News Corp. to 
apply across the retransmission consent process. The three key 
components of those conditions include: (i) a streamlined arbitration 
process; (ii) the ability to carry a signal pending dispute resolution; 
and (iii) special conditions for smaller cable companies.
    In summary, the retransmission consent and broadcast exclusivity 
regulations have been used by the networks and stations to raise rates 
and to force unwanted programming onto consumers. This must stop. If a 
station wants to be carried, it can elect must-carry. If a station 
wants to charge for retransmission consent, let a true competitive 
marketplace establish the price.

2. Treat Video Services Alike As Much As Possible, Regardless Of The 
        Means Of Delivery.
    As a fundamental principal of competition, like services should be 
treated alike, regardless of how the service is distributed to 
consumers, whether by cable, satellite, wireless, copper or other 
means. I would urge you to be skeptical of those advocating reduced 
regulatory obligations to provide like services, because that is a 
harbinger of their desire to eliminate, not promote, competition.
    We're here today partly because huge, national phone companies are 
asking to be released from fundamental video regulations, such as the 
need to obtain a franchise from a local government to use its public 
rights-of-way or the obligation to pay a franchise fee for the use of 
such rights-of-way. These companies claim that if Congress would only 
release them from regulation, they would be able to compete against 
cable.
    Ironically, the companies asking to be deregulated today had to be 
broken up in the not-too-distant past because of their monopolistic 
practices.
    Furthermore, it is not genuine for these giant, national phone 
companies that are on the path again toward consolidation and dominant 
market control to say they need Congressional help to compete against 
my smaller company or any ACA member.
    As the FCC has observed, video competition is local. Competition is 
not national, as if it were PHONE versus CABLE versus SATELLITE. It's 
my company, NewWave Communications, versus DirecTV and EchoStar, and 
now versus SBC, Verizon and other phone giants.
    Nearly 1,100 ACA members compete head-to-head against these giant 
companies in Dexter, MO, Brownsville, TN, and also in Bloomingdale, MI, 
Braintree, MA, Parkdale, OR, Ramsey, IL, and many other towns 
represented by this Committee. Compounding this challenge is the fact 
that for our members each new customer and mile of cable must be 
financed by a loan from the local bank signed by the local owner, while 
our mega-competitors are financed by Wall Street.
Direct broadcast satellite (DBS) is an example of this point.
    Since 1999, the DBS industry has become a mature, successful 
business and a powerful competitor to cable. This is especially true in 
the smaller markets and rural areas served by my company and ACA 
members. DBS took away cable market share from the start, even before 
receiving specific legislative and regulatory relief. In some smaller 
markets, DBS has become the dominant provider. And when you consider 
competition at the local level, it is not hard to see why.
    The typical ACA member company in your state serves about 1,000 
customers per cable system. DirecTV serves almost 12 million more 
customers than the average ACA member. Similarly, EchoStar serves 
almost 10 million more subscribers than the average ACA member. It is 
self-evident that these companies benefit from far greater economies of 
scale, access to capital and bargaining power over programmers and 
other suppliers. As the FCC found, the acquisition of DirecTV by News 
Corp. enhanced those competitive advantages. Compounding the problem, 
smaller cable operators bear a much greater regulatory load against 
these giants. It would no different with the national phone companies 
if they are deregulated. Consider the following comparison:

                                               REGULATORY BURDENS
----------------------------------------------------------------------------------------------------------------
                                                     Big Telcos'
                                                       Current
                                       ACA MEMBERS   Obligations                             DBS (DirecTV--12
                                       (Avg. 8,000   Under Title    What Big Telcos are    million subscribers;
                                      Subscribers)     VI And           Asking For         EchoStar--10 million
                                                       Related                                 subscribers)
                                                     Regulations
----------------------------------------------------------------------------------------------------------------
Mandatory carriage of broadcast on            Yes           Yes   To be exempt..........  No
 basic.
Must-carry in all markets...........          Yes           Yes   To be exempt..........  Must-carry only in
                                                                                           selected markets
Must-carry for qualified low power            Yes           Yes   To be exempt..........  No
 stations.
Retransmission consent..............          Yes           Yes   To be exempt..........  Yes
Full public interest obligations....          Yes           Yes   To be exempt..........  Limited public
                                                                                           interest obligations
Emergency alert requirements........          Yes           Yes   To be exempt..........  No
Tier buy-through....................          Yes           Yes   To be exempt..........  No
Franchising requirement.............          Yes           Yes   To be exempt..........  No
Franchise fees......................          Yes           Yes   To be exempt..........  No
Local taxes.........................          Yes           Yes   To be exempt..........  No
Signal leakage/CLI..................          Yes           Yes   To be exempt..........  No
Rate regulation.....................          Yes           Yes   To be exempt..........  No
Privacy obligations.................          Yes           Yes   To be exempt..........  Yes
Customer service obligations........          Yes           Yes   To be exempt..........  No
Service notice provisions...........          Yes           Yes   To be exempt..........  Limited to notice
                                                                                           regarding privacy
                                                                                           rights
Closed captioning...................          Yes           Yes   To be exempt..........  No
Pole attachment fees................          Yes           Yes     ....................  No
Channel positioning requirements for          Yes           Yes   To be exempt..........  Only requirement is to
 local broadcast stations.                                                                 retransmit local
                                                                                           broadcast stations on
                                                                                           contiguous channels
Billing requirements................          Yes           Yes   To be exempt..........  No
Public file requirements............          Yes           Yes   To be exempt..........  No
----------------------------------------------------------------------------------------------------------------

    Before changing the rules now for the giant telephone companies, 
Congress should examine the regulatory disparity among all providers 
that exists in local markets today and try to eliminate those 
artificial and unnecessary disparities. With vibrant competition as the 
goal, why should the heavy hand of government weigh on one type of 
provider versus another, let alone do so in order to disadvantage small 
businesses such as my own that are the heart and soul of local Chambers 
of Commerce across this country?
    To ensure that local communications businesses continue to deliver 
advanced services in smaller markets, Congress should consider 
reducing, or at least equalizing, the regulatory burdens on independent 
cable.
    Moreover, any legislative or regulatory action to treat multi-video 
programming distributors differently--whether cable, satellite, phone 
or wireless, among others--will skew competition across America.
    For these reasons, the Committee should treat and regulate all 
video providers alike, regardless of how video signals are distributed 
to the customer.

3. Make Access To Quality Local-Into-Local Television Signals 
        Available.
    Another legislative obstacle to competition and rural consumers' 
access to local programming is the current local-into-local statutory 
scheme.
    Because of distance from transmitters, many rural cable systems 
cannot receive good-quality local broadcast signals. By contrast, in 
local-into-local markets, DBS can deliver clear local broadcast signals 
regardless of distance from transmitters. The problem? The DBS duopoly 
refuses to allow rural cable systems to receive these DBS-delivered 
broadcast signals. As a result, more than one million rural consumers 
cannot receive good quality local broadcast signals from their provider 
of choice.
    The inability to provide local broadcast signals is a serious 
handicap--it was this limitation that caused Congress to enact the 
Satellite Home Viewer Improvement Act in 1999, which Congress recently 
reauthorized through SHVERA. But SHVERA does nothing to solve the local 
signal problem for rural cable operators and customers.
    Congress can solve this problem by revising the retransmission 
consent laws as follows:
        In markets where a satellite carrier delivers local-into-local 
        signals, that satellite carrier shall make those signals 
        available to MVPDs of all types on nondiscriminatory prices, 
        terms and conditions when (i) the MVPD cannot receive a good 
        quality signal off-air; and (ii) the MVPD has the consent of 
        the broadcaster to retransmit the signal.
    ACA's recommended revisions to the laws and regulations governing 
retransmission transmission consent and broadcast exclusivity are 
modest. But they will advance the widespread dissemination of good 
quality local broadcast signals to your constituents and will address 
the serious competitive imbalance currently hurting small market and 
rural cable systems. Carrying this restrictive situation into the IP 
realm would further compound this mistake. All video vendors must be 
able to have access to quality signals if they are going to be viable 
competitors within the IP-enabled marketplace.
4. Correct Rules That Allow For Abusive Behavior Because Of Media 
        Consolidation And Control Of Content.
    What most consumers do not understand is that my independent 
company and ACA member companies must purchase most of their 
programming wholesale from just four media conglomerates, referred to 
here as the ``Big Four''--Disney/ABC, Viacom/CBS, News Corp./DirecTV/
Fox, and General Electric/NBC. In dealing with the Big Four, all ACA 
members continually face contractual restrictions that eliminate local 
cable companies' flexibility to package and distribute programming the 
way our customers would like it. Instead, programming cartels, 
headquartered thousands of miles away, decide what they think is 
``valuable'' content and what our customers and local communities see.
    ACA members have intimate knowledge of the wholesale practices of 
the Big Four and how those practices can restrict choice and increase 
costs in smaller markets. By leveraging their broadcast assets, these 
cartels make the decisions that tend to lead to the headlines we all 
experience. We've seen the headlines: ``Higher rates,'' ``Indecent 
content,'' and ``I have 200 channels and nothing is on'' and the like. 
Why would we want to carry over a regulatory scheme that propels this 
situation into the IP world? Today is the day to recognize that there 
is no ``market'' in this market and the responsibility to correct that 
situation lies within this body.
    To fix this situation, Congress must update and reform the rules so 
that:

a. Local providers of all forms and customers have more choice and 
        flexibility in how programming channels are priced and 
        packaged, including the ability to sell programming channels on 
        a theme-based tier if necessary;
b. Tying through retransmission consent must end. Today, the media 
        giants hold local broadcast signals hostage with monopolistic 
        cash-for-carriage demands or demands for carriage of affiliated 
        media-giant programming, which was never the intention of 
        Congress when granting this power;
c. The programming pricing gap between the biggest and smallest 
        providers is closed to ensure that customers and local 
        providers in smaller markets are not subsidizing large 
        companies and subscribers in urban America; and,
d. The programming media giants must disclose, at least to Congress and 
        the FCC, what they are charging local providers, ending the 
        strict confidentiality and non-disclosure dictated by the media 
        giants. Confidentiality and non-disclosure mean lack of 
        accountability of the media giants.
    Let me explain.

Forced Cost and Channels
    For nearly all of the 50 most distributed channels (see Exhibit 1), 
the Big Four contractually obligate my company and all ACA members to 
distribute the programming to all basic or expanded basic customers 
regardless of whether we think that makes sense for our community. 
These same contracts also mandate carriage of less desirable channels 
in exchange for the rights to distribute desirable programming.
    A small cable company that violated these carriage requirements 
would be subject to legal action by the media conglomerates, and for 
ACA's members, this is a very real threat.
    These carriage restrictions prohibit ACA members from offering more 
customized channel offerings that may reflect the interests and values 
of our specific community.

More Forced Cost and Channels Through Retransmission Consent
    As previously discussed, retransmission consent has morphed from 
its original intent to provide another means to impose additional cost 
and channel carriage obligations. As a result, nearly all customers 
have to purchase basic or expanded basic packages filled with channels 
owned by the Big Four (See Exhibit 2).
    In short, media conglomerates that control networks and broadcast 
licenses are exploiting current laws and regulations to actually reduce 
consumer choice and to increase costs, all for their own benefit. Such 
control should not be perpetuated in the IP or in the post-DTV 
transition world.

Forced Carriage Eliminates Diverse Programming Channels.
    The programming practices of certain Big Four members have also 
restricted the ability of some ACA members to launch and continue to 
carry independent, niche, minority, religious and ethnic programming. 
The main problem: requirements to carry Big Four affiliated programming 
on expanded basic eliminate ``shelf space'' where the cable provider 
could offer independent programming.
    If new independent programmers are to provide outlets for this type 
of programming to reach consumers, you must ensure that they are not 
subject to the handcuffs current programming practices place upon them.

Local Flexibility is Needed.
    In order to give consumers more flexibility and better value, 
changes in current wholesale programming practices and market 
conditions are needed for all providers. Operators must be given more 
flexibility to tailor channel offerings that work best in their own 
local marketplaces.
    As I have stated, the Big Four condition access to popular 
programming on a range of distribution obligations and additional 
carriage requirements. These restrictions and obligations eliminate 
flexibility to offer more customized channel packages in local markets.
    With more flexibility, cable operators could offer a variety of 
options to their customers, including more customized program offerings 
that meet the local needs and interests of our customers.
    However, without congressional or regulatory involvement or 
accountability, the Big Four will continue to act solely to benefit 
themselves, without regard to the cost, channels and content forced 
upon consumers. Again, this situation must be remedied now and guarded 
against in any future IP regulatory regime.
    It's important to point out that neither my company nor any ACA 
member controls the content that's on today's programming channels. 
That content--decent or not--is controlled by the media conglomerates 
that contractually and legally prevent us from changing or preempting 
any questionable or indecent content.
    However, if my company and other ACA members had more flexibility 
to package these channels with the involvement of our customers, 
current indecency concerns raised by both Congress and the FCC could 
also be addressed.

Price discrimination against smaller cable companies makes matters 
        worse.
    The wholesale price differentials between what a smaller cable 
company pays in rural America compared to larger providers in urban 
America have little to do with differences in cost, and much to do with 
disparities in market power. These differences are not economically 
cost-justified and could easily be replicated in the IP world as 
smaller entrants are treated to the same treatment our members face.
    Price discrimination against independent, smaller and medium-sized 
cable companies and their customers is clearly anti-competitive conduct 
on the part of the Big Four--they offer a lower price to one competitor 
and force another other competitor to pay a 30-55% higher price FOR THE 
SAME PROGRAMMING. In this way, smaller cable systems and their 
customers actually subsidize the programming costs of larger urban 
distributors and consumers.
    In order to give consumers in smaller markets and rural areas more 
choice and better value, media conglomerates must be required to 
eliminate non-cost-based price discrimination against independent, 
smaller and medium-sized cable operators and customers in rural 
America.
    With less wholesale price discrimination, ACA members could offer 
their customers better value and stop subsidizing programming costs of 
large distributors.

Basis For Legislative and Regulatory Action
    Congress has the legal and constitutional foundation to impose 
content neutral regulation on wholesale programming transactions. The 
program access laws provide the model and the vehicle, and those laws 
have withstood First Amendment scrutiny. This hearing provides the 
Committee with a key opportunity to help determine the important 
governmental interests that are being harmed by current programming 
practices.
    Furthermore, based in large part on the FCC's actions in the 
DirecTV-News Corp. merger, there is precedent for Congress and the FCC 
to address the legal and policy concerns raised by the current 
programming and retransmission consent practices of the media 
conglomerates. The FCC's analysis and conclusions in the News Corp. 
Order persuasively establish the market power wielded by owners of 
``must have'' satellite programming and broadcast channels and how that 
market power can be used to harm consumers. That analysis applies with 
equal force to other media conglomerates besides News Corp.

Pierce the Programming Veil of Secrecy--End Non-Disclosure and 
        Confidentiality.
    Most programming contracts are subject to strict confidentiality 
and nondisclosure obligations, and my company and ACA members are very 
concerned about legal retaliation by certain Big Four programmers for 
violating this confidentiality. Why does this confidentiality and non-
disclosure exist? Who does it benefit? Consumers, Congress, the FCC? I 
don't think so. Why is this information so secret when much of the 
infrastructure the media giants benefit from derives from licenses and 
frequencies granted by the government?
    Congress should obtain specific programming contracts and rate 
information directly from the programmers, either by agreement or under 
the Committee's subpoena power. That information should then be 
compiled, at a minimum, to develop a Programming Pricing Index (PPI). 
The PPI would be a simple yet effective way to gauge how programming 
rates rise or fall while still protecting the rates, terms, and 
conditions of the individual contract. By authorizing the FCC to 
collect this information in a manner that protects the unique details 
of individual agreements, I cannot see who could object.
    Armed with this information, Congress and the FCC would finally be 
able to gauge whether rising cable rates are due to rising programming 
prices as we have claimed or whether cable operators have simply used 
that argument as a ruse. A PPI would finally help everyone get to the 
bottom of the problems behind higher cable and satellite rates. We at 
ACA are so convinced that this type of information will aid you in your 
deliberations that we challenge our colleagues in the programming 
marketplace to work with us and this Committee to craft a process for 
the collection of that data.
    In short, without disclosure, there is no accountability.

                               CONCLUSION

    In preparing to talk to you today, I have held the following image 
in my mind from the Wizard of Oz.
    If you think things are fine in the World of Television today, then 
do nothing and live on in Oz.
    But if you are worried about how much television costs or why 
consumers can't receive more of the specific types of programming they 
want or how they can protect their families from unwanted programs or 
why diverse programming struggles to get on the air, then you must pull 
back the curtain. What you will find is a cabal of ``wizards'' laboring 
at the levers of programming, using broadcast signals and onerous 
leverage to gain carriage of other programming that would never make it 
on its own.
    As a smaller, independent businessman who lives in this arena, I 
can assure you that the market needs your help now to fix these 
problems. The future IP-based world needs you to act with the wisdom, 
heart and courage to face down the corporate media wizards that tell 
you everything is fine in order to have you convey these problems onto 
the next generation of video services. Do not fall prey to that 
argument.

         EXHIBIT 1--Ownership of the Top 50 Programming Channels
------------------------------------------------------------------------
                  Channel                             Ownership
------------------------------------------------------------------------
BET.......................................  Viacom/CBS
CMT.......................................  Viacom/CBS
MTV.......................................  Viacom/CBS
Nickelodeon...............................  Viacom/CBS
Spike.....................................  Viacom/CBS
TV Land...................................  Viacom/CBS
VH1.......................................  Viacom/CBS
Comedy Central............................  Viacom/CBS
ABC Family................................  Walt Disney Co./ABC
Disney....................................  Walt Disney Co./ABC
ESPN......................................  Walt Disney Co./ABC
ESPN2.....................................  Walt Disney Co./ABC
Lifetime..................................  Walt Disney Co./Hearst
A&E.......................................  Hearst/ABC/NBC
History...................................  Hearst/ABC/NBC
CNBC......................................  GE/NBC
MSNBC.....................................  GE/NBC
Sci-fi....................................  GE/NBC
USA.......................................  GE/NBC
Bravo.....................................  GE/NBC
Shop NBC..................................  GE/NBC
Fox News..................................  News Corp.
Fox Sports................................  News Corp.
FX........................................  News Corp.
Speed.....................................  News Corp.
TV Guide..................................  News Corp.
CNN.......................................  Time Warner/Turner
Headline News.............................  Time Warner/Turner
TBS.......................................  Time Warner/Turner
TCM.......................................  Time Warner/Turner
TNT.......................................  Time Warner/Turner
TOON......................................  Time Warner/Turner
Court TV..................................  Time Warner/Liberty Group
Animal Planet.............................  Liberty Media
Discovery.................................  Liberty Media
Travel....................................  Liberty Media
TLC.......................................  Liberty Media
Golf......................................  Comcast Corp.
Outdoor Life..............................  Comcast Corp.
E!........................................  Comcast Corp.
QVC.......................................  Comcast Corp.
HGTV......................................  Scripps Company
Food......................................  Scripps Company
AMC.......................................  Rainbow/Cablevision Systems
C-Span....................................  National Cable Satellite
                                             Corp.
C-Span II.................................  National Cable Satellite
                                             Corp.
WGN.......................................  Tribune Company
Hallmark..................................  Crown Media Holdings
Weather...................................  Landmark Communications
HSN.......................................  IAC/InterActiveCorp.
------------------------------------------------------------------------


       EXHIBIT 2--Channels Carried Through Retransmission Consent
------------------------------------------------------------------------
              Program Service                         Ownership
------------------------------------------------------------------------
FX........................................  News Corp.
Fox News..................................  News Corp.
Speed.....................................  News Corp.
National Geographic.......................  News Corp.
Fox Movie Network.........................  News Corp.
Fox Sports World..........................  News Corp.
Fuel......................................  News Corp.
ESPN2.....................................  Walt Disney Co./ABC
ESPN Classic..............................  Walt Disney Co./ABC
ESPNews...................................  Walt Disney Co./ABC
Disney from premium to basic..............  Walt Disney Co./ABC
Toon Disney...............................  Walt Disney Co./ABC
SoapNet...................................  Walt Disney Co./ABC
Lifetime Movie Network....................  Walt Disney Co./Hearst
Lifetime Real Women.......................  Walt Disney Co./Hearst
MSNBC.....................................  GE/NBC
CNBC......................................  GE/NBC
Shop NBC..................................  GE/NBC
Olympic Surcharges for MSNBC/CNBC.........  GE/NBC
Comedy Central............................  Viacom/CBS
MTV Espanol...............................  Viacom/CBS
MTV Hits..................................  Viacom/CBS
MTV2......................................  Viacom/CBS
Nick GAS..................................  Viacom/CBS
Nicktoons.................................  Viacom/CBS
Noggin....................................  Viacom/CBS
VH1 Classic...............................  Viacom/CBS
VH1 Country...............................  Viacom/CBS
LOGO......................................  Viacom/CBS
------------------------------------------------------------------------

    Comparing this with the Top Fifty Channels in Exhibit 1 
demonstrates how certain members of the Big Five have used 
retransmission consent to gain a significant portion of analog and 
digital channel capacity.

    Mr. Upton. Mr. Perry.

                     STATEMENT OF JACK PERRY

    Mr. Perry. Good morning. Thank you for the opportunity to 
testify.
    Decisionmark is a media technology company based in Cedar 
Rapids, Iowa. When I last testified before you in February 
1999, I introduced our patented Geneva technology. Today, 
Geneva rests squarely between the DBS carriers and every local 
television station in the United States. Geneva provides real-
time compliance with SHVA. The most critical component of 
Geneva being our station-verified broadcast signal area data 
warehouse Coronado.
    During the 5 years of SHVA and now SHVERA, Geneva has 
answered the compliance question 174 million times, and we have 
processed 50 million waiver requests for distant network 
signals. Our consumer product, TitanTV.com, and online EPGPBR, 
was used 26 million times last year by viewers in search of HD 
content.
    Today I want to talk to you about a new technology we call 
``Air-To-Web Broadcast Replication.'' Air-To-Web, we believe, 
is the solution to a problem that has long faced local 
broadcasters: how to maintain the ability to serve the local 
public but over the Internet. The fundamental question has been 
whether or not the geographic exclusivity of markets, the 
cornerstone of the American system of free, over-the-air 
broadcast television, can be replicated for Internet 
broadcasting. The answer is yes.
    Using Air-To-Web, a local broadcaster can deliver local 
content in real time over the Internet to a wired or wireless 
device with the same copyright protections currently enjoyed by 
broadcast cable and satellite delivery. The bottom line is the 
localization of the Internet.
    Air-To-Web will make accurate eligibility determinations in 
real time using signal strength technology in a broadcaster-
verified data warehouse. Air-To-Web will communicate subscriber 
activity to each of the Nation's local broadcasters, giving 
them unprecedented real-time ratings data. This reporting will 
more accurately measure ratings of minority viewers than has 
been the case with the traditional Nielsen reporting system. 
Air-To-Web will ensure that the underlying signal area data is 
always accurate.
    The benefits to the consumers and the broadcasters are 
many. Local broadcasters will be able to bring their 
programming to the Internet, which will enhance interactivity 
with their audience. Consumers will have the benefit of gaining 
access to their local stations in real time over the Web. The 
net result is more viewers for local programming and more 
choice for consumers.
    Finally, Air-To-Web also represents an opportunity for 
delivering local broadcast television through non-traditional 
means. Using Air-To-Web will help foster competition for local 
television, allowing consumers to have new choice instead of 
being forced to rely on solely over-the-air, cable, or 
satellite service.
    As you move forward with the legislation addressing the 
conversion of digital television and rewriting the 1996 
Telecommunications Act, remember that technology does not stand 
still. Air-To-Web is new today and has endless possibilities, 
and it is just the beginning of innovations to come.
    To illustrate Air-To-Web, I have a demo here. My colleague, 
Mike Rinehart, will drive while I talk.
    [Video.]
    Mr. Chairman, I grew up in Grand Rapids, Michigan, so I am 
from here. So I pre-entered the address----
    Mr. Upton. Be careful about Mr. Stupak. You are missing 
half of the State.
    Mr. Perry. Okay.
    So what my colleague has done is called up Air-To-Web 
Broadcast Replication technology. And since most devices, as 
you know, are wireless nowadays, we are able to take the 
address, enter it in, hit the submit button, and return the 
channel line-up. What you have there is the exact channel line-
up, using Air-To-Web Broadcast Replication, for my former home 
in Grand Rapids, Michigan. Those are the channels, which are 
specifically received at that address.
    So if we know the location of a device, of course we know 
the Internet is global, but broadcasting is local. If we know 
the location of the device, we can make the assumption of what 
channels are received there. So instead of putting up an 
antenna, we are able to broadcast using the Internet.
    Now in the interest of time and fairness, we have also 
entered in an address for a Boston location as well. So my 
colleague will enter that in.
    So the point of the technology is that in the very near 
future, there will be a billion devices that are wired or 
wireless, which can get high-speed access. The local 
broadcasters are unable to use that access because of the 
question of eligibility. And so, using this technology, it is 
very quick and very easy to say what channels are received 
here. And so if we can do that, I think we should let viewers 
and broadcasters meet on the Internet. And so, as you can see, 
it is very fast. We went out and established the copyright for 
each television station. We established the eligibility right 
there. And for EchoStar and DirecTV, we do it at the point of 
sale, but for Internet broadcasting, we are doing it at the 
device. That opens up a world of broadcasting over the Internet 
for local broadcasters and viewers.
    Thank you, Mr. Chairman.
    [The prepared statement of Jack Perry follows:]

    Prepared Statement of Jack Perry, President and Chief Operating 
                      Officer, Decisionmark Corp.

    Good morning Mr. Chairman and Members of the Committee, I am Jack 
Perry President and CEO of Decisionmark Corp. I want to thank Chairman 
Barton and Chairman Upton for extending this invitation to testify.
    Decisionmark is a media technology company based in Cedar Rapids, 
Iowa.-- Decisionmark is a leader in providing software and data 
solutions to television and radio broadcasters and consumers. We have 
been at the forefront of accurately testing the reach of--local 
broadcast signals for the satellite industry in order for satellite 
providers and consumers to be in compliance with the Satellite Home 
Viewer Act (SHVA) and its updated versions.
    We hold an ever-growing number of technology patents and our 
patented Geneva technology is what enables household-level predictions 
of broadcast signals. Also, our Coronado Data Warehouse, the industry 
standard for broadcast signal area and programming data, have served as 
the basis for our consumer and broadcaster solutions, including 
TitanTV.com, CheckHD.com, and ProximityTV.
    When I last testified before you in February of 1999, I described 
our Geneva technology, which is used by all of the major networks, 
their affiliates and Satellite broadcasters to measure broadcast signal 
strength to insure compliance with SHIVERA. To date, we have processed 
more than 50 million waiver requests using getawaiver.com. Today I want 
to talk to you about a new technology we call Air-To-Web Broadcast 
Replication (AWBR).
    AWBR, we believe, is the solution to a problem that has long faced 
local broadcasters: how to maintain the ability to serve the local 
public over the Internet. The fundamental question has been whether or 
not the geographic exclusivity of markets, the cornerstone of the 
American system of free-over-the-air broadcast television can be 
replicated for Internet broadcasting. The answer is, yes.
    Using AWBR technology, a local broadcaster can deliver local 
content in real time over the internet to a wired or wireless device 
with the same copyright protections currently enjoyed by broadcast, 
cable and satellite delivery. Bottom line: the localization of the 
Internet.
    How does AWBR work? It works by meeting the four requirements 
necessary for any system to successfully stream local content 24/7 and 
be in compliance with a local broadcasters copyright:
    AWBR determines what channels/stations a viewer is entitled to 
receive by using proven local signal area prediction to determine which 
signals are received for each individual subscriber.
    AWBR will make accurate eligibility determinations in real time 
using signal strength technology and a broadcaster-verified data 
warehouse. AWBR will communicate subscriber activity to each of the 
nation's local broadcasters giving them unprecedented, real time 
ratings data. This reporting will more accurately measure ratings of 
minority viewers than has been the case with traditional Nielsen 
reporting. AWBR will also ensure that the underlying signal data is 
accurate.
    The benefits to consumers and broadcasters are many. Local 
broadcasters will be able to bring their programming to the Internet, 
which will enhance interactivity with their audience. Consumers will 
have the benefit of gaining access to their local stations in real time 
over the Web or via wireless. The net result is more viewers for local 
programming and more choices for consumers.
    Finally, AWBR also presents the opportunity of delivering local 
broadcast television through non-traditional means. Usage of AWBR will 
help foster competition for local television, allowing consumers to 
have a new choice instead of being forced to rely on over-the-air, 
cable or satellite service.
    As you move forward with legislation addressing the conversion to 
digital television and rewriting the 1996 Telecommunication Act, 
remember that technology does not stand still. AWBR is new today with 
endless possibilities and just the beginning of innovations to come.

                              INTRODUCTION

    For some time now it has been technologically feasible to provide 
television and radio content to consumers in real time via the 
Internet. According to a study by Leichtman Research Group, about 60% 
of households in the US subscribe to an online service, and in the past 
two years broadband providers have added 12.5 million net new 
subscribers. 1 The same study also indicates that over 30 
million U.S. households subscribe to cable or DSL broadband 
services.2
---------------------------------------------------------------------------
    \1\ ``Broadband Internet Access and Services to the Home 2004'', 
Leichtman Research,  2004, 
www.leichtmanresearch.com
    \2\ ``Broadband Booms in 2004,'' Sky Report E-news, March 7, 2005, 
www.skyreport.com
---------------------------------------------------------------------------
    Not only do Americans have unprecedented access to broadband 
services, they are listening to and viewing content streamed over the 
Internet in greater numbers than ever before. According to ratings 
information assembled by Arbitron Inc. and comScore Media Metrix, 4.1 
million people a week listen to three major online radio 
networks.3 Furthermore, broadband users accessed an average 
of 15.4 video streams per month during the first half of 2004, up 42.6% 
over 2003.4 The audience size and the potential opportunity 
for Internet streaming are both far too large for local broadcasters to 
ignore.
---------------------------------------------------------------------------
    \3\ ``4.1 Million People a Week Listen to Three Major Online Radio 
Networks According to comScore Arbitron Online Radio Ratings,'' Press 
release, International Webcasters Association, December 6, 2004. http:/
/www.webcasters.org/news/20041206.htm
    \4\ ``AccuStream Report: User Consumption of Broadband Video 
Streams Up 42% in First Half '04'' Press release, AccuStream iMedia 
Research, http://www.accustreamresearch.com/news/aug17-04.html
---------------------------------------------------------------------------
    With this opportunity comes a challenge--how to maintain compliance 
with copyright regulations within a geographically boundless medium. 
When granted a license, broadcasters were given the right to transmit 
their signal to a specific geographic area and called upon to restrict 
their transmission to this area. Advances in technology have moved the 
broadcast industry closer to using the Internet as yet another medium 
to reach their audience. Unfortunately, there are vexing legal issues 
that have stymied the development of the Internet as a medium for 
delivery of broadcast television and radio.
    Fortunately, Air-to-Web Broadcast Replication (AWBR) technology has 
now surfaced with a solution to the issue of broadcasters streaming via 
the Internet. AWBR has been proven in numerous pilot projects with 
broadcasters and will work in parallel with the intent of the original 
free American broadcast system. AWBR will help broadcasters maintain 
the ability to serve the local public--via the Internet.

        THE PROBLEM: BROADCAST IS LOCAL; THE INTERNET IS GLOBAL

    Free over-the-air American television is based on the network-
affiliate distribution system. Networks supply general interest 
programming and local affiliates supplement with local interest and 
syndicated programming. A mix of local and national advertising sales 
funds this system and the territorial exclusivity granted to the local 
affiliates is crucial to this model.
    Prior to cable TV, territorial exclusivity was enforced via 
transmitter licensing. With the advent of new delivery mechanisms for 
television, Congress has given cable and satellite TV services 
permission to retransmit broadcast television channels under a 
compulsory license to a specific geographic area therefore replicating 
broadcast television signal areas. Radio has not been subject to such 
legislation as yet, but the advent of digital satellite radio services 
has raised issues for local radio stations in protecting their licensed 
signal areas.
    The question remains of whether the geographic exclusivity of 
markets, that is fundamental to the American system of free-over-the-
air broadcast television and radio, can be replicated for Internet 
broadcasting. Traditionally, the Internet has been a global entity, 
providing content to all regardless of location. What is needed is a 
way to provide broadcasts, via the Internet, to replicate what 
consumers could receive with an antenna--the standard for terrestrial, 
cable and satellite delivery.

             THE SOLUTION: AIR-TO-WEB BROADCAST REPLICATION

    Air-to-Web Broadcast Replication (AWBR) is the solution to the 
problem of delivering television and radio content via the Internet. 
AWBR can provide the technology and data that will allow television and 
radio content to be delivered over the Internet with the same copyright 
protections currently enjoyed by broadcast, cable and satellite 
delivery. The AWBR solution potentially will provide the means to 
authorize, monitor and report on all television and radio content 
streamed over the Internet.
    The AWBR solution offers:

 Accurate signal area prediction technology
 Broadcaster-verified data warehouse
 Verification process
 Ability to help broadcasters control streamed content through their 
        online programming guides
    Currently, there are 2,350 television stations and 13,810 radio 
stations broadcasting off-air reaching 104 million households 
513. Every household is in control of what they watch and 
listen to off-air by simply putting up an antenna. A broadcaster's 
signal reach is also their copyright reach, i.e., only those that can 
get it with an antenna can watch/listen to it with an antenna. By 
installing an antenna, the household automatically places itself within 
a broadcaster's copyright area, or it ``activates'' its ability to 
receive the broadcaster's signal. With AWBR, streamed TV and radio on 
the Internet can be almost as straightforward--AWBR is akin to tuning a 
web-enabled device so that it receives the same programming that an 
over-the-air reception device would receive. AWBR, along with the 
appropriate verification mechanism, provides the technology and data 
that enables geographically-restricted Internet delivery of television 
and radio programming.
---------------------------------------------------------------------------
    \5\ Decisionmark's proprietary broadcast data warehouse as of March 
2005.
---------------------------------------------------------------------------
                        IMPLEMENTING AIR-TO-WEB

    For any system to successfully stream local content 24/7 and be in 
compliance with local broadcaster's copyright, it must:
    Determine what channels/stations a viewer is entitled to receive, 
i.e. screen for eligibility. AWBR answers this by using proven signal 
area prediction technology to determine which signals are received for 
each individual subscriber.
    Make accurate eligibility determinations in real time. AWBR's 
combination of signal strength prediction technology and a broadcaster-
verified data warehouse is the only way that eligibility can be 
accurately predicted in real time.
    Communicate subscriber activity to each of the nation's local 
television affiliates and radio stations. AWBR will connect with every 
broadcaster so they can know exactly how many viewers or listeners are 
watching/listening to them via the web--while they are watching/
listening. This opportunity for generating real-time ratings data is 
unprecedented.
    Ensure that the underlying signal area data is accurate. Local 
broadcasters must be able to easily communicate changes in their signal 
area. They need to easily change and verify their coverage information 
so that off-air and web broadcasts are ALWAYS identical.

                         BENEFITS OF AIR-TO-WEB

    The broadcast industry, artists and consumers alike stand to 
benefit from AWBR technology.
Broadcaster benefits
 Potentially avoid additional copyright fees
 Bring their broadcasts to the Internet
 Enhance interactivity with their audience
Artist and content owner benefits
 Promote their works visually while a listener or viewer is tuning in 
        on the Web
 Utilize interactivity that is inherent to the Internet
 Build loyalty in local markets
Consumer benefits
 Listening and viewing devices tuned by Decisionmark
 Gain access to their favorite, free local programming online
 Allows consumers to continue to listen or watch their favorite 
        broadcasts via the Internet

                               CONCLUSION

    AWBR has solved the ``Internet is global, broadcast is local'' 
quandary. With AWBR, broadcasters can implement the same geographical 
parameters for Internet streams as off-air broadcasts. This solution 
benefits the entire broadcast industry because it expedites the process 
and acceptance of local streamed media over the Internet, in real time 
and without copyright infringement. Local broadcasters will have access 
to their audience via the TV or radio and the desktop and still 
maintain agreements with local advertisers. Because of the potential to 
reach consumers who may otherwise have missed the programming, 
affiliates may be able to achieve better advertising rates. The major 
benefit to AWBR is the ability to replicate, via the web, any 
broadcaster's exact signal.
    In addition, real-time monitoring by broadcasters for compliance 
will benefit both broadcasters and consumers. Consumers benefit by 
having more local programming available and broadcasters benefit by 
learning more about their viewers and in turn, being able to supply 
their advertisers with this information. AWBR is the only technology in 
existence today with the unique ability to bring local streamed media 
to the Internet.

    Mr. Upton. Well, thank you very much. That was very 
informative, for sure.
    Mr. Ingalls and Ms. Champion, in Comcast's written 
statement and what they indicated verbally, too, asserted that 
like services should be treated alike. Is Verizon and SBC's 
planned video service, in essence, the same as what they would 
get from a cable company? And if not, how is it different?
    Mr. Ingalls. Well, as far as Verizon goes, how we are 
different is we are deploying a next-generation network, 
broadband, which really enables both the broadcast or linear 
programming as well as the interactive content to be delivered 
over the set-top. We feel that that is different, because of 
the technology, the bandwidth, that we are able to deliver.
    On the other hand, we do believe that to apply the legacy 
rules to the new technology would be a mistake, because the 
opportunity to compete and to deliver this choice to the 
consumer is something that will benefit the consumers and the 
economy.
    Mr. Upton. Ms. Champion?
    Ms. Champion. Yes, Mr. Chairman. We are not building a 
cable network. There are very distinct differences between 
Project Lightspeed and the fiber deployment that we have 
brought to you today. Today, a cable network is defined as a 
one-way broadcast network. What I have showed you today is the 
capabilities of providing customers a lot of choice, innovation 
through providing a single IP connection to their home to 
deliver an IPTV switched video solution. A switched video 
solution is entirely different from today's broadcast model, 
which is the vast majority of the content that is delivered by 
the cable company today. This switched IP video solution allows 
interactivity. It allows the consumer to have great control 
over their content. It also allows them to personalize their 
services in ways that is not done today with broadcast cable. 
You can create your own identity on your Web service, on your 
SBC Yahoo! portal. And then that same identity with your 
interests for news, sports and entertainment, and music videos 
can automatically be populated directly onto your platform of 
the television, giving you a lot of control in your family.
    I think you have seen the innovation, through the 
demonstration today. I think that is just really scratching the 
surface of how consumers can take an innovative IP-only 
solution and truly change the communications and entertainment 
experience by integrating it, making it customized and 
personal. And that happens with a true IP platform, which is 
what we are bringing to consumers with our plans.
    Mr. Upton. Well, let me ask this before I come back to Mr. 
Cohen.
    I confess, I am a Comcast subscriber, and I have seen 
tremendous innovation as a consumer in terms of what they are 
able to provide. I can get pay-per-view. I can stop it when I 
go into the kitchen to make popcorn and come back. I have 
picture-in-picture, so I can scroll through and see a little 
bit of what I saw here. I know I have been to the cable show in 
the past, not this year, but I have been able to see, you know, 
great advancements that are on the way through my scientific 
America box in terms of what they are able to provide in the 
future as it relates to computers and that type of thing. And 
at what point would you say that the services begin to be 
offered the same?
    Ms. Champion. I think you would have to address directly 
the cable companies as far as what their plans are for 
investing. I know that from day one, we will be a completely 
digital solution. As you probably are aware, today there are 
still many, many analog cable customers out in the marketplace 
today. All of that just really tells a story that we move into 
the marketplace day one as an all-digital, completely IP 
solution. And that really sets the bar high as far as the 
capabilities of what our platform can do. So with the approach 
creating innovation through light touch regulation, we can 
really begin to lead the way. I think at the end of the day, 
the opportunity here is to stimulate a competitive business 
marketplace, and what we are doing is employing the latest and 
best technology we have seen, the road maps of where 
Microsoft's IPTV solutions can let us bring new solutions to 
customers. And I just believe it is just a total leapfrog from 
where today's, you know, majority of analog cable customers 
have, I mean, you can just look at the track record there as 
far as where we are going to be doing from day one.
    Mr. Upton. Let me just ask Mr. Cohen to respond before my 
time expires.
    Mr. Cohen. Sure. Thank you, Mr. Chairman.
    Let me start by saying that as a competitor in this 
marketplace, I mean, we are excited by what Verizon and SBC are 
doing. I think that the demonstrations, the video and the 
demonstrations you have seen today have been great. I think it 
is a demonstration of how we are going to be. We collectively 
are going to be delivering much more value to all of our 
customers. I also think it is a pretty compelling demonstration 
that regulation hasn't exactly gotten in the way of innovation. 
There is a lot going on here, and I don't think we have really 
retarded any of that development.
    In terms of what is present in the cable world today and 
the innovation that we are going to be making, the investment 
that has been made, as I said, the industry has invested almost 
$100 billion in building an IP-enabled network. Today, that 
network, which is incredibly robust, has an effective capacity 
of about 5 billion bits per second. The SBC network, by way of 
contrast, is going to be significantly less robust. It is going 
to have an effective capacity of about 20 million bits per 
second. And because of the slightly less robust network, they 
are going to be able to deliver a very efficient suite of 
products that is going to look an awful lot like the suite of 
products we are delivering and an awful lot like the suite of 
products that Verizon is delivering, all with slightly 
different uses of technology. We are all using IP today. You 
referenced your experience using On Demand, the Video On Demand 
service of Comcast. That is delivered through IP technology to 
the head end. We use Mpeg technology today to bring it from the 
head end to the home, but we are already using IP to bring it 
to the head end. So that I think if you look at the aggregate 
suite of products that all of us are going to be delivering to 
customers in the video world, there is going to be great 
choice, there is going to be great competition. I think the 
winners, the real winners here are going to be the consumers.
    Mr. Upton. Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman, very much.
    Ms. Champion, Verizon says that their video service, from a 
legal standpoint, is covered by the same laws which govern 
cable operators. SBC apparently disagrees with that position. 
Is SBC's service any different from Verizon's?
    Ms. Champion. SBC is building a very robust broadband 
network.
    Mr. Markey. Is it different than Verizon's?
    Ms. Champion. Verizon would have to specify what they are 
building, but from very beginning day one, we are very much a 
pure IPTV solution, and that provides a total different 
potential versus what I believe what----
    Mr. Markey. So you are saying it is different from 
Verizon's?
    Ms. Champion. From the day one, yes. We are different. We 
are providing a completely IP video-based solution from day 
one, not a traditional broadcast cable----
    Mr. Markey. Do you agree with that, Mr. Ingalls? Is it a 
different service that SBC is producing?
    Mr. Ingalls. Well, the networks are very different. Our 
network is both broadcast and IP, so we are providing to the 
consumer the benefits of both. And the upstream side also 
provides to the consumer the interactivity and control that the 
other networks don't have from an upstream point of view.
    Mr. Markey. So from a consumer perspective, there will be a 
big difference between the two networks that the two companies 
are----
    Ms. Champion. There is a big difference, yes, sir.
    Mr. Markey. Would you agree, Mr. Ingalls?
    Mr. Ingalls. Yes.
    Mr. Markey. Okay. Now Ms. Champion, when we passed the 
Cable Act here in 1992, we provided that all cable programming 
be made available to competitors. And we also have compulsory 
licensing laws as well, which benefit companies that provide 
video service. Now when we do those laws out of the committee, 
we then attach public interest responsibility to the companies 
that are going to be the beneficiary of it. Do you think that 
you should be bound by the public interest obligations that are 
then shouldered by the companies that provide that video 
service, or should SBC not be bound by those laws?
    Ms. Champion. May I ask you to, perhaps, be a bit more 
specific about the comments that you are making? I am a 
business and product person, so I am not very familiar with the 
1992 Cable Act.
    Mr. Markey. Well, the 1992 Cable Act is the basis for your 
business model, because without that, you would not have access 
to HBO or Showtime or ESPN. And as a result, we probably would 
not be sitting here today.
    Ms. Champion. Well, clearly we will look forward to working 
with the programmers in providing customers a complete suite of 
programming choices. As a matter of fact, the various 
programmers that we work with in negotiating to provide their 
content to customers have embraced the idea of the capabilities 
of this new platform.
    Mr. Markey. In other words, what I am asking you is do you 
think you should be bound by the privacy laws that are inside 
of the Cable Act?
    Ms. Champion. Yes, sir. We absolutely recognize, and on the 
basis of SBC's relationships today, we recognize the need to 
support the privacy issue.
    Mr. Markey. So you believe that that should be a law? You 
would abide by the law----
    Ms. Champion. Absolutely. Yes, sir.
    Mr. Markey. [continuing] on privacy? What other laws do you 
think, as you sit there, that SBC and the other phone companies 
should be bound by as they move into this video area?
    Ms. Champion. Well, we have already addressed the privacy 
issue. I believe that we will work with the local channels. I 
think there has been some representation today to provide the 
local retransmission of services so that we can bring those 
services to the----
    Mr. Markey. How about the must-carry laws? Do you think 
that you should be bound by the must-carry laws?
    Ms. Champion. That is what I am referring to, yes, sir.
    Mr. Markey. Okay. How many households do you have in the 
SBC service area?
    Ms. Champion. Project Lightspeed will allow us to reach a 
little over half of our households with----
    Mr. Markey. No, how many households do you have in your 
service area?
    Ms. Champion. So it is about--so we will reach 18 million 
households----
    Mr. Markey. Well, how many households do you have in your 
whole--in your service area, there are 18 million total homes?
    Ms. Champion. And we reach half of the--36 million 
households----
    Mr. Markey. So there are 36 million?
    Ms. Champion. [continuing] half of them in 3 years. Yes, 
sir.
    Mr. Markey. Okay. When are you going to reach the other 18 
million?
    Ms. Champion. Well, obviously, you know, we want to bring 
video solutions to customers, that is why today we provide a 
video solution for customers in our bundles. We do that through 
a satellite solution.
    Mr. Markey. No, but when are you going to bring this 
service to the other 18 million homes?
    Ms. Champion. Well, today we have announced the most 
aggressive build-out of any company in cable.
    Mr. Markey. No, when are you going to meet the other 18 
million homes?
    Ms. Champion. And as the technology----
    Mr. Markey. In a chart, which I have here, of the business 
plan for SBC, what it says is that in the first phase, that is 
the first 18 million of the 36 million homes, you are going to 
do 90 percent of the high-value homes in your region. You are 
going to do 70 percent of the medium-value households in your 
region, but you are only going to do 5 percent of the low 
value. Now we have another word for those 5 percent. We call 
them our constituents. And so the 5 percent, which you are not 
going to do, deserve to know what your plan is for them. Those 
are the 18 million households that you are not providing a plan 
for, even as you ask to be exempt from many of the laws which 
govern telecommunications policy. Well, the reason that we are 
here is that those are the people who need the most protection. 
I really don't have to worry about the wealthiest people in the 
towns that are being targeted. I have to worry about the people 
who are in the bottom 50 percentile. Those are the people who 
need it. So what is your plan for those 18 million households 
in the SBC area?
    Ms. Champion. We are deploying very aggressively. We are 
making good business decisions about investing early and 
rapidly to reach the vast majority of our customers. And as 
technology develops, and as we enter the marketplace and are 
able to show that we can compete and succeed here, we will be 
able to evaluate our abilities to go forward. We will have 
momentum in the marketplace, plus we will have other technology 
choices available----
    Mr. Markey. Oh, other technology----
    Ms. Champion. May I make one other comment, please? 
Relative to the ability to serve customers.
    Mr. Markey. So I think you have two programs, then, it 
sounds to me. You have Lightspeed for the well-off and ``snail 
speed'' for everybody else, that is the bottom 50 percentile. 
And I haven't heard yet a plan which you have given to us other 
than, ``We will have some other technology for those other 
people that we will deploy at another time that I am not here 
capable of testifying as to when they will get the benefit of 
it.''
    Ms. Champion. I sit in front of you----
    Mr. Markey. And that is just not adequate.
    Ms. Champion. I sit in front of you as a business person 
today----
    Mr. Markey. Right.
    Ms. Champion. [continuing] saying that we are going to be 
investing $2 billion between now and next year, $4 billion 
between now and the end of 2007. And as any sound business 
decision has to be made based on the needs of the marketplace 
and the market's response to your services. Technologies 
evolved. My friend from Comcast announced that his chairman 
even two and 3 years ago didn't know about IP. Technology alone 
will allow us to evaluate other choices. We want to bring 
consumers choice. We do that today. We provide them solutions 
for video today. And we will do so tomorrow with very 
innovative----
    Mr. Markey. When a cable company goes into a community, 
they agree to wire every home in that community. I am asking 
you, when you are going to wire, when you are going to provide 
the service to the 50 percent, who obviously are not part of 
any business plan, I have Harvard Business School in my 
District. You only need a three by five card to know to go to 
Dover and Weston and Lincoln and Brooklyn. That is not 
complicated. The complicated part about providing these 
services is to make sure every citizen gets access to them, and 
that is what we wanted to hear from you today, Ms. Champion. 
And we have yet to hear from you when they get the benefit of 
your request to be exempt from many of the laws which govern 
all of the other video services in our country.
    Ms. Champion. I would point to our track record with DSL, 
and I would point to our track record with wireless. There was 
no mandated build-out on either of those. I think the record 
stands on SBC's intention to bring and compete very 
aggressively in the consumer market to bring choice against an 
incumbent cable provider who raises prices against----
    Mr. Markey. I want your commercial interest and the public 
interest drive, and today it has yet to do so, and that is your 
challenge in the years ahead. Otherwise, I think you are not 
going to have the reception you want in this committee.
    I thank you, Mr. Chairman.
    Mr. Upton. Mr. Whitfield.
    Mr. Whitfield. Thank you, Mr. Chairman.
    And I want to thank the panel for being here today and 
helping us explore these quite interesting issues.
    Like many people, I really admired Brian Robert's 
leadership with Comcast, and I actually did read his speech 
that he gave out at the U.S. Telecom Association Convention in 
2004. At the time, he talked about the issue of regulation and 
how the telecommunications marketplace needed to have less 
regulation and a level playing field. But today, I want to ask 
a question to Mr. Gleason and Mr. Cohen. You can make an 
argument that, for example, when you find yourselves competing 
with telephone companies for voice service, you want less 
regulation. When they compete with you, say, on video services, 
you make the argument that they need to be regulated. We 
already know that cable, for example, is subject to local 
franchise authorities and direct broadcast satellite is not, 
and they serve nationwide. So I would ask the question, do we 
need to exempt everyone? Do we need to develop new rules only 
for the phone companies trying to enter the IP video or do we 
treat them in a different way? Mr. Gleason, can we start with 
your comment on that and then Mr. Cohen and then anyone else 
that would like to address it.
    Mr. Gleason. Sure.
    Well, I think it is a great question, because that is 
really the whole conundrum we find ourselves in here today. And 
we do have a host of regulations that we have all detailed on 
the cable side and the telephone companies do on the telephone 
side. I think to a certain extent, the answer is this 
committee, with industry, has got to figure out how we reach 
the happy medium. I don't necessarily fully support phasing in 
a whole host of regulations on the telephone companies, but 
what I am saying is that we have got to have at least 
regulatory parity on the video side of the business. So that 
may mean that if you want to go down the road of deregulating 
certain aspects of the Cable Act, which you may or may not want 
to do, then you are going to have to do it for both sides.
    Mr. Whitfield. Could you just give us 2 or 3 specific 
examples?
    Mr. Gleason. Well, I think specifically the most burdensome 
part of the regulations that we face are local franchising 
authorities, and with that comes the local franchise fee. And 
that, in and of itself, makes our product, in essence, more 
expensive to consumers and does bring on a host of regulatory 
requirements that go with that. I agree with Mr. Markey is that 
if you want to get into our end of the business, and I don't 
care how you deliver it. I mean, I am listening to an all-
digital solution, so is that to say that if we were to go ahead 
and change out set-top boxes and force a set-top box on every 
one of our customers and we delivered an all-digital solution, 
now we are a network like theirs? And then we should be out of 
all of those regulations? I don't think that is where the 
intent of this whole discussion surely is to lead that because 
everybody has a set-top now our network looks like theirs so we 
get out of franchising requirements. But the franchising 
burdens are probably the most burdensome. And I would argue 
that I tend to agree that one of the reasons we have a 
franchise is to use the easements and rights of ways of a 
community. And those easements and rights of ways are limited 
in their capacity. We can't string 40 different cable and 
telephone companies down every community's easements and rights 
of ways on poles and underground and what have you and make 
efficient use of that. So there is going to have to be some way 
that we all comply with franchising requirements, I think, that 
are subject to cable onto video products that other providers 
provide.
    Mr. Whitfield. What do you say, Mr. Cohen?
    Mr. Cohen. I essentially agree with Mr. Gleason, and I 
think I agree with the general tenure of your question, as 
well. Let me go back to voice a second, because you referenced 
Brian's speech, and we have engaged in a dialog with many 
members of this committee over the past couple of Congresses on 
the regulation of voice. I will tell you that Comcast, as a 
company, has never advocated the use of regulation as a sword 
that we would use against a competitor in the marketplace. So 
we do not come to you, have never come to you, and said, 
``Regulate our competitor in order to make it easier for us to 
be successful in business.'' And that is not the tenure of the 
dialog, I think, that we had in voice. I think the complexity 
of those discussions related to what legacy regulations in the 
telephone area should still continue to apply in a light 
regulatory approach to voice. And we have mentioned some of 
them at this hearing already: E911, CALEA compliance, 
participation in the Universal Service Fund, I mean, the types 
of legacy regulation that needed to continue to apply. And I 
think that we have almost come to a consensus around those 
points, although we are not quite there yet and we have been 
working at that for 2\1/2\ or 3 years. And I think it takes 
longer than 2\1/2\ or 3 minutes to just glibly say, ``IP is IP 
so we should go and deregulate IP on the video side, because 
that is what we are doing on the voice side.'' The question is 
what are the types of legacy regulations that should continue 
on the video side, also in a deregulatory discussion and in a 
deregulatory approach in order to stimulate competition. And 
again, I think we flagged some of those, but I think we have 
just touched the surface today. Mr. Markey's questions were in 
around privacy and must-carry and non-discrimination 
provisions. I think there are significant issues of localism, 
which were codified in local franchising requirements, but it 
was protecting not only the rights of ways but local community 
interests and concerns. And there are certainly some serious 
policy questions that are raised as to who is going to protect 
those issues of localism if you completely take LFA's local 
franchising authorities out of the business on the video side.
    Mr. Whitfield. Mr. Cohen, thank you for those comments. I 
just want to be sure to give Ms. Champion an opportunity, too. 
I would like to get her comments. And if we have time, Mr. 
Ingalls, I would like to get your comments.
    Ms. Champion. Yes, thank you very much.
    I sit in front of you today with the opportunity to bring a 
brand new solution to the consumers. And the approach that has 
been used by the FCC and by the Congress to apply a light touch 
to Internet services is the approach that has given us the 
competence and clarity to proceed with our plan to invest into 
this new network and these new services. And relative to the 
voice comments, the opportunity of the various providers, pure 
play VoIP providers as well as cable companies, to enter into 
the VoIP business and to compete over an IP service 
environment, I believe is being affected positively and it is 
one that we have supported because there is one set of single, 
national rules that are being applied to how these services can 
be provided and protected for consumers across the United 
States. And so we believe that that same kind of capability 
will lead to advancements for the video space as well as we 
create a complete video solution. So one set of rules, light 
touch, the same approach that has been used to date for 
Internet rules, applying that as a new entrant to our ability 
to enter into the video marketplace.
    Mr. Whitfield. Mr. Ingalls, could you make a brief comment 
on the local franchising authority?
    Mr. Ingalls. Sure.
    Very briefly, we have actually gotten franchised in five 
communities. We recognize the localism, as Mr. Cohen mentioned, 
and have gone to hundreds of local communities. So franchising 
is a very cumbersome process. We estimate that we have, just in 
the neighborhood like the Philadelphia community, over 250 
franchises we have to get in order to offer video service in 
that metropolitan area. So we look for a streamlined process. I 
like what I hear, as a marketing person, about a light touch 
regulation. I think it is about the marketplace. And we support 
the local franchise process but would like to see a national 
process to circumvent that. And we are not opposed. We have 
built into our business case, you know, paying the franchise 
fees to the local communities.
    Mr. Whitfield. Okay. Thank you.
    Mr. Upton. Mr. Doyle.
    Mr. Doyle. Thank you, Mr. Chairman.
    While it is true that many consumers want these new bells 
and whistles along with their voice, data, and video services, 
I can't tell you how many times I hear from people back in my 
District that what they want is simply lower bills. Do any of 
you here on the panel believe that IP-enabled services will 
promote enough competition in which to say a basic tier of 
cable gets cheaper or a basic phone plan gets cheaper? I mean, 
I understand the new and improved features, but what about 
good, old fashioned, cheaper rates?
    Mr. Gleason. Well, I would like to address that, because I 
think in my comments I noted that one of the questions is 
exactly that. Right now, and we hear this all of the time, and 
I hear the same thing from our customers. You know. They say, 
``I don't really want MTV.'' Well, but in our store, we are not 
like a grocery store or a bookstore. In our store, our 
wholesale providers force us to sell you all of this host of 
channels onto an expanded basic platform, and so if you want to 
get Nickelodeon, you have to take MTV. And so I am not sure 
that the IP discussion here is going to change the fact that, 
for the most part, four companies control all of the channels 
on the cable network. At some point, in order to address costs, 
you have got to address wholesale costs. But a company like New 
Wave or the association that we are a part of, American Cable 
Association, certainly does not have the market power to ever 
affect that change. So my opinion is, until we come up with a 
way, and we have a suggestion that we have suggested to the FCC 
of coming up with a programming price index that would be 
submitted to the FCC every year on which programmers would 
supply them with their rates for each cable operator and what 
that price index changes every year. We believe if we had 
something like that, or other ideas, that that would rein in 
wholesale price increases. But I don't think those pricing 
phenomenons are going to change until wholesale prices change.
    Mr. Ingalls. And if I could make a comment. And 
responsibility for the consumer market within the Verizon 
territory, I have seen what competition can do to pricing. 
Clearly, if you just look at the history of long distance 
pricing or local pricing, it has come down. Competition brings 
many benefits: choice, value, simplicity to the consumer. But 
something that is very important, as you said, to your 
constituents, is price. There is a GAO study that I was made 
aware of that showed when wired competition was brought to 
cable, it actually shows that in that 2 percent of instances 
where it occurred, prices were actually 15 percent lower. When 
we have built and announced FiOS in the Tampa area, the 
incumbent cable company actually, in response, has lowered 
their rates and offered new and creative packages.
    So competition really is going to help the constituents. 
And they may not want the interactive, because that is really 
what we are bringing. We are bringing a network that is going 
to provide mainstream services to those that just want 
broadcast or the interactive services that are looking for the 
integrated converged solution.
    Mr. Doyle. Ms. Champion.
    Ms. Champion. Yes, thank you very much.
    Yes, I absolutely believe the consumers will benefit from 
lower prices. Competition in a business marketplace allows 
consumers to have choice, and that puts the spotlight on an 
incumbent cable provider, in this example, to have to respond 
to the dynamics of the marketplace by a new product, a brand 
new service coming in and entering. I think the key thing that 
I would like to make a comment there is that the incumbent 
cable provider clearly has a lower cost structure. Our ability 
to move into a marketplace aggressively, very quickly, and 
being able to scale, being able to serve millions of 
households, will allow us to get in, improve our operating 
capabilities, and continue to help us work to drive prices and 
our cost structure so that we can compete as a new entrant in 
the video space with IPTV.
    Mr. Doyle. Thank you.
    Mr. Cohen, I want to ask you. I read in your testimony that 
you said you believe the state of competition in the cable 
video industry is so strong that portions of Title VI of the 
communications act may no longer be necessary. I wonder if you 
want to expand on this statement and highlight portions of the 
act that you feel, in fact, may not be necessary any longer.
    Mr. Cohen. Well, I think we have actually already touched 
on a number of these today. I mean, I think it is, as this 
committee looks at the telecommunications act, and by the way, 
I think we are of the school that a targeted rewrite is 
probably of greater wisdom than an complete and total rewrite. 
But looking at burdens in the act, looking at burdens around 
franchising, by way of example, is certainly a productive 
exercise. Looking at some of the other rules and regulatory 
burdens that apply in a unique way in Title VI as opposed to 
the balance of the telecommunications act. I think as you go 
through this inquiry, and you have heard from this panel today, 
you have a very different marketplace and a very different 
dynamic occurring that in either 1992 or 1996, the latest two 
revisions of the telecommunications act, and I think that that 
justifies a different regulatory approach, or at least 
consideration of a different regulatory approach.
    Mr. Doyle. Thank you, Mr. Chairman.
    Mr. Upton. Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman.
    And I am glad my colleague mentioned that, because that is 
really the question I was going to ask, you know, the 
communication act here. And my focus was going to be on how do 
you change the bureau focus, because really, what we are 
looking at now is a whole new world versus the way the FCC was 
designed and the different bureaus. And you know, you have got 
the communications laws in, you know, 1927, 1934, 1984, 1992, 
1993. A lot of the members here were there in 1996. I was 
running that year, and I remember all of the lobbyists going to 
all of the members' offices. But even those who were the 
authors of that 1996 rewrite, I mean, based upon 9 years of 
being on this subcommittee, you couldn't envision where we were 
heading. So I think what would be helpful, too, and that is 
part of this testimony is how do we restructure the FCC to meet 
the new technological age? Now that may not be a surgeon 
approach to what some of the deficiency is. But I mean, there 
just makes no sense today that, you know, when we have 
competitive prices in the cellular industry, prices are going 
down, I mean, where are they in the telecommunications act? And 
how do we get, when there is convergence, and we have VoIP, how 
do we justify a different regulatory scheme when you have the 
convergence of broadband that you all will be competing with? 
So I am just going to throw that up as a generic question. 
Actually, Mike asked it very similarly. But I would rather, you 
know, you all come to our offices and really look at the FCC 
and its organization, based upon the law, and help us make 
sense of how we then rewrite this so that we have pure 
competition in, really, in essence, what we are calling as the 
broadband arena of delivering a multitude of services over 
various different pipes. Let me just stop there. Does anyone 
agree or disagree or if I said something really----
    Ms. Champion. I just want to say I accept your opportunity 
to come talk with you about how technologies are changing. I 
think the reality is there, and you nailed it, was that 
customers' needs are changing. They are looking for new 
technology. They are time shifting, place shifting all of their 
communications and entertainment. And that means that, you 
know, in the past two or 3 years, and what will happen in the 
future, really needs to be considered. I think that will happen 
by business and government working hand-in-hand to create a 
uniform approach to address these issues today. So I appreciate 
your invitation and look forward to doing that.
    Mr. Shimkus. Well, go see Ray Fitzgerald. Write his name 
down.
    Ms. Champion. Okay. Very good. Very good.
    Mr. Shimkus. Start there.
    Anyone else want to comment on that?
    Mr. Cohen. Congressman, I mean, I think, again, you really 
did nail the issue there, and I mean, I would reiterate what I 
think the principles of that review should be, which is to keep 
in mind the purpose of regulation. It should not be to pick 
winners or losers. It should be to foster facilities-based 
competition to treat like services alike and to create an 
overall competitive environment that benefits consumers while 
preserving those aspects of legacy regulation that implicate 
important social considerations and that need to be protected.
    Mr. Schmidt. Congressman.
    Mr. Shimkus. Yes.
    Mr. Schmidt. The most important content to your 
constituents is local news, weather, and sports. And we saw a 
number of demonstrations this morning, which were very slick, 
if I might say, but they didn't include local broadcasting. So 
I think any video play, you have to take into account local 
broadcasting and get that there. And putting free, over-the-air 
TV free over-the-Web creates competition.
    Mr. Shimkus. Right. And obviously, those that have followed 
this committee for many, many years, know that I have been a 
strong advocate for the local broadcasters because of the 
safety concerns. And I always point to the 1993 flood that 
happened in the Midwest. And who was there reporting on the 
levies that are breaking and getting people out of the flood 
plain? It was the local broadcasts. And but that is all part of 
this debate. Same regulations, same requirements across the 
board. But there was a comment made that, you know, we are very 
schizophrenic as Members of Congress, you know what I am 
talking about. Let us level the playing field. But then the 
comment was made legacy regulations that are in the public 
good, I represent a large rural area, so we know what we are 
talking about with legacy regulations, which is making sure 
that rural areas have the same access to this technology as 
anyone else does.
    Anyone want to add to that in that comment?
    Mr. Ingalls. If I could make a couple comments. One, I 
think you have touched upon the wireless model as a model of 
lower prices and choices. I mean, technology is still being 
developed. There are no regulations driving it. We see Verizon 
Wireless deploying EVDO across the United States at a very fast 
rate, so broadband is available in that way.
    As far as the rural comment, we also are committed, as we 
build out a fiber network, which is not a short bill, we are 
going to pass about 35 to 40,000 homes a week and keep ramping 
up. So we don't have an 18 million plan. We are just building. 
But in the rural communities, we are testing today broadband 
access in a wireless way using Y-max and Y-fi technology. So we 
are very supportive of providing broadband access, video 
access, and from the local programming point of view, we also 
believe local broadcast. We are very supportive of that from a 
retransmission consent. So I think it is not a surgical thing, 
as you said. It is a significant change. Because on the other 
side, to enter voice, nobody is applying for any franchises. 
For us to enter video, we have to apply for franchise. That is 
a big difference. And I think leveling that playing field, 
looking at the whole gamut, is probably very valuable.
    Mr. Gleason. I would just add, since you brought up the 
rural aspect, and our association represents a lot of rural 
cable operators, our membership, just to keep in mind, has done 
a phenomenal job over the last 4 years of deploying broadband 
services in very small rural communities. I know I am 
headquartered in Sikeston, Missouri and so is Galaxy, which 
serves a town like Carrier Mills in your area that has 
broadband services.
    Mr. Shimkus. Good research.
    Mr. Gleason. Thank you.
    Well, I am not very far away. But our membership has been 
very aggressive in deploying broadband services to rural areas, 
so those services are available there now.
    Mr. Shimkus. Great.
    Thank you, Mr. Chairman. I yield back my time.
    Mr. Upton. Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman, for holding this 
important hearing.
    I have two questions.
    The first to SBC and Verizon. I absolutely agree that we 
should approach any regulation of the Internet carefully. And I 
have often argued against cumbersome rules for new 
technologies. But I can certainly understand why your 
prospective competitors object to your entering the game on an 
uneven playing field. How do you suggest that we address their 
legitimate questions about fairness while still permitting you 
the leeway to innovate and bring new services to customers?
    And my second question, and I want to get it in now so that 
we divvy up the time, is for Microsoft. Your company has done a 
lot of work in the area of standards and interoperability. And 
you have battled with your competitors and, in some cases, the 
government over how to make the Internet even more open and 
more accessible to all technologies and services. The 
television industry has had an even more difficult time 
creating interoperable standards for electronics. And my 
question to you is will the advent of television on the 
Internet exacerbate these problems or help to solve them.
    So why don't we start with SBC, Verizon, and then go to 
Microsoft? Thank you.
    Ms. Champion. Thank you very much.
    Your comment was regarding the playing field, and I would 
like to just reply to that by saying what we are looking for is 
one playing field where Internet innovation and Internet 
technologies can be treated the same. When we bring services to 
your home, there is going to be one Internet pie to bringing 
all bits together: voice, video, and data. Relative to VoIP 
entry, the cable companies are clearly eating into our core 
business, and with VoIP, the cable companies and pure play 
providers have been provided one single set of national rules 
to enter into the marketplace and are being treated as a new 
entrant with Voice over IP and without telephone legacy rules 
and regulations. And I also want to add about the voice 
comment, with very little incremental investment. So we have 
got one playing field, uniform rules, being able to enter into 
a new business as a new entrant without any of the legacy rules 
associated to providing essential services for voice. So those 
aren't being applied. What we are asking for is one playing 
field where we can apply the same kind of light touch 
regulatory rules to the entry of video where we are making 
significant business investments to accomplish such.
    Ms. Eshoo. Mr. Cohen, do you want----
    Mr. Ingalls. And my comment----
    Ms. Eshoo. Just before Microsoft gets in, Mr. Cohen, did 
you want to say something--no? All right.
    Mr. Ingalls. Did you want--if I could.
    Ms. Eshoo. Yes.
    Mr. Ingalls. You know, the level of the playing field, from 
my point of view, is exactly what we are looking for, and 
frankly, I am not advocating that we apply legacy telephone 
rules to the Voice over IP market, but as Ms. Champion said, I 
think there are new entrants here that are coming in without 
applying for a franchise, as I mentioned, and so they are 
entering the market. So leveling the playing field, to us, is 
to kind of equalize the ability to enter into the other's 
businesses.
    Let me give you a specific example of what I mean.
    Applying for a franchise is now applying into a boundary 
that is a cable franchise boundary. We are structured as a 
network based upon the way the telephone network was built, so 
we could build fiber to the home, FiOS, in a central office, 
and it could encompass five different franchises of which are 
not all served by that central office. So franchise 
requirements are an unnatural overlay to our network topology. 
So we are just looking for a way to streamline the franchise 
process so that it fits with our legacy network as cable is 
obviously taking their legacy network and made it fit to the 
telephone world without any rules being overlaid as to where 
they go or don't go.
    Mr. Mitchell. So the short answer to your question is that 
it is explicitly our objective to make sure that that doesn't 
happen when it comes to developing the software solutions that 
enable Video-over IP. There are several different components of 
that. One is simply the fact that the Internet itself has been 
able to be very successful by having an explicit protocol 
approach that enables the evolution of other forms of services 
on top of the network. So for the last 10 years, you have seen 
the Internet take on many different types of applications 
because there is a common base of accepted standards. In terms 
of the video case, you have to look at rights management and 
security and on the encoding schemes. In all of these areas, we 
are working to ensure that the software solutions effectively 
have replaceable components that can evolve over time, so that 
the same type of evolution that you are able to see on the 
Internet works.
    And finally, I would just add that it is, for us, in terms 
of developing the IPTV solution, for example, that SBC is 
deploying, it is explicitly our objective to ensure that we 
enable the ability of retail devices from many manufacturers 
within the next few years once all of the technology is sorted 
out. It has been, from the beginning, part of our design 
approach.
    Ms. Eshoo. Thank you. I am going to yield back, Mr. 
Chairman.
    Mr. Upton. Mr. Walden.
    Mr. Walden. Thank you very much, Mr. Chairman.
    Mr. Cohen, you said something that I thought really hit the 
nail on the head on what we are trying to sort out, and that is 
that we need to review all of the rules for all of the 
providers. And as I sit here and listen to all of your 
testimony and kind of think about this, you know, the world 
really has changed so rapidly, and I am a broadcaster, a radio 
broadcaster by profession, 19 years in the business, and you 
know, it is phenomenal to me how things are changing and how, 
you know, the 1934 act requires us to do certain things, and 
then other people come along and compete in my community that 
doesn't have to do any of those things, and yet I am supposed 
to do all of these community standards, you know, which I think 
is actually going to be the survival of community broadcasting. 
But it does raise some really difficult challenging questions 
about how you provide content to people who want it while also 
dealing with this issue of serving the community and allowing 
those who are charged with that as part of their obligation to 
survive economically. I mean, that is kind of cutting to the 
chase.
    And I am curious. I think it was Ms. Champion who talked 
about your system was unique in that it was switched IP video, 
a whole digital system and that would be unlike cable and it is 
two-way, not one-way, if I got you right. And so I am curious, 
for the cable providers on our panel, because I have got 
digital cable, aren't you also getting into a two-way system 
and digital capability as well? So how are you really going to 
be different? I mean, maybe you are right now, but 6 months 
from now, 3 hours from now, are you going to be that much 
different?
    Mr. Cohen. I think your question says it exactly right. I 
think not only is there going to be convergence among 
platforms, there is going to be convergence among services. As 
I said, we are already two-way. We already use a significant 
amount of IP in our system. We will inevitably use a switched 
video component to the delivery of our service in the very near 
future. The platform is already enabled for that. I think, as I 
said in response to a previous question, the SBC model uses 
switched video because it is an efficient use of the particular 
platform that they are building out, which happens to have much 
less overall capacity than the platform that cable has built 
out. But there are clear advantages to interactivity and being 
able to deliver personal----
    Mr. Walden. And you were talking about the difference 
between the bandwidth of your platform versus Ms. Champion's, 
right?
    Mr. Cohen. Right. Our platform has an effective available 
capacity of 5 billion bits per second whereas the SBC platform 
has an effective capacity of about 20 million bits per second.
    Mr. Walden. So you would have, like, plenty of capacity to 
do multi-channel must-carry, then?
    Mr. Cohen. I should have seen that coming. I mean, of 
course the issue----
    Mr. Walden. I just wondered if you had the capacity. I sort 
of sense maybe you do.
    Mr. Cohen. And of course the answer to that question is 
that the capacity that we have built----
    Mr. Walden. Yes.
    Mr. Cohen. [continuing] that we have developed needs to be 
available for the services that our customers want to receive.
    Mr. Walden. Right.
    Mr. Cohen. And we would have capacity----
    Mr. Walden. I sort of anticipated that answer, too.
    Mr. Cohen. We have capacity to carry loads of extra 
channels, but they should be channels that our customers want, 
not just those----
    Mr. Walden. Now let me go to that point. And I understand 
that argument. But let me go to that point, because public 
television has some pretty remarkable agreements on multi-
channel must-carry. What is the difference, from your 
industry's perspective, about that agreement versus what over-
the-air broadcasters are trying to require as well? Is the 
difference that one has advertising and one doesn't?
    Mr. Cohen. No, actually, it isn't. I think it is a 
difference of whether government should mandate the carriage or 
whether there should be commercial negotiations and 
discussions----
    Mr. Walden. Are you all engaged in commercial negotiations 
and discussions?
    Mr. Cohen. With many different broadcasters.
    Mr. Walden. Okay.
    Mr. Cohen. We just announced a deal with NBC for some 
multi-cast.
    Mr. Walden. All right.
    Mr. Cohen. And so we are engaged with the networks and with 
local broadcasters in those discussions.
    Mr. Walden. Perfect.
    Mr. Cohen. And what we want to have, and let me just give 
one fact----
    Mr. Walden. Yeah, sure.
    Mr. Cohen. [continuing] because it is incredible. If you 
apply multi-casting must-carry, we have must-carry obligations 
with 23 broadcasters in Los Angeles.
    Mr. Walden. Right.
    Mr. Cohen. So imagine that we might have to carry 23 
weather channels of the broadcasters having cameras pointing 
out their window looking at the weather.
    Mr. Walden. But given none of those ever is right, maybe 
having 23 options----
    Mr. Cohen. Right. It is comparable weather, put it that 
way.
    Mr. Walden. All right. Well, but I want to make another 
point, which is sort of off this point, but it is all in this 
together, because some of our colleagues in the Senate then 
want a mandate on over-the-air broadcasters that they cover us 
``holier than thou'' candidates when we are running for office, 
if you are a commercial broadcaster, but not if you are a cable 
caster or Verizon or SBC, to give free air time and free 
access. Can you imagine if the same burden applied to video 
providers and audio providers in Los Angeles and New York? Can 
I get 100 minutes of free time on your system?
    Mr. Cohen. I am not sure about 100 minutes, but----
    Mr. Walden. Ninety-nine? Can we----
    Mr. Cohen. You should know. I think we have talked with 
many of you, Comcast pioneered something last year called 
``Candidates on Demand'' where we provided----
    Mr. Walden. And nobody clicked.
    Mr. Cohen. Actually, you would be surprised. We----
    Mr. Walden. Well, you understand what I am saying, and that 
is part of the----
    Mr. Cohen. The Senate race, it was wildly popular. We gave, 
basically, 35 minutes to each candidate, seven issues, 5-minute 
videos. We put it up on our On Demand platform for free.
    Mr. Walden. Okay.
    Mr. Cohen. And it actually was fairly popular, and it is 
something that we intend to roll out----
    Mr. Walden. And I commend you for it. But that is also one 
of those legacy requirements that it out there on some 
providers of video content and audio content that is not on 
others.
    I want to go to the issue of retransmission consent and 
all, because I sensed a slight disagreement between Mr. Gleason 
and Mr. Schmidt, I believe. What do you do where you are in a 
legacy, call it an ``old line business'', if you want to call 
it that, where you have an agreement that says, ``I have got 
market exclusivity for this program.'' Should we open up that 
program to anybody, because we have a new technology to deliver 
it, or is there still this legacy right that, as the provider 
and contracted provider for that program, you should have that 
right in your market to have exclusivity?
    Mr. Schmidt. Well, Mr. Walden, obviously, we believe that 
if you have the contractual right, you should have the ability 
to enforce it, and the point that goes to your earlier comments 
about the importance of localism is that the rules, that we did 
not emphasize in the testimony, are primarily aimed at 
protecting smaller markets who not only would be vulnerable to 
an international threat, but even from their adjacent markets. 
Would Grand Rapids broadcasters buy exclusivity versus Traverse 
City? Probably, if we could. And the same issue is large on the 
Internet. So the syndicated exclusivity and the network non-
duplicative rules are really intended to preserve the universal 
availability of local news, weather, and sports, which are the 
beneficiaries of the rest of the system. So in this instance, I 
don't think there is any doubt, really, that these are quasi-
intellectual property rules, but they are also intended to 
preserve the local reach. And while I see that the label up 
here on this thing is ``twisted pair'', which I assume refers 
to Mr. Gleason and me, we really are bound together. And I 
think his beef is actually more with Mr. Cohen than it is with 
the broadcasters, particularly the small market broadcasters. 
And I fear that the solutions that he proposed to eliminate 
these protections will harm local broadcasters and the local 
content, which is, in significant part, what drives his 
business as it is today. So I think the enemies are not the 
small, local broadcasters with whom he is negotiating 
retransmission consent and having to occasionally carry and 
must-carry.
    Mr. Gleason. Well, let me be clear about my comments, too, 
on retransmission consent agreements. I completely agree that 
we need to carry local broadcast channels in our markets, and 
they are a very important part of our product offering in our 
areas. And I think we should be carrying those, and I think 
that that opportunity is already there for broadcasters to make 
sure they are carried, and it is called must-carry. But what I 
have suggested in my comments is that where this dynamic 
changes, when a broadcaster elects retransmission consent and 
now wants cash for carriage that is obviously going to fall 
straight to the consumer for a free, over-the-air broadcast 
channel, then that has changed the negotiating dynamic, 
particularly for small market cable systems where we don't 
affect enough eyeballs in a particular market. So if that 
channel is dropped, we don't have enough effect for the 
broadcaster to notice, thereby giving them much more market 
leverage, because we can't go import an out-of-market station. 
So----
    Mr. Walden. But you do charge your viewers, because they 
have to pay a subscription in order to be able to watch the 
program that the over-the-air broadcasters are giving to you or 
now negotiating a price for, right?
    Mr. Gleason. We do charge a nominal charge for limited 
basic service----
    Mr. Walden. Yeah.
    Mr. Gleason. [continuing] which is generally that broadcast 
basic service----
    Mr. Walden. Sure.
    Mr. Gleason. [continuing] that is getting cable out to 
those homes, and I would argue in most cases, extending 
broadcasters' reach.
    Mr. Walden. Sure. It is a partnership.
    Mr. Gleason. But that is usually a very low-cost level of 
service and generally pays for the cost of delivering the 
service. But if we are now going to layer on specific fees per 
customer to watch those broadcast stations, then that changes 
that dynamic of that level of service. And our argument is that 
if you do decide to charge, then we should be given the option 
to shop.
    Mr. Walden. I see.
    Ms. Champion. Mr. Congressman, may I reply to the comment 
related to the bandwidth that is involved here?
    Mr. Walden. Yeah, you are going to do multi-channel must-
carry?
    Ms. Champion. Well, no, sir. But the point that was made by 
Mr. Cohen here is really an apples to oranges comparison. As 
you know, a cable company shares their bandwidth across all of 
the users in their area. And what we are talking about is a 
dedicated connection providing a very secure and private 
connection for that individual home, that dedicated bandwidth 
that is available to them versus an environment that is shared.
    And I would also like to say I sympathize with your request 
regarding having free time. I would just like for the various 
cable companies to allow us to advertise some of our services 
relative to what we want to present into the marketplaces, 
which today they do deny us that opportunity on many, many, 
many occasions.
    So I appreciate your request for the free time.
    Mr. Walden. You can always buy radio advertising.
    Ms. Champion. Yes, we do. Thank you very much.
    Mr. Upton. Especially in Oregon.
    Mr. Boucher.
    Mr. Boucher. Thank you, Mr. Chairman.
    I also want to thank this panel for sharing with us today 
what I think is a very stimulating discussion of highly 
relevant issues.
    Let me take the opportunity, Mr. Ingalls and Ms. Champion, 
to have you clarify the extent of which you are willing to 
accept Title VI obligations. Let me just tick off a couple of 
things, and I would like both of your responses as to whether 
or not you are willing to accept this, as you offer your multi-
channel video service. You might just note these as I go down, 
and you could respond to all of them collectively, no need to 
respond to each one: retransmission consent, network non-
duplication, syndicated exclusivity, the must-carry 
requirements, sports blackout, the program access requirements, 
which basically say if you are originating your own content, 
there are circumstances under which other multi-channel video 
providers should have non-discriminatory access to your 
content, privacy for customer information, and set-top box 
interoperability. There may be some other elements of Title VI. 
I think this captures most of it.
    Mr. Ingalls, would you like to respond first?
    Mr. Ingalls. It is a long list. I couldn't write fast 
enough, but I will try to hit a few of them.
    First, privacy is something that, as a common carrier, we 
operate under today. So from a privacy requirement, there is no 
question that that is something we support and we clearly 
endorse. I mean, I think the key point here is that, you know, 
entering the video market that we are entering, as the new 
entrant, we are looking to take this playing field and level 
it. Things like must-carrys, sports blackout, those are issues 
that I think are to be discussed. I guess I have the benefit of 
being a businessperson focused on the business market, trying 
to get customers, so I am not, you know, deeply familiar with 
the rules that you mentioned, but I will say Verizon has 
demonstrated in our negotiations to get into this business that 
many of the things that you referenced, we are negotiating with 
the appropriate authorities trying to make sure we comply as we 
enter the business, the local franchising authorities being an 
example.
    Mr. Boucher. So your answer is some of these but not 
necessarily all.
    Mr. Ingalls. I can't tick off one by one. Again, I didn't 
write fast enough, but----
    Mr. Boucher. All right. Ms. Champion, would you like to 
respond?
    Ms. Champion. Yes, sir. Thank you.
    As a multi-channel video provider, as a satellite company 
is, we would endorse and follow the same requirements as they 
have adopted and the same rules have been applied to a 
satellite provider.
    Mr. Boucher. Okay. Well, that is a clear answer. So you 
would basically take the set of rules applicable to satellite 
multi-channel video providers and say that you are willing to 
accept those?
    Ms. Champion. That is correct.
    Mr. Boucher. All right. Let me address the questions 
relating to franchise, because we are going to have a debate 
here about this, I can see that coming. And this is truly 
interesting.
    Mr. Ingalls, I detected in some of your answers to 
questions posed by other members a general willingness on the 
part of Verizon as it offers its service to pay the franchise 
fee. I also have seen other statements made by Verizon 
suggesting that you would be willing to abide by the public 
access channel requirements that attend franchise agreements. 
But are there elements of the franchise agreement that you 
think should not be applied to your service as it is introduced 
into local communities?
    Mr. Ingalls. Well, yes, I did say we are willing to pay the 
franchise fees. We have negotiated five franchises and are in 
the middle of negotiating hundreds. As part of those franchise 
agreements, we are negotiating public access, educational, 
government channels. We are willing to provide that. I think 
the issue here is the process by which you get franchising 
authority. The cable industry built their business based on a 
monopoly franchise in local communities. And as we look at the 
market as really the fourth entrant now with two satellite 
providers doing reasonably well in every market, we are looking 
for a more streamlined process, so is a State-level franchise 
or even a Federal-level franchise the right way to level this 
playing field? So simplifying the process to get a franchise is 
something we clearly want.
    Mr. Boucher. What are you asking us to do?
    Mr. Ingalls. I think this committee, we would very much 
appreciate looking at the franchise and rules, looking at a 
national franchising policy that would apply some of the local 
franchise conditions that have existed, which we have 
demonstrated the willingness to support so that we could enter 
the market. As I said earlier, in a given community like 
Philadelphia, 250 franchises to serve the Philadelphia 
marketplace.
    Mr. Boucher. And so are you going to propose to us elements 
of what this national franchise model should be?
    Mr. Ingalls. We would love to sit down with you and lay out 
for you exactly how we think the franchise----
    Mr. Boucher. All right.
    Mr. Ingalls. [continuing] model and process should look.
    Mr. Boucher. Ms. Champion, could you speak to how SBC's 
position with regard to local franchising might differ from 
what Verizon has said?
    Ms. Champion. The intention of SBC to build the 18 million 
households between now and 2007 would mean that we would be 
proceeding against over 2,200 unique franchise negotiations and 
processes. As an IP-based service, we believe we should be 
treated as a new entrant under the light touch IP rules of the 
Internet. Specifically related to build out, that is the----
    Mr. Boucher. Well, let me ask you this. Are you asking us 
to adopt a kind of a national franchise model along the lines 
of what Verizon is suggesting or are you saying that we 
should----
    Ms. Champion. Yes, sir.
    Mr. Boucher. [continuing] basically--oh, you are?
    Ms. Champion. Yes, sir, that is exactly--one set of 
national rules, unified rules to help overcome this patchwork 
of, you know, varieties of rules and regulations across the----
    Mr. Boucher. Okay. I am trespassing on others' time, but 
two quick questions.
    Would you be willing to pay the local franchise fee?
    Ms. Champion. We will absolutely be willing to work with 
them. We live in these communities. We want to equalize across 
the players.
    Mr. Boucher. Okay. I take that as a yes.
    And would you be willing to abide by public access channel 
requirements? I mean, these are two things which Verizon says 
it is willing----
    Ms. Champion. The must-carry----
    Mr. Boucher. No, no, local access. You know, you have paid 
channels on cable and, you know, educational purposes covering 
the town council, that kind of thing.
    Ms. Champion. The whole nature of this platform is 
different than traditional services are, so we have a lot of 
flexibility to provide public interest features and services to 
the communities, so----
    Mr. Boucher. So I take it the answer is generally yes.
    Mr. Markey. Would the gentleman quickly yield?
    Mr. Boucher. I would be happy to yield.
    Mr. Markey. Okay. You said that you would be willing to 
abide by the rules that the satellite companies abide by?
    Ms. Champion. Multi-channel provider satellite rules.
    Mr. Markey. All right. Does that include the turning over 
of 5 percent of capacity to non-commercial, unaffiliated 
programmers? That is one of the rules that was part of the 
satellite package.
    Ms. Champion. Oh. I would have to look into that. I am not 
sure I understand what all of the specifics are of that rule.
    Mr. Markey. Okay. Does it include the obligation to provide 
test signals throughout the entirety of a broadcaster's local 
signal area?
    Ms. Champion. As I stated earlier, we would follow the same 
guidelines as the satellite providers, so if that is one of the 
stipulations, then----
    Mr. Markey. Those are the satellite rules. So you would 
abide by those satellite rules that I just gave to you?
    Ms. Champion. Yes.
    Mr. Markey. Okay. Thank you.
    Ms. Champion. Yes.
    Mr. Markey. Thank you.
    Ms. Champion. You are welcome.
    Mr. Boucher. All right. Thank you very much, Mr. Chairman. 
I yield back.
    Mr. Upton. Mr. Ferguson.
    Mr. Ferguson. Thank you, Mr. Chairman.
    I have a few questions, and I want to try and get through 
these quickly.
    A quick question for Mr. Ingalls.
    I am very interested in the issue of a level playing field, 
particularly as you roll out your fiber network and others as 
we get into this particular issue and how competitive that 
playing field will be. I know you have already addressed this 
issue a little bit, but I want to ask you more specifically. 
How much are you spending on your fiber development and your 
deployment and how does that compare with some other folks in 
the industry in terms of your rollout?
    Mr. Ingalls. Yeah, we are building, as I said earlier, 
really a next-generation network. We spent $1 billion in 2004 
to pass approximately 1 million premises. And we have announced 
that we have committed to do 2 million premises in 2005. Our 
capital budget has increased. As a combined company, it is 
about $11.3 billion this year, not just on fiber, but you can 
work backwards. If 1 million is $1 billion, 2 million this year 
is close to $2 billion. So we are investing heavily. It is 
about the capability of the network.
    And if I could just add one more comment that hasn't been 
clear. The network really is a combination, so when we talk 
about 100 megabits downstream and 15 megabits upstream, that is 
just the data connection. We still are providing hundreds of 
digital channels coincident with that. So it is not 
constrained. So we really have the capacity here that can 
deliver.
    Mr. Ferguson. How does that compare with some of the other 
companies? Are you tops in terms of the money you are spending 
right now in deployment? Are you----
    Mr. Ingalls. I believe we are spending as much--I really 
don't know everybody's checkbook, but I think we are spending 
as much or more as anybody.
    Mr. Ferguson. How do you decide where you are going to 
deploy?
    Mr. Ingalls. Our decisions on deployment are based upon 
multiple factors. One, I have responsibility for over 30 
million households. So we look at the market we have announced 
in 14 States. We are deploying in every major market initially. 
We have only announced plans, as of right now, to about 100 
central offices or communities. We have plans built now through 
the early part of 2006. This is a very evolving plan, so we 
have not announced everywhere that we are going over the next 5 
years, but as I said, we are building at the rate of about 35 
to 40,000 a week and ramping it up, so we should be 
accelerating it. The decision on where we build is based upon 
the market, the opportunity, and frankly, partly on the 
competitive intensity, because today we have cable companies 
announcing they are entering the telephone business without 
applying for the franchise, which they don't have to, and we 
have to provide that same package of services. So we are really 
looking at competitive intensity as one of the big drivers of 
where we go.
    Mr. Ferguson. When you decide to deploy in an area, is it 
economically feasible for you to hit 100 percent of that 
community in the first year?
    Mr. Ingalls. Not in the first year. It is pretty hard. If, 
you know, you look at metropolitan markets like New York City 
or even the Washington market or Boston, it is a pretty large 
community, so it is really a 2 or 3-year plan to cover a 
market. So when we choose to go into a market, a metropolitan 
area, we really look at the efficiency of building it, the 
efficiency of marketing, because the big benefit here is to be 
able to market to the whole community, not to have what I would 
call like a Swiss cheese approach where we are only in certain 
neighborhoods. So our intent is to build out the whole area as 
we go to a market.
    Mr. Ferguson. But it is sometimes economically not feasible 
to do it in the first year?
    Mr. Ingalls. No, it is really a matter of physical ability 
as well as economics. We can't pass millions of homes in 1 
year, so that is why, in the first year, it is difficult. But 
as I said, over a two or 3-year period, we plan on covering a 
market that we have chosen to go into.
    Mr. Ferguson. Okay. Thank you.
    For Mr. Cohen, Comcast now offers data, voice, and video 
services, which have traditionally been regulated under Titles 
I and II and VI of the act. Practically speaking, how does this 
sort of regulation work for a company like yours, which offers 
many different services to many different customers in many 
different States, as you do?
    Mr. Cohen. Well, I don't want to repeat what people have 
been saying today, but I mean, I guess the question puts your 
finger on some of the complexity that exists in the current 
structure of the communications act. And in particular, we have 
a VoIP product that, as all of you know, falls somewhere 
between Title I and Title II and aspects of it can be regulated 
under both of those titles. I think that where the 
communications act creates confusion and retards competitive 
entry, it needs to be reexamined. I think that, generally 
speaking, on a philosophical level, we believe that lesser 
regulation is better than more regulation, but we believe that 
regulation should not be used to pick winners or losers, to 
favor particular technologies, and that, generally speaking, 
like services should be treated alike in the regulatory 
treatment.
    I think our concern, having gone through several years of 
work with members of this committee and others, just on the 
VoIP side, just on the Voice over Internet Protocol side, when 
I think where we were two or 3 years ago in terms of 
restructuring the regulatory approach and all of the mistakes 
we would have made by the first look at it, I get a little 
nervous when we talk about just a meat ax approach on the video 
side where we say because it is an IP network and because we 
are using IP technology to deliver this service, no regulation 
is necessary. And so I think the dialog that we have all had 
here today, frankly, the multiple invitations to continue the 
dialog and to make sure that we create a regulatory approach 
that fosters all of the objectives that we have talked about, 
which I think, generally speaking, are shared by all of the 
members on the panel, will result in a restructuring of the 
1996 act in a way that will benefit consumers and benefit 
competition but preserve critical aspects of legacy regulation 
that are necessary to promote important social policies.
    Mr. Ferguson. I think you would find a lot of people on 
this panel who would agree with that.
    Thank you, Mr. Chairman.
    Mr. Upton. Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman.
    I guess my first observation, and I apologize, I was absent 
during some of the questioning that would be very relevant to 
what I want to speak to, and the first assumption, I think, is 
always that I think individuals, the witnesses, and many of the 
individuals in the audience go back to their offices later and 
I think they actually say things like, ``These guys really 
don't understand the technology, the members of this 
committee.'' And then they say, ``Gee, and we know they don't 
understand sound business practices.'' Well, you may be right, 
but it doesn't mean that we are not going to regulate. So be 
really careful what you ask for. The amount of specificity and 
detail, you know, we hear it from that end and then you get it 
from us, because we are trying to obligate you on all sorts of 
stuff that may or may not lend itself when you get in there 
into the real practice. So I guess, you know, this is just, you 
know, beware. All of us should beware of what we are trying to 
do. We are trying to accommodate changing technology, right? 
And we have traditional companies, the wire line companies, 
that are moving into these new technologies. We have got to 
figure out how that is going to happen, how we will foster 
competition, and how we will be in a position to actually 
enhance and promote this technology. And I know I wasn't here, 
I think, when Mr. Markey eluded to is SBC, or anyone else 
similarly situated, more or less redlining or whatever.
    And I guess my question to Ms. Champion, I just always 
assume certain things, if I look at cable companies and I look 
at Time Warner in San Antonio in the 20th District. You know. 
They have Voice over Internet Protocol available now. They have 
always had their cable lines there. I know when SBC went into 
broadband, well, you know, we had our phone line coming in. But 
what we are talking about here is something a little different, 
and you are expanding and going into something different as 
well as other companies. Do you all look at markets and fear, 
as you start off, in order to remain competitive and make a 
profit, which is still a legitimate business goal in America 
today, do you look at a customer profile and say, ``This is 
where we are going to go,'' get off the ground, and then see 
where else we go? Because I really believe you have to do that 
to survive, and then to expand, and maybe into certain 
communities that, at one time, maybe weren't as attractive or 
such. I mean, that is just kind of a common sense approach that 
I have always felt about everything. I may be completely wrong, 
and I would ask that you please address that particular view or 
concern of mine.
    Ms. Champion. To survive, you must apply sound business 
practices. And that means that you have to start and build. The 
course that we have ahead of us is a very challenging course to 
enter as a new video provider, an IP-based solution for our 
customers. So yes, we have to start and then build on our 
capabilities and create momentum. We are competing against the 
incumbent providers, and as much as they entered our business, 
they entered into the voice business and are entering into the 
voice business without the legacy constraints and the legacy 
rules of an incumbent voice provider. So the path forward for 
SBC is absolutely we want to serve our customers. We have the 
most aggressive, 50 percent plus, than anyone sitting, other 
than at this table, you know, that is talking about reaching 18 
million subscribers. So our goal is absolutely to get there. 
And as technology evolves, we will have even more capabilities. 
But the key for us is to enter this marketplace, to make these 
investments, let these capabilities develop, and then let us 
work through that process very quickly over the next several 
years to determine, just as we did with DSL and just as has 
been done with wireless technology, where both of them have 
grown rapidly without mandates on building areas to serve 
customers and provide customers with the solutions that they 
want. Customers, at the end of the day, are what is going to 
dictate the sound business choices that SBC makes relative to 
the investments of billions of dollars of shareholders' money. 
And so what we are looking for is the ability, with a light 
touch entry, to enter this marketplace with a new solution and 
a powerful solution that allows us to serve customers.
    Mr. Gonzalez. Thank you.
    The way I see the big question, and I think the way it has 
been presented by committee staff to me during the briefings, 
is really how we categorize different service and providers: 
voice, data, video, what will they be subject to, what is still 
fair to carry on as far as certain obligations in the way of 
contribution by existing companies and so on. And if we could 
just rather stay focused on those things. I think Mr. Gleason 
had something on retransmission, the problems we have with 
that. We know from the broadcasters on multi-cast, we know the 
problems with digital and high-definition whether this will be 
carried or not carried. And I would like that we would be able 
to address those things. But I would rather that the industries 
themselves come to some sort of an agreement so that it doesn't 
require us to move forward or allow any regulatory agency to 
take that particular issue over. But those are my observations. 
But we do appreciate that you have come forward, that you 
provide us the insight regarding the change in technologies and 
trying to explain it to us. You know, believe it or not, we are 
capable of understanding, when we listen. And also, there is 
nothing wrong with bringing out the market dynamics and 
explaining those in detail sometimes to us.
    But again, I would yield back at this time.
    Thank you, Mr. Chairman.
    Mr. Upton. Mr. Pickering.
    Mr. Pickering. Mr. Chairman, thank you.
    Let me really quickly give what I think is the context of 
the decisions before us as policymakers where there is 
consensus and then what our objectives should be as we examine 
our policy decisions. The context, the 1996 act has been fully 
implemented and the old world is over. There is no longer long 
distance and local. As we see the mergers and acquisitions, we 
are going to concentration. Probably in the next 2 years, where 
there are four Bells, I wouldn't be surprised if there are only 
two Bells: Bell East and Bell West. There is a concentration 
occurring in wireless from seven national probably down to 
three or four. Cable is experiencing the same thing.
    As we see the completion of the act and then we see the 
concentration of the industries, all sectors, and that is not 
necessarily a negative thing, it leads us to convergence, which 
is one of the objectives of the 1996 act. What we are talking 
about today is the quadruple play or the four play that you can 
offer data, video, voice, wireless and then offer consumers 
that. That is, I think, a good outcome. But it is very critical 
that as we go into concentration and convergence that we still 
maintain the core objective of the 1996 act. Even though the 
1996 act now deserves reform or revision or modification, I 
think the objectives of the act should be the same and that is 
to maximize competition, maximize choice, because when you do 
that, you maximize investment, capital investment into new 
applications, new technologies, and that core objective is what 
we should consider.
    The other objective is that we are competitively neutral, 
that we don't favor Bells over cable, or cable over Bells, or 
wireless or other new entrants, that we should try to find a 
way, even though I do not think it is possible at this point to 
have regulatory parity, it is possible to have fairness. And I 
have said this before, when you are raising children, I have 
five boys, you treat your children at different stages 
differently, but you hope you treat them fairly, so at the end 
of their youth, as a mature adult, you can release them into 
deregulatory parity.
    So that, I believe, is what our objective should be. There 
is a danger with concentration that we could have not a 
monopoly, but in a lot of our markets, duopolies. I do not 
think that would be a good outcome. I think that we want to see 
three to five competitors in each segment or each sector of our 
markets. And so as we look at our decisions, we should say, 
one, we are going to be competitively neutral, we are going to 
maximize competition, and we want to try to maintain three to 
five competitors in each of our markets.
    So having said that, if those are objectives we can agree 
on as a committee, then where are the consensus points that we 
have reached? I think on IP-related services, the consensus 
points are that IP-related services should primarily be 
regulated at the Federal level. I think that is a consensus. 
Now there are partnerships with States and localities even 
under that, but in general, their primary jurisdiction should 
be Federal. I think that there is consensus on the social 
obligations: USF, E911, law enforcement, CALEA, in concept, not 
in detail. I think that there is consensus that we should do 
intercarrier comp as we go forward.
    Now where we have remaining questions or concerns are how 
do we treat networks, incumbent networks, and how do we treat 
content, access to content. And how we choose those two answers 
will determine if we reach our policy objectives. So in that 
context, I would like to ask my questions.
    Ms. Champion, you testified earlier that as you enter into 
video, that you would like to see legacy regulations removed. 
Is that your position?
    Ms. Champion. We are building a new network that is an 
entirely IP-based solution, so yes, the legacy rules, as a new 
entrant, should not be applied.
    Mr. Pickering. Now is that the same position you take at 
FCC?
    Ms. Champion. Yes.
    Mr. Pickering. According to your proceeding to the FCC that 
is now pending currently, your petition says a declaration that 
IP platform services are not subject to Title II will not 
affect the applicability of Title II to legacy 
telecommunication services and networks. So before the FCC, you 
are saying it would in no way affect existing regulation of 
legacy networks and services by either State or Federal 
regulation. The other point that you make is that services may 
remain unregulated but will have no effect on rights of access 
to legacy non-IP-based services and certain facilities that 
support them. And it goes on to basically say that as we have 
seen the completion of the act and competition emerge, we have 
had FCC action to deregulate the network, the broadband 
decision, those beginnings of deregulating the network as 
competition emerges but still maintaining minimal regulation of 
legacy networks. You are testifying differently than how I read 
your proceeding at the FCC and the outcome as far as maximizing 
competition.
    For example, I would like to ask Mr. Cohen this question, 
if you remove legacy regulations to networks, cable right now 
partners with C-LEC's to offer VoIP, is that correct?
    Mr. Cohen. We do have to partner with C-LEC's to offer 
VoIP, because we need the connections to customers off of our 
basic network.
    Mr. Pickering. And so if C-LEC's no longer can have access 
to loops and transports, can you offer VoIP, the voice service 
today?
    Mr. Cohen. I think we would need different partnerships, 
but we would have to structure different business relationships 
with some different players.
    Mr. Pickering. And what partner could now, that exists 
today, if no partner can get access to loops and transports, 
how could you offer VoIP? Where are you going to find this 
partner?
    Mr. Cohen. We will find a partner at this table.
    Mr. Pickering. Oh, you are talking about here?
    Mr. Cohen. Yeah.
    Mr. Pickering. But I am talking about if we were to do as 
SBC testified and that we took away all access to the incumbent 
network, how would ISPs and cable offer voice today? I think 
the answer is you would not be able to.
    Mr. Cohen. I think that we would not be able to in the way 
you have raised the question.
    Mr. Pickering. Yeah.
    Mr. Cohen. That is correct.
    Mr. Pickering. And then the question is----
    Mr. Cohen. I am not sure I understand, but----
    Mr. Pickering. Now let us go back to the objective. We want 
to maximize competition in voice. Now I am going to come back 
and I am going to say what the Bells would probably want me to 
say as they enter your market, and this gets back to fairness, 
not parity but fairness. If we want to maximize voice 
competition and your quadruple play as you enter into their 
market, you need access to their networks, is that not correct? 
Or your partners need access, at least the minimal elements of 
the network, is that correct?
    Mr. Cohen. I think that is correct.
    Mr. Pickering. Now on a preemption policy, you had 
testified earlier, Mr. Cohen, that you would want them to go 
through the same franchising, city by city. Is that correct?
    Mr. Cohen. I think what I testified to was that under 
current law, I believe that is what the requirement is. And I 
allowed that as this committee looks at and evaluates the 
competitive marketplace and weighs all of the factors, one of 
the factors this committee should look at, I think it was in 
response to Mr. Doyle's question, was the applicability of 
franchise requirements not only to the Bells but also to 
incumbent cable providers.
    Mr. Pickering. But if we followed that policy, it would not 
be consistent with a primary Federal jurisdiction, and it could 
actually act to slow competition in video and the investment, 
the capital investment, and IP video. And so what I would like 
to do is work with everyone to find those areas where we could 
preempt, remove all basic barriers to entry so that we can 
speed competition and investment in both video while 
maintaining competitive choices in voice and the ability of 
everyone to compete in both markets. There will be different 
treatment but the same objective in both markets.
    And so I would look forward to working with the chairman of 
this committee to find additional points of consensus as we try 
to maximize competition in all markets.
    Thank you.
    Mr. Upton. Mr. Inslee.
    Mr. Inslee. Thank you. And I share Mr. Pickering's goal 
that ultimately we will come out with a bill that leads to an 
industry that is just as well behaved as the Pickering 
children. So we set the bar kind of high here, but I hope we 
are going to get it.
    I want to thank Mr. Mitchell for joining us and thank you 
all for seeing the wisdom for using Microsoft products in this 
effort as well. It is the hometown team, and I appreciate that.
    Mr. Ingalls, I wanted to ask you how important are video 
services in your, sort of, business plan, and what do you 
really consider the major hurdle to full implementation that we 
should be knowledgeable about?
    Mr. Ingalls. Yeah, as far as our business plan goes, I 
think Mr. Pickering eluded to it, whether you call it the 
triple play or the quadruple play, the market is converging. It 
is about voice, video, and data. And as we sit and look at the 
market evolving, we are losing market share on our legacy 
business to providers of the triple play where we have 
partnered with DirecTV, as an example, to offer a bundle. We 
believe to compete, our business model requires us to deliver a 
high-end network, which we are building with FiOS, that will 
really differentiate us from both what SBC and Comcast have 
talked about today, because we really are providing a very 
unique business and capability to our customers. The upstream 
capability is not to be diminished. And our basic offering, it 
is two megabits upstream. There is a lot of capability there 
that will be offered to the consumer, you know, and I alluded 
to it in my testimony talking about just the idea of sharing 
media with your friends and family. So Mr. Pickering has five 
kids. My guess is at some point in time he is going to share 
his album over the network as opposed to on pictures. And to do 
that with two megabits upstream instead of, you know, something 
less, like 768, is a significantly different experience.
    So building that network is critical, because we really 
made the decision to go all of the way to the home, because we 
know speed is really one of the key issues and requirements of 
our customers.
    On the other side, what is the biggest roadblock to getting 
into the business? I have said it several times today. The No. 
1 issue in trying to roll out to the market is negotiating 
hundreds, if not thousands, of franchises across all of the 
local communities, and we really are talking about thousands. 
And so we have many people deployed today who are sitting in 
rooms negotiating in these hundreds of cities. We only have 
five franchises. We have been at it for over a year trying to 
get there. So that is a huge issue. And as I stated earlier to 
Mr. Boucher's statement, yes, we would like to see a policy 
that does streamline that. I do understand the fairness issue, 
but I also understand the value of competition. And I think 
competition is going to drive investment and investment, as you 
all know, will drive jobs. We are going to hire 3,000 to 5,000 
new people this year just to build the fiber network across our 
footprint.
    Mr. Inslee. Thank you.
    Mr. Gleason, you mentioned something intriguing, and I 
wanted to make sure I understood it, on retransmission rights. 
You said something to the effect that you would like to see a 
right to bid competitively for other, as I understand it, 
geographic areas for syndication purposes. Could you elaborate 
on that on how you see that as a solution?
    Mr. Gleason. Sure. As we have discussed, right now, if a 
broadcaster elects retransmission consent, we have to negotiate 
to come to an agreement to carry that broadcast station that we 
want to do. But at the same time, that broadcast station is 
given network non-duplication rights, meaning that if they are 
an NBC affiliate, for example, we have to negotiate to get 
retransmission consent for that NBC affiliate within our given 
market. But we also can not import an NBC affiliate from a 
neighboring DMA or over satellite, for example. And we have got 
no problem with must-carry or a station that elects 
retransmission consent, but now when they want to charge for 
that free, over-the-air signal, we are in a no negotiating type 
of position in that there is no competition for that that 
establishes the price that that station may want to charge. So 
our position is that we should be able to import an out-of-
market station, or in essence, how we have put it with the FCC, 
give us the right to shop for a better deal, and we think that 
that will more clearly establish what the value that station 
places on their retransmission consent price.
    Mr. Inslee. And from the broadcasters, how would you 
respond to their criticism how that affects their locality of 
the broadcast content?
    Mr. Gleason. Well, I can say I think localism is extremely 
important, and we want to carry the local broadcast stations, 
and that is why we have must-carry. And that is why it is free, 
over-the-air broadcast, and the station can elect must-carry 
and the local programming will be on the cable system.
    Mr. Inslee. Okay.
    Thank you.
    Mr. Upton. Ms. Cubin.
    Ms. Cubin. Thank you, Mr. Chairman.
    You know, I think most everybody up here has said that we 
have some objectives in what we are doing, and you all know 
that, too. And that is maximize competition, maximize choice on 
a competitively neutral platform. But I would like to add one 
other objective, and that is that rural America gets served. 
And you know, that is going to be the basis for every decision 
that I make. And I say that I am a little bit cynical about a 
lot of things that I hear, although I know that they are true, 
but they don't necessarily apply to Wyoming. For example, when 
I was traveling around the State a few weeks ago, you know, we 
were driving, and for 50 minutes, we didn't even have cell 
phone service in Wyoming. So I feel like we are being left 
behind in a lot of the promises that are being made. And to me, 
that is just not acceptable. So I just want you to know that 
every decision I make will be based on whether rural America is 
being served and really being served in a true way.
    So my first question will be first for Mr. Schmidt and then 
response by Mr. Gleason.
    With the prospect of so many new companies providing video 
to consumers, what mechanisms are in place to ensure that 
smaller co-ops, like those in Wyoming, will have access to 
programming? And do you think that they will just lose out in 
negotiations and that we will see a big increase in exclusive 
agreements like the NFL has with DirecTV?
    Mr. Schmidt. Well, there is a major issue, a major problem 
for broadcasting that has come up indirectly today, and that is 
the problem that we are required by law to be open, 
unencrypted, and available to everyone. So unless we are 
carried on a secondary basis through a subscriber-based system, 
we get none of those revenues. You may have noticed this 
weekend that there was a major development on the sports front 
where ESPN obtained Monday Night Football. ESPN is going to pay 
twice as much as ABC could pay and probably get 60 percent of 
the audience. That basic calculus is what is playing out 
through the video marketplace everywhere: high-quality 
programming, high-value programming is migrating away from the 
local broadcast system and on to the subscription services. We 
can share, in a small way, through the retransmission consent 
mechanism, where when people are charging for our product we 
can get some percentage of what they charge.
    The problem I have with the bidding system that Mr. Gleason 
is proposing is that he is going to be pitting Cheyenne against 
Denver, and I don't think that battle is a fair battle. Denver 
is going to win it. The cities are going to win over the rural 
areas. They may not win it directly, but eventually, the Denver 
stations will be able to pay more.
    Ms. Cubin. Absolutely.
    Mr. Schmidt. The networks will decide to go through the 
Denver stations, because it is more efficient, and we will lose 
the localism at the edges of the service in exactly the areas 
you are talking about.
    Mr. Gleason. And I have said repeatedly to protect 
localism, elect must-carry and then that way that local station 
is guaranteed to be on that network. You know. I would argue on 
the sports rights fees, that is the whole heart of the rest of 
our argument is that we have a problem, the smaller cable 
operators, like many that would serve in your area in Wyoming, 
if ESPN is going to pay double what ABC was paying, do our 
customers really care that it is not on channel 7 and it is now 
on channel 17? I don't think they do. And that is why we 
believe we need to have the ability to tier certain types of 
programming on cable so that, again, the four major media 
conglomerates don't control the entire dial. It is not all 
shoved onto expanded basic. We have got to come up with the 
ability to sell consumers the types of services that they want 
to get, and I think if that ability were there, you may not 
have seen that recent development.
    Mr. Schmidt. I don't disagree that your problem is that you 
are paying too much for cable programming, but you are paying 
too little for broadcast programming, for free, over-the-air 
broadcasting.
    Ms. Cubin. And this subject of franchising has been 
discussed. I just want to go on a little bit more about it. I 
am a direct person. I need really direct answers.
    Mr. Cohen, from what I have heard today, the way I 
understand it is that you want to be able to offer Voice over 
IP, but you don't want phone companies to have IP video 
legislation. You feel, once again, if I understand this 
correctly, that there is enough video competition with 
satellite and that is one of the reasons for that. Playing 
devil's advocate, I would suggest that wireless competition 
exists for phone companies, and the problem, as I see it, is 
that franchise areas are not necessarily geographically in the 
same place as phone service areas. So why is it we shouldn't 
fix this in an IP title in the communications act? Because it 
seems to me that that would help increase competition and 
therefore the number and quality of services in rural America.
    Mr. Cohen. With all due respect, I don't agree with the 
characterization of what I have said today.
    Ms. Cubin. Okay. Well, that is why I am asking.
    Mr. Cohen. I think on the voice side, I have endorsed the 
consensus that I think we have been working toward, and by we I 
mean the entire telecommunications industry with members of 
this committee, over the past two or 3 years, and I think we 
are almost to the finish line there and think that the 
appropriate balances have been struck in those compromises. I 
absolutely have repeatedly said that we welcome the competition 
from the Bells in the video marketplace. I think it makes our 
product better, and I think it improves the experience for 
customers. And I have not and will not defend the current 
franchising status quo. As the largest cable company in 
America, I will guarantee you that we have experienced more of 
the pain and suffering that you experience through the local 
franchising process than anyone who you have heard from today.
    And what I have said, however, is that before you go in and 
simply say, ``Let us eliminate franchising,'' let us recognize 
some of the important public policies that were designed to be 
protected by the franchising process, issues of localism, 
issues of non-discrimination, issues that we have talked about 
here, issues of franchising fees and local revenues, and pegged 
channels and public access television. I mean, I think, by the 
way, collectively, and I know that there is a huge amount of 
disagreement about this, that as you restructure the 
obligations that are imposed on competitors in the 1996 act, 
that we make sure, No. 1, that we are truly fostering 
competition; No. 2, that even light regulation is not picking 
winners or losers; No. 3, that we are stimulating facilities-
based competition, which is what all of us endorse and believe 
in; No. 4, that we treat like services alike; and No. 5, that 
we make sure that the ultimate regulatory scheme protects 
important legacy social policies and regulations that I think 
everyone would agree are important to protect. And I think that 
is the tough task of this committee, and I think the dialog 
today has helped to expose where some of the friction points 
are going to be as you go through that analysis.
    Ms. Cubin. Thank you, Mr. Chairman.
    Mr. Upton. Mr. Radanovich.
    Mr. Radanovich. Thank you, Mr. Chairman.
    Most of the questions, I think, that I have had have been 
answered, but I would like to pose a couple of questions, too.
    Mr. Cohen, I appreciated your comments about what ought to 
be the objectives of any telecom rewrite, and I just want to do 
my best to make sure that there is regulatory parity in what we 
do. And with that in mind, it seems to me the toughest part of 
the rewrite will be on the franchise issue. And there has been 
some discussion amongst Verizon and SBC about the willingness 
to look at things like national franchising or State 
franchising. I would be interested to know what your thoughts 
are on that, whether that is, you know, a common meeting ground 
area.
    Mr. Cohen. Yeah, I think that is going to be one of the 
questions we all have to work our way through. I think everyone 
has to remember that the local franchising requirements in 
Title VI didn't just appear in Title VI because somebody wanted 
to empower local governments to extort from cable companies. 
And that was not the public policy objective that was present. 
And I was not around then, but I think what happened was that 
there were a series of important issues around localism and 
local interests and that the Congress determined that the best 
way to protect those interests was by having local franchising 
requirements and let the local governments protect those 
interests.
    I am a little concerned when we talk about Federal 
franchising, because I wonder who then is going to be charged 
with protecting whatever localism and local interests that we 
might all agree deserve to be protected. I mean, is this 
committee going to sit and make franchise fee determinations? 
Is the FCC going to do that? When you move to the State level, 
you are getting closer to the local issues, and there may be a 
better opportunity to do that. By the same token, I mean, I 
want to say that I hear from Verizon and SBC that the way in 
which they provide service doesn't fit neatly within the way in 
which local franchise areas are drawn, and I hear and share 
their pain with the administrative burden and inconvenience of 
local franchising regulations.
    So I think it is those types of issues that we have to 
discuss to be able to find the accommodation where we have got 
a model that works for their business model that provides fair, 
and I will adopt Congressman Pickering's word, a fair sharing 
of regulatory burdens on all competitors in the marketplace, 
but by the same token, it provides a structure where important 
issues of localism can be protected going forward.
    Mr. Radanovich. Right. Right. All right. Thank you.
    You mentioned something earlier, too, about your problem in 
Los Angeles with the 23 stations on the must-carry provision. 
How would you solve that? I mean, is there a way to solve that 
problem?
    Mr. Cohen. Well, I think Mr. Gleason's testimony and 
comments are very interesting on the must-carry issue. I didn't 
really come here today prepared to discuss it in full. I mean, 
when you have 23 must-carry stations in a single market, and 
obviously I picked the market in the country with the largest 
number of must-carry stations.
    Mr. Radanovich. Right. Right.
    Mr. Cohen. I think I make the point really to drive home 
the tremendous problems and issues that would be put in place 
by having multi-casting must-carry, because you are taking 
those 23 must-carry stations and giving them three, four, or 
five extra channels, and all of a sudden you have now got 100 
must-carry stations in a single market. I mean, I think if you 
are going to address, in a particular market, the number of 
must-carry stations, you could probably address that issue, 
which really doesn't go to Mr. Gleason's issues, by tweaking 
the definition of what you have to do in order to be a must-
carry station, which might reduce the number of stations that 
have those rights in a regulatory environment.
    Mr. Schmidt. I might point out, Mr. Radanovich----
    Mr. Radanovich. Yes. Sure.
    Mr. Schmidt. [continuing] that we are talking bandwidth 
here. You can divide it up into tiny little slices, but really 
the bandwidth load is no greater, because the station is six 
megahertz digital than it is six megahertz analog.
    Mr. Radanovich. Got it. Thank you. Thank you.
    Ms. Champion, I want to ask you, on the issues, you have 
been grilled a lot, I think, on SBC's willingness to service 
rural areas as part of any discussion on a telecom rewrite. And 
I am curious to know a little bit more about your thoughts on 
achieving that. It has got to be part of our concerns on this 
part of the table to make sure that people are served, both 
that they are served but also served cost-effectively. Give me 
your thoughts on that, on rural delivery, but also on your 
willingness to abide by indecency standards that are imposed 
upon the cable producers.
    Ms. Champion. Yes. Regarding the rule question, our 
position is basically this. We have to enter the marketplace 
and begin to expand our capabilities. That means investments 
will be made into new technologies. And as this IPTV platform 
becomes available in the marketplace, there is absolutely, as 
we see in the technological advances recently, there will be 
solutions that I believe will help us solve some of the density 
issues around many of the rural areas. It is a physical 
situation today. And so as technologies evolve, we read every 
day about advancements with wireless technology, Y-max, et 
cetera, I believe there is a combination of technologies that 
will let us achieve our goal to serving our customers across 
our footprint, and we will adopt those technologies to provide 
customers solutions. The day there are physical and economic 
situations that really----
    Mr. Radanovich. Maybe I can ask you, would you be willing 
to abide by any standard that is set up in a telecom rewrite to 
make sure that those areas are provided?
    Ms. Champion. Well, my preference is that you would have a 
light touch approach to this. Just as with wireless and with 
DSL, we have been able to make investments and expand our 
footprint. So I wouldn't be looking for mandates that would 
specify that. I would be looking for the ability for us to 
deploy technologies and to make investments----
    Mr. Radanovich. Okay.
    Ms. Champion. [continuing] based on sound business 
practices to serve customers across the footprint.
    Mr. Radanovich. How about the indecency deal?
    Ms. Champion. Well, we absolutely will abide by the rules 
of the FCC and other Congress issues related to managing the 
content that is available to subscribers.
    Mr. Radanovich. Thank you.
    Thank you, Mr. Chairman.
    Mr. Upton. Ms. Blackburn.
    Ms. Blackburn. Thank you, Mr. Chairman.
    I want to thank all of you for your patience and for being 
here today. I know it has been a long hearing, and as we got 
the schedule of who was going to be here today, I thought, ``My 
heavens, seven people on a panel.'' You know. But it is such a 
great conversation, and it is helpful to me, and I am sure to 
many of my colleagues, to listen to the exchange between you 
all and your thoughts on how you approach this. I am out of 
Tennessee, and I represent a lot of the content producers, 
whether it be music, whether it be television, whether it be 
film, and of course, there is tremendous interest in what is 
going to happen with this bill. And today, we have heard a lot 
about infrastructure and we have heard about finances and 
franchises and taxation and competition and regulation and what 
it means to your business.
    But I want to go back to something. Mr. Ingalls had touched 
on it, and Mr. Cohen had touched on it. And this is the 
compliance cost. As you look at dealing with the local 
franchises is you look at the Federal regulation. And Mr. 
Ingalls, and then Mr. Cohen, if you will each answer, Mr. 
Ingalls, for the cost to Verizon to comply with the local 
franchising authority, and then Mr. Cohen, if you would address 
that for Comcast. What is it costing you as you go in and you 
negotiate these local franchise agreements and the amount of 
time that you are spending on that? What is the cost of 
compliance for that, if you will address that?
    Mr. Ingalls. Well, I think the biggest cost will be the 
franchise fee, which we fully understand we will pay, and it 
ranges, you know, 2 to 5 percent, depending on the 
jurisdiction. In terms of resources, it is cost a fair amount 
of resources, so I can't put the budget on that, but we have 
dozens of people deployed across the country negotiating with 
local jurisdictions. So the real cost is franchise fees. And 
then when you look at building the network that we are 
building, we don't really feel there is a cost with the must-
carry issues or the peg channels, because we are building a 
network. And that is one of the points that is really important 
here is I think this isn't just about IP. This is really about 
the network, and it is voice, video, and data. And so we are 
building a network that has the capacity to accommodate the 
local programming requirements. So those are not big costs. It 
really is the franchise fee.
    Ms. Blackburn. Okay.
    Mr. Cohen?
    Mr. Cohen. I am sorry. I was coughing before. I didn't want 
to cough into the microphone.
    I think I would certainly agree with Mr. Ingalls. The 
largest cost is the franchise fee. We probably have several 
hundred people who are engaged in franchising. Our rough 
franchise number, you will all have a heart attack when you 
hear this, we have over 5,000 franchises and average length is 
about 10 years, which means that every year, about 10 percent 
of them are being re-negotiated. So that means we are doing a 
new franchise agreement, basically, more than once a day on an 
annual basis somewhere in the country. And I might be able to 
give you some more specific numbers, which I would be happy to 
forward on, if we go back and do a little analysis of them.
    Ms. Blackburn. That would be great. I think it would be 
helpful to us, you know, to look at not only the dollar costs 
of the franchise fee but the human capital cost and the 
agreements and the maintenance of those agreements.
    Mr. Cohen. I am sure we can put together some numbers, 
which we will get to the committee.
    Ms. Blackburn. That would be helpful. Thank you.
    Quickly to Ms. Champion and Mr. Ingalls. Competition and 
looking at content. My content providers are very concerned 
about what they see as the peer-to-peer file swapping, and----
    Mr. Ingalls. I am sorry. I couldn't hear you.
    Ms. Blackburn. The peer-to-peer file swapping.
    Mr. Ingalls. Oh, okay.
    Ms. Blackburn. And we are concerned about the Internet 
traffic and peer-to-peer file swapping, the copyright 
infringements that are there to our songwriters to our content 
producers. So in light of the discussion of the file swapping 
and the copyright infringements, it seems to many of my content 
producers that facilitating or enabling Video-over IP might 
further contribute to the significant online piracy problem 
that they are addressing every single day. And in your opinion, 
do you think that this committee should explore mechanisms for 
ensuring that Video-over IP does not exacerbate this problem?
    Ms. Champion. I believe this platform has the ability to 
really simplify and solve some of those issues and being able 
to introduce for those various content providers a way to bring 
their content to users and then users to be able to legally 
purchase, providing them choices and options that maybe didn't 
exist before, even on a pay-per-use or on a pay-per-selection 
process. You know, part of this process here is about building 
a very robust back-office system and capabilities that will 
help fundamentally support various content owners to reach more 
customers and to monetize that in effective ways. So I believe 
there are some great capability here to bring growth and 
management of their content.
    Ms. Blackburn. And you all are taking steps?
    Ms. Champion. Our platform is being built. You know, there 
is a very significant investment, $4 billion. A big chunk of 
that is about our back offices and being able to support use 
and sensitive type services for digital consumption. And that 
is the nature of what this platform is about. It really 
unleashes a whole capability that we haven't even gotten to 
today about fundamentally allowing new consumption legally 
whereas options today may not be as easily and readily 
available to consumers. So it is about creating a whole new 
platform for digital content consumption, which can really help 
various providers.
    Mr. Ingalls. If I could just add on, you know, as Ms. 
Champion said, the platform really is the key enabler, and I 
think the back office is a key component. But we are, today, 
negotiating with content providers. It is one of the key 
questions as we have attempted to close those negotiations, and 
we have committed to stand behind the digital rights management 
and protection for the content providers. And it really is the 
systems. We are in a new generation now, and so the 
capabilities that we are building into this multi-billion 
dollar investment do just as Ms. Champion said provide 
protection and hopefully put in the hands of the content 
providers a new revenue source through, whether it be 
subscription or pay-per-use.
    Ms. Blackburn. Thank you. Thank you.
    Mr. Upton. Thank you.
    Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman. I didn't do my 
opening statement. By unanimous consent, I would just like to 
put it as part of the record.
    Mr. Upton. All members were allowed to do that.
    Mr. Stearns. Okay. You know, I think, as many of us are 
aware, and I think as Mr. Boucher and I both adopt a bill sort 
of classifying this new IP-enabled services with a new 
definition, ``advanced Internet communication services.'' And 
so we are trying to really break out of the inflexibility of 
the regulatory titles, because we don't have anything in Title 
I or II or even Title VI of the telecom act, which really 
describes what we are trying to do. So we are attempting to 
promote a regulatory certainty, which encourages investment in 
these areas and so to get the flexibility. I think there are 
two questions I have. Mr. Mitchell will search in his testimony 
that where ``subject to regulation, IP services should be 
exclusively within Federal jurisdiction.'' I guess the question 
for all of the witnesses, does everybody agree with that or 
disagree? And maybe if you disagree with it, you might comment, 
and I will assume everybody else agrees with it.
    Okay. The second question I have is, Mr. Cohen, you 
indicated today that you do not support different rules for IP 
video services. But what about a two-way interactive service, 
regardless of how they are provided, that, let us say, arguably 
today, perhaps could not be defined as cable services. So that 
is the question for you.
    Mr. Cohen. Well, I mean, I think that was a subcomment of 
my view, my general view that like services should be treated 
alike. And I would note that in our On Demand platform today, 
we are providing a robust, two-way, interactive service, which 
is not unlike the two-way, interactive service that SBC and 
Verizon will be providing over their networks. The 
comparability is much closer than the lack of comparability.
    Mr. Stearns. So you would define that as a typical cable 
service then?
    Mr. Cohen. Whether it is a typical cable service, it is 
enabled in 90 percent of the households across the Comcast 
footprint. I think over a relatively short period of time, it 
will be comparably available across all cable company 
footprints in the country.
    Mr. Stearns. So you don't support different rules then?
    Mr. Cohen. I think the answer is that we don't support 
different regulatory treatment for like services.
    Mr. Stearns. Okay. And this is a follow-up with one of the 
questions, I think, dealing with indecency. And this is for Mr. 
Perry. How will your technology enable parents to better 
control indecent material on television?
    Mr. Perry. Well, the No. 1 thing that our technology does 
is it makes sure the right content gets to the right viewers, 
so we preserve the local broadcaster's copyright. In doing 
that, we are opening up broadcasting to a PC. And PCs can be 
used then to set filters. In fact, of our 500,000 users of 
TitanTV today, we have many users that have customized their 
interactive program guide to only show those channels that they 
wish their family to see. So the fact that we are broadcasting 
to a PC opens up a whole host of possibilities for controlling 
indecency.
    Mr. Stearns. I have got another minute, Mr. Chairman, 
before, and I think we can still make the vote.
    I think, Mr. Cohen, you have answered this, but I wasn't 
here when you answered it. You assert that additional 
competition would be presented by the Bells ``warrants a 
comprehensive reexamination of existing regulatory framework 
adopted when the video marketplace was far less competitive.'' 
And I think, did you point out the rules then that Congress 
should change for this whole video industry?
    Mr. Cohen. We do endorse the work of this committee. We 
think that the competitive environment has changed since 1996 
and it is absolutely appropriate to review the rules and 
regulations that apply. And I have given a couple of specific 
areas, including VoIP and the local franchising area and some 
of the other regulatory parity that may exist in other titles 
of the existing communications act but is not in Title VI 
today.
    Mr. Stearns. Thank you.
    Mr. Upton. As much as I would like to give a lengthy 
closing statement, looking at the clock, and we have a couple 
of minutes on a series of votes. All of us appreciate your 
testimony today and look forward to working with you in the 
months ahead. Thank you.
    [Whereupon, at 1:11 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

    Response for the Record by James M. Gleason, President, NewWave 
        Communications, and Chairman, American Cable Association

    Question: Do you believe that the concept of ``net neutrality,'' as 
we have seen in the area of IP-voice services, will eventually become 
relevant when it comes to the field of IP-Video? In other words, does 
anyone foresee a time when network operators will have the opportunity 
to block the services of other video providers? And if so, how do you 
think such a problem should be remedied? By some sort of pre-emptive 
legislation or a sort of post-hoc reaction by the FCC to each case?
    Answer: Net neutrality is less relevant in the video world because 
of the difference of the product offering. A voice product delivered by 
any provider is the same product no matter what network it is offered 
through. In the video world it is harder to create a product that would 
be ``net neutral.'' There are five major programming conglomerates that 
control of 80% or more of the available television video content in 
America. These conglomerates will dictate what the video product will 
look like whether it is carried on telephone, satellite or traditional 
cable backbone, and no matter the retail provider. Congress should 
address the issue of video programming tying, bundling and control of 
video content by the five major media conglomerates, including 
retransmission consent, if Congress' intent is ensuring continued 
growth in the video IP sector for the American public. Cable and phone 
providers will provide access to their networks if Congress can give 
them back control over their bandwidth. If Congress goes down a path of 
restriction/access on a networks bandwidth, then Congress will be 
picking winners and losers rather than allowing the marketplace to 
function as it does best.
    The key from a legislative perspective is to treat like services 
alike. Rather than focusing on specific issues such as, ``net 
neutrality'' and bandwidth restrictive measures, Congress should not 
create blanket laws in regard to IP-enabled services. Rather, Congress 
should address each product category separately and create common laws 
within the specific product category across all platforms of providers. 
This would ensure a ``level playing field'' for all providers and 
network owners.

[GRAPHIC] [TIFF OMITTED] T0748.001

[GRAPHIC] [TIFF OMITTED] T0748.002

[GRAPHIC] [TIFF OMITTED] T0748.003

[GRAPHIC] [TIFF OMITTED] T0748.004

[GRAPHIC] [TIFF OMITTED] T0748.005

[GRAPHIC] [TIFF OMITTED] T0748.006

[GRAPHIC] [TIFF OMITTED] T0748.007

[GRAPHIC] [TIFF OMITTED] T0748.008

[GRAPHIC] [TIFF OMITTED] T0748.009

[GRAPHIC] [TIFF OMITTED] T0748.010

[GRAPHIC] [TIFF OMITTED] T0748.011

[GRAPHIC] [TIFF OMITTED] T0748.012

[GRAPHIC] [TIFF OMITTED] T0748.013

[GRAPHIC] [TIFF OMITTED] T0748.014

                                 
