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




 
   COMPETITION IN THE COMMUNICATIONS MARKETPLACE: HOW TECHNOLOGY IS 
                 CHANGING THE STRUCTURE OF THE INDUSTRY

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

                                HEARING

                               before the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               ----------                              

                             MARCH 2, 2005

                               ----------                              

                           Serial No. 109-13

                               ----------                              

      Printed for the use of the Committee on Energy and Commerce


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






   COMPETITION IN THE COMMUNICATIONS MARKETPLACE: HOW TECHNOLOGY IS 
                 CHANGING THE STRUCTURE OF THE INDUSTRY

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

                                HEARING

                               before the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 2, 2005

                               __________

                           Serial No. 109-13

                               __________

      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
                            WASHINGTON : 2005

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                    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

      James D. Barnette, Deputy Staff Director and General Counsel

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

                                  (ii)



                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Capellas, Michael D., President and Chief Executive Officer, 
      MCI........................................................    27
    Cooper, Mark N., Director of Research, Consumer Federation of 
      America....................................................    86
    Donahue, Timothy, President and Chief Executive Officer, 
      Nextel Communications......................................    38
    Dorman, David, Chairman and Chief Executive Officer, AT&T 
      Corporation................................................    19
    Forsee, Gary D., Chairman and CEO, Sprint....................    32
    Halpern, Jeffrey, Senior Equity Research Analyst, U.S. 
      Telecommunications Services, Sanford C. Bernstein & Co., 
      LLC........................................................    96
    Seidenberg, Ivan G., Chairman and Chief Executive Officer, 
      Verizon Communications.....................................    25
    Speta, James B., Associate Professor, Northwestern University 
      School of Law..............................................   100
    Weiser, Philip J., Associate Professor of Law and 
      Telecommunications, and Director of Silicon Flatirons 
      Telecommunications Program, University of Colorado School 
      of Law.....................................................   110
    Whitacre, Edward E., Jr., Chairman and Chief Executive 
      Officer, SBC Communications, Inc...........................    16
Material submitted for the record by:
    Alliance for Public Technology, letter dated March 10, 2005, 
      to Hon. Joe Barton.........................................   126
    Donahue, Timothy, President and Chief Executive Officer, 
      Nextel Communications, response for the record.............   127
    Forsee, Gary D., Chairman and CEO, Sprint, letter dated April 
      4, 2005, to Hon. Joe Barton................................   128

                                 (iii)



   COMPETITION IN THE COMMUNICATIONS MARKETPLACE: HOW TECHNOLOGY IS 
                 CHANGING THE STRUCTURE OF THE INDUSTRY

                              ----------                              


                        WEDNESDAY, MARCH 2, 2005

                          House of Representatives,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2123 of the Rayburn House Office Building, Hon. Joe Barton 
(chairman) presiding.
    Members present: Representatives Barton, Hall, Bilirakis, 
Upton, Stearns, Deal, Cubin, Shimkus, Wilson, Shadegg, 
Pickering, Fossella, Buyer, Radanovich, Bass, Pitts, Bono, 
Walden, Terry, Ferguson, Otter, Myrick, Sullivan, Murphy, 
Burgess, Blackburn, Dingell, Markey, Boucher, Brown, Rush, 
Eshoo, Stupak, Engel, Wynn, Green, DeGette, Solis, Gonzalez, 
Inslee, Baldwin, and Ross.
    Staff present: Howard Waltzman, chief counsel; Kelly Cole, 
majority counsel; Will Nordwind, policy coordinator; Bud 
Albright, staff director; Andy Black, deputy staff director; 
Jon Tripp, deputy communications director; Larry Neal, deputy 
staff director, communications; Anh Nguyen, legislative clerk; 
Billy Harvard, legislative clerk; Johanna Shelton, minority 
counsel; Peter Filon, minority counsel; Turney Hall, staff 
assistant; Voncille Hines, research assistant; and Sharon 
Davis, minority chief clerk.
    Chairman Barton. The committee will come to order. I would 
like to welcome our distinguished panel, especially the Texan 
from Ennis, Texas, my good friend, Ed Whitacre, whose mother is 
doing well in Ennis.
    Today's hearing is entitled Competition in the 
Communications Marketplace: How Technology is Changing the 
Structure of the Industry. We have before us today a very 
distinguished panel of six of the top communication executives 
in the world. We also have a second panel of representatives 
from consumer groups, the financial industry, and academia.
    Today's hearing will examine how advanced technologies have 
changed the dynamics of the communication industry by enabling 
the same suite of voice, video, and data services to be offered 
over different networks platforms, and also by permitting entry 
into these markets by virtual operators that use Internet 
protocol and provide applications such as Voice-over Internet 
Protocol, or VoIP, to consumers who subscribe to broadband 
services. These trends have resulted in a hollowing out of some 
traditional telephone marketing segments, such as residential 
and enterprise long distance telephone service as well as 
residential local exchange service. These industry trends have 
also led service providers with complementary IP and broadband 
assets to merge.
    The communication industry certainly looks very different 
than it did 10 years ago when this committee debated the 
legislation that became the 1996 Telecommunications Act. Back 
then, there were 28 million wireless subscribers. Today, there 
are over 170 million. Back then, wireless rates were much 
higher and long distance was not free. Today, wireless rates 
have plummeted. Long distance is almost entirely free. 
Consumers are beginning to cut the cord and replace their 
existing wireline phone service with wireless phone service.
    Today, in addition to providing voice services, wireless 
carriers are now offering data services and beginning to roll 
out video. Back in 1996, the Internet had not been fully 
commercialized. Today, there are more than 140 million Internet 
subscribers in the United States, including 40 million 
broadband customers. These broadband customers all now have 
access to innovative new IP services, such as VoIP that can be 
offered over broadband platforms at rates far below what 
consumers currently pay for traditional local and long distance 
packages. And I must tell Mr. Whitacre, that I am about to 
become a non-subscriber to Southwestern Bell in Ennis, Texas, 
because I now have Internet, so I will have one hard line, but 
I am going to save $50 a month on one of my SBC charges. So you 
will still be getting $50 a month on my--I will have one hard 
line in my home.
    In 1995, cable companies offered cable services. Today, the 
cable industry leads broadband subscribership in the United 
States, and cable companies are aggressively deploying VoIP 
services.
    With an industry that has changed so much in 10 years, it 
should come as little surprise that companies are looking at 
one another to determine where the partnerships will enable 
them to be stronger competitors in the new digital world. The 
combination of Sprint and Nextel will create a broadband giant 
in the wireless industry that has no affiliation with the 
Bells. We should not be wary of such a combined entity; we 
should welcome it. I want to repeat that. The combination of 
Sprint and Nextel will create a broadband giant in the wireless 
industry that has no affiliation with the Bells. We should not 
be wary of such a combined entity; we should welcome it.
    And once the unthinkable merger of AT&T and SBC is now very 
realistic. AT&T is a different company than it was 10 years 
ago. AT&T and SBC have complementary assets that will create a 
company with strengths in the residential and enterprise 
sectors, local and long distance, wireline and wireless, and 
with the ability to serve as a broadband network provider and 
an IP application service provider, the same logic applies to 
the Verizon-MCI deal. And I would want to emphasize here that 
if you are going to have one merger, you need the other merger 
so that there really is competition. We still have to have 
competition in the marketplace.
    The United States needs to have a vibrant communications 
industry with strong national players. I believe the companies 
before us today are creating such players and that U.S. 
economic growth and consumers will benefit as a result.
    I look forward to the testimony of our witnesses. I would 
like to thank them each individually for participating today.
    With that, I would like to welcome our distinguished 
ranking member from Michigan, Mr. Dingell, for an opening 
statement.
    Mr. Dingell. Mr. Chairman, you are very gracious. Thank 
you.
    I commend you for holding this hearing. It is timely, and 
it is important. It is very important that we understand the 
implications of the proposed mergers between SBC-AT&T, Verizon-
MCI, and Sprint-Nextel. The scale of these transactions will 
further transform a rapidly evolving communications industry. 
So this committee urgently needs to review them carefully. I 
would note that the world is changing under our feet, and we 
must change and be prepared for making the actions that this 
committee must make to address these concerns.
    The SBC's proposed acquisition of AT&T could mark the end 
of the line for a wonderful company, a 130-year-old icon, once 
the most powerful company in the United States. In its 1984 
breakup, AT&T saddled the local Bell companies with significant 
burdens. The industry was then subjected to a difficult period 
in which one person controlled its destiny--one person who 
stifled change and forward movement in the industry. In 1996, 
Congress freed the industry from this stifling structure, and 
since then, AT&T managed itself into a meltdown. It failed to 
understand or embrace the far-changing and far-reaching 
differences that were taking hold in the industry, including 
the rise of the Internet and the structural collapse of long 
distance as a distinct service offering. Some may view SBC's 
acquisition as offering AT&T a way out of a morass of its own 
construction.
    MCI, on the other hand, began its corporate life as a 
scrappy competitor, willing to take risks on new technologies. 
It evolved into the second largest long distance company and 
the world's largest Internet backbone provider. Unfortunately, 
Worldcomm's takeover mired the company in risky and 
inappropriate ventures. The backing of a solidly managed 
company could offer MCI a renewed opportunity to reshape its 
future.
    The Nextel-Sprint transaction will combine the third and 
the fifth largest mobile operators into a larger, third-ranked, 
nationwide competitor, offering Nextel's loyal business 
customers the benefit of a national IP backbone.
    These transactions highlight how technology is spurring a 
revolution in the way that Americans communicate. We are a long 
way from the reconstruction of Ma Bell. The modern 
communications marketplace bears little resemblance to the 
prior dominance of the single phone company. It is incumbent on 
regulators to leave the deal of the last century to a bygone 
era and to put 21st century deals into their proper context.
    Today, many rivals challenge traditional phone companies. 
There are now more cell phones than landline phones. Cable 
operators provide voice services and have more broadband 
customers than phone companies. Internet companies are now 
connecting voice calls. All sectors are moving toward a 
converged world of voice, video, and data offered across all 
kinds of platforms. It is this changed telecommunications 
landscape that is compelling this committee and, indeed, 
regulators everywhere to rethink our telecommunications laws.
    The government has a responsibility to analyze mergers 
carefully to be sure that they are in the public interest and 
not hurtful. I believe four overriding questions here must be 
answered.
    First, how will these transactions affect consumers? Will 
consumers, both mass market and enterprise, benefit from more 
choices, better quality, lower prices, and innovative products 
and services?
    Second, how will these mergers affect jobs? Will these 
transactions support the creations of new jobs for working 
Americans as these companies handle increasingly complex 
telecommunications needs?
    Third, how will these transactions affect competition in 
the communications market? Consequences for our independent 
companies, rural companies, small and mid-sized businesses must 
be examined closely.
    Fourth, how will these transactions affect 
telecommunications policy? What are the implications of 
bundling voice, data, wireless, and video? I would note that 
these transactions could renew efforts to achieve intercarrier 
compensation reform and the preservation of Federal universal 
service programs.
    I do not make any judgments today on these transactions, 
but I caution the authorities reviewing these mergers against 
reverting to an antiquated mindset of compartmentalized, 
distance-sensitive services and providers. Consumers will 
benefit from a realistic assessment of what telecommunications 
means in the 21st century.
    It is important for this committee to give affected parties 
a chance to be heard on whether the public interest lies in any 
given matter. I thank the CEOs for coming to explain their 
mergers, and I welcome them today. I look forward to the 
witnesses on the second panel who offer their own insight. This 
committee can always benefit from a fully informed debate of 
the most diverse stakeholders on issues of great importance to 
the public.
    Again, thank you, Mr. Chairman, and gentlemen, our members 
of the panel, thank you for your presence and your assistance.
    Chairman Barton. Thank you, Mr. Dingell.
    We would recognize the distinguished subcommittee chairman, 
Mr. Upton, to make an opening statement.
    Mr. Upton. Thank you, Mr. Chairman. And I commend you for 
holding this hearing today and providing us the opportunity to 
hear from today's distinguished witnesses.
    It is a constant refrain of mine, which I will repeat 
today, that the telecommunications marketplace has evolved 
dramatically, both in terms of technology and consumer 
preference from the days when Congress debated and passed the 
Telecommunications Act of 1996. The mergers which we are 
examining today are further evidence of this dramatic 
evolution, and they represent a natural and healthy progression 
in the marketplace.
    These companies seem to be better positioned, combined 
rather than separate to do battle in a world where the 
meaningful fight will be amongst intermodal competitors as they 
aggressively seek to win the hand of residential business, and 
governmental consumers in the offering of a suite of IP-enabled 
voice data and video services.
    Given the dramatic changes in the communication marketplace 
over the last 10 years, these mergers are not only logical, but 
they are integral to ensuring a vibrant and intermodally 
competitive communications marketplace.
    I consider these mergers a necessary tune-up for the 
telecommunications industry ensuring that the country's 
economic engine is fully geared up to compete globally. As goes 
the tech sector, so goes the economy.
    And I yield back my time, Mr. Chairman.
    Chairman Barton. We thank the gentleman.
    We recognize the distinguished ranking member of the 
subcommittee, Mr. Markey of Massachusetts, for an opening 
statement.
    Mr. Markey. Thank you, Mr. Chairman.
    And I want to commend you for holding this hearing today on 
the telecommunications mergers.
    Mr. Chairman, in this month of ``March Madness'', college 
basketball teams will compete to reach the ``Final Four.'' In 
the March telecom mergers, we may also reach a ``Final Four.'' 
In college basketball, to reach the ``Final Four'', teams have 
to compete to defeat their opponents. They don't get to merge 
with them in order to move on. The Bell companies have employed 
non-market strategies in the courts, in Congress, and 
ultimately at the Commission to beat AT&T and MCI and compel 
them into these mergers. While these were perfectly legal 
corporate strategies, we shouldn't confuse them with actually 
winning in the marketplace with consumers.
    It was not technological change that brought about the Bell 
Company mergers before us today. Rather, it was an unwise 
change in government policy by the Federal Communications 
Commission, which led to these mergers. We know these mergers 
were not the first preference of either MCI or AT&T, both of 
which had earned their pedigrees as competitive entrepreneurial 
companies. With fewer companies remaining to offering 
competing, affordable, traditional telephone service to average 
residential customers, the risk to the consumer is whether the 
remaining Bell behemoths will raise rates. And in the broadband 
marketplace, the question will be whether these same companies 
truly embark upon ruthless, Darwinian, Adam Smith-like telecom 
wars or whether we see a digital detante. And these mergers 
merely presage the cozy coalescence of the communications 
colossi.
    Consumers have a lot riding on the answers to these 
questions.
    Thank you, Mr. Chairman, once again for holding this 
hearing.
    Chairman Barton. I thank you, Mr. Markey.
    By the new rule we have adopted, all of the members are 
going to be allowed 1-minute opening statements, and we will 
start with the gentleman from Texas, Mr. Hall.
    Mr. Hall. Mr. Chairman, I am still trying to figure out 
what Mr. Markey said. I yield back my time.
    Chairman Barton. And then we would go to the distinguished 
gentleman from Virginia, Mr. Boucher.
    Mr. Boucher. Thank you very much, Mr. Chairman.
    In my view, the public interest is well served by the 
mergers which are the subject of today's hearing. The Sprint-
Nextel combination creates a strong, national cellular company 
with a footprint sufficient for vigorous competition with the 
two largest service providers. The increase in towers will 
reduce the number of dropped calls to the broad benefit of 
rural subscribers. The SBC-AT&T and Verizon-MCI mergers will 
speed the introduction of new services, including VoIP and 
multi-channel video as an Internet application. And broadband 
deployment will accelerate as SBC and Verizon use their larger 
integrated networks as a foundation for the expansion of fiber 
optics into neighborhoods and then into homes.
    I appreciate the chairman assembling this excellent panel 
and look forward to a detailed explanation from our witnesses 
of the public benefits that these combinations will bring.
    Thank you, Mr. Chairman. I yield back.
    Chairman Barton. Thank you, Congressman Boucher.
    The gentleman from Florida, Mr. Bilirakis, the 
distinguished vice-chair--okay. The gentleman from Ohio, Mr. 
Brown.
    Mr. Brown. Thank you, Mr. Chairman.
    Large-scale mergers in the telecommunications industry have 
a significant impact not only on the average consumer, also on 
the economic development of communities around our country. 
Mergers produce efficiencies that lead to lower prices, 
however, when large mega-mergers focus on the most profitable 
customers, they can squeeze smaller players, individual 
consumers and smaller businesses. If smaller phone companies 
can't connect to the large companies at an affordable rate, 
what becomes of the communities that they serve? If our 
committee wants the market to work, we can't ignore any segment 
of that market.
    Bonding of voice, video, and data services is another 
example that is bound to price some consumers out of the 
market. It is not just a consumer access issue. It is an 
economic development issue. If small business can't access the 
same breakthrough technologies as larger firms, they lose 
ground against their competition. Federal, State, and local 
government must all play a role in preventing lags in access to 
technology that disadvantage small business and consumers. In 
that context, it has never been more important to invest in 
programs like the Universal Service Fund and E-rate, ultimately 
helping all consumers gain affordable access to existing and 
new technologies as sound economic policy.
    Thank you, Mr. Chairman.
    Chairman Barton. Thank you, Congressman Brown.
    Does the gentlelady from New Mexico, Ms. Wilson, wish to 
make an opening statement?
    Ms. Wilson. Thank you, Mr. Chairman.
    It strikes me that we are almost at the point where we have 
gone full circle over the last two decades. We have had two 
decades of vigorous competition and technological innovation. 
We have got new technologies at lower costs spurred initially 
by the breakup of a very large monopoly. And we are now on the 
cusp of seeing the emergence of a duopoly with, I think two 
large groups that dominate the market who are highly unlikely 
to compete with each other on their own home turfs.
    It will be interesting to see how this works out in two 
ways. One is for consumers who I think have benefited 
tremendously from the vigorous competition and innovation that 
has taken place over the last two decades and to see whether 
the pace of this innovation and cost reduction continues. And I 
have my doubts about that.
    And the second is in innovation. Telecommunications 
innovation has been one of the key components of American 
growth in productivity over the last two decades. And keeping 
on the leading edge of that innovation will be important for 
this country for jobs and for our economy. I have no doubt that 
the best business course, given the court decisions you all 
faced, was to pursue these mergers and acquisitions. But I do 
have doubt as to whether this will benefit the American economy 
and benefit the American consumer in the long term. And I think 
that that is an important thing for this committee to explore.
    Thank you, Mr. Chairman.
    Chairman Barton. I thank the gentlelady from New Mexico.
    We would like to recognize the gentlelady from California 
for an opening statement, but before we do that, Congressman 
Engel reminded me, that Congresswoman Eshoo just lost her 
mother. And all of us who have lost a parent, it is one of the 
more traumatic things, so we just want to express our 
condolences to the gentlelady from California and wish her the 
very best as she gets through that.
    The gentlelady from California.
    Ms. Eshoo. Thank you, Mr. Chairman, both for holding this 
hearing and for what you just said. There isn't anything that 
quite prepares you, regardless of the set of circumstances, 
when you lose a parent. They stand between us and our own 
mortality, and I really think I had the best. So thank you for 
what you said and for all of the wishes of the members of the 
committee. My family and I appreciate it very, very much.
    As I look at the witness table and the impressive lineup of 
executives who have joined us here today, and I welcome you, I 
can't help but think of how much bigger the table would have 
been a few years ago. It is also instructive to think about how 
small the table might be in the next few years. We might only 
need a desk. We seem to have gone in one direction, and now we 
are going in another.
    I don't think that all consolidations and mergers are bad, 
and realignment of a dynamic industry, such as the 
telecommunications industry, I think is inevitable. But the 
course of events that has led us here is really distressing to 
me. As someone that served on the committee when the 
Telecommunications Act was drawn up and as a conferee on that 
bill, I was so excited about what had been worked out. I really 
thought that this was one of the great takeoff points for the 
industry toward the end of a century that was going to prepare 
us for a new one.
    But most frankly, I think it has been mangled. What we are 
left with are two large competitors that dominate the 
communications landscape, the Bells and cable. That is not a 
good outcome, in my view, but that is where we are. I think the 
challenge for us will be to ensure that the companies that 
control last-mile access treat new entrants and competitors 
fairly. They can put a squeeze on people every inch of that 
last mile, and I don't think that is good for consumers and the 
country, most frankly. So I think we also have to ensure that 
new technologies that offer other avenues to the consumer are 
given the opportunity to take root.
    So with that, Mr. Chairman, I look forward to hearing from 
our witnesses. Again, thank you for having this very important 
hearing and also for the sentiments that you have expressed on 
behalf of all of the members of the committee.
    Chairman Barton. I want to thank the gentlelady and, you 
know, we all get elected as Republicans and Democrats, but we 
are all people, and most--believe it or not, in the audience, 
we all work together pretty well. But in our offices, you know, 
if you are a Republican, you have pictures of President Reagan, 
and you know, President Bush, and if you are Democrat, you have 
President Carter and President Clinton. Well, I have got one 
photograph of President Clinton in my office, and it is because 
Anna Eshoo was in it that I have that photograph. So I really 
have the most sincere affection and respect for the gentlelady 
from California.
    Does the gentleman from Georgia, Mr. Deal, wish to make an 
opening statement?
    Okay. Does the gentleman from Michigan, Mr. Stupak, wish to 
make an opening statement?
    Mr. Stupak. Thank you, Mr. Chairman, and thank you for 
holding this hearing today on the recently announced mergers.
    The title of this hearing is how technology is changing the 
structure of the industry. There is no doubt that technology 
has greatly impacted the paradigm shift in the 
telecommunications industry. Voice-over the Internet Protocol 
and other technologies have opened the door for new competition 
between wireless, cable, wireline, and even power companies. 
However, I believe the committee would be remiss not to 
acknowledge the impact regulatory decisions have had on this 
industry. Were these mergers inevitable? I believe we are 
seeing the inevitable consequences of deliberate decisions made 
by Chairman Powell and backed by the Bush Administration.
    As you know, Michigan was one of the States that benefited 
from competition. I want to assurances that the rewards of 
competition from which we in Michigan have benefited, lower 
prices, better service, and more choice, will not diminish. I 
also want assurances that my very rural District that covers 
the Upper Peninsula and the northern Lower Peninsula of 
Michigan will have the resources to invest in infrastructure, 
including broadband, and that the digital divide will close and 
not widen as a result of these mergers.
    I look forward to hearing from both panels today, and I 
yield back the balance of my time.
    Chairman Barton. I thank the gentleman.
    Does the gentleman from California, Mr. Radanovich, wish to 
make an opening statement?
    Mr. Radanovich. No, thank you, Mr. Chairman. I appreciate 
the opportunity and look forward to the questions.
    Chairman Barton. Okay. The gentleman from New York, Mr. 
Engel.
    Mr. Engel. Well, thank you, Mr. Chairman. I want to thank 
you for holding the hearing today, and I think you touched on 
why this committee is so special and so important. We do work 
well together. I want to welcome the distinguished panelists, 
especially Ivan Seidenberg, who comes from my hometown. And we 
always look at Verizon, in New York, as our hometown company.
    Mr. Chairman, as Bob Dylan used to sing, the times they are 
a changing. And how they are changing in this industry. For 
many years, those of us on the Telecommunications Subcommittee 
have been foreseeing the end of the long distance companies, 
and here today, we are seeing that come to pass. We, in our 
lifetimes, will have experienced telephone service going from a 
complete monopoly to a radically different, richly competitive 
industry. I think that things--certain things are inevitable, 
and I don't think that we need to fear inevitability. I don't 
fear change. We have to look at what is best for the consumer. 
I think we make the mistake if we think that once the genie is 
out of the bottle we should try to push it back in and yearn 
for the good old days. Someone once said that if you think the 
good old days were so good, you are deluding yourself. The 
bottom line is what is good for the consumer. And we have to 
look in terms of what is best for our country, globally, and as 
well internally.
    So I yield back. I look forward to listening to what these 
gentlemen have to say. And I think that together, as a 
committee, we ought to not fear the future but move on.
    Chairman Barton. Isn't America a great country? You have 
somebody from your hometown here, and I have somebody from my 
hometown here. But your hometown has got about 10 million 
people, and my hometown has about 10,000 people.
    Does the gentleman from Illinois, Mr. Shimkus, wish to make 
an opening statement?
    Mr. Shimkus. Yes, Mr. Chairman, just briefly.
    As many of you know, I co-chair the E-911 caucus with Anna 
Eshoo, who has been a great partner in this issue. And as we 
move forward, there--in current new stories, obviously there is 
a concern. So in this consolidation debate, it would be helpful 
for us, especially those who have been watching the public 
safety aspects of deploying E-911 and Voice-over Internet 
Protocol program of all 911 calls is will this help us get to 
that point in time when all consumers can really believe that 
when they dial 911, wherever they are at, that they will know 
that the 911 folks will know where they are calling from. And 
so everybody has their own little niches that they focus on.
    What I hope to hear is that yeah, this is going to be 
helpful. It is going to help us address the shortcomings of 
where we are at in full 911 deployment, whether it is E-911 
identification location or the most recent reported problems of 
Voice-over Internet Protocol, people calling from Illinois and 
getting it picked up at a Colorado piece.
    So that is my focus. I thank you for your time. I look 
forward to working with you all, and I yield back, Mr. 
Chairman.
    Chairman Barton. I thank the gentleman.
    I can't see down on--the gentlelady from California, Ms. 
Solis.
    Ms. Solis. Thank you, Mr. Chairman, and thank you for 
calling this hearing and--along with my colleagues here.
    As one who has express concern over corporate consolidation 
and its impact on consumers, I am pleased that our committee 
today is taking an active role in addressing these numerous 
issues regarding mergers in the telephone industry. The 
telecommunications industry looked very different back in 1996. 
After a series of court decisions and FCC rulings, the reality 
is an ever-changing communications industry where companies are 
forced to take measures in order not only to compete but to 
survive.
    One of the issues that continues to concern me is the fact 
that--in Districts like mine that are working class, low 
income, while high-speed Internet is available to most of the 
population, very few subscribers come about in my District. I 
could even say that about our classrooms. We are not even 
linked up to the Internet in many of our classrooms in the East 
Los Angeles area. So I hope that with all of these proposed 
mergers that we can really look at how we could provide 
assistance to our consumers and to larger communities that 
still fail to have access.
    So I look forward to hearing from you and also want to 
thank Chairman Barton for calling this hearing today.
    Thank you very much.
    Chairman Barton. I thank the gentlelady.
    Does the gentleman from New York, Mr. Fossella----
    Mr. Fossella. Thank you.
    Chairman Barton. [continuing] wish to make an opening 
statement?
    Mr. Fossella. Thank you, Mr. Chairman.
    And let me welcome the distinguished panel and acknowledge 
that I know you come as individuals, but you represent tens of 
thousands of hard working people across this country. And we 
are here, I think, collectively to ensure that the United 
States will remain as the No. 1 communications network in the 
world, and hopefully that is a goal that we can agree to as 
these mergers come and go. And particularly, let me welcome 
Ivan Seidenberg, as Eliot Engel just did. Verizon employees 
about 35,000 people in New York State, good, decent people, and 
among the largest employers. So we welcome you.
    Mr. Donahue from Nextel, I want to compliment you for 
reaching an agreement to ensure that public safety in this 
transition to megahertz to ensure that a public safety office 
is across the country, even in light of the merger with Sprint 
will ensure themselves and their families and, more 
importantly, the public at large, that we will have enhanced 
communications for our public safety offices, so I want to 
thank you for that.
    And just as we question and hear the answers, ensure that 
our focus remain on the benefits that will come from the 
investments these individuals and their corporations have made 
and will continue to be made to that overriding goal of 
ensuring that this great country have the No. 1 communications 
network in the world.
    So with that, I yield back.
    Thank you.
    Chairman Barton. I thank the gentleman from New York.
    Does the gentleman from Maryland wish to make an opening 
statement?
    Okay. Does the distinguished chairman of the Veterans 
Committee, Mr. Buyer of Indiana, wish to make an opening 
statement?
    Mr. Buyer. I thank the gentleman. I am pleased that you are 
here.
    As I listened to my colleague, Ms. Eshoo, I was also a 
conferee in the 1996 Act, and I wouldn't choose the word 
``mangled.'' I would choose--to prefer to accept 
responsibility, and that is what all of us on that conference 
should do, because we didn't get it right. And nor did those in 
the industry get it right. We thought the whole future, when we 
did that bill, was all about voice, and we got it wrong. It is 
the convergence of voice, video, and data, in the new world in 
which we find ourselves.
    So in your remarks, I am hopeful that I can hear counsel to 
us with advice on a rewrite. I am hopeful that you will be able 
to address this lack of competition of broadband in the rural 
areas. It is bothersome to many of us as members. And we also 
will be watchful with regard to cherry picking.
    Third, I would like for you to speak to my constituency in 
Indiana about how robust this competition will be with regard 
to mergers.
    And fourth, I would like to know the effect upon these 
mergers with national security, not only DOD, but also first 
responders.
    And gentlemen, thank you for your time in being here today. 
This is very important.
    I yield back.
    Chairman Barton. I thank the gentleman.
    Does the gentleman from Texas, Mr. Gonzalez, wish to make 
an opening statement?
    Mr. Gonzalez. Thank you very much, Mr. Chairman. And I 
would like to welcome Mr. Whitacre, one of my favorite 
constituents, of course, and a great citizen of San Antonio. 
And of course, SBC being a great corporate citizen, I pledge to 
you, Mr. Whitacre, that today I will try to dissuade the 
chairman from dropping that second SBC line. I will caution him 
to read the fine print and quality, also.
    But I think it really underscores what we are here to talk 
about today, and that is competition. How will SBC and other 
similarly situated companies compete in with this modern 
technology that is out there? There is a reason why the 
chairman is opting to do what he is doing regarding his own 
personal choice, and it is something that the consumer is 
facing every day. But I do believe this, that the notions of 
fair play in creating a competitive environment transcend all 
technological advances. And any technology and its success is 
really more a contingent on wise policy that emanates from 
Capitol Hill. So hopefully, with your help, we will reach those 
decisions.
    Thanks again.
    Chairman Barton. I thank the gentleman from San Antonio.
    The gentleman from Pennsylvania, Mr. Pitts?
    Mr. Pitts. No opening statement, Mr. Chairman.
    Chairman Barton. Okay. The gentlelady from Colorado?
    Okay. Does the gentleman from New Hampshire, Mr. Bass, wish 
to make an opening statement? Ms. Bono was getting ready to 
make an opening statement.
    Ms. Bono. Thank you, Mr. Chairman.
    I would like to thank you for holding this very important 
hearing today, and I would just like to point out that the 
telecommunications landscape has changed dramatically since 
Congress passed the 1996 Act. Over the course of a decade, we 
have seen competition in long distance, wireless, and high-
speed Internet access. Consumers have been the direct 
beneficiaries of this competition. In short, I am excited about 
this competition taking place, but I am also very excited to 
hear the testimony today about how consumers are going to 
continue to benefit.
    Further, as technologies continue to converge, I am very 
anxious to hear how copyright and intellectual property rights 
are treated and respected in this process. I would like to 
thank the panelists in advance for your participation.
    And with that, Mr. Chairman, I yield back.
    Chairman Barton. I thank the gentlelady.
    Does Mr. Inslee wish to make an opening statement?
    The gentleman, Mr. Otter, wish to make an opening 
statement?
    Mr. Otter. No, thank you, Mr. Chairman. I will submit mine 
for the record.
    Chairman Barton. Does Mr. Ross wish to make an opening 
statement?
    Mr. Ross. Thank you, Mr. Chairman and Ranking Member 
Dingell, for having the hearing today to discuss how technology 
has changed and is continuing to change the communications 
industry.
    I represent a rural District, about half of Arkansas, 148 
towns and 146 of them are relatively small, and the other two, 
most of you all in this room would consider small. And I can 
tell you that many of my constituents, many small businesses, 
some large, are not receiving many of the products and services 
that are currently in the market and have been around for quite 
some time in some of the larger cities across this country.
    I just want to impress upon you that it is imperative that 
as innovative products and services become available, as well 
as those already on the market, that those of us in rural areas 
have access to them.
    I look forward to hearing the witnesses discuss how rural 
America will be impacted by these proposed mergers and how they 
will better serve them.
    Chairman Barton. I thank the gentleman from Arkansas.
    The gentlelady from North Carolina, Ms. Myrick.
    Ms. Myrick. No, Mr. Chairman. I am just anxious to hear 
what the gentlemen have to say.
    Chairman Barton. The gentleman from Oklahoma, Mr. Sullivan.
    Mr. Sullivan. I waive, Mr. Chairman. I will submit my 
remarks in writing.
    Chairman Barton. All right.
    The gentleman from Pennsylvania, Mr. Murphy.
    The gentleman from Texas, Dr. Burgess.
    The gentlelady from Tennessee, Ms. Blackburn.
    Seeing no other members present, all members not present 
will have the requisite number of days to put their opening 
statements in the record.
    [Additional statements submitted for the record follow:]
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress 
                       from the State of Florida
    Thank you, Mr. Chairman.
    We've come a long way since Judge Green's decision in 1984. The 
telecommunications world is changing in exciting ways and these mergers 
are the latest indication that these companies are adapting to this 
ever-changing world.
    Despite the excitement and opportunity, there are still many 
important and complex questions that need to be answered: How many 
Americans will lose their jobs? How will these mergers impact wholesale 
telecommunications markets? Will this increase competition? Will these 
mergers benefit consumers in the long run?
    These are issues that we cannot afford to overlook.
    Mr. Chairman, competition led to the rapid innovation that brought 
us the advanced telecommunications services we have today. We need to 
ensure that these monumental consolidations do not undermine this same 
innovation.
    I look forward to listening to the panelists statements, and I 
thank you Mr. Chairman for holding this hearing.
                                 ______
                                 
 Prepared Statement of Hon. Ed Whitfield, a Representative in Congress 
                       from the State of Kentucky
    Mr. Chairman, I want to thank you for holding this hearing, and I 
thank our two panels of witnesses for appearing before this Committee 
to discuss the important changes that are taking place in the 
telecommunications industry.
    Mr. Chairman, the telecommunications landscape has changed markedly 
since the passage of the Telecommunications Act of 1996. At the time, 
local and long distance were the dominant communications platforms, and 
consequently, Congress sought to manage competition between the two. A 
decade later, however, we see that consumer demand has driven 
innovation in the industry to the point that much of the Act's 
regulatory framework has simply become obsolete.
    Gone are the days of ``plain old telephone service''; today, 
consumers rely on a vast array of other services for their 
communications needs, including wireless and Internet-based platforms. 
Moreover, telecommunications companies no longer compete for customers 
on a domestic basis--companies now are competing for customers on a 
truly global scale.
    The proposed mergers of SBC and AT&T, Verizon and MCI, and Sprint 
and Nextel underscore these dramatic shifts and the need for market 
leaders to keep up with the ever increasing pace of consumer demand. 
Consolidation among companies with complementary infrastructures will 
allow them to quickly build out on their existing services. Further, 
consolidation will provide to the market financially stable firms that 
will be better positioned to secure the capital critical for the 
development and deployment of the communications technologies needed 
for the 21st century.
    At the same time, however, we must be careful to ensure that these 
proposed mergers do not have adverse consequences for individual 
consumers. Any forthcoming merger must not unduly burden the ability 
for Americans to communicate effectively and affordably with one 
another. In addition, consolidation must be consistent with the promise 
of universal service in providing basic telecommunications services to 
high-cost, rural areas.
    With that said, I look forward to opening the discussion as to the 
best way to achieve these goals. Thank you, Mr. Chairman.
                                 ______
                                 
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming
    Thank you, Mr. Chairman.
    We are working to build a hearing record on the state of the 
telecommunications industry and what changes ought to be made to the 
Telecommunications Act to ensure a reliable and competitive medium. Our 
hearing today is timely in that there are some major changes on the 
horizon; mergers between Sprint-Nextel, Alltel-Western Wireless, SBC-
AT&T, and either MCI and Verizon or MCI and Qwest. All of these are 
interesting of themselves and illustrate a mature marketplace, but 
taken together, they signal a seminal moment in the evolution of 
telecommunications services.
    Frankly, it was hard to imagine this when we passed the '96 Act. 
But today, these prospective mergers make sense. For it is not just 
competition among legacy telecommunications providers that is powering 
this debate forward, but intermodal competition that is the market of 
the future. All of this is made possible by Internet Protocol. That has 
made the cable company the phone company and the phone company the 
cable company.
    I think this hearing will help shed light on the needed changes to 
the '96 Act and illustrate how the economies of scale will help the 
traditional telecommunications sector compete with wireless and cable 
for the delivery of voice, video and data. My concern regarding these 
proposals, like always, is how will this help or hurt Rural America. 
Often, those of us in less populated areas are on the caboose end of 
the train when it comes to technological innovation. I don't feel 
that's the best seat in the house.
    I yield back the balance of my time.
                                 ______
                                 
Prepared Statement of Hon. Mike Ferguson, a Representative in Congress 
                      from the State of New Jersey
    Chairman Barton, thank you for holding this hearing. As a new 
member of our telecommunications subcommittee and as a member of 
Congress who represents a district that includes AT&T's world 
headquarters and Verizon Wireless, I have a keen interest in the 
transactions that have recently unfolded.
    Thank you to all the CEO's present here today. I look forward to 
hearing from you regarding the impact and effects of your mergers, in 
particular how your proposed deals will impact the long term viability 
of the companies that have been acquired. Additionally, I would like to 
know how these mergers will affect the telecommunications industry and 
the engine behind it--the American workforce.
    Communications technology is moving at an exciting and rapid pace, 
from broadband and wireless to Internet Protocol-based services. In 
many ways, the advent of this technology has dictated the direction of 
industry, resulting in the mergers that we will examine today. I am 
eager to hear how these mergers will strengthen the companies and the 
quality of their services, foster competition, spur domestic economic 
growth and ultimately, propel America's position as a leader the global 
communications marketplace. Thank you.
                                 ______
                                 
  Prepared Statement of Hon. Tim Murphy, a Representative in Congress 
                     from the State of Pennsylvania
    Thank you Mr. Chairman.
    I commend you for holding this hearing today. It's been nearly 10 
years since Congress passed the Telecommunications Act of 1996 and we 
find ourselves witnessing mergers between companies that would have 
seemed improbable if not impossible at the time of passage. As 
telecommunication providers have evolved, the market has evolved with 
it. More importantly, technology has evolved well beyond what anyone 
could have contemplated a decade ago.
    These technological advances now allow service providers to offer a 
combination of voice, video, and data services over different 
platforms. Providers can now supply applications such as Voice over IP 
(VoIP) to consumers who subscribe to broadband services without 
requiring the same facilities based infrastructure traditionally 
necessary to offer telephone services. These advances have vastly 
changed the competitive landscape.
    One of the most noticeable changes is the push for providers to 
merge with former competitors because in many respects they do not 
compete any longer. Instead they offer different and complementary 
assets that when merged create more stable and diversified corporate 
portfolios. These mergers create synergetic economic opportunities for 
investors and customers alike. However, these circumstances must also 
be taken with some skepticism too. Will all of these mergers actually 
stifle competition by creating enormous corporations that gravitate 
towards market power with no incentive to compete?
    This committee will likely have the privilege of updating current 
telecommunications law to account for the drastic changes we have 
witnessed in recent years. This industry is vital to our economy as 
witnessed by how its faltering helped cause an economy wide decline 
five years ago that we are still recovering from. This country's 
innovations and ingenuity, especially in the telecommunications 
industry, will continue to drive the economy of the world. It is vital 
that we alter our laws and regulations to foster this growth and I look 
forward to this challenge in the coming months.
    I am pleased to have a diversified witness list today. While I am 
excited to hear from the CEOs of some of the aforementioned merging 
companies and how their proposed mergers will save consumers money and 
continue to grow the economy, I am also interested in hearing from 
consumer advocates, academics, and market analysts. Their testimony 
will help as we begin the arduous task of revisiting our 
telecommunications laws.
                                 ______
                                 
Prepared Statement of Hon. Sherrod Brown, a Representative in Congress 
                         from the State of Ohio
    Thank you, Mr. Chairman.
    Large-scale mergers in the telecommunications industry will have a 
significant impact not only on the average consumer, but also on the 
economic development of communities throughout the nation.
    Mergers can produce efficiencies that lead to lower prices. 
However, when large mega-mergers focus on the most profitable 
customers, it can squeeze out smaller players, individual consumers and 
smaller businesses.
    If smaller phone companies can't connect to the large companies at 
an affordable rate, what becomes of the communities they serve? If our 
committee wants the market to work, we can't ignore any segment of that 
market.
    The bundling of voice, video, and data services is another example. 
It is bound to price many consumers out of the market.
    That's not just a consumer access issue; it's an economic 
development issue. If small businesses can't access the same 
breakthrough technologies as larger firms, they lose ground against 
their competition.
    Federal, state and local government must all play a role in 
preventing lags in access to technology that disadvantage small 
business and consumers.
    In that context, it has never been more important to invest in 
programs like the Universal Service Fund and E-rate.
    Ultimately, helping all consumers gain affordable access to 
existing and new technologies is sound economic policy.
                                 ______
                                 
Prepared Statement of Hon. Jan Schakowsky, a Representative in Congress 
                       from the State of Illinois
    Thank you, Chairman Barton and Ranking Member Dingell. I would also 
like to extend a special welcome to one of today's witnesses, Mr. James 
Speta from Northwestern University's School of Law. Although the law 
school campus is not ``technically'' in my district, the main campus of 
Northwestern is--so I am going to claim you as one of my constituents. 
Welcome.
    I am glad we have an opportunity to discuss the questions that are 
raised by the overlap of the incredible changes in technology since the 
1996 Telecommunications Act and the recent cascade of mergers in the 
telecom industry have brought us here today, especially as they pertain 
to consumers and those who work in the telecom industry.
    Technological developments have meant more choices for consumers. 
Industry now offers consumers the choice between landlines, wireless, 
or Voice-Over-Internet-Protocol phone services, just to name a few. 
However, as we witness the number of companies offering the services 
drop significantly because of mergers that create a limited number of 
mega-corporations, we have to ask if consumers will see better prices, 
whether there will be more technological innovations, and if service 
will improve. Before we praise what the mergers will do for big 
business, we need to consider what they will mean for the consumers. 
The potential for serious losses are great. Business interests too 
frequently are not in the consumers' best interest.
    We also must consider what mergers mean for the workers. Over the 
past five years, the telecom industry has seen hundreds of thousands of 
jobs eliminated. (Remember, this is prior to the mergers.) The pending 
mergers threaten tens of thousands more positions. The companies 
readily admit to these ``cost savings'' cuts. Workers are being talked 
about as disposable business liabilities rather than the assets they 
are. We need to be less glib about people's livelihood.
    Congress must ask the tough questions and we need answers to our 
concerns before these mergers are approved. I believe that as the 
process moves forward, we must not forget those who will feel the 
likely fallout of the mergers the most--the employees and the 
consumers. Thank you.
                                 ______
                                 
Prepared Statement of Hon. Tammy Baldwin, a Representative in Congress 
                      from the State of Wisconsin
    Thank you Mr. Chairman.
    Over the last ten years, our telecommunications systems have been 
radically transformed. We have a dizzying array of new technologies. 
This innovation is providing new business opportunities and novel ways 
for Americans to relate to one another.
    As I look to the future, my objective is to understand how these 
services and these technologies impact those I represent. Will my 
constituents in urban Madison have healthy competition from a variety 
of providers using different technologies? Will my suburban Sun Prairie 
constituents have advanced services available at a reasonable cost? 
Will my rural New Glarus constituents have any broadband service at 
all?
    Our nation's telecommunications policy will be a failure if 
significant groups of Americans are left in a telecommunications 
wasteland, unserved or underserved. Our policy will be a failure if it 
leads to telecommunications redlining.
    Our history, and our economic theories, tells us that industry 
concentration reduces competitive behavior, results in less innovation 
and leads to higher prices. All bad for the consumer. These mergers 
raise legitimate concerns and we must examine the potential 
consequences on competition carefully.
    From my two perspectives as a Member of Congress responsible for 
policy- making, and as a consumer: technological and market change is 
occurring so rapidly that it is as challenging to judge the potential 
outcomes of regulatory and policy change as it is to figure out what 
bundled service works best for me as a consumer at home or at the 
office.
    What I do know is that the American people deserve an innovative, 
accessible, and affordable telecommunications system that enhances 
their lives and builds a better future.
    Thank you Mr. Chairman.

    Chairman Barton. And we would like to welcome our panel. We 
are going to start with Mr. Whitacre. We will recognize you--
let us give them 7 minutes to summarize your testimony, and 
then we will just go right down the line. Welcome to the 
committee.
    And you have to push that button to turn it on.
    Mr. Whitacre. Can you hear me?
    Chairman Barton. Yes, sir.
    Mr. Whitacre. Great.

   STATEMENTS OF EDWARD E. WHITACRE, JR., CHAIRMAN AND CHIEF 
  EXECUTIVE OFFICER, SBC COMMUNICATIONS, INC.; DAVID DORMAN, 
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, AT&T CORPORATION; IVAN G. 
   SEIDENBERG, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, VERIZON 
   COMMUNICATIONS; MICHAEL D. CAPELLAS, PRESIDENT AND CHIEF 
   EXECUTIVE OFFICER, MCI; GARY D. FORSEE, CHAIRMAN AND CEO, 
  SPRINT; AND TIMOTHY DONAHUE, PRESIDENT AND CHIEF EXECUTIVE 
                 OFFICER, NEXTEL COMMUNICATIONS

    Mr. Whitacre. Thank you, Chairman Barton and members of the 
committee. It is good to be here this morning. I am distressed 
that you are leaving SBC, Mr. Chairman, but we will work on 
that later.
    Chairman Barton. I still have one hard line wireline that 
is SBC.
    Mr. Whitacre. Well, that is good to know, because Mr. 
Seidenberg leaned over after Congressman Engel talked about his 
service and hometown and said at least I have still got him as 
a customer. So--but I am glad to be here this morning to talk 
about the SBC-AT&T merger, which is a very positive development 
for our customers, for competition, and for America's 
leadership in the global communications marketplace. The 
combined AT&T-SBC company will be a flagship of American 
communications company for the 21st century. We will provide 
business and residential customers alike with complete services 
over a robust national and international network using the most 
advanced technology.
    That is why more that 250 consumers, businesses, and civic 
groups, as well as unions and elected officials of both parties 
have already announced their support for this merger.
    Our merger comes as the U.S. telecommunications industry is 
trying to get up off the mat. For the first time in a long 
while, we can see some light at the end of the tunnel, but the 
journey through that tunnel has been pretty hard. Since 2000, 
telecommunication service providers and equipment manufacturers 
have lost more than 700,000 jobs. Annual capital investment has 
declined by more than $70 billion. Companies have lost more 
than $2 trillion in market capitalization.
    Until recently, SBC was losing 60,000 access lines each 
week. We have toned that down, and we are somewhere between 
20,000 and 30,000, but 60,000 per week for years. And in all 
honesty, adverse regulation has contributed to this downward 
spiral.
    So Wall Street is investing less and less in telecom. 
Telecom is investing less and less in its products and 
services. And we can see the consequences. Today, the U.S. is 
eleventh in the world in broadband deployment.
    As a result, this industry needs to restructure, and that 
is why we decided to do the SBC-AT&T merger. The reasons for 
combining these two companies are pretty clear, and so are the 
benefits.
    First, while SBC has a strong presence in many local 
markets, we do not have a national or global network of our 
own. We lease that network. We rent it, if you will. AT&T has 
those assets, and they are very good. And it is a good fit for 
SBC.
    Second, the next big thing in communications technology are 
Internet-based services, such as Voice-over Internet Protocol, 
or Voice-over IP. IP is changing how people communicate. It 
will change how this industry provides service. SBC does not 
have a consumer Voice-over IP service, but AT&T does, and so we 
can use it to compete in our region, outside our region, and 
around the world.
    The third reason for our merger is the opportunity it 
creates for competition in the large business customer segment. 
While SBC has made some progress in this market, it has been 
really slow going for us. AT&T will give us the ability to 
compete much more effectively in this space. SBC and AT&T will 
bring together an outstanding set of networks, innovative 
advanced products and services, unmatched talent and expertise, 
and a rich tradition of customer service and reliability. And 
we will ensure that the company which started it all more than 
100 years ago will be part of it for many years to come. AT&T 
will remain a viable factor in our industry, and its 
outstanding heritage will remain alive.
    That is why this merger is very much in the public 
interest. This is a natural and healthy evolution of a dynamic, 
competitive industry that is light years removed from when the 
last Federal telecom act was enacted in 1996.
    Today there are more wireless subscribers in the U.S. than 
there are traditional telephone lines. Data traffic now exceeds 
voice traffic by a margin of 11 to 1. Cable companies will 
offer phone service to \2/3\ of American homes this year. And 
other competitors using IP-based services continue to grow.
    Very little of this was envisioned when the 1996 Act was 
passed, which is why we need the laws to catch up. Policymakers 
and those who regulate us have an obligation to keep pace. We 
need rules that treat new technologies with the lightest touch 
possible and which allow the competitive marketplace to 
discipline retail prices.
    Chairman Barton. Is the gentleman----
    Mr. Whitacre. I am not through. Close, though.
    Such reform so would spur much-needed innovation, 
investment, and growth. I am ready to work with members of this 
committee to make those reforms a reality on behalf of American 
consumers and businesses.
    Thank you very much.
    [The prepared statement of Edward E. Whitacre, Jr. 
follows:]
   Prepared Statement of Edward E. Whitacre, Jr., Chairman and Chief 
               Executive Officer, SBC Communications Inc.
    Thank you, Chairman Barton, and Members of the Committee.
    I am pleased to discuss the SBC-AT&T merger, which is a very 
positive development for customers, for competition and for America's 
leadership in the global communications marketplace.
    The combined SBC-AT&T will be a flagship American communications 
company for the 21st century. We will provide business and residential 
customers alike with the most complete set of services . . . over the 
most robust national and international networks . . . using the most 
advanced technology.
    That's why more than 250 consumer, business and civic groups, as 
well as unions and elected officials of both parties . . . have already 
announced their support for the merger.
    The SBC-AT&T merger is in response to market forces that are 
reshaping the industry landscape.
    The environment in which we are operating has shifted dramatically 
over the last several years.
    What used to be a phone call made over a wireline network until 
recently is now a cell phone call . . . a text message delivered from 
one cell phone to another . . . an email sent by Blackberry or PC or 
laptop at a WIFI hotspot . . . or an Internet call provided by a cable 
company.
    Today there are more wireless subscribers in the U.S. than there 
are traditional phone lines.
    Data traffic now exceeds voice traffic by a margin of eleven-to-
one.
    Cable companies will offer phone service to two-thirds of American 
homes this year. And other competitors using Voice over Internet 
Protocol, or IP, continue to grow.
    Technology is erasing the distinction between types of services and 
the companies that provide them. Who can tell the difference anymore 
between local and long distance service, or interstate and intrastate 
service, or between voice and data, in an IP world?
    Customer demand is changing, too. Consumers want the choice of 
buying all their communications services . . . voice, data, wireless 
and video . . . in one bundle. Business customers demand innovation and 
expertise for managing highly complex communications wherever they do 
business.
    Dealing with rapid technology change and shifting customer demand 
is challenging enough . . . but it's even tougher because our industry 
has not been in very good shape for some time, now.
    Since 2000, telecommunications service providers and equipment 
manufacturers have lost more than 700,000 jobs. Annual capital 
investment has declined by more than $70 billion. Companies have lost 
more than $2 trillion in market capitalization.
    And in all honesty, adverse regulation has contributed to this 
downward spiral as well.
    Wall Street is investing less and less in telecom. Telecom is 
investing less and less in its products and services. We can see the 
consequences: today, the U.S. is 11th in the world in broadband 
deployment.
    As a result, the industry is restructuring and re-emerging . . . 
and the SBC-AT&T merger is direct product of those forces of change.
    SBC and AT&T will bring together an outstanding set of state-of-
the-art networks . . . innovative, advanced products and services' 
unmatched talent and expertise . . . and a rich tradition of customer 
service and reliability.
    We will build on that foundation to deliver the next generation of 
Internet-based voice, video and data communications.
    And we will ensure that the company which started it all more than 
one hundred years ago . . . will be part of it all for many years to 
come. AT&T will remain a viable factor in our industry, and its 
outstanding heritage will remain alive.
    For those reasons and more, this merger is very much in the public 
interest.
    This is a natural and healthy evolution of a dynamic, competitive 
communications industry. It is in response to a new competitive reality 
that is light years removed from when the last federal telecom law was 
enacted.
    The forces that are transforming the telecom industry put an equal 
obligation on policymakers and those who regulate us to keep pace. If 
the distinctions between services and service providers no longer exist 
in the marketplace . . . how can we justify the regulatory burdens that 
remain attached to them?
    We need rules that treat new technologies with the lightest touch 
possible and which allow the competitive marketplace to discipline 
retail prices.
    Doing so would spur much-needed innovation, investment and growth. 
I am ready to work with members of this Committee to make those reforms 
a reality on behalf of American consumers and businesses.
    Thank you.

    Chairman Barton. We thank the gentleman from Ennis, and we 
welcome the Chairman of AT&T, Mr. Dorman, for 7 minutes.
    Mr. Dorman. Thank you, Mr. Chairman and members of the 
committee.
    Chairman Barton. Use that microphone.

                    STATEMENT OF DAVID DORMAN

    Mr. Dorman. Thank you very much for inviting me to speak 
with you today about the merger of SBC and AT&T.
    There is very much to look forward to and nothing to fear 
from the joining together of these two companies, which share 
an ongoing legacy of innovation, integrity, and reliability.
    Together, we intend to set the standard for communications 
for years to come. Together, we create a national flagship 
carrier that will be a leader in delivering seamless, secure, 
and cost-effective new communication solutions to our State and 
Federal customers, to residential customers, and to small and 
large businesses. Together, AT&T and SBC will be able to bring 
advanced IP-based broadband services to the market more 
rapidly, more efficiently, and to a wider range of customers 
than either company could alone, heightening competition for 
voice, data, wireless, and video services. Together, AT&T and 
SBC will ensure the United States retains its traditional role 
of undisputed leader in global communications with significant 
benefits to our national economy.
    Most of you and your parents and your grandparents have 
known AT&T primarily as your phone company, serving residential 
consumers. That is not the AT&T of today. The AT&T of today is 
a global IP networking provider that enables large businesses, 
State and Federal agencies, and other customers to deliver 
applications securely and reliably.
    The reason for that transformation are, I think, well known 
to you.
    Telecom competitors have experienced a difficult 
environment. Admitted fraud, over-investment by many carriers, 
tremendous oversupply, a wave of new technologies in an ever-
shifting regulatory environment. Our traditional wireline 
services were being rapidly supplanted by wireless services and 
Internet-based applications, such as e-mail and instant 
messaging. And mass-market customers were increasingly 
demanding bundles of service, including services that we were 
not well positioned to provide.
    We knew we had to change fundamentally and fast, and I am 
proud that the very difficult transformation that we had to 
accomplish over the last very short few months, frankly. We 
determined that we would no longer actively compete in the 
traditional mass market and that we would focus virtually all 
of our attention on delivering powerful networks, applications, 
and capabilities to large business, government, and wholesale 
customers.
    It was a painful choice for us to make, but we are no 
longer a mass-market company. The combination with SBC will 
allow AT&T to continue this process of transforming its 
business in response to market and service developments, 
enabling it to bring advanced, attractively priced services to 
market, and to improve what, in our view, is the finest global 
network in the world. The merger will also ensure that AT&T's 
strengths in the large business market can be deployed for the 
benefit of smaller businesses and residential customers.
    Indeed, bringing together these two companies will create a 
world leader in advanced communication services as the new 
company uses its increased scale and scope and its expertise in 
local, broadband, wireless, and global networking to speed the 
transformation of the legacy networks of both AT&T and SBC into 
an integrated IP-based network. It will achieve efficiencies 
that reduce our costs, enhance our operations, and allow us to 
offer better services and better value for our customers. It 
will allow us to provide our government customers with more 
reliable, more resilient, and more efficient network 
capabilities and increase the pace and breadth of the 
innovations of our renowned AT&T labs with benefits for all 
types of customers, not just the largest business enterprises 
on which we now focus.
    The combined company will be stronger as a competitor to 
others, including foreign providers globally, and I believe, 
that the other Bell companies around the country as well. And 
the transaction will not harm competition in any market.
    In the mass market, SBC is a leading provider of service in 
its 13-State region, but AT&T is no longer an active mass-
market competitor in those States.
    The merger will also not impair competition in the 
provision of services to business customers, given the number 
and diversity of competitors for businesses, the sophistication 
of these customers, and their own purchasing practices. Nor is 
there any serious argument that the merger will diminish 
competition in wireless, where AT&T is not currently a 
provider, international, where SBC has a very limited share, or 
in Internet-backbone services where many large providers 
compete. Rather, the merger is a step forward in the evolution 
of this industry, creating a healthy, competitive, and 
innovative American communications company.
    In conclusion, I would like to thank you again for the 
invitation to speak with you today about the very significant 
benefits that this merger will produce, and I would be pleased 
to answer any questions that you may have.
    [The prepared statement of David Dorman follows:]
   Prepared Statement of David Dorman, Chairman and Chief Executive 
                          Officer, AT&T Corp.
    Mr. Chairman and Members of the Committee, thank you very much for 
inviting me to speak with you today regarding the merger of SBC and 
AT&T, and the enormous benefits that the combination of these companies 
will bring to consumers and to the nation.
    My message to you today is that there is much to look forward to, 
and nothing to fear, from the joining together of two companies that 
share an ongoing legacy of innovation, integrity and reliability. 
Together we intend to set the standard for communications for years to 
come. Together, we create a national flagship carrier for the 21st 
century that, from ``day one,'' will be a leader in delivering 
seamless, secure, and cost-effective new communications solutions to 
our state and federal government customers, to residential consumers, 
and to small and large businesses, across the country and around the 
world.
    Together, AT&T and SBC will be able to bring advanced, IP-based 
broadband services to market more rapidly, more efficiently, and to a 
wider range of customers than either company could alone, accelerating 
broadband deployment and heightening competition for voice, data, 
wireless, and video services. Together, AT&T and SBC can provide the 
base that will ensure that the United States, in the face of increasing 
global competition, retains its traditional role of undisputed leader 
in global communications, and that our national economy obtains all of 
the benefits that accompany that leadership role. And together AT&T and 
SBC can ensure that our valued government customers will receive the 
most advanced, secure, reliable, robust and resilient services and 
network capabilities.
                   why at&t has agreed to the merger
    I speak to you today from a unique perspective. When the 1996 Act 
was passed, I led Pacific Bell, one of the incumbent Bell companies 
that today is part of SBC. Today, I lead AT&T, where I have been since 
December 2000. So I am very familiar with the supremely talented and 
hard-working people, the best in class networks, and the research and 
innovation know-how of these two great companies. And as I look at the 
two companies' assets, I see that they complement one another 
tremendously--two companies with very different focuses today that, 
when combined, will create a much better whole. And a key part of 
understanding why I think this combination is so good--both for 
consumers and for my shareholders--is the remarkable transformation 
that AT&T has experienced over the last few years.
    Most of you, and your parents and grandparents, have always known 
AT&T primarily as your phone company, a residential consumer-oriented 
company whose main business for more than a century was providing basic 
telephone services to the mass market. That is not the AT&T of today. 
The AT&T of today is a global IP networking provider with a software 
infrastructure that gives large businesses, state and federal agencies, 
and other communications providers the flexibility to deliver 
applications in a secure and reliable way. The reasons for that 
transformation are, I think, well known to all of you.
    AT&T has experienced an environment that has been very difficult 
for telecommunications companies: fraud and overinvestment, tremendous 
oversupply and pricing pressures, a wave of technological advances, and 
a shifting regulatory environment. Our traditional wireline services 
were being rapidly supplanted by wireless communications and Internet-
based applications such as e-mail and instant messaging. Mass market 
customers were increasingly demanding broad bundles of communications 
and entertainment services, including services we are not well-
positioned to provide. Customers were leaving. Prices were plummeting. 
Over the last five years, our revenues plunged from $49.6 billion in 
1999 to $30.5 billion in 2004. Much of that decline came from our 
consumer services division.
    We knew we had to change, fundamentally and fast. I am proud of the 
very difficult transformation that we have accomplished. We determined 
that we would no longer actively compete in the traditional mass market 
and that we would turn our attention to delivering powerful networks, 
applications, and capabilities to business customers worldwide and to 
our valued government and wholesale customers. It is difficult for many 
to accept--and it was a painful choice for us to make--but we are no 
longer a residential consumer company. That is simply not a business 
that makes sense for AT&T today or going forward. I want to assure you 
that we will, of course, continue to support and provide first class 
service to our remaining mass market customers as they migrate to other 
active mass market providers. And I want to point out that by helping 
other companies find better ways to do business, AT&T continues to 
bring great benefits to all consumers nationwide.
    The combination with SBC will allow AT&T to continue this process 
of transforming its business in response to market and service 
developments. The combination will provide the increased scale and 
scope that are important to success in transforming our network to 
implement IP-based technology and in bringing advanced, attractively 
priced services to market. It will enable us to expand and improve 
what, in our view, is already the finest global network in the world. 
It will ensure that AT&T's strengths in the large business customer 
market can be deployed for the benefit of smaller businesses and 
residential customers, and that SBC's strengths will enhance our 
ability to provide new and advanced services to large business 
customers. The combined company will have the ability and incentive to 
increase innovation and development of advanced services for the 
benefit of all customers, in the U.S. and globally.
           the merger will provide important public benefits
    Consumers of all types will benefit from this merger because of 
what the two companies share and, more importantly, because they have 
complementary and different strengths.
    The two companies share a common past and an ongoing legacy of 
innovation, integrity, reliability, and customer service.
    The two companies also bring together different strengths and 
product sets, ensuring that the merger will produce a combined company 
that is more than the sum of its parts. SBC is a provider of voice, 
data, broadband, and related services to consumers and businesses--
especially small businesses-- primarily on a local and regional basis 
in its 13-state region.
    AT&T has a different focus. We provide a broad array of voice, 
data, and IP-based services to customers on our global and national IP-
based networks. We provide services to the largest businesses, 
government agencies, and wholesale customers. AT&T has a presence in 
more than 50 countries, allowing it to compete for the business of the 
largest global enterprises. AT&T Labs has ensured that the company has 
remained a leader in the invention and development of innovative 
services and advanced network capabilities.
    The combined SBC and AT&T will be a stronger and more innovative 
U.S.-based global competitor than either company could be alone. The 
merger will produce a flagship U.S. carrier that will offer the most 
efficient, highest quality capabilities to government, business, and 
residential customers nationwide and globally. The combined company 
will continue to provide U.S. government customers with the most 
advanced and secure services and network capabilities. The combined 
company will have the resources, expertise, and incentive to adapt the 
sophisticated products that AT&T has developed for its enterprise 
customers to the needs of small and medium businesses and consumers, as 
well as the marketing expertise and infrastructure to reach those 
customers.
    Combining the two companies' core strengths will result in more 
investment in, and faster deployment of, innovative new technologies 
and network capabilities that will benefit all customers. The 
combination of AT&T and SBC will enhance competition, resulting in 
improved services and lower prices for consumers, and will not impede 
competition in any market.
    Let me elaborate on each of these points:
    Global Leadership. The transaction will establish a world leader in 
advanced communications services, which will provide very significant 
benefits for all American consumers. The nation's economic growth and 
ever-improving standard of living have resulted, in substantial part, 
from the United States' position as an undisputed world leader in 
communications. Recently, that leadership has been questioned, fairly 
or not, as European and Asian-Pacific carriers and technology companies 
have grown rapidly and other markets--different from our own for many 
and varied reasons--have surpassed the U.S. in broadband penetration.
    By combining firms that are recognized leaders in both enterprise 
and mass market services and in the design and engineering of local, 
broadband, wireless, and global networks, the merger will create an 
American carrier that will undoubtedly set the global standard for 
communications service leadership. The companies' complementary 
strengths ensure that the combined company can rapidly complete the 
transformation of legacy networks to IP. These same synergies will 
drive the achievement of end-to-end service quality standards that 
previously have been unobtainable and will ensure the United States' 
preeminence in communications.
    Service to Government. Federal government departments and agencies, 
including those with national security responsibilities and 
requirements, will directly benefit from the service and network 
improvements that this merger will enable. Today, AT&T provides 
advanced services to a broad range of government agencies, including 
those involved in national defense, intelligence, and homeland 
security. AT&T's customers include the White House, the State 
Department, the Department of Homeland Security, the Department of 
Defense, the Department of Justice, and most branches of the armed 
forces. AT&T's support of the intelligence and defense communities 
includes the performance of various classified contracts.
    The transaction will enable Government customers to receive the 
most advanced, improved services and network capabilities. SBC's and 
AT&T's separate networks will be transformed into a larger and more 
advanced IP-based network, which will be more reliable, robust, and 
resilient. As the Defense Department's need for integrated, worldwide 
networks increases, a combined company will be better positioned than 
the individual companies to provide these networks on a secure, end-to-
end basis.
    Increased Innovation. A crucial benefit of this combination for all 
consumers is greater research, development and innovation--especially 
for advanced and IP-based services and network capabilities. For 
customers, this should mean lower costs for existing services, the more 
rapid development of new services, and the development of services that 
otherwise would not exist.
    The merger will promote and widely distribute the benefits of 
innovation by enabling the combined entity to take greater advantage of 
the research and development capabilities of one of AT&T's ``crown 
jewels''--AT&T Labs, which is a direct successor to the Bell Telephone 
Laboratories. Innovations undertaken by Bell Labs and its successors 
have launched or proved instrumental to the development of basic 
innovations that have shaped our daily lives and launched entire 
industries.
    Innovative Mass Market Services. The transaction will increase 
innovation because the combined company will seek to develop and 
deploy, for smaller business and residential customers, the storehouse 
of existing and ongoing innovations produced by AT&T Labs for large 
enterprise customers. The potential benefits of research and 
development, however, are not limited to those customers. Breakthroughs 
that AT&T achieves in research and development aimed at producing new 
enterprise services, or providing those services more efficiently, 
often will have relevance to other services that could potentially be 
offered over the combined company's network facilities, such as mass 
market services.

 For example, AT&T is a global leader in the development of text-to-
        speech engines, synthesized voice capabilities, automatic 
        speech recognition, and natural language speech understanding 
        systems. These technologies have the potential to allow real-
        time translation services and exceptionally efficient customer 
        care and relationship management capabilities. Accelerated 
        deployment of these capabilities into residential and small 
        business offerings holds the potential for significant public 
        benefits, particularly for visually, hearing, and speech-
        impaired customers.
 Similarly, AT&T Labs is a leader in the development of network 
        security services for business customers. It is developing 
        capabilities to detect unauthorized use of communications 
        services and customer information. As demand for anti-fraud and 
        security services among mass market and small business 
        customers continues to grow, very significant public interest 
        benefits may be realized by additional innovation the combined 
        company will undertake to meet that demand.
 AT&T Labs continues to develop advanced e-commerce support and 
        enhancement capabilities. Translating these ongoing innovations 
        from large business-focused services to services designed to 
        meet the needs of smaller businesses and residential customers 
        is another source of significant public interest benefits.
 And AT&T Labs is developing an IP environment that can support a 
        broad range of communications services, including video 
        services. AT&T has also developed a number of innovations to 
        make the delivery and use of video services far more effective 
        than is achievable today, with clear benefits for smaller 
        business and residential customers.
    Innovative Network Capabilities. In addition, combining the two 
companies creates scale and brings together complementary strengths 
that will lower the costs and increase the benefits of pursuing 
research and development initiatives--and thus increase the pace and 
breadth of innovation. AT&T's unmatched research and development 
capabilities will be combined with SBC's financial strength, capacity 
to capitalize on transformative opportunities, and its local network 
expertise.
    The merger will enable a more rapid transformation of the 
companies' networks, which meet current needs efficiently, to a 
unified, IP-based service platform, with numerous advanced capabilities 
that will benefit customers. Developing these advanced network 
capabilities lies at the heart of AT&T's and AT&T Labs' core missions 
and expertise. Through the merger, SBC will bring to the combined 
entity the scale, greater financial strength, and network capabilities 
that ensure that the combined entity will have an increased incentive 
and ability to develop advanced network capabilities and related 
services and can do so much faster than AT&T would on its own. The 
resulting advanced networks can provide consumers of all types with the 
ability to choose, provision, change, and maintain their services with 
an almost unimaginably greater degree of speed, efficiency, and 
efficacy.
         the merger will enhance rather than impede competition
    I believe that this transaction will only enhance competition in 
communications markets.
    The important network and service benefits I've described above 
reflect improvements in competition. The improved ability of the 
combined company to bring innovative and advanced services to market, 
for a broader range of customers, will expand customer choice and offer 
improved alternatives that competitors of all types will be forced to 
match. This includes cable, VoIP, and wireless competitors in SBC's 
traditional local service region.
    I also believe that the transaction will inevitably lead to greater 
competition between the Bell companies themselves. The Bells today 
already compete against one another for wireless services. With this 
merger, the combined company will be competing for large business 
customers across the nation and very much in the local service 
territories of the other Bell companies. They will have to improve 
their services, both in their incumbent regions and beyond, if they are 
to remain competitive. And the combined company will continue to 
develop AT&T's VoIP service, which is designed for residential 
customers throughout the nation in direct competition with the Bells' 
local service offerings.
    For the reasons I've outlined above, the merger also will produce a 
more capable global competitor with a broader geographic scope of 
service and a broader line of more advanced services and network 
capabilities. This will benefit U.S. companies as they compete overseas 
and will benefit all communications customers as other global service 
providers must improve their offerings to compete effectively with the 
combined company.
    Nor will the transaction harm competition in any market, 
principally because the two companies' businesses are largely 
complementary. In the mass market, SBC is a leading provider of service 
in its 13-state region, but AT&T is no longer an active mass market 
competitor in those states. AT&T's earlier irreversible decision to 
stop actively marketing to such customers for either local or long 
distance wireline telephone service means that it is no longer a 
substantial competitor in mass market services. Removing AT&T as a 
separate service provider thus could not harm competition in the 
provision of those services to residential and small business 
customers.
    The merger will also not impair competition in the provision of 
services to business customers. The market for services to these 
customers is exceptionally competitive and will not be impaired by this 
transaction. Suppliers include interexchange carriers, systems 
integrators, equipment vendors and value-added service providers, other 
network providers, foreign carriers, CLECs, cable operators, and other 
ILECs. Moreover, because large business customers are highly 
sophisticated, have widely varied needs, and rely on complicated and 
detailed bidding procedures, providers cannot successfully engage in 
anticompetitive conduct. Given the number and diversity of competitors 
offering services and products to businesses and the sophistication of 
customers and the purchasing practices they employ, the marketplace 
will undoubtedly continue to be vigorously competitive after the merger 
is concluded. In these circumstances, the transaction cannot reduce 
competition for the business of these large customers.
    Nor is there any serious argument that the merger will diminish 
competition in wireless, international or Internet backbone services. 
SBC has a majority ownership interest in Cingular Wireless, but AT&T 
long ago divested itself of its interest in AT&T Wireless, its cellular 
service operation. Combining these companies results in the loss of no 
significant competitor.
    So, too, with international services. AT&T has an extensive global 
presence, especially for large business customers, but SBC provides 
only a very limited share of international communications. Provision of 
these services is, in any event, highly competitive and will remain 
unaffected by the merger.
    And while AT&T is one of the largest providers of Internet backbone 
services, SBC's network is much smaller. AT&T--but not SBC--is a Tier 1 
provider of Internet backbone services. Following the merger, at least 
five other Tier 1 providers will remain to provide robust competition 
in that market.
    In conclusion, I would like to thank you again for the invitation 
to speak with you about the very significant consumer and public 
benefits that this merger will produce. This transaction will create an 
American global communications company for the 21st century--a company 
capable of delivering advanced services to customers of all types 
throughout America and around the world. And it will do so by 
increasing, rather than by posing a threat to, competition.
    I would be pleased to answer any questions that you may have.

    Chairman Barton. We thank the gentleman.
    We now recognize the Chairman and Chief Executive Officer 
of Verizon, from Eliot Engel's and Vito Fossella's hometown of 
New York, Mr. Ivan Seidenberg.

                 STATEMENT OF IVAN G. SEIDENBERG

    Mr. Seidenberg. Mr. Chairman, Congressman Dingell, thank 
you very much for giving us the chance to address you directly 
about our proposed transaction this morning.
    As you all know, MCI and Verizon have complementary assets 
and capabilities. Verizon has strong local assets and a solid 
presence among local and regional customers. MCI has strong IP 
networks and products and a solid base of national and global 
customers. Together, we will create a strong, new competitor 
with the products, network reach, and capital capacity required 
to succeed in this market.
    As I have heard from many of you this morning, technology 
is the sole driving reason for this transaction. We feel we 
need to do this to stay apace with the changes that are 
occurring in our industry.
    This acquisition does not alter the dynamics that are 
reshaping the consumer market. Long distance and local as a 
standalone business are really on their way to obsolescence, 
with or without this transaction. However, if we look at this 
in terms of the future, it is apparent that customers in all 
segments of the communications market will benefit.
    Not at this table are all of the cable, ISP, Internet, and 
VoIP providers that also provide--I thought they were calling 
Congressman Markey out.
    Chairman Barton. It is just a reminder for me to pick up my 
laundry.
    Mr. Seidenberg. There is your chance.
    Okay. Well, anyway.
    Businesses will also benefit because we will be a strong, 
stable, and secure supplier of advanced communication services. 
In our merger announcement, our acquisition announcement with 
MCI, we indicated, of course, there would be savings, based on 
combining the companies, but we also indicated that we would 
invest an additional $2 billion to take advantage of growing 
the platforms that exist between the two companies.
    Federal and State government customers will also benefit 
because we will be able to invest in the networks that are 
critical to their public mission. National security will 
benefit, because we will continue to strengthen the 
infrastructure that is a critical component of government 
communication systems, including those used by the Departments 
of Defense and Homeland Security.
    And the U.S. economy will benefit, because we will invest 
in the new technologies so critical to job creation and 
leadership in the global marketplace.
    We believe that among the places that innovation occurs, 
innovation is also driven by the capital formation that is 
required to invest in these new technologies. And certainly a 
company like Verizon combined with MCI will have the financial 
resources to significantly invest in new technologies.
    So to us, this transaction is all about the future. Verizon 
and MCI will be a national, full service company with the 
technology and financial strength to deliver the broadband 
future and create economic growth for America.
    Thank you very much.
    [The prepared statement of Ivan G. Seidenberg follows:]
  Prepared Statement of Ivan Seidenberg, Chairman and Chief Executive 
                    Officer, Verizon Communications
    Mr. Chairman and members of the Committee, thank you for the 
opportunity to be part of this discussion of the restructuring 
communications industry.
    We are here today because of the announcements of three fairly 
sizable deals over the past several weeks, one of which is Verizon's 
intention to acquire MCI. This recent wave of mergers and acquisitions 
is simply the latest phase of a process that began several years ago: 
the restructuring of communications around new technologies and new 
markets.
    It should be evident to anyone with a cell phone or an e-mail 
account that the old distinction between local and long distance is 
obsolete, as is the need for separate companies to provide them. 
Competing technologies--cable, wireless, satellite, IP, and wireline--
now offer consumers a wide range of choices for voice, data and, 
increasingly, video. And the pace of technological change is 
accelerating, which makes these markets more dynamic and competitive 
with each passing day.
    What may not be as apparent is that the same forces are 
transforming the large-business marketplace. Traditional voice services 
make up a smaller and smaller piece of the pie. Instead, these large, 
technologically sophisticated customers are demanding a much wider 
range of services, platforms and applications from a growing universe 
of suppliers--not just ``telephone'' companies, but systems 
integrators, software providers, equipment makers and wireless 
companies. These companies include some of the biggest names in 
industry, such as Cisco, IBM, EDS and British Telecom.
    Since our formation five years ago, Verizon's overriding imperative 
has been to build a company capable of competing in this technology- 
and market-driven environment. For us, this has meant gaining scale in 
the growth segments of the marketplace, such as wireless and broadband; 
reinventing our networks around new digital and fiber technologies; and 
equipping ourselves to compete as other technology companies do, 
through investment and innovation.
    I stress ``investment'' because it has been Verizon's willingness 
to put substantial risk capital into our networks that has 
differentiated our company and provided more value and choice for 
customers. We have indicated our intention to invest substantially in 
MCI's infrastructure once this transaction closes. It is this ability 
and willingness to invest in our future that moves the industry forward 
and strengthens this country's communications assets.
    We have followed this path in the wireless business, where we put 
together a national network and invested in spectrum, digital 
capabilities and, now, broadband technologies to expand the market and 
grow through innovation.
    We are following this path in the consumer wireline business, where 
we are transforming our telephone network into a broadband network by 
deploying DSL and fiber-to-the-premises, over which we are providing 
voice, data and--as we move forward--video services.
    Verizon's acquisition of MCI represents the next logical step in 
this process, as we transform ourselves around the evolving needs of 
the large-business, or ``enterprise'' market.
    We have always viewed the large-business marketplace as one of the 
keys to our long-term growth strategy. As in all network-centric 
businesses, scale is important in this segment, and while we have a 
solid presence among local and regional customers, we have no 
significant market share among national and global customers. So we 
knew we needed to add substantially to our product set and network 
reach to be able to compete for these customers, and we have been 
investing in these capabilities steadily over the years.
    The MCI acquisition accelerates that effort substantially. One of 
MCI's core strengths is its network assets, including its leading role 
in IP-based technologies. By bringing our companies together, we will 
create a strong new competitor in the enterprise space--one with the 
advanced products, network reach and capital capacity required to 
invest in these assets and compete in this technology-intensive and 
highly competitive market.
    I understand that some have questioned how this latest phase of 
restructuring in the communications industry will affect consumers. Let 
me be very clear. Verizon's acquisition of MCI does not alter the 
dynamics that are reshaping the consumer market.
    Long distance and local as stand-alone businesses are on their way 
to obsolescence, with or without this transaction. Competition from 
wireless, cable telephony, e-mail, Instant Messaging and VOIP will 
continue to drive pricing, with or without this transaction. And in any 
meaningful sense of the word, the consumer marketplace will continue to 
become less concentrated over time--with or without this transaction--
as new platforms and providers vie for the broadband household.
    My message to this committee, then, is that to view this deal in 
terms of the communications business of the past 20 years is to miss 
the benefits that will accrue in the next 20 years.
    Consumers will benefit because MCI's IP network and products, 
combined with our deployment of fiber directly to homes and business, 
will be the most advanced broadband platform in the country, capable of 
delivering next-generation multimedia services in markets across the 
U.S.
    Enterprise customers will benefit because we will create a strong, 
stable and secure strategic partner for national and global businesses 
as they prepare for the broadband future.
    Federal and state government customers will benefit because they 
will have a choice of financially stable players that can stay current 
in technology and invest in the networks that are critical to their 
public mission.
    National security will benefit because we will continue to invest 
in and strengthen the national and international communications 
infrastructure that is a critical component of government 
communications systems, including those used by the Departments of 
Defense and Homeland Security.
    And the U.S. economy will benefit because we are creating a strong, 
U.S.-based company capable of investing in the new technologies so 
critical to job creation and leadership in the global marketplace.
    This transaction is about the future. Verizon and MCI will be a 
national, full-service company with the financial strength and 
technology resources to deliver the broadband, multimedia world of 
tomorrow to customers and create economic growth for America today.
    Thank you. I look forward to your questions.

    Chairman Barton. Thank you, sir.
    We would now like to welcome the Chief Executive Officer of 
MCI, Mr. Michael Capellas.

                STATEMENT OF MICHAEL D. CAPELLAS

    Mr. Capellas. Thank you, Mr. Chairman, and members of the 
committee for giving us the opportunity to testify today.
    While I think, as everyone has already agreed, over the 
past 5 years, the industry has undergone a series of quite 
fundamental technological shifts. And I think the potential of 
the Internet and really the things we have not yet seen 
guarantees that this pace of change is not actually at its end, 
but it is probably at its acceleration point. We have yet to 
see the incredible potential of what integrated communications 
and the extension can do in areas such as healthcare or even in 
the revolution of education.
    And while I have been the CEO of MCI for the past 2\1/2\ 
years, I actually spent the past 30 years in the computing 
industry, and so most of my professional career has actually 
been as a customer of telecommunication services and as a 
developer of what applications can do when merged with the 
power of a global network to actually fuel innovation.
    I actually believe in the power of technology and in the 
entire infrastructure that the extension of the 
telecommunications industry is actually important to that 
development. I always liked to say there has actually been a 
computer on both ends of a network for a very, very long time.
    Most of the changes that we are now seeing in the 
telecommunication industry are actually being driven by a much 
broader movement across information technology.
    First of all, there is actually a tendency toward 
standardization of virtually everything in the computing world. 
Basic computing building blocks, such as servers or storage and 
microprocessors are actually becoming standard devices that are 
attached to a network that are--have an address on the Internet 
and can actually reside everywhere.
    The second is the rise of the Internet commerce--it has 
actually accelerated the adoption of a set of software 
standards that enable different systems to talk to each other. 
At the same time, new tools like web services are allowing 
developers to write applications that go across all different 
platforms.
    Today, communications travel over a network in what we call 
``packets.'' There is no difference between a voice or a data 
packet over the network. And whether you are making a phone 
call or purchasing an MP3 file for music, it is the same. A 
packet is a packet is a packet on the network.
    The Internet-driven standards that allow systems to talk to 
each other have also redefined network requirements. Formerly, 
local, long distance, and data traveled across separate network 
paths. Now there is a need for vertically integrated 
intelligent paths which can carry voice data or streamed video 
without the developer or end user needing to know or care how 
that path is developed.
    One does not need to be a computer scientist to actually 
think about this. A ``blackberry'', which virtually everybody 
has, is a great example of a simple device that can do instant 
messaging, make a phone call, get news, get sports, or stream a 
video. And that is just a classic example of what we call 
integrated communications.
    Today, MCI is a leading global communications provider and 
operates one of the industry's largest global IP backbones, and 
we serve the most demanding applications in the world. We serve 
financial institutions, complex engineering and manufacturing 
centers, and provide complex solutions to over 75 government 
agencies.
    Many of these customers are the early adopters of this 
technology; where they are using their computing 
infrastructures, but also needs new forms of networking. The 
customers all have a fairly similar set of requirements. They 
need high reliability and security. They need the capability to 
be end-to-end in global delivery. They need a new network that 
allows for ease of adoption of new applications, which drives 
innovation across all sectors, and they need low-cost 
infrastructure.
    Across all of these requirements, there is a need to mesh 
local access and wireless capabilities with a core backbone. 
The core technology in the backbone of the future was actually 
partially incubated at MCI through the legendary pioneer of 
Vint Cerf, a 15-year MCI employee. It is known as the Internet 
Protocol, or IP. In the simplest terms, IP allows applications 
from wireless or video streaming to be rolled out without 
understanding the changing core network elements that are 
underneath it.
    So where does MCI fit in this sort of perfect storm of IP 
convergence, market evolution, and regulatory change?
    We recognize that it would be virtually impossible to 
sustain our traditional voice business. And as a result, we 
have de-emphasized our consumer business and refocused on large 
business and government customers. Our plan is to leverage our 
IP and expand the network management, web hosting, and network 
security.
    The second thing we have done is to align ourselves with 
Verizon to provide significant strength in facilities and 
networks that are complementary. MCI owns a state-of-the-art 
backbone network but no significant ``first mile'' facilities 
or wireless. Verizon has extensive ``first mile'' facilities, 
state-of-the-art broadband, and wireless. MCI has a large 
enterprise and government customer base that has remained 
loyal, because we provide world-class service. Verizon provides 
local access to many of the same customers.
    The combined company will deliver end-to-end network 
capability that will permit innovation of the next generation 
of applications.
    In conclusion, technological advances and changing customer 
requirements are the driving force behind the industry 
restructuring. Traditional models of competition and 
traditional notions of ``long distance companies'' or ``local 
companies'' no longer apply. The combination of MCI and Verizon 
is a reflection of the broad-based changes and the right path 
to meet evolving customer requirements. At the end of the day, 
technology will march on. But it is not only innovation, but 
also the speed of adoption that is important, and we believe 
this restructuring adds to both.
    Thank you very much.
    [The prepared statement of Michael D. Capellas follows:]
    Prepared Statement of Michael D. Capellas, President and Chief 
                      Executive Officer, MCI, Inc.
    Good morning. My name is Michael Capellas. I am the President and 
CEO of MCI. Thank you, Mr. Chairman and Members of the Committee, for 
giving me the opportunity to testify today about the changing structure 
of the telecommunications industry. Over the past five years, our 
industry has undergone a series of fundamental technology shifts. The 
as-yet untapped potential of the Internet guarantees even greater 
change in the future.
    While I have been CEO of MCI for roughly the past two and a half 
years, I'd like to start by saying that I bring a different perspective 
to this discussion, having spent the past 30 years of my career in the 
computing industry before I arrived at MCI. I was previously CIO for 
two global Fortune 50 companies and CEO of Compaq and President of HP.
    My life's projects include designing and developing systems, from 
using supercomputers to solve complex human genome problems to 
utilizing web analytics to better understand consumers and their online 
buying patterns. Why is this relevant to the telecommunications 
industry? As I like to say, there has been a computer on both ends of 
the communications network for a very long time.
    I have spent my professional career as a customer of 
telecommunications services, as a developer who used the power of 
global networks to fuel innovation and productivity and I believe in 
the power and promise of technology.
    How is computing leading the structural changes within 
telecommunications?
    First of all, there is a movement within computing towards 
standardization. Basic computer building blocks such as servers, 
storage and microprocessors are standard devices that are addresses on 
a network and can reside anywhere. Second, the rise of Internet 
commerce accelerated the adoption of software standards that enable 
different systems to talk to each other. At the same time, new tools 
like web services are allowing developers to write applications across 
different platforms.
    Today, communications travel over the network in what we call 
``packets.'' There is no difference between a voice or data packet over 
the network. Whether you are making a voice call or purchasing an MP3 
music file, it is all the same--a packet is a packet.
    The Internet-driven standards that allow systems to talk to each 
other have redefined network requirements. Formerly, local, long 
distance and data traveled separate network paths. Now, there's a need 
for vertically integrated intelligent paths which can carry voice, data 
and streamed video without the developer or end-user needing to know or 
care how the path is developed.
    One does not need to be a computer scientist to see this in 
everyday life. A ``Blackberry'' is a great example of a simple device 
that can instant message, make a phone call, get news or sports, stream 
a video or send a phone a call. It is called integrated communications. 
In more technical terms, we call it wireless broadband to an IP 
network. This ability to do integrated communications is becoming 
commonplace around the world and the path for future technology is 
clear. The only question is the pace of adoption and we may be behind 
the curve in this country.
    Today, MCI is a leading global communications provider and operates 
the industry's most expansive global IP backbone. MCI develops the 
converged communications products and services that are the foundation 
for some of the most demanding applications in the world. We service 
major financial institutions, complex engineering and manufacturing 
centers, and provide complex solutions to more than seventy-five 
government agencies.
    Many of these customers are the early adopters of new computing 
infrastructures and are led by the best and brightest technologists. 
These customers have some common requirements:

1. High reliability and security;
2. End-to-end global delivery;
3. Ease of adopting new applications; and
4. Low cost infrastructures.
    At the heart of these requirements is the need to mesh local access 
with wireless capabilities and the core backbone networks. The core 
technology of the backbone of the future was largely incubated at MCI, 
in part to the vision of the legendary Internet pioneer Vint Cerf. It 
is known as Internet Protocol--or IP. In its simplest terms, IP allows 
applications from wireless email to video streaming to be rolled out 
without understanding or changing the core network elements underneath.
    broadband and internet adoption are driving technological change
    The momentum is clear: wireless and broadband connecting to IP is 
the wave of the future. On the broadband side, cable modem service and 
DSL offerings are beginning to be rolled out more widely. Some 
companies have started to rollout ``next generation'' broadband. Public 
and private entities are starting to deploy wireless ``WiFi'' networks. 
Newer and better wireless broadband technologies, such as ``WiMax,'' 
offer great potential down the road.
    Hand-in-hand with broadband is the move to IP. IP technology has 
led to a convergence of computing and communications, of voice and 
data, the first manifestation of which is Voice over IP technology 
(``VoIP''). The introduction of VoIP has lead to the emergence of new 
and non-traditional providers of voice applications, such as the cable 
companies and VoIP providers such as Vonage. Peer-to-peer providers, 
such as Skype, have also started to provide voice applications.
    But VoIP is only the tip of the digital iceberg, a precursor to 
what I call ``Everything over IP,'' or ``EoIP.'' Think of a future 
where you communicate not just with your voice over a telephone, but 
with new applications such as video e-mail and the realization of 
decades-old promise of ``picture-phones.'' In short, IP makes old voice 
telephony seem as archaic as the telegraph. The rapid convergence of 
computing and communications has been remarkable.
      the telecommunications marketplace has changed dramatically
    As the technology changes, customer expectations and acceptance of 
that technology changes. On the market front, we are already seeing a 
revolution in how we communicate. Wireless service has become a true 
substitute for traditional landline long distance service. Today, more 
than half of all long distance calls are made via wireless devices. The 
traditional distinctions between local and long distance have blurred 
considerably as providers offer products that give consumers 
``buckets'' of minutes or unlimited local and long distance calling.
    A small, but growing number of consumers are abandoning traditional 
wireline companies altogether, in favor of wireless or cable companies 
or other non-traditional providers. This market trend toward new, non-
traditional means of communication becomes more pronounced as the new 
generation becomes on-line. E-mail and ``instant messaging'' have 
become significant substitutes for voice traffic. If you have ever 
watched a teenager do instant messaging, you can assume we are not far 
from peer-to-peer video as a way of life. Those who grew up on wireless 
phones and Internet-based access to music, movies and other forms of 
content will have little trouble moving away from traditional phone 
companies and purchasing communications applications from a host of new 
companies.
    legal and regulatory changes are causing industry restructuring
    Lastly, changes driven by Do Not Call legislation, judicial 
decisions, specifically the recent decision of the D.C. Circuit in the 
Triennial Review Order case, and by federal regulations have had a 
major impact on the industry. In a series of recent decisions, the 
Federal Communications Commission (FCC) has significantly restricted 
so-called ``intramodal'' competition, the ability of companies to lease 
the facilities of other companies via ``unbundled network elements.'' 
While MCI has disagreed with the Court and the FCC on these matters, 
these decisions have forced the industry to re-examine how they provide 
service to customers and the types of markets they address. As 
important, the decisions highlight the importance of intermodal 
competition, and the need to promote facilities-based investment, 
particularly in ``first mile'' facilities, those that reach from the 
customer's premise to the network.
    We are already seeing this intermodal competition take place with 
cable companies investing heavily in their networks. Wireless 
companies, such as Sprint and Nextel, are moving to provide wireless 
broadband services. Power utilities are moving to provide facilities-
based broadband in some localities. The use of licensed and unlicensed 
spectrum to provide new, wireless broadband networks will be an area of 
great significance in the coming years.
                            mci's challenge
    So where is MCI in this ``perfect storm'' of IP convergence, market 
evolution, and regulatory changes?
    One of the first things MCI recognized was that, given all of these 
changes, it would be virtually impossible to sustain its traditional 
voice business, especially in the consumer market. As a result, we 
sought to de-emphasize the importance of our consumer business and 
refocus the company on next-generation services for large business and 
government customers. As we transition away from our role in the 
consumer long distance business, our plan is to build on and leverage 
the strength of our IP network. In executing that plan, we have moved 
recently to expand our ability to provide network management and web 
hosting services, as well as network security applications.
    The second thing MCI has done is to align itself with Verizon to 
provide significant strength in facilities and networks that are 
complementary to our own:

 MCI owns a state-of-the-art IP backbone network, but no significant 
        ``first mile'' facilities or wireless. Verizon has extensive 
        ``first mile'' facilities and is upgrading those facilities 
        with state-of-the-art broadband technology. Verizon also owns 
        an interest in Verizon Wireless.
 MCI has a large enterprise and government customer base that has 
        remained loyal to us because we provide them with world-class 
        products and service quality. Verizon, in contrast, has a much 
        smaller presence in the enterprise markets but is very well-
        positioned in the consumer market.
    The combined company will own a powerful end-to-end network that 
will permit it to launch a whole suite of next-generation applications 
that will benefit residential, business and governmental customers.
                               conclusion
    Technological, marketplace and regulatory changes are the driving 
forces behind industry restructuring. Traditional models of competition 
and traditional notions of ``long distance companies'' or ``local 
companies'' are out-of-date. The combination of MCI and Verizon is a 
reflection of the changes we must adapt to and a necessity if we are to 
meet and surpass our customers' expectations. It is a beginning, an 
important part of a new and exciting era of competition in an expanding 
and converging ``communications'' world.
    Thank you very much.

    Chairman Barton. I thank the gentleman.
    Now I wish to recognize the Chairman and CEO of Sprint, Mr. 
Gary Forsee.

                   STATEMENT OF GARY D. FORSEE

    Mr. Forsee. Good morning, Mr. Chairman and members of the 
committee. I would like to thank you for the opportunity to 
discuss with you today competition and the ongoing 
technological changes in the communications marketplace. The 
two matters are obviously very closely related.
    Sprint has a proud history dating back to 1899 as an 
innovative competitive company driving technology and bringing 
to the marketplace products and services that have transformed 
how people live and work. Today, Sprint is a global 
communications company providing wireless, long distance, and 
local communication services. Sprint built and operates this 
country's first nationwide all-digital, fiber optic network, 
which includes a global IP data backbone network as well.
    In addition, Sprint built and continues to deploy the first 
all-digital PCS nationwide wireless network from the ground up. 
Together with our affiliates and roaming partners, we offer 
wireless services in all 50 States, including both voice and 
data services. And today, we are further investing in our 
network to launch a third-generation wireless data network that 
will enhance capacity and provide an order of magnitude 
increase in data speeds.
    I am pleased to have the opportunity to discuss with you 
the pending merger of the Sprint Corporation and Nextel 
Communications. It is a merger that would create a robust, 
wireless-focused company that will be positioned to compete, 
innovate, and change communications in our Nation for the 
better. Upon receipt of the necessary approvals, the combined 
company will have the opportunity to effectively expand 
deployment of wireless voice and data services, as well as 
high-speed technologies. Once necessary approvals are obtained, 
we also anticipate spinning off Sprint's incumbent local 
telephone assets comprising approximately 7.7 million access 
lines as a strong independent telecommunications company.
    The merger will create a Fortune 50 company that will bring 
significant technological competitive benefits to our 
consumers. Sprint and Nextel combined will have net operating 
revenues of approximately $34 billion and a market cap, in 
today's terms, of $68 billion. The two customer bases will 
comprise over 40 million wireless subscribers. As a result of 
the combination, Sprint Nextel will be a predominately wireless 
company able to provide consumers better services and more 
choices while they are on the go, at work, or at home. With the 
combined capabilities of Sprint's nationwide CDMA network, the 
Nextel's nationwide iDEN network, the new company will have the 
most robust wireless network capabilities and sufficient 
spectrum to provide the dynamic network services and data 
offerings demanded by our customers.
    In addition, continued competition in the wireless 
marketplace will drive additional investment in research and 
development, ensuring that it will result in cutting-edge, 
multimedia products and services that will generate economic 
growth and bring tremendous innovation and value to our 
customers.
    Sprint and Nextel both have distinguished histories of 
innovation. Sprint has been the industry leader in developing 
wireless data services, and Nextel has a proven differentiating 
feature in its direct-connect service.
    The companies' combined operations make possible an even 
richer set of products and services and features all under one 
roof.
    The mobile telephone business is in a transformational 
stage: one where our customers not only expect extensive 
coverage for their voice calls, but are demanding the 
availability of e-mail, Internet service, and other data 
service applications as well wherever they are.
    Sprint has begun launching its next-generation network to 
provide these services and plans to make it available to over 
130 million people by the end of this year and coverage 
extended to all of our network by the end of 2006. The merger 
will ensure that Nextel's customers have access to this 
industry-leading broadband network.
    Moreover, the merger is expected to deliver operating and 
capital investment synergies with an estimated net present 
value of more than $12 billion. Savings come from the 
efficiency gained by combining our customer bases and by 
combining our network and other assets. For example, the merged 
company will realize economies of scale in connection with 
acquisition network equipment and consolidation opportunities 
as we rationalize our other assets. These economies will reduce 
costs and improve the competitive posture of a converged 
company to the benefit of consumers.
    The improved wireless network that will result from the 
combination of Sprint and Nextel's wireless assets not only 
will benefit consumers but also for public safety as well. 
Sprint and Nextel have been dedicated to providing advanced 
communication systems to the public safety community, and a 
combined Sprint Nextel will move forward with an even stronger 
effort to develop wireless products and services that public 
safety officials can utilize to make America more secure than 
it is today.
    Fundamentally, this merger is about growth. It is about 
improving service, driving innovation, and establishing a 
wireless communication company that can more effectively 
compete with other communications companies. Verizon wireless 
and Cingular each have a greater subscriber share in many 
geographic areas. Cingular will have more spectrum than Sprint 
Nextel will have in many areas. After closing, Sprint Nextel 
will derive more than 80 percent of our combined revenues from 
wireless services and will have a greater ability to compete 
with these and other firms than either company would have been 
able to do separately.
    Competition in the mobile industry will continue to 
develop, and it is a vigorous and dynamic marketplace that will 
remain so after Sprint and Nextel are combined. With increased 
scale, complementary wireless, and IP network assets and the 
independence to take on the biggest phone companies, Sprint 
Nextel will be in a position to compete effectively with both 
wireless and wireline companies. And because Sprint and Nextel 
intend that the merged company will spin off Sprint's incumbent 
local phone assets, the combined company will have an unmatched 
incentive to pursue a wireless feature, such that wireless and 
wireline services increasingly compete for customers, and like 
other large wireless players that are today primarily owned by 
the Bell operating companies.
    In conclusion, the merger will not change Sprint's relative 
market share and market position. Sprint is currently the third 
largest wireless carrier, and as a result of the merger, the 
combined company will still hold the No. 3 position, albeit in 
a stronger position.
    Thank you, Mr. Chairman. I will be glad to respond to any 
questions from the committee.
    [The prepared statement of Gary D. Forsee follows:]
    Prepared Statement of Gary D. Forsee, Chairman and CEO, Sprint 
                              Corporation
    Good morning Mr. Chairman and members of the Committee. Thank you 
for the opportunity to discuss with you today competition and the 
ongoing technological changes in the communications marketplace. The 
two matters are closely related.
    Sprint has a proud history dating back to 1899 as an innovative, 
competitive company driving technology and bringing to the marketplace 
products and services that have transformed how people live and work. 
Today, Sprint is a global communications company providing wireless, 
long distance, and local communications services. Sprint built and 
operates the United States' first nationwide all-digital, fiber optic 
network. With this network, which includes a global Tier 1 IP backbone, 
we provide a broad suite of voice and data services to domestic and 
global customers.
    Sprint built, and continues to deploy, the first all-digital, all-
PCS nationwide wireless network from the ground up, currently serving 
more than 24 million wireless customers in more than 350 Metropolitan 
Statistical Areas. Sprint has been a leader in advanced wireless 
technology and was the first carrier to deploy a CDMA network. Sprint 
then launched 1XRTT voice and data service, expanding voice capacity 
and providing end users wireless access to Internet and other data 
services. Sprint's CDMA network covers 99% of major metropolitan areas, 
airports, and highways in 48 states, the U.S. Virgin Islands, and 
Puerto Rico. Together with its affiliates and roaming partners, Sprint 
offers wireless service in all 50 states. Sprint offers both voice and 
data services (with data speeds averaging 50 to 70 kbps) on its 
wireless network.
    Sprint has also built one of the largest fiber optic networks in 
the U.S. This network has significant operational advantages, including 
the ability to seamlessly interconnect a variety of technologies, 
accommodate diverse standards and protocols, and provide secure 
communications. Sprint's wireline network is extensive and robust. Its 
U.S. network consists of more than 34,000 physical route miles of fiber 
optic cable. Its global network consists of over 75,000 route miles of 
fiber, including an ownership stake in major undersea cable systems.
    I am pleased to have the opportunity to discuss with you the 
pending merger of Sprint Corporation and Nextel Communications, Inc. It 
is a merger that will create a robust, wireless-focused company that 
will be positioned to compete, innovate and change communications in 
our nation for the better. Upon receipt of the necessary approvals, the 
combined company will have the opportunity to effectively expand 
deployment of wireless voice and data services, as well as high-speed 
technologies. Once necessary approvals are obtained, we also anticipate 
spinning off Sprint's incumbent local telephone assets--comprising 
approximately 7.7 million access lines--as a strong independent 
telecommunications company.
    Sprint and Nextel combined have net operating revenue of 
approximately $34 billion and a market cap of more than $68 billion. 
The two customer bases combined have over 40 million wireless 
subscribers (35 million direct and 5 million through affiliates and 
partners). The merger will create a Fortune 50 company that will bring 
significant technological and competitive benefits to consumers. As a 
result of the combination, capital originally intended to build 
duplicate networks will become available. The merged company will be 
able to deploy that capital to provide consumers better services and 
more choices while they are on the go, at work or at home.
    With the combined capabilities of Sprint's nationwide CDMA network 
and Nextel's nationwide iDEN network, the new company will have robust 
wireless network capabilities and sufficient spectrum to provide the 
dynamic network services and data offerings demanded by our customers 
today. In addition, continued competition in the wireless market will 
necessitate additional investment in research and development in order 
to develop competitive cutting-edge, multimedia products and services 
that will generate economic growth and bring tremendous innovation and 
value to consumers. This will be a function both of the company's own 
research and development activities and of the vendor research and 
development activities that our increased scale and scope will induce. 
Sprint and Nextel both have distinguished histories of innovation. 
Sprint has been the industry leader in wireless data services, and 
Nextel has a proven differentiating feature in its Direct Connect 
walkie-talkie feature. Sprint Nextel plans to build on these strengths 
using a next-generation wireless broadband network to provide new 
communications solutions and more choice for consumers.
    Fundamentally, this merger is about growth. It is about improving 
service, driving innovation, and establishing a predominately wireless 
communications company that can more effectively compete with other 
communications companies. In particular, the merger will create a 
robust wireless competitor that will be able to compete very 
effectively for a broad range of customers in the mobile telephony 
industry. Verizon Wireless and Cingular each has greater subscriber 
share and, in many geographic areas, Cingular will have more spectrum 
than Sprint Nextel will have. After closing, Sprint Nextel will derive 
more than 80% of its revenues from wireless service and will have a 
greater ability to compete with these and the other firms than either 
company would have separately.
    The merger is expected to deliver operating and capital investment 
synergies with an estimated net present value of more than $12 billion. 
Such savings come from the efficiencies gained by combining our 
customer bases--both current and potential--and by combining our 
networks and other assets. For example, the merged company will realize 
economies of scale in connection with the acquisition of network 
equipment and handsets and other terminal devices. These economies will 
reduce costs and improve the competitive posture of the merged company, 
to the benefit of consumers.
               improving wireless services for consumers
    Sprint and Nextel, along with other companies that provide either 
Sprint or Nextel-branded service, operate networks that directly cover 
nearly 262 million people across the country. The combined company will 
noticeably improve wireless service coverage, capacity, and quality by 
allowing cost-effective optimization of the Sprint and Nextel cell 
sites, spectrum, networks, and operations, resulting in increased 
signal strength, fewer dropped calls and greater geographic coverage. 
As a result of the merger, consumers will gain access to the industry's 
leading broadband offerings and push to talk features, all from one 
carrier, and the companies' combined operations will make possible a 
richer set of products, services, and features.
    Following the proposed merger, Sprint Nextel will be a 
predominantly wireless company operating both Sprint's current CDMA 
network and Nextel's iDEN network, and prospective customers who visit 
Sprint Nextel retailers after the merger will be able to ascertain 
which network and functionalities most efficiently, effectively, and 
economically address their needs. Customers who prefer wireless 
broadband capabilities will be more interested in CDMA service, 
currently available on Sprint's network and handsets. Customers who 
prefer the robust, instant-communication push-to-talk functionality 
available on Nextel's network will be more attracted to the iDEN 
network and handsets. The merger will allow Sprint and Nextel to avoid 
costly duplication in their development and deployment of new 
technologies, and, with a larger customer base, they will be able to 
undertake projects that would have been uneconomical (i.e., 
unprofitable) for either to pursue alone. In short, both current and 
future Sprint Nextel customers will have a broader array of services 
and features to choose from than either company provides today or would 
be likely to provide in the future on a stand-alone basis.
    The improved wireless network that will result from the combination 
of Sprint's and Nextel's wireless assets not only will benefit 
consumers, but also will be a boon for public safety. Sprint and Nextel 
have been dedicated to providing advanced communications systems to the 
public safety community, and a combined Sprint Nextel will move forward 
with an even stronger effort to develop wireless products and services 
that public safety officials can utilize to make America more secure. 
Sprint and Nextel are committed to addressing communications problems 
for first responders and, as a merged entity, we will continue to work 
with the public safety community to ensure that their communications 
needs are met. The combined company will offer first responders and 
other public safety organizations a wide range of products and services 
designed to meet their unique needs, including Wireless Priority 
Service, Priority Connect, Emergency Group Connect, Emergency Response 
Team, Interoperability Directory, Collaboration Solutions and Emergency 
Preparedness Services. And, as the companies have made clear since 
announcing their intent to merge, Sprint Nextel will continue to move 
forward expeditiously with the implementation of the FCC's 800 MHz band 
reconfiguration process.
    Sprint Nextel will also build on each company's leadership position 
in providing innovative communications solutions for persons with 
disabilities. Sprint is the nation's largest provider of wireline 
telecommunications relay service (TRS) to the deaf and hard of hearing, 
with innovative services like Internet Relay, Video Relay and CapTel. 
For wireless users with speech and hearing disabilities, Sprint offers 
a wide range of handsets that are TTY compatible as well as a suite of 
mobile messaging services including text messaging, instant messaging 
and e-mail. For wireless users that are blind or visually impaired, 
Sprint offers a number of handsets with voice input/output technology 
as well as robust Voice Command service that provides voice access to 
dialing and information services. Sprint offers its blind, visually 
impaired and physically disabled customers free Voice Command service 
along with 10 free directory assistance calls per month. A combined 
Sprint Nextel is committed to making innovative and useful services 
available to persons with disabilities.
                           driving innovation
    Sprint Nextel will be committed to advancing its industry-leading 
broadband offerings as it transitions to new third-generation (``3G'') 
and other advanced technology platforms. Without question, the mobile 
telephone business is in a transformational stage, one where our 
customers not only expect extensive coverage for their voice calls, but 
are demanding the availability of e-mail and internet access wherever 
they are. Consumer demand for wireless data services is growing 
tremendously, as demonstrated in part by Sprint's successes. Millions 
of Sprint's current customers subscribe to data services. At the end of 
2004, there were nearly 7.7 million direct wireless data subscribers, 
including 6.2 million Sprint PCS Vision customers. Sprint Nextel's 
deployment of a 3G platform promises to accelerate these trends.
    In June 2004, Sprint announced adoption of a 3G platform to enhance 
the PCS Vision network's data rate and capacity. This platform provides 
an order-of-magnitude increase in data rates. The platform is expected 
to provide a peak downlink data rate of 3.1 mbps, with an anticipated 
average data rate of 400-600 kbps. Uplink data rates peak at 1.8 mbps, 
with average user data rates in the 300-500 kbps range. Sprint has 
begun launching this service and plans to make it available to 129 
million people in 39 major cities this year; coverage will be extended 
to the vast majority of its licensed markets by year-end 2006.
    The merger will ensure that Nextel's customers have access to this 
industry-leading broadband network. At the same time, it will obviate 
the need for a multi-billion dollar investment by Nextel in new 
advanced network facilities that would offer services that Sprint is 
already in the process of deploying.
    Looking to the future, the companies expect to make key investments 
in broadband technology research and development to deliver more 
advanced offerings across all of their spectrum holdings. Combining 
Sprint's and Nextel's assets provides the financial flexibility to 
pursue opportunities that could have been prohibitively costly or risky 
for each company individually. Although there will be challenges, the 
new company's goal will be to go beyond 3G capabilities to provide 
customers with a complete interactive multimedia experience. The 
company expects to deploy bandwidth-intensive applications that 
incorporate devices, applications, and smart network technologies into 
an intuitive, easy-to-use service that will enable applications like 
video-on-demand, document collaboration and video conferencing over 
wireless networks. Sprint and Nextel intend to provide this advanced 
service to a nearly nationwide footprint, including many rural areas, 
and would offer high-speed, low-latency access to high-quality 
multimedia content at reasonable prices. Without doubt, the deployment 
of new wireless, interactive multimedia services has the potential not 
only to enrich the lives of millions of Americans through an enhanced, 
visual end-user experience, but also to increase productivity and 
reduce costs by providing the ability to access more information and 
more images on the go than ever before.
         creating a stronger wireless communications competitor
    Competition in the mobile telephony industry in the United States 
is vigorous and dynamic and will remain so after Sprint and Nextel 
merge. With increased scale, complementary wireless and IP network 
assets, and the independence to take on the biggest phone companies, 
Sprint Nextel will be in a position to compete effectively with both 
wireless and wireline companies. And because Sprint and Nextel intend 
that the merged company will spin off Sprint's incumbent local phone 
assets, the combined company will have an unmatched incentive to pursue 
a wireless future such that wireless and wireline services increasingly 
compete for customers, unlike other large wireless providers that are 
primarily owned by Bell company parents. The merger will not change 
Sprint's relative market position. Sprint is currently the third 
largest wireless carrier, and as a result of merger, the combined 
company will still hold the number three position. Sprint and Nextel 
today have a combined customer base of approximately 40 million 
wireless subscribers, compared to 49.1 million at Cingular and 43.8 
million at Verizon Wireless. T-Mobile and regional wireless players 
also are key players and compete vigorously in the marketplace.
    As a combined entity, Sprint Nextel will enjoy economies of scale 
and scope that are expected to improve service quality and reduce the 
cost of serving an additional wireless customer and providing an 
additional minute of wireless service. As a result, the merger will 
yield a stronger and more efficient wireless competitor.
    After accounting for the costs of integrating the two companies as 
well as other merger-related costs, it is estimated that the Sprint 
Nextel merger will result in total net synergies of approximately $12 
billion on an after tax, net present value basis. These synergies will 
be realized through numerous cost savings, including, but not limited 
to,

 sharing future costs of undertaking research and development efforts 
        and deploying innovations to the networks
 sharing the expense of implementing improvements to information 
        technology and billing, customer care, and sales and marketing 
        systems
 sharing each other's network coverage in geographic areas where the 
        other is not as developed, thereby avoiding the cost of 
        duplicating cell sites in those areas
 sharing facilities to collocate a significant number of existing and 
        planned cell sites which will reduce the cost of cell site 
        deployment and ongoing cell site expenses (as well as improve 
        coverage).
    These cost reductions and improvements in quality and technology 
will enable Sprint Nextel to be more competitive in the future and will 
benefit consumers by improving the coverage, quality and scope of the 
services we offer them. The cost savings will also allow us to 
establish new services that are more favorable--in terms of value, 
quality and/or features--than would be available from either company 
absent the merger.
    The combined company will be able to offer the benefits of Sprint's 
wireline network solutions to Nextel's business and consumer customers. 
Sprint has one of the largest fiber networks in the United States. This 
network has significant operational advantages, including the ability 
to seamlessly interconnect a variety of technologies, accommodate 
diverse standards and protocols, and provide secure communications. 
Sprint's wireline network is extensive and robust. As noted above, its 
U.S. network consists of more than 34,000 physical route miles of fiber 
optic cable. Its global network consists of over 75,000 route miles of 
fiber, including an ownership stake in major undersea cable systems. As 
a result of the merger, Nextel's customers will receive access to 
Sprint's suite of voice, data and IP products and integrated solutions 
provided over Sprint's extensive wireline network.
    It is worth noting that Sprint has been a leader in providing other 
firms with ``second brand'' opportunities. Under such arrangements, 
firms use Sprint's wireless and wireline networks to provide service to 
consumers under their own brand names (i.e., ``second brands''). These 
second branding opportunities allow companies like Virgin Mobile and 
ESPN to provide wireless services without the time delay and expense of 
first replicating Sprint's wireless network. These companies leverage 
their marketing capabilities to become nationwide wireless competitors 
on their first day of service. And they do this by utilizing the Sprint 
network facilities, which allows us to make more efficient use of our 
network and fixed operational costs. The merger will advance the 
availability of wireless service from MVNOs by including advanced 
services and functionality in their retail product offerings.
    Sprint Nextel will be a formidable competitive force with every 
incentive to optimize the wireless future. Nextel and Sprint are 
industry-leading companies in technological innovations and data 
solutions. These differentiating characteristics will position the 
combined company as a strong and innovative competitor. Following the 
intended spin-off of Sprint's ILEC operations, the combined company 
will lack any material incumbent LEC wireline business restraint on its 
competitive strategy, and, with its wireless focus, Sprint Nextel will 
be a true competitive alternative to wireline local telephony. I 
expect, therefore, that this merger will accelerate the increasing 
substitution of wireless-based services for wireline-based services, 
thereby creating growth in the wireless industry.
    In closing, I wish to emphasize my view that Sprint Nextel will be 
the premier communication solutions provider by providing its customers 
with an unmatched portfolio of communications services. Whether it is 
wireless, IP, data or multimedia, Sprint Nextel will provide robust 
integrated wireless and IP-based wireline solutions to businesses and 
consumers.
    Thank you. I would be happy to respond to any questions that 
Members of the Committee may have.

    Chairman Barton. We thank you.
    And last, but not least, the Chairman and CEO of Nextel, 
Mr. Tim Donahue.

                  STATEMENT OF TIMOTHY DONAHUE

    Mr. Donahue. Thank you, Mr. Chairman, and thanks to the 
members of the committee.
    I appreciate the opportunity to be a part of today's 
hearing on the communications industry and how technology is 
driving change in the marketplace. It is a theme that captures 
the entrepreneurial spirit of our company and speaks directly 
to Nextel's founding.
    Since 1987, Nextel has been a pioneering, customer-focused 
competitor with differentiating technology. Nextel is currently 
the fifth largest wireless service provider in the United 
States with a team of 19,000 dedicated employees serving more 
than 16 million customers. Nextel provides a wide range of 
digital, wireless, voice, and data communications services over 
its all-digital packet data iDEN technology network. Nextel's 
differentiating direct-connect walkie-talkie feature is a 
significant and innovative advancement in wireless 
communications that expands typical dispatch service coverage 
areas using the spectrum more efficiently and provides extra 
security to important customers, such as public safety and 
government users.
    The communications industry, and particularly wireless, is 
one of the most competitive, dynamic, and fastest growing 
industries in the U.S. This is an industry that is 
characterized by robust competition and innovation. According 
to CTIA, The Wireless Association, wireless subscribers grew 
from slightly more than 97 million in 2000 to more than 169 
million as of June 2004. Total industry revenues for 2004 are 
expected to tally more than $100 billion, approximately double 
the industry revenue in 2000. Customer minutes of use have 
increased coverage and service has improved, and innovative new 
services are introduced every month. Yet the average monthly 
consumer bill has increased less than 10 percent over the past 
5 years, and the price per minute of use has dropped by an 
overwhelming 81 percent to under 10 cents in June of 2004.
    I am thrilled to be a part of the proposed merger with 
Sprint, as this new company will not only accelerate these 
trends but also enable the new company to compete more 
effectively with large industry leaders. While the proposed 
combination of Nextel and Sprint will result in a 
communications company with more than 40 million customers and 
networks that cover over 262 million people, Sprint Nextel will 
still be only the third largest carrier in terms of 
subscribers.
    Sprint Nextel will be well positioned in the most dynamic 
areas of the industry, including mobile data and push-to-talk 
features, where Sprint and Nextel are innovators in the 
technology. This focus, coupled with Sprint's global Internet 
network will enable the new company to provide differentiated 
communications solutions through integrated applications for 
business and government and new broadband wireless services for 
consumers. We will be the only full service communications 
provider not affiliated or owned by a Bell operating company.
    Following the close of the merger, Sprint Nextel intends to 
separate Sprint's local telecommunications business, including 
consumer business and wholesale operations from its other 
businesses and then spin this separated company off to Sprint 
Nextel shareholders in 2006. This is a pro-competitive 
combination that will provide business and consumers with real 
and compelling product and service choices.
    For business customers, Sprint Nextel will be able to 
provide robust, integrated wireless and IP-based wireline 
solutions. We will be able to invest in next-generation 
wireless data services, bringing new and compelling products to 
market, including wireless, multimedia, web browsing, 
messaging, gaming, and music on the go. And importantly, for 
all customers, Sprint Nextel will be able to cost-effectively 
invest to improve wireless network quality and coverage.
    Sprint Nextel will have a clear technology migration path. 
The new company will have robust wireless network capabilities, 
including a nationwide 800 megahertz iDEN network and a Nation 
1.9 gigahertz CDMA network, which will enhance--would be 
enhanced to include nationwide cutting-edge EV-DO Rev.A, high-
speed data services. Sprint Nextel will also have the 
capability to deploy new wireless interactive multimedia 
services on the two companies' 2.5 gigahertz combined spectrum 
holdings.
    Combining these wireless assets with Sprint's nationwide 
global IP backbone, Sprint Nextel will be positioned as a key 
partner for large content providers, system integrators, mobile 
virtual network operators, and other new telecommunication 
entrants. By partnering with content providers and 
entrepreneurs, Sprint Nextel will be able to offer a full 
portfolio of services, voice, data, video, wireline, and 
wireless as well as customized enterprise applications and 
integrated business solutions.
    Nextel has a long and proud history of working closely with 
the public safety community. We support their efforts with 
products and services and work closely with them in designing 
communication tools that make us all more secure. Sprint and 
Nextel have agreed that the combined company will assume and 
honor all obligations that Nextel has accepted in the Federal 
Communications Commission's 800 megahertz proceeding, 
``Improving Public Safety in the 800 Megahertz Band.'' Going 
into our merger discussions with Sprint, honoring Nextel's 800 
megahertz obligations was a non-negotiable item for Nextel, and 
it was also one of the easiest ones to resolve. Sprint and 
Nextel are committed to supporting the public safety community 
and its unique communications needs.
    Mr. Chairman, if I had to describe in one word why this 
proposed merger makes sense and should be approved, it is 
growth. Sprint and Nextel share compatible cultures built on a 
tradition of innovations and competitiveness. Together, Sprint 
and Nextel will have the resources to develop and deploy 
compelling differentiated services by unleashing the combined 
strengths of the two companies, each of which is recognized as 
a product and network innovator. This growth through the merger 
of equals will enable Sprint Nextel to be a strong competitor 
and industry leader that drives innovation, technology, and 
ultimately benefits American consumers.
    Thank you again for the opportunity to share my 
perspectives on our pending merger with Sprint. I will be 
pleased to answer any questions.
    [The prepared statement of Timothy Donahue follows:]
 Prepared Statement of Timothy Donahue, President and Chief Executive 
                  Officer, Nextel Communications, Inc.
                              introduction
    Mr. Chairman and Members of the Committee, my name is Tim Donahue, 
and I am president and chief executive officer of Nextel 
Communications, Inc. I appreciate the opportunity to be a part of 
today's hearing on the role of technology in mergers within the 
telecommunications industry. It is a theme that captures the 
entrepreneurial spirit of our company and speaks directly to its 
founding.
    Since 1987, Nextel has been a pioneering, customer-focused 
competitor with important differentiating technology. This customer 
focus and product innovation has resulted in Nextel having some of the 
most loyal customers in the industry. Nextel realizes by far the 
highest average revenue per unit and has one of the lowest churn rates 
in the industry. Our customers like our products and services and they 
tend to use them more heavily than the typical wireless customer.
    Nextel is currently the fifth largest wireless service provider in 
the United States, with a team of 19,000 dedicated employees serving 
more than 16 million customers. Nextel provides its innovative all-
digital wireless services in 202 of the largest 300 markets in the U.S. 
where nearly 217 million people live or work. Together with Nextel 
Partners, Inc., we serve 297 of the top 300 U.S. markets where 
approximately 261 million people live or work.
    Nextel provides a wide range of digital wireless voice and data 
communications services over its all-digital, packet data network based 
on integrated Digital Enhanced Network, or iDEN ', wireless 
technology developed in conjunction with Motorola, Inc. Operating on 
licenses in the 800 MHz and 900 MHz bands, Nextel's iDEN network 
provides a comprehensive suite of advanced wireless services and 
features, including digital wireless mobile telephone service, 
Nationwide Direct Connect ' and International Direct Connect 
SM walkie-talkie feature and such wireless data services as 
Internet access and short messaging. In particular, Nextel's Direct 
Connect ' walkie-talkie feature is a significant and 
innovative advancement over traditional analog dispatch services, 
augmenting critical communications systems for the public safety 
community. More specifically, the Direct Connect walkie-talkie feature 
expands the typical dispatch service coverage area, uses the spectrum 
more efficiently, and provides extra security through digital 
multiplexing technology.
                      the wireless industry today
    The wireless industry today is one of the most competitive, dynamic 
and fastest growing industries in our country and is critical to the 
nation's GDP. From the workplace to the classroom and to the home, 
wireless devices and their applications play an expanding role in our 
everyday lives. According to CTIA--The Wireless Association, wireless 
subscribers grew from slightly more than 97 million in 2000 to more 
than 169 million as of June 2004. Total industry revenues for 2004 are 
expected to tally more than $100 billion, as compared to approximately 
$50 billion in 2000. Customer minutes of use have increased, coverage 
and service has improved and innovative new services have been made 
available. Yet the average monthly consumer bill has increased less 
than 10 percent over the past five years and the price per minute of 
use has dropped by an overwhelming 81 percent to under 10 cents in June 
2004. This is an industry that is characterized by robust competition 
and innovation, and it is an exciting time to be in it.
                          sprint/nextel merger
    On December 15, 2004, Nextel and Sprint announced their intention 
to merge, with the new company to be called Sprint Nextel. Sprint and 
Nextel are being valued as equal partners in the merger where 
shareholders will own 50.1 percent and 49.9 percent, respectively. A 
highly experienced management team will lead Sprint Nextel, combining 
the expertise of both companies. Gary D. Forsee, currently chairman and 
chief executive officer of Sprint, will become president and chief 
executive officer of Sprint Nextel, and I will become chairman of the 
new company. Together we have a proven track record of leadership and 
nearly six decades of industry experience. Further, the Sprint Nextel 
Board will consist of 12 directors, six from each company, including 
two co-lead independent directors.
    Following the close of the merger, Sprint Nextel intends to 
separate Sprint's local telecommunications business, including 
consumer, business and wholesale operations from its other businesses 
and then spin this separated company off to the Sprint Nextel 
shareholders sometime in 2006, pending customary regulatory approvals.
    The combination of Nextel and Sprint will result in a wireless 
company with more than 40 million customers (35 million direct and 5 
million through affiliates and partners), a strong growth profile, a 
strong spectrum position, the most valuable customers and networks that 
directly cover nearly 262 million people, more of the U.S. population 
than any other carrier; yet Sprint Nextel will be only the third 
largest carrier in terms of subscribers. Sprint Nextel will have a 
balanced mix of consumer, business and government customers, and the 
ability to meet the communications needs of a broader range of 
customers than either company on its own. We will be the only full 
service communications provider not affiliated with or owned by a Bell 
operating company.
    Sprint Nextel will be well positioned in the fastest growing areas 
of the telecommunications industry, including mobile data and push-to-
talk features, where Sprint and Nextel are innovators in technology. 
With Sprint's global Internet network, the new company will be 
positioned to provide differentiated communications solutions through 
integrated applications for business and government and new broadband 
wireless services for consumers. Without this merger, neither Nextel 
nor Sprint would independently achieve all the technical innovations, 
additional coverage and capacity that I discuss later in my testimony 
today.
    Mr. Chairman, if I had to describe in one word why this proposed 
merger makes sense and should be approved, it is ``growth.'' I am 
confident that Sprint Nextel will generate efficiencies that will 
benefit customers, shareholders and employees and will allow the new 
company to invest in innovative new services that each company would 
have found to be more difficult and expensive on its own. The new 
company will capitalize on its leadership position in key growth areas, 
unmatched asset mix, clear technology migration path, brand strength, 
innovative products and services and talented employees. We share 
compatible cultures built on traditions of innovation and 
competitiveness. We will have the resources to develop and deploy 
compelling, differentiated services by unleashing the combined 
strengths of the two companies, each of which is recognized as a 
product and network innovator.
    The Sprint Nextel merger is a pro-competitive combination that will 
provide customers with real and compelling product and service choices, 
including wireless multi-media, web browsing, messaging, gaming and 
music on the go. For business customers, we will be able to provide 
more robust integrated wireless and IP-based wireline solutions. We 
will be able to deploy next-generation wireless data services, bringing 
new and compelling products to market to benefit consumers and 
businesses, including a potential third new platform to the home. And 
importantly, for all customers, we will be able to cost effectively 
invest to improve wireless network quality and coverage.
    There are technology synergies between Sprint and Nextel that make 
this merger unique. Sprint Nextel will have a clear technology 
migration path and valuable and extensive network and spectrum assets. 
The new company will have robust wireless network capabilities, 
including a nationwide 800 MHz iDEN network and a national 1.9 GHz CDMA 
network, which it will enhance to include nationwide cutting-edge EV-DO 
Rev.A, high-speed data services. We will deploy a high performance 
push-to-talk feature on the CDMA network and create interoperable 
gateways between the iDEN and CDMA networks, thereby enabling our 
current and future customers to select the services that most 
effectively meet their wireless communications needs. Sprint Nextel 
will also have the capability to deploy new wireless interactive 
multimedia services on the two companies' 2.5 GHz combined spectrum 
holdings that together can reach 85 percent of the households in the 
top 100 markets.
    Sprint Nextel will also use Sprint's nationwide backbone wireline 
(long distance) network that includes 30 Sprint-owned metropolitan area 
networks in the U.S. as well as 37 international fiber points of 
presence. These combined capabilities are expected to make Sprint 
Nextel a key partner for the largest content providers, systems 
integrators, mobile virtual network operators and other new 
telecommunications entrants. By partnering with content providers and 
entrepreneurs, Sprint Nextel will offer the full portfolio of consumer 
services - voice, data, video, wireline and wireless--as well as 
customized enterprise applications and integrated business solutions.
    As with any merger, there also will be opportunities for savings 
through synergies. The combined Sprint Nextel is expected to deliver 
operating cost and capital investment synergies with an estimated net 
present value of more than $12 billion, over 37 percent of which is 
expected to come from the avoided network capital costs of building a 
separate Nextel next-generation network. These synergies will also 
include reduced network operating expenses; reduced network capital 
costs resulting from sharing cell site locations and facilities; lower 
access costs as a result of migrating Nextel backhaul and other 
telecommunications traffic to Sprint's long haul infrastructure; 
reduced network capital expense after the merger by building a true IP-
based multimedia network; and reduced expenses due to economies of 
scale in the combined companies' sales, marketing, general and 
administrative and IT costs.
                             public safety
    Nextel has a long and proud history of working closely with police, 
fire, emergency communications officials and the rest of the public 
safety community. We support their efforts with our products and 
services and work closely with them in designing communications tools 
that make us all more secure. Sprint and Nextel have agreed that the 
combined company will assume and honor all obligations that Nextel has 
accepted in the Federal Communications Commission's 800 MHz proceeding, 
Improving Public Safety in the 800 MHz Band. Going into our merger 
discussions with Sprint, honoring Nextel's 800 MHz obligations was a 
non-negotiable issue for Nextel, and it also was the easiest issue to 
resolve. Sprint and Nextel are committed to supporting the public 
safety community and its unique communications needs.
    After years of fighting for a comprehensive solution to public 
safety interference in the 800 MHz band, Nextel is proud of the role it 
played in helping to bring about a solution to this important public 
safety issue. I want to thank members of this committee, including 
Chairman Barton, Chairman Upton, Representative Dingell, Representative 
Markey, and Representative Rogers, as well as our partners in the 
public safety community and the many others that supported us in 
seeking a fair, timely and complete solution to the critical issue of 
public safety communications interference. As many of you know, on 
February 7th 2005, Nextel accepted the terms of the Commission's order 
and we have already begun work on this critical project. We intend to 
move as quickly as possible to implement the FCC's decision. Our 
nation's first responders deserve no less from us.
                               conclusion
    Thank you again for the opportunity to discuss our pending merger 
with Sprint. This merger makes sense for our customers, our employees 
and our shareholders. It will result in a more formidable 
communications competitor and will accelerate the introduction of the 
new products and services our customers demand. I would be pleased to 
answer any questions you might have.

    Chairman Barton. We thank you, Mr. Donahue.
    The Chair recognizes himself for the first 5-minute 
questioning period.
    My first question is to Mr. Whitacre, and it is really a 
statement and a question. You know, I joked in my opening that 
I had just decided to drop one of my SBC lines at my home in 
Ennis, but I think it shows what is going on. I have had two 
telephone lines there, because one was a--was called a dial-
less line that allowed a dial-up modem for Internet, and the 
other is the traditional phone line that is in the phone book 
that we have always had. But we always had a--but I also had a 
cable outlet for TV. Well, the cable provides broadband, as 
does SBC, and so we decided to go to broadband on the cable, 
and once we got that, you don't need that second line to have 
the dial-up modem. But the second phone line was costing $50. 
The addition to the cable bill was only $30, so you save $20. 
Now that doesn't sound like a lot, but that is what is going on 
all over America as people see that there are competitions. So 
Congresswoman Eshoo was talking about you are going to have 
less competition, but in a way, you are really going to have 
more competition because there are so many different ways to 
get into the home. So you know, when you said that you are 
losing 60,000 phone lines a day--did you say a day or a week?
    Mr. Whitacre. A week.
    Chairman Barton. A week, that shows that the marketplace is 
changing, and that is why you need this merger. Did you want to 
comment on that at all?
    Mr. Whitacre. Well, I would like to comment on that. I 
think that is exactly right. It wasn't many years ago that 
there was only one way into the house for voice. If you 
remember, I don't think the Internet was even mentioned in the 
1996 Telecommunications Act. If it was, it was in passing. 
Wireless was not contemplated. We now have so much competition 
from cable companies, from wireless companies, and from 
traditional companies like SBC, that there are many ways for a 
customer to get service, not only voice service, but long 
distance service, broadband service, all kinds of services now. 
So it has changed a great deal since 1996, and that is really 
why we are here today. This has to be changed. It is just not 
working as it is today.
    Chairman Barton. But your competitors are less and less 
another phone company as it is an information provider company.
    Mr. Whitacre. Well, that is true, I guess. Some of the so-
called c-lex have gone out of business, although there are many 
still in business. But the cable companies we would view as our 
primary competitor in the future are offering this broadband 
path, if you would, which can handle voice and data and Voice-
over IP doing everything. So there is a tremendous amount of 
competition now for customers out there.
    Chairman Barton. My next question is to both Mr. Dorman and 
to Mr. Capellas who represent AT&T and MCI. Is there any 
danger, as we go through these mergers, that what we call the 
long distance segment of the market becomes non-competitive as 
you merge with SBC and as you merge? Do we get to a situation 
where we have again created a monopoly of the long distance 
service and that raises prices? Would you two gentlemen like to 
comment on that?
    Mr. Dorman. Sure. I think there has been a profound change 
in how long distance is provided. In fact, the wireless 
industry today probably is originating as much long distance in 
the traditional sense as the wireline, and that shift has been 
going on dramatically in the last 5 years as more and more 
consumers select wireless as their principle tool for 
communicating and therefore get long distance service included. 
I also believe that the number of competitors in the wireless 
base, you know, there are at least, what, five national 
competitors in wireless, even after the mergers have taken 
place, along with the ongoing competition, as Ed mentioned, 
from cable as well as the incumbent telephone company is going 
to provide a range of choices in long distance that will be 
superior.
    Chairman Barton. Mr. Capellas?
    Mr. Capellas. Well, I mean, I think we have already heard 
somebody say unfortunately, you know, long distance is almost 
now perceived to be free. So if you really look at what people 
purchase, I mean, you--how many teenagers now growing up will 
actually never own a landline? They will simply go to wireless. 
So if you think about what will happen in the future, the 
concept of long distance as a product will cease to exist, 
whether that is in the consumer market or, frankly, in the 
business market. Nobody builds an IP network just to put voice 
on it. Voice simply becomes a feature on an advanced network. 
And that is even before we start to see, for example, Microsoft 
fully enabling telephony on the desktop. So one has to think 
about long distance as a feature on a network and 
telecommunications as an integrated provider of different 
services, and the technology blends it all together that you 
can't separate them apart. So even the notion of long distance, 
I think, is something that is rapidly fading from the 
vocabulary.
    Chairman Barton. Right. I am old enough to remember when 
somebody said you are getting a long distance phone call, that 
was a big deal, because it was very expensive. And they were 
charging you $1 a minute. So if they said long distance, you 
ran to the phone, because it was important. Somebody had died 
or somebody had had a baby or something. I mean, it wasn't a 
call that happened every day, so----
    Mr. Capellas. And the $1 a minute I can assure you is no 
longer----
    Chairman Barton. Yeah. My last question, and my time is 
expired, but I want to ask Mr. Forsee a question that I asked 
in my office to him yesterday. We are going to a marketplace, 
and again, we are very interested in the business--the 
commercial aspects of this, but all of us, you know, are retail 
congressmen. We all get elected by people. And right now, it 
is--the market, you have got--you have broadband connection 
through the phone line. You have broadband connection through 
the cable. At what point do you get the ability for wireless to 
go head-to-head into the home with some sort of a broadband 
capability so that consumers in their homes not--have just two 
choices, but three choices?
    Mr. Forsee. I think--Mr. Chairman, I think those choices 
are coming very quickly as we continue to deploy data services 
into the traditional voice wireless networks. Those choices are 
being made as we speak. We estimate as many as 8 to 10 percent 
of customers have already cut the cord for basic voice 
services, and you could also assume over time that customers 
will want the flexibility associated with wireless data to 
become untethered from their DSL service or from their cable 
modem. Sprint Nextel will have the opportunity. As I indicated, 
we are deploying now our third generation wireless data 
network. And as Tim indicated, as we then have the opportunity 
with our 2.5-gigahertz spectrum to consider deploying a 
nationwide 2.5 spectrum network, which will really be the 
fourth generation. At that point in time, I think you have a 
potential viable alternative to fixed data, and at that point 
in time, customers truly will have a choice.
    Chairman Barton. So although we are going to have fewer 
companies than we are familiar with, very soon we are going to 
have actually more competition, is that safe to say?
    Mr. Forsee. That is the case.
    Chairman Barton. Okay.
    My time is expired.
    I recognize the ranking member of the subcommittee, Mr. 
Markey, for 5 minutes.
    Mr. Markey. I thank you, Mr. Chairman.
    Mr. Whitacre and Mr. Seidenberg, you are both acquiring 
companies that, under different circumstances might have 
competed against you for wireline residential customers. When 
the government created its wireless policy, it created a third, 
fourth, and fifth license that was not owned by the two 
incumbents, and that led to a plummeting of cell phone bills. 
The same thing happened when AT&T was broken up by the 
government. We saw a plummeting of long distance rates. Will 
each of you pledge that residential consumers will not see an 
increase in their phone service bills as a result of these 
mergers?
    Mr. Whitacre. Do you want me to take that one, Ivan?
    You know, this merger with AT&T, Congressman Markey, they 
are leaving, and announced last July that they are not in the 
consumer markets, so this is--this merger is going to have no 
impact on the consumer marketplace. They are not.
    Mr. Markey. So you aren't saying it will not result in an 
increase----
    Mr. Whitacre. No.
    Mr. Markey. [continuing] in residential rates? So you are 
saying that?
    Mr. Whitacre. They will not. They are not in the business. 
We are not acquiring a company that is in the consumer mass 
market business.
    Mr. Markey. So do you pledge not to increase rates to 
residential----
    Mr. Whitacre. I can't pledge that forever, but I don't see 
anything that would impact that in the, you know, foreseeable 
future.
    Mr. Markey. How long is the foreseeable future, in your 
mind? How long could you make a pledge for that residential 
rates would not go up?
    Mr. Whitacre. Well, you know, I can't make a pledge for any 
specific length of time, but I don't foresee that happening. 
There are still many competitors. There is the wireless 
company----
    Mr. Markey. No, I understand that.
    Mr. Whitacre. But I can't tell you a specific number of 
days or months.
    Mr. Markey. You--and again, looking----
    Mr. Whitacre. But I don't foresee----
    Mr. Markey. We are looking for years, not days or months.
    Mr. Whitacre. I don't foresee it in years. I really don't 
foresee it. I think the market forces are such, and there are 
so many people in the business, it probably won't happen.
    Mr. Markey. Mr. Seidenberg, would--can you make a pledge 
that there will not be an increase in costs for residential 
consumers?
    Mr. Seidenberg. No, sir; but what I can do is be--is tell--
explain the record. In the past 15 years, consumer prices, as 
far as we are concerned, have gone down. Technology has driven 
them down, and competition has driven them down. If you want to 
ask that question, then we need the cable companies at the 
table. We need everybody who is providing these services. And I 
think the bottom line is we are getting so much innovation in 
the space, unit costs are going down and prices have been 
falling.
    Mr. Markey. So are you pledging that prices will go down 
for consumers, given your analysis of what is happening?
    Mr. Seidenberg. We are going to pledge to be the best 
competitor we can, provide the best value to customers, and the 
market will take care of the answer, as it has for the past 15 
years.
    Mr. Markey. Well, the best value for consumers is always 
the lower price, from the consumer's perspective. That has 
happened in wireless. It has happened in long distance. And it 
has happened in residential, and we just don't want to see, as 
these two competitors leave the marketplace, that there is an 
increase.
    Mr. Seidenberg. That is a fair point, but now if I can 
address that, these two competitors or let us say--just let me 
mention Michael, in the consumer space, they have decided to 
get out of the business not because of us. It was because of 
the Internet and----
    Mr. Markey. No, they have decided to exit because of an FCC 
decision that was a petition from the Bells to the FCC. That is 
why they are out of the business. They would still be in the 
business, and that is the only reason they are leaving this 
business, from their earlier testimony before the FCC.
    Let me ask a question of Mr. Whitacre and Mr. Seidenberg. I 
am going to read to you testimony from another witness before 
the committee and ask whether you agree or disagree.
    ``The open access and interconnection requirements placed 
on telephone companies should also be applied to the cable 
industry. Furthermore, open interconnection can help ensure 
that competition can still thrive, even before customers have 
access to at least two ubiquitous competing broadband networks. 
As the Nation makes the transition to a system of multiple 
broadband networks, competition can be safeguarded if all 
information providers are guaranteed access.'' Do you each 
agree with that statement?
    Mr. Whitacre. No, I don't agree with it.
    Mr. Markey. Do you agree with that statement, Mr. 
Seidenberg?
    Mr. Seidenberg. Well, I agree with Ed.
    Mr. Markey. You agree with----
    Mr. Seidenberg. Ed, yes.
    Mr. Markey. --Mr. Whitacre? Okay.
    Well, can you guess who that witness was and the year? It 
was Dick Notabart, the CEO of Ameritech, February 9, 1994, 
before this committee, representing the Bells in terms of their 
view of broadband networks. That was a hearing. That bill was 
about broadband networks. On the same day, Mr. Seidenberg, you 
testified that ``all providers of similar services should be 
treated alike. Regulations should be based on the service 
provided, not on the identity or parentage of the entity 
providing it.'' Do you still agree with that?
    Mr. Seidenberg. That is a very smart statement. That is a 
very smart statement.
    Mr. Markey. Absolutely. Would it differ whether the service 
was voice or video?
    Mr. Seidenberg. Well, you know, I have been testifying 
before this committee and you, sir, a long time, and I have 
always felt that regulation has focused on the facilities in 
the physical plant, and it shouldn't. It should focus on the 
service. And in my view, we should be moving toward treating 
services provided by different carriers the same way.
    Mr. Markey. So let me just conclude, if I may. In my view, 
asymmetrical regulation for similar providers is unfair, but we 
must keep consumer interests first and foremost, and that means 
fostering direly needed competition while assuring effective 
consumer protection. That will be the test of this committee 
over the next year.
    And I thank the witnesses.
    Mr. Upton. We recognize co-chairman of the full committee, 
Mr. Bilirakis from Florida.
    Mr. Bilirakis. Thank you, Mr. Chairman.
    I have, I guess, the same question to both Mr. Dorman and 
Mr. Capellas. Mr. Dorman, what if the deal with SBC did not 
happen? Can you tell us what AT&T's future would be in a year 
and in 3 years?
    Mr. Dorman. I think that it has been clear of the--our 
focus on the business market was one that we believe that we 
could continue to be successful in. While I remain concerned 
about how the industry would evolve, we believe that AT&T, 
after making the decision to exit the consumer market, could 
serve business customers globally as a competitor. We didn't 
see ourselves going out of business, certainly.
    Mr. Bilirakis. And that would be the case for the 
foreseeable future?
    Mr. Dorman. That is what we believe, yes.
    Mr. Bilirakis. Mr. Capellas, the same question, really. If 
the deal--if MCI was not going to be acquired this year, what 
would MCI's future be in a year and then 3 years?
    Mr. Capellas. Well, it is really the same answer and a 
pretty much similar business model. I mean, the decision to 
exit the consumer business, that is one we had made a year ago 
that was clear. We were in the process of transforming the 
company to service large enterprise and government agencies. We 
would have technologically consolidated to a common IP core and 
then started to offer other services. And the question that we 
would have faced is how do we vertically integrate the 
different services in order to service our customers, and that 
would have had to have been done with different relationships 
and partnerships, but the answer is quite similar.
    Mr. Bilirakis. All right. Thank you.
    A question for Mr. Whitacre and Mr. Seidenberg. In his 
prepared testimony for today's second panel, Mr. Halpern from 
Sanford Bernstein makes the following statement. ``Absent 
consolidation, the four remaining regional Bells would need to 
spend between $5 billion and $7 billion in operating and 
capital expenses over the next 5 years to build their 
credibility and competency serving the enterprise market.'' Do 
you agree with Mr. Halpern's assessment, Mr. Whitacre?
    Mr. Whitacre. Congressman, I do agree with that. In fact, 
we have announced for SBC alone those kinds of expenditures. We 
are just not in that business to get in it as a huge 
undertaking. We are in the process of just beginning that. I 
must admit not doing extremely well. So it would take those 
kind of numbers, if not more.
    Mr. Bilirakis. Mr. Dorman? I mean, Mr. Seidenberg?
    Mr. Seidenberg. And I agree with that. The cost for us to 
enter the market would be pretty high.
    Mr. Bilirakis. Okay. Mr. Whitacre, in the public interest 
showing filed by SBC and AT&T with the FCC, your company states 
that the existence of separate local and long distance 
companies no longer benefits consumers, so I think that sort of 
reflects, I guess, the bottom line of everything we are doing 
here. Can you elaborate on why that is the case?
    Mr. Whitacre. Well, I think probably the clearest example 
is if you are a wireless company subscriber, it makes no 
difference whether you are local or long distance. A call is a 
call. Long distance is essentially free. So it is not 
differentiated at all if you are a wireless customer. The 
revenues from our long distance customers, which we finally got 
in in the last year and a half, 2, 3, or 4 cents a minute. So 
it is essentially not a cost anymore. It is not, as the 
chairman said, not what it used to be. So long distance and 
local, there is no difference, and the cost is the same.
    Mr. Bilirakis. Thank you.
    Mr. Chairman, I yield back.
    Mr. Upton. Thank you.
    We recognize Mr. Boucher for questions.
    Mr. Boucher. Well, thank you very much, Mr. Chairman.
    And I would like to join with you in thanking these 
witnesses for their excellent testimony today.
    As Mr. Whitacre noted in his testimony, the United States 
is lagging much of the developed world in terms of broadband 
deployment. When you look at the percent of the Internet-using 
population that employs broadband, we are number 11, and we can 
do far better.
    Can we anticipate that these mergers will give you a 
financial incentive to accelerate the deployment of broadband 
over landlines and perhaps over your wireless networks as well 
by utilizing 3G technologies more rapidly than you would in the 
absence of these mergers? Mr. Seidenberg, Mr. Whitacre, and Mr. 
Forsee.
    Mr. Whitacre. Well, I can go first.
    You know, the--broadband has been held back by uncertain 
regulations. What did it mean? Did we have to build a network 
and then sell it to somebody else at below our cost? Just what 
were the rules surrounding it? It is really based on business 
decisions. Some of that has been clarified recently, and SBC 
pronounced--for example, has announced Project Light Speed, 
which puts fiber further into the network, which enables 
broadband. But today, we are able to reach, I believe, about 80 
percent of our customers with broadband, those not out in the 
rural. Wireless is certainly going to take care of that, as Mr. 
Forsee said earlier, because we are right on the cusp of using 
wireless broadband deployment. You know, even late this year or 
early next year, I think you will see that go out and go big 
time. Cable companies are also in broadband, so I think we are 
going to move forward rapidly on broadband. And I think these 
mergers will help that a great deal.
    Mr. Boucher. Mr. Seidenberg?
    Mr. Seidenberg. Yes, Congressman. As most people know, we 
already have a very aggressive program to deploy broadband, 
both in our land-based business and in our wireless business. 
What this transaction will help us do is take further 
inefficiencies out of building advanced platforms, having that 
traffic and those savings run over to the rest of our business 
and give us even more financial strength. So in the long term, 
what I think this transaction will do is make our network 
investment-based activity more robust in the long term.
    Mr. Boucher. Thank you.
    Mr. Forsee, do you anticipate your merger with Nextel as 
having the effect of encouraging the deployment and perhaps 
making more rapid the deployment of 3G technology over your 
wireless network?
    Mr. Forsee. Congressman, I think that is absolutely the 
case. Both Sprint and Nextel have been very aggressive in 
looking at our network deployment plans, and this combination 
will allow the Nextel users to migrate over time to the CDMA 
network, and as we do that, we will be putting in, as I 
indicated earlier, our third generation--our DO network. That 
will move to DO Rev.A, which will allow the features and 
function that is on the Nextel network to be compatible with 
our CDMA network. And as we do that, customers will begin to 
have choices. Customers will have the choice. If they want the 
portable service in their home, whether it is on 802-11 or Y-fi 
or the benefit of true mobility. With the networks that we are 
deploying, customers will be able to make those choices. And as 
we indicated, customers are doing that today.
    Mr. Boucher. Okay. Thank you very much.
    Contrary to what some have suggested, it appears to me that 
you are going to have the capability to compete with each other 
out of region should you choose to do so. And the arrival of 
Voice over Internet Protocol clearly creates a national market 
that can be exploited for the delivery of voice-based telephone 
service, using the Internet as the delivery mechanism. Could 
you, Mr. Seidenberg and Mr. Whitacre, comment on the extent to 
which you anticipate offering a national VoIP service and 
therefore competing with each other in voice traffic?
    Mr. Seidenberg. Well, on this point, I would make the 
comment we vigorously compete with both Sprint, Nextel and 
Cingular today, so it is--shouldn't surprise anybody that our 
businesses have a history in the wireless side of vigorous 
competition.
    In the enterprise market, which is the one we are talking 
about this morning, we already compete. We operate in 80 of the 
top 125 MSOs around the country, and we are competing as others 
around the table are doing the same with use. We have a VoIP 
service that we have offered. It is available to customers 
anywhere in the country. And I think that my comment on this is 
that we will pursue what makes sense in the marketplace as we 
go forward, but the transaction will open our eyes and give us 
capabilities we never had before. And once we get the 
transaction completed, we will be in a better position to see 
how quickly we can move in some of these areas.
    Mr. Boucher. Thank you.
    Mr. Whitacre, any comment?
    Mr. Whitacre. I would have the same answer. We compete 
vigorously now on the wireless side. Ivan and I compete 
vigorously on the business side and the Voice-over IP space at 
the present time. I am in New York and Boston, and he is in 
Dallas. He is in San Antonio, so he is everywhere. He is in too 
many places, but he is everywhere. And I think that is--what we 
are going to see is a natural extension of that into the 
consumer-type markets. I don't think there is any question 
there will be more competition, not less.
    Mr. Boucher. Thank you very much, gentlemen.
    Thank you, Mr. Chairman.
    Mr. Upton. Thank you.
    And I will now recognize myself for 5 minutes.
    I appreciate, again, all of your testimony, and I, in 
reading the full testimony, Mr. Whitacre, you indicated that 
the teleco industry has been critical for domestic economic 
growth. It amounts to about 3 percent of the U.S. GDP. I 
noticed in Comm Daily last month, it says the U.S. telecom 
industry turned the corner in 2004. Spending grew from 7.9 
percent to $784 billion according to TIA's 2005 telecom market 
review and forecast. It said that there was a significant 
improvement from gains of 3.6 percent in 2003, 1.9 percent in 
2002. It goes on to further say that equipment spending saw its 
first gain after 3 years of decline, TIA said. Total equipment 
and software revenue grew 5.2 percent in 2004 compared to 
cumulative declines the previous couple of years.
    I am interested in everyone's thoughts. Where are things 
going to go with these three mergers if they come about?
    Mr. Whitacre. Well, to preface that, SBC, which is the only 
one I can speak for, has been in a revenue decline, earnings 
per share decline, been pretty miserable for Wall Street for 4 
or 5 years, losing those kind of customers, obviously. There 
were some regulatory changes affecting items. New technology 
has some impact on this, but for the last quarter of last year, 
our revenues were actually slightly positive for the first time 
in 4 years. That spending, in my judgment, will continue to--it 
has turned positive. It will go up. For example, we are 
spending a lot in the fiber markets to build Project Light 
Speed. There has been some work in Voice-over IP, so I think in 
general, maybe the economy, the technology, and some of these 
changes in regulation have had an impact, beginning late last 
year, and I think we are going to see a slight upturn in going 
forward.
    Mr. Upton. Mr. Dorman, did you want to comment?
    Mr. Dorman. I think the boom and bust cycle that we have 
witnessed have certainly impacted the total capital spending in 
certain areas, the deployment of national fiber. Networks 
exceeded all forecasts of demand. On the other hand, wireless 
technology deployment has grown at pace. Where capital budgets 
in wireless have actually expanded, new technologies that Mr. 
Forsee talked about, taking on new demands. Those equipment 
providers in the wireless base have actually prospered and 
grown. In our world today, AT&T is deploying most of its new 
capital in the IP area. So we are adding capabilities to go 
from the traditional circuit-switch networks of the past, the 
so-called legacy networks, to the IP networks of the future, 
and that is both at a local level for the, if you will, on and 
off ramps to the network, as well as in the backbone and 
globally. So most of our spending, in terms of new spending, is 
focused in that area.
    Mr. Upton. Mr. Seidenberg?
    Mr. Seidenberg. Yes. I--just to make sure I got the 
question, this was a--how much money we will spend on 
technology?
    Mr. Upton. Yeah, well, it is just--the industry itself----
    Mr. Seidenberg. Right.
    Mr. Upton. [continuing] has finally turned the corner, so 
are we going to continue the upward drift?
    Mr. Seidenberg. We are big believers in investing in our 
network. Our wireless company is investing--last year, it 
invested $5.5 billion in the business. Our telecom invested 
over $7 billion. We are very comfortable with that. I happen to 
believe that the more that regulation shapes around the market, 
the more you will see more investment. I think the places where 
we haven't invested is where we think regulation has lagged and 
created, I think, disincentives for investment. I think the 
events of the last 6 months give me great hope that, if we are 
allowed to chase the market, we are willing to take the risks 
to make the investments.
    Mr. Upton. Mr. Capellas?
    Mr. Capellas. Well, I don't think there is any question 
that, you know, if we just sort of look at the traditional 
world, virtually all of the testimony said the traditional 
world will decline. That is a fact. We understand it. The more 
interesting question is, as we have now set a foundation of all 
of this IP and technology in the ground, is the next generation 
comes, what do we put on top of it? I mean, one of the things 
that is powerful about the combinations we are doing here, we 
now can offer new kinds of services to the customers. For 
example, nocontent delivery systems that are entirely on the 
network that allow you to move voice or video around. If you 
ever watched teenagers do instant messaging, the next 
generation of, you know, pure peer-to-peer video and what could 
that do for an investment. So I think it is a classic case of 
the traditional will decline, the IP and the capability of 
broadband allows us to build new services, and now the question 
is the innovation of what we build on top of that. So I think 
you will probably see investment increase, but it is going to 
be in spaces we have never been before. And this new integrated 
service is why we need to have some of these combinations 
happen so that we can go to the next stage.
    Mr. Forsee. Yes, I agree with Mr. Capellas. I think what we 
have had the confidence to do is to continue, excuse me, to 
deploy network capital, because at the same time, we are 
investing in applications and content to ride on those 
networks. If you only invested with your know-how in building 
networks but don't invest in innovation to create application 
to customers where they want to use the network for, then that 
path won't work over time economically for investors. So we are 
very confident in our plans, as Sprint and Nextel come 
together, that that is the path that will work for us as we 
invest both in networks but also in applications that can make 
those networks work better for consumers and for business 
customers.
    Mr. Upton. Mr. Donahue?
    Mr. Donahue. Mr. Chairman, I don't think there is any 
question about the fact that capital spending in the wireless 
space, especially when Sprint and Nextel get together, is going 
to continue to increase. If you just look at Nextel, for 
example, this year, this is the largest program that we have 
had since our inception, yet we are in the process of putting 
together a merger where we are to get some capital 
efficiencies. But the demand is so great that we will spend 
$2.6 billion this year alone on expanding the footprint and 
expanding just to make sure we have quality for the customer.
    In addition to that, if you take a look at fourth 
generation technologies, which we are very interested in, you 
are looking at new network builds on our 2.5, for example. So 
my view of the world is going to meet the demands of the 
customers, and they are significant in the wireless world.
    Mr. Upton. Well, I wish I could go on further. My time has 
expired. But I appreciate your answers.
    I yield to Mr. Engel.
    Mr. Engel. Thank you very much, Mr. Chairman.
    Mr. Seidenberg, I want to read part of your testimony, 
because I want to highlight it, because I couldn't agree with 
it more when you say that the recent wave of mergers and 
acquisitions is simply the latest phase of a process that began 
several years ago, the restructuring of communications around 
new technologies and new markets. And then you continued by 
saying, ``It should be evident to anyone with a cell phone or 
an e-mail account that the old distinction between local and 
long distance is obsolete, as is the need for separate 
companies to provide them. Competing technologies, cable, 
wireless, satellite, IP, and wireline, now offer consumers a 
wide range of choices for voice, data, and increasingly 
video.'' And I think that my colleagues should really bear that 
in mind. There are a lot of things that we didn't foresee under 
the Telecommunications Act of 1996. Technology created new 
competition that we didn't contemplate. No one thought of VoIP 
then. That eliminated a lot of barriers. Long distance is 
certainly cheaper now than it was many, many years ago.
    So I know you had mentioned some of this before, and by the 
way, I also agree with your statement if we want to discuss 
competition, then cable and wireless should really be at the 
table as well. Can you tell us, Mr. Seidenberg, the impact of 
the Verizon purchase of MCI, what it will be on consumer 
prices? I know that Mr. Markey had sort of asked the question, 
but I am wondering if you care to elaborate on it.
    Mr. Seidenberg. Thank you, Congressman.
    Look, I think the result of all of this competition and 
consolidation has been a restructuring of the industry and a 
reduction in prices. When we are asked for a pledge, it is hard 
to pledge, but the fact is that the practice in the marketplace 
is prices have been coming down. And I am sure, as many members 
have been sitting here using their e-mails, no one has sent a 
local e-mail or a long-distance e-mail. You send an e-mail. And 
so we have an industry that we can't spend money to build a 
business around a local e-mail or a local--or a long-distance 
e-mail. So we need to integrate it. So I think when you build 
these advanced platforms, just like you reference and my 
colleagues here have referenced, you lower the cost of these 
services and, in return, you pass that on to consumers in the 
form of lower prices.
    I need to make just one last comment on this.
    I don't think it is--anybody, even the consumer groups, 
have any complaint about unit costs going down and the pricing 
of services going down. What we shouldn't confuse is the fact 
that people use this a lot more than they did in the past, and 
so it is possible that usage is up, but in terms of unit 
pricing, it is way down from what--from any historical levels 
that we have ever seen.
    Mr. Engel. Thank you.
    Mr. Whitacre, would you agree with Mr. Seidenberg's in the 
terms of your own merger with AT&T? And I might also add, thank 
you for pointing out in your testimony that Mr. Seidenberg 
still has me as a customer.
    Mr. Seidenberg. I would agree with what Ivan said. I think 
he is right on target.
    Mr. Engel. Let me ask you another question, Mr. Seidenberg.
    MCI has one of the most important backbones for the 
Internet in the world today, and not only do millions of 
consumers use it every minute, but the Federal Government 
relies on it greatly. I am wondering if you could tell us 
Verizon's plans to maintain and upgrade the MCI infrastructure.
    Mr. Seidenberg. Well, in our merger agreement, our 
document, we have talked about what we need to do to add some 
capabilities, and we have indicated we will do that. Now beyond 
that, to be perfectly honest about it, we haven't sat down and 
planned through this. Until we go through the early stages of 
the merger approval process and the DOJ, we will probably pick 
that up later on. But one of the most important attractions to 
us of the entire MCI company was the exquisite relationships 
and network they have been building and the services they have 
been providing to the Federal Government for a long time. So it 
is a very important part of where we are heading. But we don't 
have a specific plan laid out yet.
    Mr. Engel. Thank you.
    Mr. Whitacre, could you answer the same question for SBC 
and AT&T's networks?
    Mr. Whitacre. Well, both have an important part of the 
Internet backbone. But that is not all. There are many 
companies that have part of the Internet backbone, and my 
recollection is 5 or 6. And you would know those names, but 
nobody has a controlling piece or even a piece over 10 or 15 
percent. But we are certainly not going to do anything to 
impact that. We would be looking at it with an eye to improve 
it and use it going forward for our business purposes for SBC.
    Mr. Engel. Thank you.
    I see my time is up, Mr. Chairman. Thank you.
    Mr. Upton. Ms. Wilson.
    Ms. Wilson. Thank you, Mr. Chairman. I also appreciate your 
having this hearing this morning.
    I wanted to start out with a question, if I could, to Mr. 
Seidenberg. I saw something, and I know all of us here know 
that we only--we don't believe much of what is reported. I--but 
I did see something reported that a member of your company 
called into question, and I know--and I also know that folks 
say things when merger talks are going on and competing bids 
that maybe they shouldn't have said, but the comment was made 
that the potential of a Quest merger with MCI raised national 
security concerns. And I wonder if you would elaborate on that 
or if that was just an error.
    Mr. Seidenberg. Well, I think that one of our executives 
did mention that, and with respect to the capital that is 
required to sustain investment going forward, we felt that the 
Verizon-MCI transaction would offer superior financing and 
capital capacity over a long period of time. So in that 
context, that is probably what you are referring to.
    Ms. Wilson. Well, I heard financial concerns, but where 
does national security come into this, and I--or is that just 
a--probably shouldn't have put it that way?
    Mr. Seidenberg. Like I said, I don't know the exact quote 
that you are talking about, but I--in my view, it is national 
concern, national security is all part of the mix of services 
that MCI provides. Michael is right here. He can help me with 
that. But the issue is I think one of the driving factors in 
our transaction has been Verizon's financial capability to 
continue sustained investment in the network, including 
national security services.
    Ms. Wilson. If there is something more than this that we 
need to talk about off-line, I would certainly like to hear 
about it, and I--and both in this capacity on this committee 
and in other responsibilities that I have. So I don't know what 
you are referring to, and if there is something we need to 
know, I would like to know about it, but I don't see a national 
security issue here, and I would like to know about it if there 
is. And if we need to do that in another place, then we 
certainly can do so.
    I also wanted to ask, concerning the--if I look at where we 
are going in consumer wireline as well as the business 
government market, it looks to me as though this combination of 
SBC-AT&T, Verizon and MCI together, these two new companies 
will control about 70 percent of the consumer wireline market 
and nearly 80 percent of the business government market. So 
what can we do to make sure that companies and the--and future 
users of Internet Protocol have access to the broadband 
infrastructure that those companies now control?
    Mr. Seidenberg. Well, maybe we could exchange information. 
I don't know those numbers you just mentioned. There is no way 
the two of us control 70 percent of the consumer wireline and 
80 percent of the other, so----
    Mr. Whitacre. I agree with that.
    Mr. Seidenberg. I mean, it is not even close.
    Mr. Whitacre. Those numbers can't be correct.
    Mr. Seidenberg. Right. Right. The--I am sure--Mr. Dorman 
and Mr. Capellas are here. They may be able to answer what 
percentage the two of them control of the business market, 
which I don't even think comes to half that. But Congresswoman, 
I think the point that I would make is that in the enterprise 
space, our view is there are multiple providers that, even with 
these two transactions, these two new companies are still not a 
dominant part of the enterprise space.
    Ms. Wilson. Does anybody else have an answer that you would 
like to share on access to the broadband infrastructure?
    I think that is going to be a major issue that Congress may 
ultimately get involved in. Just for the record, the--this is 
the data that I am looking at, and the source of the data is 
Bernstein research, January 21, 2005. And it is business long-
distance, voice, and data by revenues. And maybe their data is 
wrong.
    Mr. Seidenberg. Yeah. They are also recommending the Quest-
MCI deal, also.
    Ms. Wilson. I am sorry?
    Mr. Seidenberg. They are also recommending the Quest-MCI 
deal, also.
    Ms. Wilson. Well----
    Mr. Seidenberg. So the data might be suspect. Yeah.
    Ms. Wilson. You may want to question their data, but you 
asked what the source of it was, and that is the source of it.
    Thank you, Mr. Chairman.
    Chairman Barton. I thank the gentlelady.
    And the gentleman from Texas, Mr. Gonzalez, is recognized 
for 5 minutes.
    Mr. Gonzalez. Thank you very much, Mr. Chairman.
    And the first question would go to Mr. Whitacre. There are, 
of course, some citizens back in San Antonio and elsewhere and 
some of my colleagues, when they hear the word ``merger'', they 
really believe that is anti-competition, because, by its very 
nature, if you merge something and you have less--or fewer a 
number of competitors out there. How do you respond to that 
general mindset that some people have?
    Mr. Whitacre. Well, in this case, I think it is very clear, 
in our acquisition of AT&T, they are not in the business we are 
in, so it is not a merger of us buying a business they are in 
or doing the same business. We are in totally different 
businesses. We are acquiring AT&T because we don't have a 
network, they do, a global, international network. We don't 
have a Voice-over IP platform. They do. We don't have a big 
base in enterprise customers. They do. So we are not acquiring 
something that we both already do. We are getting new skills 
from them in an effort to change this industry going forward 
and make some financial sense out of it. So it is not getting 
the same skills.
    Mr. Gonzalez. One thing that we don't talk about, and I 
know we talk about things in a domestic sense, domestic 
markets, and again, this question is to Mr. Whitacre, regarding 
your merger and any other mergers that you foresee or 
contemplate regarding international competition.
    Mr. Whitacre. Well, America needs, I believe, a flagship 
carrier that can operate internationally. Nobody does that at 
this point in time. We have some interest in Mexico. AT&T is in 
some places, but this country certainly needs a global flagship 
communications carrier that can operate all over the world. And 
I think this gives us the ability to do that. We do not have 
that now.
    Mr. Gonzalez. Thank you, Mr. Whitacre.
    Mr. Seidenberg, I--because I have almost 3 minutes, but I 
had a question for you, because you had indicated--I am new on 
the committee, and I know one thing that we have always 
struggled with is how we define things and whether the 
Telecommunications Act--since it did mention the Internet, but 
you still have the service that is being provided, a rose by 
any other name would smell just as sweet, and I think that is 
what they are saying. It is the nature of the service that is 
provided. But let me ask you, Mr. Barton has already indicated 
that he is basically going to go with cable because it provides 
certain advantages, obviously how they bundle certain services. 
What do you foresee in the near future regarding mergers or 
otherwise that will allow Mr. Barton, our chairman, to have 
some choice as to who provides that bundled service to him? 
What can we do or what do you see the industry doing?
    Mr. Seidenberg. Well, okay--well, thank you for the 
question. I think the--assuming Mr. Barton were a customer that 
we served, I think that we would be doing a lot of the same 
things that Southwestern Bell is doing, which is providing 
advanced DSL services and eventually fiber-based services and 
offering a choice. I think one of the--probably the unspoken 
implications of where the industry is heading is that while we 
were--while Congressman Markey was seeking some cap on prices 
that we would control, cable companies are raising prices. And 
I think if we invest in these advanced networks, I think the 
choice that Chairman Barton would get would be the fact that we 
would offer broadband services through DSL, DSL-like, and 
fiber-based services over time. We would also do the same 
thing--we are doing this. Today, we have a nationwide wireless 
broadband service that we call EV-DO, which is advanced 
generation, which offers customers up to 700 kilobits of speed 
in terms of their services.
    So I think all of this technology is leading to choice in 
the marketplace.
    If I just may make one last point.
    Mr. Gonzalez. Go right ahead.
    Mr. Seidenberg. Your point about mergers, I think the 
public, our surveys would tell us this, is skeptical of mergers 
until after they see what companies do. Verizon Wireless is 
made up of 21 companies that were merged into Verizon Wireless. 
We have a great network, national reach. Some of our services 
are on the podium. And if customers see low-price, high-
quality, they like the merger. And I think our record, across 
our industry, has been we have done mergers very well.
    Mr. Gonzalez. Thank you.
    I yield back.
    Chairman Barton. I thank the gentleman.
    And we go to the other gentleman from Texas, Dr. Burgess.
    Mr. Burgess. I thank the chairman, and I thank the panel 
members for being at this hearing. I won't ask you to take any 
pledges.
    Mr. Seidenberg, I am privileged to represent the town of 
Keller, Texas in the 26th Congressional District, and I am very 
pleased about the fiber to premises technology project that 
Verizon has undertaken in this community. In Keller, Verizon 
has already rolled out this technology, and it has been very 
well received. Can you tell me about how this purchase of MCI 
will expand the deployment of your new fiber technology?
    Mr. Seidenberg. Well, it is a--thank you, sir. And we are 
very excited about the activity in Keller, Texas. And in that 
case, we are competing directly with Charter Communication, who 
is the cable company there. It is an indirect benefit. This 
transaction will strengthen our approach in the enterprise 
market. We will get synergies and savings across our national 
backbone network. As Ed said, we will avoid having to spend 
money to build our way into the enterprise market, and 
therefore, we will have more resources available to us to do 
the kind of thing we are doing in Keller.
    Mr. Burgess. Thank you.
    One of the critical benefits of the transaction of the 
proposed merger between yourself and MCI remains--that MCI 
remain a stable provider of the telecommunication services. 
Being concerned about MCI's ability to continue to provide 
services to the government, can you elaborate--and perhaps Mr. 
Capellas can also weigh in on this, can you elaborate on how 
this transaction helps the government as a consumer of 
telecommunication services?
    Mr. Seidenberg. May I defer to Michael on this one?
    Mr. Burgess. Yes, sir.
    Mr. Capellas. There are a couple of things that, you know, 
you sort of--at--when we look at the merger, I always like to 
start; what are the customer requirements, because then it 
helps to suit customer requirements. Over the coming period of 
the last two major bids we have seen from large government 
enterprises, and the next three that we are coming up, they are 
demanding that wireless be part of the overall bid. Wireless, 
whether it is the delivery of a handset or whether it is the 
delivery of broadband wireless to be able to do the 
application, the end customer doesn't want to stitch together 
an IP network, a wireless strategy, wireless handsets, wireless 
broadband, and local access. To the end customer, they can't 
tell it apart, and so we are now seeing, as a requirement of 
most big bids, to be able to do bid wireless with it. We don't 
have a wireless capability. So in order to bid those, we would 
either have to stitch together a partnership or not bid. So 
quite frankly, when we look at what our customers are asking 
for, they are asking embed the local, make it transparent, 
include wireless, do end-to-end security. For example, on an 
integrated network, you can trace security all of the way from 
the point of entry all of the way through, which is hugely 
important for customers like DOD and certain agencies. So it 
makes a more secure network, allows us to bundle wireless, 
allows us to integrate local with the IP backbone, and allows 
us to put on the next generation application. So at the end of 
the day, you know, if you look at government requirements, it 
is the natural definition of why we are doing this.
    Mr. Burgess. Thank you.
    Mr. Forsee, if I could, I get a question from constituents 
all of the time, and I don't have an answer for it. But why is 
it that it is so hard to text message on Sprint equipment? I 
have a Sprint phone myself that I use, and my son can text 
message me. I am amazed that youngsters today can carry on a 
conversation with you face to face and at the same time be 
typing in a text message with their thumb. They are truly 
taking multi-tasking to the next level. But I can not 
communicate with my child, because I have a Sprint phone and he 
has a Verizon phone.
    Mr. Forsee. It should be getting better and better all of 
the time, Mr. Congressman. We, obviously, over time, have 
picked our spots in terms of where we made our technology 
investment in the devices and in the applications. Text message 
is one that, in the past 6 months, we have come up with some 
new capabilities that we have put into our newer devices. And 
so again, that service is one that is very important to us. We 
certainly have seen the trends develop in this country and 
around the world, and have been on top of that issue in terms 
of--related to what our customers want. That service is getting 
better as we speak.
    Mr. Burgess. Thank you.
    In my remaining time, Mr. Capellas, I just--it is not 
really a question. It is more of a comment. I--taking off from 
what you said from point-to-point security, I am excited by 
that. I think that is so important. I, of course, carry a 
Verizon blackberry device with me wherever I go and can be 
instantly notified if a chairman is having an event later in 
the day that I probably ought to attend. But as a former 
physician, I can't help but think that heart failure patients 
could be wired in--their scales could be wired into their 
blackberry so when their weight went up on Thursday afternoon, 
they could be called into their doctor's office for an 
adjustment of medication rather than an emergency room visit on 
Friday night and admission to the ICU. So it is tremendously 
powerful technology, and if we can ensure the security so that 
people can be confident about it, I think that is a--the 
potential for saving money down the road is almost limitless.
    Mr. Capellas. And it would be interesting if we have this 
conversation in 5 years and we think about communications. We 
will be talking about sensors and their relationship, sensors 
you will either wear or the different sensors that will be in 
the car. We will actually be talking about the relationship of 
how the sensors pass data seamlessly to a core engine. And so 
we may be having a completely different discussion, but you 
know, it is rethinking what communications is and why I think 
we are all here today.
    Mr. Burgess. That is correct. Our belts that we wear may 
say ``Intel inside'' in the future.
    I will yield back.
    Mr. Pickering [presiding]. Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman.
    I want to thank all of the witnesses for really being 
outstanding. I think that this has been an enlightening 
hearing, which is what hearings are supposed to be all about. 
And Mr. Capellas, I think that you could offer a very 
successful class on Telecommunications 101 for all Members of 
Congress. So maybe we could sign you up for that in the future.
    I just want to touch on two questions. I am going to read 
my questions and then have you respond to them.
    Many of the intermodal competitors that are being touted 
depend on access to the Internet backbones over which you now 
have substantial control. This is to SBC and Verizon. How can 
we ensure that these competitors are not excluded or given 
inferior access to this critical infrastructure? And I ask this 
because my recollection is that SBC opposed the MCI Worldcomm 
and Sprint Worldcomm mergers on this basis.
    And my second question: SBC has successfully partnered with 
Yahoo to offer DSL service, and Verizon has a similar 
arrangement with Microsoft. As the number of broadband and DSL 
providers diminish, how do we protect the open nature of the 
Internet and ensure that smaller providers of Internet content 
and web services are not blocked out of the market?
    Mr. Whitacre. Well, I will try those two.
    Your first one, I think, is how can you be assured that 
intermodal competition will remain where nobody is blocked from 
access to the network. I think it is pretty plain that that is 
not going to happen. First of all, if SBC is successful in this 
acquisition, and I suspect this is true for Verizon, there are 
many other providers, but we are not going to do that. I mean, 
the law is pretty clear on access. It is pretty clear that 
people can have access to it and under what conditions. Plus, 
there are many other providers. And in California, for example, 
we have competitors like Cox Cable, who have been hugely 
successful against us and done very well. There is no chance 
they will be blocked from the network. They have many alternate 
ways to go. There are many providers of that service. I think 
the laws are pretty clear, and so they are not going to be 
denied that. That is not going to happen. It is not even a 
factor.
    The second thing is, on Yahoo, for example, and thank you 
for recognizing that, it has been very successful--there are 
ways and there will be ways, and I think that is covered today 
and covered very well about what is required to have access to 
that for ISPs or whoever wants to be accessed or have access on 
the Internet, and that is not going to change either. Nobody is 
going to be denied a path on the Internet.
    Mr. Seidenberg. Given that Ed is the--I would never say 
anything different. I will agree. Just let me add two quick 
things.
    On the first point, remember, we are one of the biggest 
users of Internet traffic on their network. So if you want a 
policeman to worry about if he is going to stay in line, it is 
us.
    Ms. Eshoo. Good.
    Mr. Seidenberg. And he is the same way with us. So I don't 
think there is any issue with respect to this Internet traffic 
issue, because I know it is couched in terms of big and little, 
but everybody uses the Internet in the same way, and so there 
is a clear benchmark to make sure that there is open access on 
the things that you mentioned.
    With respect to the other question, maybe I didn't 
understand it, but I think it is the marketplace reaction will 
be just the opposite. The more we put fiber-based solutions and 
increase the bandwidth, the more content providers are going to 
be able to provide services and applications over a network, 
and we see this in wireless. We have over 500 application 
providers providing content over our network. And as the 
experience that SBC has with Yahoo and we have with Microsoft, 
we even build greater bandwidth. And then you will see IP TV, 
and you will see all sorts of other kinds of things. So I think 
the more bandwidth, you lower the entry barrier for content 
people to provide services.
    Ms. Eshoo. Thank you very much, Mr. Chairman. I yield back.
    Mr. Pickering. Thank you.
    Mr. Murphy.
    Mr. Murphy. Thank you, Mr. Chairman.
    Mr. Seidenberg, I want to address this one to you and 
actually have other panel members respond, too, because what we 
are dealing with here is an issue of competition and a concern 
that so few companies will dominate the market and what it will 
really do to affect services.
    We have seen the market begin to consolidate around one 
platform that provides voice, video, and data, however many 
consumers who reside in rural areas are not afforded access to 
broadband at this time. In several instances, municipalities 
have taken proactive steps to build their own networks and thus 
provide broadband to their residents. In Pennsylvania, for 
example, this happened in Kutztown, and Verizon mustered its 
full force to ensure legislation occurred--was passed that 
prevented such independent network building. And similar issues 
have occurred in many other States.
    Now I fully understand, having met the Pennsylvania Senator 
before. There are inherit inequities when a municipality sets 
up its own network, namely, they don't have to comply with the 
same regulations. They can raise capital via bond issues, and 
then use them over your wires. That is a whole different setup 
there. However, the bottom line is that a lot of these 
consumers feel they are being left out of the system. So now 
before me, I see three potential companies that have the 
potential to really dominate the entire market. And so I want 
to ask what assurances do you provide that innovation, price 
competition, and coverage will actually improve with such a 
dominance in the marketplace of a couple companies?
    Mr. Capellas. I don't quite know how to answer that 
question, but I think--I have to start with the premise of the 
question, which is I don't think we are as concentrated as some 
have said this morning. I think we are big. I would agree with 
that. But in the markets that we participate in, we are not the 
only players. If you can go to--in the State of Pennsylvania, 
there are 50 C-lex operating, at least. In the rural areas, we 
have satellite TV providers. We have all sorts of other 
carriers that are operating in the marketplace. So I think what 
guarantees high-quality, low-price is robust competition. And I 
believe that if you think about all of the substitutable forms 
of services that we have talked about this morning, consumers 
every place in the country have more choices today than they 
have ever had before, and I am confident that, to your 
question, innovation will continue to drive prices down and you 
will continue to see higher quality services. I mean, we have 
had lots of consolidation in wireless, and yet we have had 
prices lower and we have had quality go up. And you will see 
the same thing occur with advance platform networks in the 
enterprise space and in the consumer space.
    Mr. Murphy. Well, certainly my rural constituents are 
concerned that they feel that they have been left out of 
things, and I understand how the size of a company can help 
fund innovation, which would drive down prices, but it is an 
issue that I certainly want to go on the record of raising with 
all of you that it is also an issue that competition also helps 
drive down prices. And there is a concern that there is this 
huge market dominance here. And I would just like to know from 
some of you how you can assure us that competition will still 
exist when you have so few companies controlling the market.
    Mr. Whitacre. Well, I think--as Ivan said, I think there 
are going to be more companies, not fewer. And I know in Texas, 
for example, there must be 100 C-lex. The cable companies are--
have now entered the business, the satellite companies, the 
wireless companies. The wireless companies are on the verge of 
offering broadband to customers in rural areas, and they can 
reach them easier than the wireline company can. But in terms 
of total competitors, I think there is more, not less. There is 
going to be more.
    Mr. Murphy. Mr. Dorman.
    Mr. Dorman. I would just add that I think one of the things 
that is hard to grasp is that as broadband technologies are 
deployed, whether it be cable modem or DSL or fiber into the 
home or EV-DO Rev.A whatever in the wireless world, all of 
these high-capacity technologies will be able to serve all of 
the applications that we have traditionally thought of as 
simply the domain of the telephone company, particularly with 
voice. And frankly, the comment Mr. Capellas made about long 
distance really applies to all voice service. It is 
indistinguishable to the user, in most cases, what network they 
are using as their voice passes through. We haven't talked 
about companies like Skype and some of the newer pure Internet-
based communications providers. This is a company that was in 
Astonia that is now exporting technology that can be loaded on 
any PC. And I suspect that the definition problems are still 
plaguing us. I believe that there are going to be lots of 
choices for high-capacity service, even in rural communities, 
as wireless evolves. I think wireless is very important. The 
idea that we are going to rely on a copper wire only in the 
rural communities is not economically sustainable.
    Mr. Murphy. I appreciate that. I appreciate you getting 
your comments in the record regarding this, because it is an 
issue that is raised by my constituents. And I also know that 
much of these things to make sure we have assured competition, 
which will drive innovation, is going to be addressed in the 
telecomm bill that, hopefully, this committee will get out 
soon. And I am sure all of you will have valuable input on 
that, too.
    Thank you, Mr. Chairman.
    Mr. Pickering. Thank you.
    Ms. Baldwin.
    Ms. Baldwin. Thank you, Mr. Chairman. And I also want to 
join in thanking our panel.
    What is really exciting is that the convergence of these 
technologies are providing consumers with new ways to 
communicate. I want to follow down a similar angle as our 
previous questioner, because it is increasingly clear that, to 
be off the information superhighway is to really be left out 
and left behind. It leads me to a series of related questions.
    As we saw historically with electrification and wireline 
telephone service, not all areas of our country provided 
sufficient economic incentive to attract service at anywhere 
close to an affordable cost. And that appears to be the case 
still today with some of these technologies, and particularly, 
as we have drawn attention to, in rural areas. Assuming you 
agree, and feel free to point out if you do not agree with 
that, my question is specifically where do you expect to see 
these gaps in coverage and access closed, the good news, and 
the bad news, where do you expect to see them persist? And if 
you want to follow up with plans you would have to build out or 
invest to those areas where you expect the gaps to persist. I 
will throw it open to whoever wants to jump in.
    Mr. Whitacre?
    Mr. Whitacre. Well, I will start that, Ms. Baldwin.
    I think if we were having this conversation a year from 
now, you wouldn't be so concerned, because I think in the rural 
areas, for example, while we don't have broadband to all of 
them now, it is quickly coming. And we have certainly moved our 
broadband offerings closer to the rural areas, and we will 
continue to do that. But wireless is sitting there very close, 
and it covers all of the United States. Wireless is going to be 
able to offer broadband capability to all of those rural areas, 
and I think that happens rather quickly. So I think while you 
are--you have a right to be concerned, and you should, I think 
we are right on the edge of technology changing that, as well 
as, in our case, extending the fiber further out. And the 
technology is changing on the wireline side, too, where it is 
now possible to offer customers our DSL service further out 
than we have ever been able to do it. It is a matter of 
technology. It is not wanting to do it. So I think it is about 
to happen.
    Mr. Seidenberg. Well, I agree. I--just to make you 
comfortable, it--you know most of these statistics, but you 
know, the cable companies pass almost 90 percent of all of the 
homes or DSL services pass 80 to 85 percent of all of the 
homes. Statistics will show that 85 percent of all teenagers 
use cell phones, and they don't distinguish between city and 
rural. There is this universal service fund issue that is 
working in the background.
    Mr. Baldwin. That is my next question.
    Mr. Seidenberg. Yeah, well, I had a feeling you were 
setting us up for that.
    So I think, you know, from my perspective, the--if it is 
targeted correctly and if it is applied in the right way to the 
people who need it, it is something that we have always been 
willing to participate in. I think the issue with universal 
service is--that sometimes the disease--the cure is worse than 
the disease, so we have to just be careful that we don't take 
this beyond the point. But where there are legitimate gaps, it 
is something we will work with on making sure we have it.
    Ms. Baldwin. Well, let me jump right in with the universal 
service fund question.
    If we recognize the need to ensure broader access and to 
advance telecommunication services, obviously the need for the 
USF will be larger than ever. If we don't expand the source of 
funding beyond traditional wireline services, I suspect we will 
have insufficient funds. So I would like to hear your 
suggestions for how we should fund the USF in the future and 
how we determine its scope.
    Mr. Seidenberg. Well, you know, we have been trying to fix 
this for a long time. We have never gotten this right, but I 
think there are a couple of principles here. First, I don't 
know that we have ever gotten agreement and how--as to how big 
it needs to be. So I think as we look at all of the deployment 
of all of these services and technologies, we need to find a 
way to take off the table those places that are really getting 
the choices that are necessary and then focus on what is left. 
And then the principle on what is left is everybody plays, not 
just one group of carriers. And we shouldn't be administering 
this through, for example, State commissions or the FCC. It 
needs to apply to a broader set of players, and I suspect in 
the long term that is one of the things Congress probably 
should address.
    Mr. Dorman. I would just add that since 1999, AT&T has paid 
about $9.5 billion into the universal service fund, and that is 
about 30-some-odd percent of the total. With the acquisition of 
AT&T, MCI, SBC, and Verizon will become the biggest payers, or 
even larger payers into the fund. And so I would agree. 
Everyone paying, regardless of mode, is very important. As we 
have said repeatedly here today, convergence of capability and 
substitutes is clear, having the old wireline long distance 
regime bearing most of the cost is not sustainable. So whether 
it be VoIP, wireless, all of the other different forms, this is 
long overdue in terms of funding reform and that is, I think 
Mr. Seidenberg said, I couldn't agree more. What is it we are 
trying to fund is also very important.
    Mr. Forsee. Let me just add quickly. Sprint today is the 
only company that owns assets across local access lines, across 
long distance, and across wireless, and I think our perspective 
on this has been that universal service fund and intercarrier 
compensation need to be joined, because those two are economic 
issues that have impacted, you know, what has been going on in 
our industry across those three sectors. The technology has 
changed. The basis of competition has changed, and those two 
issues need to be vectored together to recognize what has 
changed, and I agree with the comments of my colleagues here.
    Mr. Pickering. Thank you.
    Mr. Terry.
    Mr. Terry. Thank you.
    I--just to get on the record, then, on the universal 
service fund, I, too, wanted to ask questions--first of all, I 
agree with your principles. I think that absolutely has to be 
our starting point. As I have tried to work through the 
principles to details, that is where the problems come in. But 
we will continue to work.
    But I received a letter from Grange today that has 
expressed concerns that these mergers will reduce your payments 
into universal service fund, or at least that is what they are 
insinuating in this letter. I don't know if a merger 
particularly sets up a reduction in funds to the universal 
service fund. Will it or will it not? Mr. Whitacre and Ivan, 
either one of you?
    Mr. Seidenberg. To be honest with you, the States that I 
deal with always figure a way around whatever it is they think 
they need, so I don't think the mergers themselves create any 
change. But I think what Dave said is right. When you have 
fewer companies, we scream louder if we are the sole supporter 
of the system. So I think what we need to finally grapple with 
is changing the system so we can serve those people and those 
communities that need it and do it in a way that is equitable.
    Mr. Terry. I agree with the principle, but the--I am 
focusing on whether there will be a reduction in revenue in the 
universal service fund by the----
    Mr. Seidenberg. I would be happy to get back to you. I 
don't know that the transaction creates a mathematical change. 
I don't----
    Mr. Terry. Well, they don't set it out in the letter, but--
--
    Mr. Whitacre. I don't think so, Mr. Terry. I don't think 
there is any change----
    Mr. Terry. All right.
    Mr. Whitacre. [continuing] as a result of this.
    Mr. Terry. Speaking--Mr. Seidenberg, speaking--oh, okay, 
Mr. Dorman.
    Mr. Dorman. The fund is based on interstate revenues, and 
so that is not going to change, you know, based on they are 
what they are.
    Mr. Terry. Yeah.
    Mr. Seidenberg, you had mentioned the States. My staff 
meeting yesterday, we entered into kind of a discussion about 
what it takes to go through a merger like this. What entities 
are involved in signing off or express approval. FCC maybe DOJ. 
Do the States get involved in this process?
    Mr. Seidenberg. The States do.
    Mr. Terry. Mr. Whitacre is already going through it, I 
assume, and Mr. Seidenberg and MCI will be entering that phase.
    Mr. Seidenberg. Yeah, we are--I think--I won't speak for 
them, but we will be filing very shortly in a lot of States 
that--and the genesis of it is we are seeking to transfer a 214 
license or a public convenience certificate in the State, and 
therefore, the States feel they have some sort of a--they have 
jurisdiction over it in some place--some States don't. But in 
our previous mergers, we have had to achieve approvals in--
between 30 and 35 States in addition to the Washington agencies 
that normally oversee these things.
    Mr. Terry. Wow.
    Mr. Seidenberg. We have----
    Mr. Terry. So even those States that just have the 
wireless, you will still have to--those----
    Mr. Whitacre. No, what is in their State law, vis-a-vis 
their oversight of a merger, we have already filed in, I think, 
28 States. I think that is all. But we also have to file in 
foreign countries. Don't forget that.
    Mr. Terry. Well, that is interesting. The--would Verizon 
have to?
    Mr. Seidenberg. Well, sure. Sure. It operates globally, 
absolutely.
    Mr. Whitacre. It is not an easy process.
    Mr. Terry. No, I wouldn't expect that. For--with Verizon-
MCI, would it be about 30 or 35 States? Don't you do business 
with more States than that?
    Mr. Seidenberg. Yeah, I--not every State requires it. My 
attorneys are here scrambling around trying to figure it out, 
but I think the answer is somewhere in the 20's----
    Mr. Terry. Interesting.
    Mr. Seidenberg. [continuing] is the number of States we 
will file in.
    Mr. Terry. What is the length of time estimate that it 
would take to get 20-some States and Federal and foreign 
governments to sign off?
    Mr. Seidenberg. Well----
    Mr. Whitacre. Years.
    Mr. Seidenberg. A year, that is exactly right.
    Mr. Whitacre. Yes, year is a good guess. 12 months.
    Mr. Terry. All right.
    In my last 1 minute, I am going to ask a question by one of 
my colleagues. I think this is a follow-up to Heather's. After 
the mergers, approximately what percentage of the Nation's 
Internet infrastructure facilities will be under the control of 
SBC-AT&T and Verizon-MCI?
    Mr. Whitacre. Okay. You answered that.
    Mr. Dorman. Based on publicly available data, the market 
share of Internet service providers suggests that currently 
AT&T and MCI both have somewhere in the range of 15 to 16 
percent of current Internet traffic, and Verizon and SBC are 
not in the top 10 in terms of backbone traffic today. So in the 
case of SBC-AT&T, we would see our market share somewhere in 
the range of 15 to 18 percent of Internet traffic today. In 
fact, if you look at the two of us at approximately 30 percent, 
the other 70 percent is in the hands of about 30 different 
competitors.
    Mr. Capellas. And that is today. I just certainly agree 
with Dave, but then you start streaming video. What is a video? 
A thousand fold of phone calls over the Internet. Where do 
those numbers go when you start streaming video across it? I am 
not sure how we answer the question in a year, to be honest 
with you, as fast as things are changing on the delivery.
    Mr. Terry. Thank you.
    Mr. Radanovich. Mr. Stupak.
    Mr. Stupak. Well, I thank you, Mr. Chairman.
    Like Mr. Terry, we have worked on the universal service 
fund and trying to distribute it to the States in a more 
equitable way. But universal service fund, the mergers really 
should not affect the amount of money going in universal 
service fund, but rather the technologies. Isn't as you use 
technologies where you don't have to make the wire connections, 
that really determined--that is why there has been a loss in 
the universal service fund, isn't that correct? I see a lot of 
heads nodding and----
    Mr. Seidenberg. That is true.
    Mr. Stupak. That is true? Okay.
    Mr. Capellas and Mr. Dorman, let me ask you this question, 
if I can. I indicated in my opening statement that Michigan has 
reaped the benefits of the competition. In a 5-year period, 
there was a steady and continued growth in the percentage share 
where the competitive local exchange carrier lines in Michigan 
from 4 percent in 1999 to 26.5 percent in 2003. Can you explain 
why you were able to compete in Michigan and how that 
competition benefited my constituents and consumers? And what 
effect did the recent FCC and court decisions have on your 
ability to grow competitively in Michigan and other States?
    Mr. Dorman. Well, the mechanism that we use is no longer 
going to be available, so----
    Mr. Stupak. Because of the FCC and court ruling?
    Mr. Dorman. Right. Basically the construction of the rules 
around the platform went to court multiple times. They were 
remanded multiple times. And in the end, the FCC's construction 
of the rules to meet the requirements of the court have 
fundamentally changed that. I--looking beyond it, it would be 
my view that wireless competition and cable-based competition, 
as well as Voice-over IP competition, have rapidly emerged as a 
substitute for what that was offering. While it did uniquely 
affect, I think, AT&T and MCI as competitors, those are 
technologies certainly that the new combined Sprint Nextel in 
the wireless area will be competing for residential customers 
with. So I think that what we have seen is while we were all 
arguing about the shape of the playing field and wireline the 
last 9 years through these repeated appeals and litigation, a 
whole new set of fields had evolved, and customers are taking 
advantage of it. And that is the--I think the simple fact of 
where we are today.
    Mr. Stupak. Mr. Capellas, do you want to add anything?
    Mr. Capellas. No, I wouldn't have much to add to that other 
than I certainly agree with Dave. It was the perfect storm of 
cable delivery plus wireless plus changing the regulatory world 
that all, you know, just worked against the economics.
    Mr. Stupak. And Mr. Whitacre, let me ask you this. SBC 
tried to sell their entire Upper Peninsula of Michigan system 
last year. And it seems to be indicative of a trend that--to 
sell off rural exchanges. At the same time, the Bells are 
pursuing deregulation in the States. The Bells have entered 
into a regulatory compact with the States in exchange for 
service territory and an opportunity to earn a fair return. 
They must agree to serve anyone who can pay. It is an 
obligation to serve all comers. What assurances can you give us 
that if you get the deregulation you are looking for from the 
States or from the Federal Government that you will stay in 
rural areas, areas that are more costly and have fewer 
customers?
    Mr. Whitacre. I don't know where you got your information, 
Mr. Stupak. We, from time to time, try to value the market of 
that, but we never negotiated nor tried to sell the Upper 
Peninsula, never got in serious negotiations with anybody.
    Mr. Stupak. Well----
    Mr. Whitacre. We are the carrier of last resort.
    Mr. Stupak. Sure.
    Mr. Whitacre. We have a geographical territory. We are, 
obviously, obligated to serve, and we will continue to uphold 
that. We intend to stand by--behind that.
    Mr. Stupak. I will be happy to send you those articles 
where it indicated you were trying to sell the Upper Peninsula.
    Mr. Whitacre. I read those articles, too, but as somebody 
said earlier, you don't believe everything you read.
    Mr. Stupak. Well, I will agree with you, that is why I am 
glad to see you answer my question, but having been up there 
for a number of years and seeing how--that much like when you 
were doing pronto, you--SBC was going to do pronto, everywhere 
in Michigan but the Upper Peninsula, so that was my concern. I 
hate to see services be offered--but in areas which are rural, 
or even inner city areas, which may be under-served areas in 
the cities, they are just sort of skipped over for new 
technologies and that. And that is what we are trying to 
protect against as these mergers go through.
    Mr. Whitacre. And I would like to talk to you, if you are 
agreeable, off-line about some of the regulatory circumstances.
    Mr. Stupak. Sure.
    But if we are now talking about intermodal competition, I 
think we need to recognize the realities of rural America. In 
my District, wireless coverage is spotty, at best. And now 
there will be further consolidation into wireless service. And 
in addition to the fact that Verizon owns Verizon Wireless and 
SBC and Bell South owns Cingular, VoIP requires broadband 
deployment. Cable is not an option for many of my northern 
Michigan constituents. How do we ensure that rural America, 
again, is not left behind or, as I said in my opening 
statement, that the gap doesn't widen, the technology gap? I 
want to make sure that when we have less of--what less company 
is doing wireless in this?
    Mr. Whitacre. Well, do you want to answer that, Ivan, for 
Verizon Wireless?
    Mr. Seidenberg. Sure. I will--if I might answer that a 
little differently. I think in the case that you mentioned, 
having fewer companies in wireless will get you better service, 
because the problem that we have had in the past is we have had 
six, eight, nine carriers operating in markets. The market 
can't support that number of players, and therefore people 
don't have the capital to deploy in far regions of the country. 
We know that every year we keep adding more towers, more 
coverage every place we go. And what we find, by the way, here 
is the good news, the people in rural areas talk just as much 
on the phone as anybody else, so it is a great market for us. 
And I think it is the financial capacity we need to make sure 
we serve those markets. And it is the same thing in broadband. 
You have got to get a tipping point where you can start to 
deploy further and further out into the rural communities.
    Mr. Stupak. Yeah, I agree with everything you said except 
when it comes down to the fact, okay, from the--deployed 
broadband in the Upper Peninsula. I need more towers, and 
therefore, while they talk just as much on the phone, I can 
take that same money and I can go to an area, like Green Bay, 
Wisconsin, just south of me, which has more people and where I 
get the best return on my dollar. It is not the rural areas, it 
is more in the urban areas. While there may be less wireless 
competitors, you are still going to go to the place where you 
get the greatest return on that dollar. And unfortunately, 
because of the sparseness of the population in the Upper 
Peninsula, 312,000 people, I don't see anyone coming there.
    Mr. Seidenberg. Well, this is a chicken and egg problem. I 
mean, we all have these areas.
    Mr. Stupak. Sure.
    Mr. Seidenberg. I get----
    Mr. Stupak. I don't want to be the chicken or the egg. I 
just want to get service.
    Mr. Seidenberg. I think the answer is coverage is getting 
better every year, and with fewer companies, there is no 
question that you will see better coverage every year.
    Mr. Stupak. Thank you, Mr. Chairman.
    Mr. Radanovich. Thank you.
    Ms. Blackburn.
    Ms. Blackburn. Thank you, Mr. Chairman.
    I want to thank our panel. As you all can tell, by the time 
you get to me, you are getting to--your time is about over, 
getting to the end of the line, but we do thank you for your 
patience. We thank you for your frankness and for being here to 
talk with us. We certainly appreciate that. And it is 
fascinating to listen to you as you talk about competition and 
the convergence of the technologies. And they are all things we 
should think through, not only as it relates to the mergers 
that you are discussing, but also as it relates to the telecom 
bill and for the lifespan of that bill as we look at the 
reauthorization and the speed with which the technologies that 
you all deal with every day are changing. Mr. Capellas, I 
enjoyed the fact that you used the term ``everything over IP.'' 
And as we do consider the way we are moving in wireless 
technology, that is certainly something that we--it behooves us 
to be mindful of such.
    Mr. Dorman, I do have a question that I would like to talk 
with you about. With--we have heard some about R&D and the next 
thing coming down in the everything over IP, and then you all 
touched on but really didn't discuss very much, more or less, 
the cost and the impact of government regulations and 
compliance costs on your businesses. And as you look at a 
merger, I wish you would just briefly speak to what you think 
will be an adjustment or an increase or a decrease in your 
compliance cost, and do you anticipate this--that that will 
assist you and help you with what is available for R&D and how 
you are planning for that?
    Mr. Dorman. Well, compliance covers a lot of ground. 
Certainly, in the current world, we are all focusing on 
Sarbanes-Oxley 404 compliance certification process. That has 
taken an enormous amount of time, effort, and money. As a 
combined company, presuming that both SBC and AT&T are 
compliant, we won't be paying for that money twice through 
separate processes. And the context of regulatory compliance, 
we do have to file in some States for service provision 
different ways. You know, today, the state of deregulation 
differs greatly State by State and at the Federal level. And as 
you know, we have witnessed a fairly significant power struggle 
between States and Federal regulators over the jurisdiction of 
things like Voice-over IP. All of those things have costs. And 
to the extent that we can't adequately predict them or 
understand them, it adds to the risk profile and, frankly, 
dissuades further investment waiting for clarification. Some 
people may be so bold as to build ahead of knowing the answer. 
I can tell you that over the last 6 years in telecom, many 
people who did that paid a huge price as things changed or 
evolved or were clarified. It would be my hope that, as new 
telecom legislation is contemplated, that we would look 
carefully at the last 10 years and say should we debate whether 
the telecom act failed or succeeded may be interesting 
historically, but where we are today, in my view, is the 
writers of the Act can say for whatever set of reasons, we now 
have competition across multiple modes. People have more 
choice. There is a lower price. There has been a huge impact on 
the incumbent businesses, as Mr. Whitacre said, and job loss, a 
boom and bust cycle of investment. But I do think we are at a 
point now where we can look at this industry going forward in 
all forums and say this should be a healthy, vibrant industry 
that can grow at the rate of GDP or beyond, because it serves 
the needs to so many constituents: customers, governments, 
consumers, and businesses alike.
    And I would just like to say that hopefully we are going 
into an era of much less regulation and much more market 
managed competition than more compliance.
    Ms. Blackburn. Thank you, sir. My hope would be that we 
would be moving toward something that is free market oriented 
and that we do our part to be certain that you all stay 
vibrant, American companies. You did reference some of the 
international competition as we look at wireless and other 
forms.
    Mr. Seidenberg, very quickly for you, I represent Fort 
Campbell. That is located in Montgomery County, Tennessee. I 
have had the opportunity to meet with some of those folks and 
to do a little bit of training with our troops as they are 
getting ready to re-deploy. You all have a lot of contracts, 
government contracts. If you will, just speak very briefly to 
the impact that the merger would have on our military 
operations, both here and as our troops are deployed.
    Mr. Seidenberg. Well, I think we would look to increase our 
penetration of services to military and to use the vast 
resources available to the two companies to do as much as we 
can, like we always have.
    Ms. Blackburn. Thank you.
    I appreciate that, Mr. Chairman. I yield back.
    Chairman Barton. Thank you. The very patient gentlelady 
from California, Ms. Solis, is recognized for 5 minutes.
    Ms. Solis. Thank you very much, Mr. Chairman.
    I want to change the subject a little bit and address my 
question to Mr. Whitacre from SBC. And you talk--when we talk 
about mergers, we don't often talk about the human resource 
potential there. And my understanding is that if this merger 
takes place between yourself and AT&T, that we are looking at a 
job loss of about 12,000 employees before the merger and 13,000 
after. That is a total of 25,000 jobs, a large number, to say 
the least. And during your testimony, you spoke of the benefits 
you believe the merger will generate. With the job losses over 
25,000, and most of them from highly skilled individuals, my 
question to you is who, then, is reaping the benefits here? And 
is it difficult then--or for me it is a little difficult to 
believe that it would be for--benefits for the employees and 
the consumers. And this is a big issue for many of us, because 
my question also goes toward, well, if we are going to downsize 
and consolidate, are we also then outsourcing jobs, because I 
have heard, from many of my constituents who are employed by 
your organization, as well as others that are seated at the 
table, that in fact they train employees from other countries 
for their jobs? So if you could, please elaborate on that, and 
give us some cost----
    Mr. Whitacre. Sure.
    Ms. Solis. [continuing] savings that are truly going to be 
beneficial for the consumers.
    Mr. Whitacre. Okay. I will be glad to do that, and it is a 
good question. And job reductions, if any, I point out, are a 
function of how well we do after this acquisition is completed. 
So with that caveat, if we do very well, there is obviously 
going to be less or none or maybe we will grow. And that 
certainly would be where we would start from. And that is a 
function of how well we can manage it. We normally, at SBC, 
lose every year about 12,000 employees just from normal 
attrition. That is retirements or people change their jobs. 
They don't want to work at SBC anymore. Mostly retirements. But 
we would do 1,000 a month, or 12,000 a year. And that is a 
standard number for us. It goes back many years. There are 
obviously going to be duplicate jobs when we do this--complete 
this deal, and I think good examples are we will have people in 
networks that overlap functions or perhaps in marketing or 
sales, but I can't give you an accurate number. It is going to 
be a substantial number, but again, it is a function of how 
well we do. But I guess what I am saying is I think a number 
has been published of about 13,000, and you can't add those two 
numbers. You can't add 13,000 and 12,000. It was 13,000. We 
normally lose 12,000. If you net that, it is really only 1,000, 
if you look at it that way. I wish I could give you a number, 
because I don't know what is going to be required as we go 
forward, but I would like to tell you that we are going to do 
everything humanly possible to not have that, and if we do, to 
deal with that in a way you would want us to deal with it. And 
if we are successful, I hope we can grow this company and put 
some excitement in Wall Street and maybe good things will 
happen, not necessarily the bad stuff that everybody thinks is 
going to happen.
    Ms. Solis. Could you tell me----
    Mr. Whitacre. So we are just going to have to wait and see.
    Ms. Solis. Could you tell me how many jobs have been 
outsourced?
    Mr. Whitacre. We have done some outsourcing. We have a few 
software or programming jobs in India. I think it is less than 
1,000. I think it is around 600. I would have to go back and 
check, which I would be glad to do.
    Ms. Solis. Could you, please?
    Mr. Whitacre. Sure.
    Ms. Solis. And maybe----
    Mr. Whitacre. But it is about that number.
    Ms. Solis. Okay.
    Mr. Whitacre. And then we do some customer service contact 
work in the Philippines. And incidentally, those jobs were 
turned down by the union that represents us. You should know 
that, because those jobs didn't pay as well, and they really 
weren't interested in them at one time. I can't tell you that 
number, either, but it is not a huge number, and interestingly 
enough, we are moving some of those back to this country.
    Ms. Solis. Why is that?
    Mr. Whitacre. Because we find that customers--and we are 
trying to be responsive to that. The customers react more 
favorably when they talk to somebody here, which doesn't 
surprise anybody. It is a matter of cost and how you deal with 
that.
    Ms. Solis. Right. Thank you. If you could pass that 
information on.
    My next--oh, well, I don't have enough time.
    Chairman Barton. You can ask one more question.
    Ms. Solis. Okay. I just wanted to ask----
    Chairman Barton. You waited a long time, so you ought to 
get to ask another question.
    Ms. Solis. This is directed to Verizon. This whole issue of 
universal access and service, copper lines versus fiber, that 
is a big issue in the State of California in different parts, 
and I am concerned that what happens to those poor communities 
where we still have copper lines. Do we get neglected? Are you 
going to continue to service those areas? What amount of money 
and timeframe will you have to try to bring up those areas that 
are still not in the fiber main?
    Mr. Seidenberg. Our highest penetration of DSL in our 
company is in California.
    Ms. Solis. Well, rural areas and others?
    Mr. Seidenberg. Well, it is--well, we serve about 20 
percent of the State, and over 80 percent of all of those lines 
have----
    Ms. Solis. Okay. But what about other parts of the 
country----
    Mr. Seidenberg. Well----
    Ms. Solis. [continuing] that you have kind of heard from 
other members here?
    Mr. Seidenberg. Yeah, well, the way we have our telephone 
franchise, we have excellent deployment, so the answer to your 
question is we spend money every year to continue to deploy 
DSL-based technologies, and we will continue to do that.
    Ms. Solis. The information that I have indicates, I guess, 
there has been a drastic change, for example, in the State of 
New York, areas like Westchester and Nassau Counties where 
there have--where there are differences----
    Mr. Seidenberg. No.
    Ms. Solis. [continuing] in terms of----
    Mr. Seidenberg. I am not exactly sure what you are reading 
from, but when we deploy fiber, we don't do it every place at 
the same time, so you pick and--you make choices.
    Ms. Solis. So you--do you pick higher income areas and it 
leaves----
    Mr. Seidenberg. No.
    Ms. Solis. [continuing] the lower incomes behind or----
    Mr. Seidenberg. No. We pick--as a matter of fact, we have 
picked locations in every State, and they have--and they are 
based on a lot of factors.
    Ms. Solis. Random? What is your criteria?
    Mr. Seidenberg. Well, the criteria is pretty clear. It is 
based on where we get market penetration----
    Ms. Solis. Um-hum.
    Mr. Seidenberg. [continuing] where we could physically do 
it, where it is cheaper to do it, where we can get the cost 
savings, and----
    Ms. Solis. And a higher rate of return.
    Mr. Seidenberg. Higher rate of return, but by the way, we 
get a higher rate of return every place when we eventually 
deploy it when you get the scale. But this is not a question of 
not deploying. This is a question of how quickly we can deploy 
as many places as we can get the technology out there.
    Ms. Solis. Okay. Thank you very much, Mr. Chairman.
    Chairman Barton. Thank you.
    The gentleman from Mississippi, Mr. Pickering, the vice 
chairman.
    Mr. Pickering. Thank you, Mr. Chairman.
    Each of you have testified that these mergers and 
acquisitions can bring about the benefits of increased 
competition, choice, investment, innovation, and I do believe 
that that can happen, but it is not guaranteed. And I think 
much of that depends on the decisions that you make, but also 
the decisions that we will soon make in upcoming legislation.
    To that end, I would like to ask a few questions.
    Mr. Whitacre, you had responded to Ms. Eshoo that as far as 
competitive access to your network that the laws are clear and 
won't change and that you will continue to have competitors 
either through IP or other forms of communication, having that 
access to network--to your network. Does that mean--is that 
your belief that the laws are now clear after the decision, 
after the court decision, after the FCC's tri-annual review. Do 
we--the current rules on access to the network, is that 
something you support?
    Mr. Whitacre. No, it is not clear. And that has been one of 
the problems----
    Mr. Pickering. Right.
    Mr. Whitacre. [continuing] it has not been clear for years.
    Mr. Pickering. Now--but to Ms. Eshoo, you said the law was 
clear. I wanted----
    Mr. Whitacre. In terms of access. For example, anybody can 
buy a local loop from SBC. That is pretty clear. That is 
settled. That is done. That is over. That is clear. It is not 
clear on special access. It is not clear on--totally on 
broadband. So it is not clear at all, in its totality. Some 
pieces of it are clear, but it is not totally clear. And it 
needs to be cleared up with a new law.
    Mr. Pickering. Now Mr. Dorman----
    Mr. Whitacre. Does that make sense?
    Mr. Pickering. Yes.
    Mr. Whitacre. Okay.
    Mr. Pickering. And to be honest, that was what I expected 
you to say.
    Mr. Whitacre. Oh, okay.
    Mr. Pickering. But Mr. Dorman and Mr. Capellas, as you 
know, you all have been voices for access so that competition 
could emerge and so that competition could be sustained. With 
these mergers, your voices on those positions could go away. Do 
you think that the current rules by the FCC on access to 
networks should be reformed or changed or maintained as we go 
forward with these acquisitions?
    Mr. Dorman. As I said before, I think you can debate this, 
perhaps, internally, but the courts have spoken as to what FCC 
proposed----
    Mr. Pickering. Well, we do advocate future changes as we 
debate now.
    Mr. Dorman. Well, I----
    Mr. Pickering. And based on these acquisitions, and for the 
future of competition, should we maintain the access that we 
now have, or should that be reformed as Mr. Whitacre suggests?
    Mr. Dorman. I would agree that the current state of affairs 
leaves a crazy quilt of regulation between States and Federal 
jurisdictions, and it leaves some services defined in the 
historic past. I am on the record as saying that, for instance, 
an intercarrier compensation reform, I have nine different rate 
structures that I currently pay to local telephone companies 
for access. There are interstate jurisdictions, intrastate, ESP 
waiver, reciprocal compensation, bill and keep, and also VoIP, 
which pays, you know, virtually nothing. That has got to be 
dealt with. I think the most important thing that I would say 
to public policymakers and lawmakers at this point is that 
universal service and intercarrier comp reform are very much 
tied together. There is an abundance of volume to support 
universal service if it is done in a technology-neutral way. So 
I think, in my view, when you talk about access, it has got to 
be done for all players on a very neutral basis, whether you 
are cable, telecom, historical long distance, VoIP provider, 
wireless. And if we do that, I think we can deal with a lot of 
the concerns that those representing rural constituencies have 
about deployment, because we can focus, as Mr. Seidenberg said, 
on where the real needs are if there is an information divide. 
We can do that.
    Mr. Pickering. Mr. Dorman, I--excuse me for cutting you 
off, but I--my time is running out, and I have a couple of 
other questions that I hope--that I can ask.
    The question that I just asked pertains to going forward 
rules and what we may do here, but your decisions, your 
marketplace business decisions, are equally or more important. 
Mr. Seidenberg, will you--and with MCI, will you be going into 
SBC territory and other Bell territory now to compete for 
residential and business?
    Mr. Seidenberg. We are going to follow the technology. And 
in wireless, we are going to definitely do that, and in the 
enterprise space, we will definitely do that. And we will see 
what happens with national VoIP services, how they develop. But 
we are going to follow the technology that we invested, and we 
will definitely be nationally competitive for us where it makes 
sense.
    Mr. Pickering. For example, you need a major new platform 
in the south, I would assume, so you need a--to be able to 
compete in all of those markets, and I hope that the new 
Verizon South could come in to, say, some facilities in 
Mississippi----
    Mr. Seidenberg. Yeah.
    Mr. Pickering. [continuing] to----
    Mr. Seidenberg. Okay. Well----
    Mr. Pickering. Just off the top of your head of----
    Mr. Seidenberg. Actually, why don't we ask Donahue that 
question?
    Mr. Pickering. Okay.
    Mr. Seidenberg. He is sitting here doing nothing. Let us 
see what he is going to say.
    Mr. Pickering. Yeah, that is right.
    Chairman Barton. Your time has expired, Mr. Pickering.
    Mr. Pickering. Mr. Chairman, could I ask one question of 
Mr. Forsee?
    Chairman Barton. If it is a quick one.
    Mr. Pickering. It is a quick question.
    Dr. Burgess had a question about his Sprint phone not being 
able to get a text message from his son, who may have a Verizon 
phone. Is that a software question or an interoperability 
question? And do we need to have some type of going forward 
rules on interoperability, especially on the data, so that 
networks can communicate? And again, are--competitive positions 
are most logical?
    Mr. Forsee. And the answer is--really is both. We operate 
in the wireless space and on two different platforms, one GSM 
one CDMA. There has to be extra provisions made, software 
provisions made for those two networks to interoperate. We do 
that today on global phones and other capabilities to allow us 
to make that work. Certainly, as our merger comes together with 
Nextel, we will be interoperating our networks so that our 
users get the benefit of both sets of services. So it clearly 
is achievable, and with our merger, we will be able to do that. 
And any other relationships we would have with Verizon, for 
example, on CDMA technology, we do have roaming agreements so 
our networks can interoperate today at the voice level.
    Mr. Pickering. Should that be legislated----
    Chairman Barton. One question.
    Mr. Pickering. [continuing] as a requirement, 
interoperability?
    Chairman Barton. Mr. Inslee is waiting very patiently.
    Mr. Pickering. Okay.
    Mr. Forsee. No.
    Mr. Pickering. No.
    Mr. Forsee. It should not be legislated.
    Chairman Barton. In Texas, that question would be a Ph.D. 
thesis, but I guess in Mississippi, that is a quick question.
    The gentleman from Washington, Mr. Inslee.
    Mr. Inslee. Thank you.
    For Mr. Seidenberg and Mr. Capellas, another CEO, Dick 
Notebaert, in the Wall Street Journal talking about the 
potential plans of this new unit, and he said that after this 
merger, ``the odds are that these behemoths would not compete 
head-to-head in most local markets but would instead flex their 
muscles to squeeze out smaller competitors, emptying the 
playing field.'' What could you tell us about competition in 
local markets and the behemoths not competing in the local 
markets?
    Mr. Seidenberg. Well, let me not address the specific 
comment, but the general thing we have talked about this 
morning is that we are a big company, true. We will be bigger 
with MCI, but the fact is in the markets that you are talking 
about, the consumer markets, every single one of the markets 
that we operate in has cable providers, they have wireless 
providers, as well as us. There is plenty of robust 
competition. This transaction changes nothing in the consumer 
space. It is just a different transaction. This is a 
transaction that is focused in the business market, sir, that 
is not focused on the consumer. So I think what we tried to--
the point we have tried to make here this morning is that these 
mergers don't change the technological direction that the 
market is taking with respect to these consumer-based 
technologies.
    Mr. Capellas. The only thing I would add, as Dave and I 
have both said, it is that our decisions to exit a 
constructively consumer market were made long ago.
    Mr. Inslee. Right.
    This is an open question to anyone who wants to chime in, 
but is there a general concept that ultimately the ultimate, if 
there is such a thing, players here are going to be providing 
content as well as just communication, just data, either 
business or consumer and that ultimately the markets driving 
whoever the real communication players are going to be, some 
were to provide the entertainment content as well as personal 
and business communication? I don't think we have talked a lot 
about that here this morning. I just wonder if any of you could 
address whether that is the dynamic of the market or there are 
some dynamics to go the other way that actually drive you to be 
a more specific, more niche players as opposed to providing 
movies, video games, personal data, et cetera. Which--where are 
the dynamics going here?
    Mr. Whitacre. Mr. Inslee, I can speak for SBC, but I think 
we--I know we have made it pretty plain. We intend to go in the 
TV video business, which means you have to have content. And so 
we have made that commitment. We have spent hundreds of 
millions of dollars to put a video network. We have done a deal 
with Microsoft, Yahoo, and others, and so we are clearly going 
into the video business. That is our intent.
    Mr. Dorman. I would say that the publishers of content of 
all kinds are morphing. Artists are now contemplating having 
their own distribution vehicles, going around traditional 
record company contracts, being able to get to any consumer who 
would like to hear their music, whether it be popular artists 
or even libraries that exist. What I have heard content players 
say over and over is they welcome more distribution channels 
beyond the traditional cable distributors, and those who make 
the content welcome it as well.
    Mr. Inslee. Are these mergers driven a little bit by this 
dynamic, the need to be in the content business? They--are they 
a player in these decisions at all or not?
    Mr. Whitacre. Sure. We believe that the consumer or 
customer wants all of these services available from one company 
bundled, if you will, and video is a critical piece of that. 
And to do that, in our world, you have got to have Voice-over--
or you have got to have the Internet Protocol broadband 
networks. Sure. That is part of it.
    Mr. Donahue. I think it is important that we provide the 
facilities in which you can enable content, but in our space, 
for example, we work with multiple third parties to provide the 
content for us. And I see that model continuing as you move 
forward. So for example, Sprint has an affiliation with ESPN, 
who is the perfect example of that, and I think that trend will 
continue.
    Mr. Seidenberg. If I might, where it may be a teeny bit 
different, directionally, I understand where we are, but this 
is a smaller transaction. MCI doesn't have any particular 
expertise in video distribution or in the consumer marketplace 
outstanding in the enterprise market, so for us, this 
transaction is driven by moving into the enterprise base.
    To your question directionally where is Verizon going, I 
think we are more interested in the distribution and packaging 
and bundling of content than we are in the making of movies. So 
I think we want to fill up the networks that we have as opposed 
to getting the video business the way you might think cable 
companies get in the video business, because they both own the 
networks and also, to some extent, own the content. I don't 
know where we--this will go eventually, but our initial--into 
this is really more in the network side of it distributing, 
packaging, and bundling it.
    Mr. Inslee. Well, we are just happy that many of you are 
using great Microsoft products from my District, so thank you 
very much. Take care.
    Chairman Barton. I thank the gentleman.
    The gentleman from Indiana, Mr. Buyer.
    Mr. Buyer. I thank the gentleman.
    I--Mr. Seidenberg, I am not surprised at all that, as a 
businessman, you would say that you have to follow the 
technology. I think that is very clear. We--even some of my 
colleagues that are now sort of scratching their heads that 
really don't follow this issue, say well, how can a baby Bell 
now merge with an AT&T? And my counsel to them is because we 
created this problem. And you don't find Members of Congress 
willing to say we caused a problem, but we have caused this 
problem. In fact, we thought we got it right. And I hate to go 
back to visit this, but we thought it was all about the voice. 
We set out these regulations. Our fears were about all of this 
competition that we--where these monopoly power--those of whom 
could exert monopoly power with they could actually compete, 
and so we created this problem.
    And I am concerned about a couple of things. I want to make 
sure in the rewrite we get it right, and when I--we move in 
that direction, I am a good listener. I think it was Mr. 
Whitacre that said please make sure there is a light touch with 
regard to technologies. I think that was very well put, but it 
should also be a light touch to the framework to which we got 
wrong. And that framework to which you have, you call it the 
``patch.'' You know, we were very clear of saying well, we are 
going to go in there and we are going to regulate with regard 
to the baby Bells, but we are not going to regulate over here 
and we repeal the Cable Act and we have this explosion of 
technology. And it is exciting. And now I have--there is no 
question that you have to follow that, because you can not 
exist under that framework--the box that we had you put in. So 
as we do a rewrite, we want to do a rewrite that does what? 
Draws down the walls of the box that we had you in? Yeah, I 
think so. Now there--some may disagree, because they still want 
access to networks, so what? How fair is that, though, to 
continue to build out if we are going to allow people, then, to 
be parasitic upon your build-out? So I think that we are going 
to have a very strong tussle doing this rewrite, because you 
are still going to have people who have interest in gaining 
access to your investments. And so you wonder why Wall Street 
doesn't want to invest. I think it is pretty clear why they are 
hesitant at times.
    I opened up in my opening with regard to four questions. I 
have been informed that you have covered several of them. But 
please let me know about--with regard to the--to verizon-mci. 
MCI, you have a lot of government contracts, interagency. 
Please let me know the effect of this merger upon the 
interagency, not only in DOD but in their cooperation with 
Homeland Security and first responders and how this is going to 
work out with existing contracts, please.
    Mr. Capellas. Obviously, while specific operating 
principles and, you know, the short strokes of how we will 
execute haven't been determined, I don't think there is any 
question that we are continuing to invest in those networks 
through the merger. I don't think there is any question that 
the financial strength of Verizon will allow us to even extend 
it farther. I don't think there is any question that from how 
you actually execute security on a network the fact that we 
have recently purchased, you know, another small company that 
deals in security to extend our footprint helps. I don't think 
there is any question that the size of some of the capabilities 
on local access to be able to go end-to-end and be able to do 
tracability all of the way across the endpoint of the network 
actually proves that. So frankly, from our government 
perspective, and even if I sort of look at the reaction of our 
employees in our Federal space, it is nothing but positive.
    Mr. Buyer. All right. Thank you.
    Do you concur?
    Mr. Seidenberg. Oh, absolutely. By the way, can I go for 
extra credit?
    Mr. Buyer. Sure.
    Mr. Seidenberg. Yeah. Your comment about the refreshing of 
the Act and being willing to be accountable, before we reinvent 
a brand-new mousetrap, if we look at some of the things that 
actually work well, like wireless, there is a model that we 
could extend there rather than think we have to start raising 
the house and building the whole thing over. So there are some 
examples of how the marketplace has helped achieve the things 
that you articulated.
    Mr. Buyer. Well, when government gets out of the way. If 
government gets out of the way and lets the marketplace work 
and free enterprise creativity initiative, at-risk capital, 
exciting things happen. People benefit. Competition brings 
lower prices, not government interaction making demands upon 
you, keeping you in a box, and saying, ``Oh, we are going to 
help the consumer.'' No, we limit the choice, and we hurt the 
consumer. Right?
    Mr. Seidenberg. Right.
    Mr. Buyer. I mean, that is how I rate this one.
    The--well, gentlemen, I would like to work with you. I 
would like to work with your Washington offices how we do this 
rewrite for all of you, because we want to make sure we get it 
right this time. Do you know how I think we get it right? By 
having less government involvement and creating a very big box, 
because we can't keep up. This committee can not keep up. We 
don't visit these issues very often, and I think we need to 
give greater latitude, depth and breadth, for you to operate 
within that box for the society to benefit.
    Thank you.
    Chairman Barton. I thank the gentleman.
    We have got a few more questions, but you all have been 
here for 3 hours. If you all want to rotate for personal 
convenience, it is acceptable. Just don't more than one of you 
go at a time, because we want to keep this--keep the hearing 
going.
    So with that, we are going to recognize the gentleman from 
Chicago, Mr. Rush, for 5 minutes.
    Mr. Rush. Thank you, Mr. Chairman. Mr. Chairman, I really 
want to commend you for holding this timely hearing. It is very 
important.
    I want to commend all of the witnesses who have 
participated over these last 3 hours. It has been very 
informative, and I certainly appreciate it, and my constituents 
appreciate it.
    And may I regard, I just want to acknowledge and single out 
the--Mr. Whitacre. I really appreciate your involvement in 
helping to close the digital divide in my District, 
particularly in the Englewood community and also, Mr. 
Seidenberg, you are--to a lesser extent, you are really have 
done a remarkable job working with some of my constituents, and 
I appreciate that.
    I have a couple of questions that I--and these are some--in 
an area that I don't think has been touched on in previous--
until now. With these mergers--and this is to everybody here. 
With these mergers, do you envision areas where you would have 
to invest some of your assets and if so, what areas or regions 
are you looking at investing these assets? And you can--if 
your--if the answer is yes, would you also answer this question 
along with that question? Where would the opportunities for 
minority entrants to acquire--be to acquire some of these 
assets? So I am looking--okay, you are getting ready to merge 
and a lot of other kind of rippling effects are getting ready 
to occur. Are there opportunities for minorities to become 
owners of some of your divested assets?
    Mr. Whitacre, start.
    Mr. Whitacre. Thank you, Congressman.
    We are taking the position, and I think rightfully so, that 
since we don't overlap in any businesses, we shouldn't have to 
divest anything, because we are not in the same businesses. So 
I guess we will have to wait and see as it goes through the 
process whether that occurs or not. But as you know probably 
better than anybody, in the past, we have worked with minority 
groups in those cases, and in fact, have sold some businesses 
and divestitures. But we are taking the approach it is not an 
overlapping business, and we will have to see how the process 
goes. If that unfolds, then maybe we can discuss that as we go 
down the line.
    Mr. Seidenberg. Well, just quickly, I agree. We don't think 
this transaction will cause the need to divest things the way 
we see it. But let me just add, we just participated in the FCC 
auction on wireless, and there were plenty of opportunities for 
a designated entity, which is another way of looking at 
minority ownership, bid on a lot of the licenses in terms of 
who we partner with downstream. So there are opportunities for 
minority ownership in the wireless area.
    Mr. Forsee. Similarly, we don't believe that the Sprint 
Nextel merger itself will require any divestitures of assets. 
We have made the decision to spin-off to our share owners our 
local business, which we operate in 18 States with close to 8 
million access lines, so that will occur after our merger 
closes. And we would expect that would occur 6 to 9 months 
after the close of a merger with Nextel. So we don't expect 
there to be any other assets that we require because of the 
merger to be divested.
    As Mr. Seidenberg said, we also participated in Auction 58, 
which was, again, specifically identified for designated 
entities, and that is how Sprint acquired, through that 
vehicle, the spectrum in that caution.
    Mr. Rush. This merger, how will it help ensure that more 
Americans receive the benefits of broadband and the new 
services it makes possible, such as Voice-over IP and video? 
And specifically, how would you assure that under-served areas 
have access to broadband services, particularly the African 
American and Hispanic households? And let me just give you, if 
I could, a framework. This is a testimony that came in from the 
Consumer Federation. And you have probably seen this before. 
And I am just going to quote it, and that would--might give you 
the framework so you can pinpoint the answers. It says, and I 
don't necessarily agree with this, but I am just--I want you to 
know this is what is being proposed here. ``Unfortunately, the 
telecommunications industry looks like it is headed in the 
direction of cable. SBC and Verizon are scrambling to put 
together their own bundles. To do so, they want to be excused 
from the public interest obligations of video service 
providers, such as community-wide build out and local access 
channels. For example, in one of the''--well, it says, ``SBC 
and Verizon are seeking to be excused from serving undesirable 
customers and simultaneously seek to prevent local governments 
from serving those same very--those very same customers.'' And 
then they want to say--they called this redlining. Is there any 
truth to that position? And if not, clarify it for me, will you 
please?
    Mr. Seidenberg. Not only do I disagree, it is offensive to 
me, because that is not the way we do business. We deploy our 
technology. We don't redline. We deploy it across the whole 
State. Our systems are open. Cable systems are not open. So I 
think, Congressman, that--I think that--I think our record 
should speak to this, and I think the CFA, you know, they have 
their objections to these transactions. It is sort of 
theological. It is religious. They just don't like any mergers, 
let me say that. But our record, in all of the transactions we 
have done, is we have never done that, and we have a good 
record to support that.
    Mr. Murphy [presiding]. The gentleman's time has expired.
    Mr. Rush. I agree.
    Thank you.
    Mr. Murphy. The gentlelady from Wyoming is recognized.
    Ms. Cubin. Thank you. And I, too, would like to thank you 
for being patient and lasting for these 3 hours.
    Most of the--well, all of the questions that I had prepared 
before I came have been asked, so I will be brief.
    But I want to bring up a subject that I am tired of 
bringing up, and I am sure those of you who listen to me are 
tired of hearing, but I am talking about real rural America. My 
cellular phone, my voice wireless, is with Verizon when I am in 
Wyoming. And I had the wonderful experience to be traveling all 
over Wyoming while we were home for the last 2 weeks. And as I 
traveled from Newcastle to Torrington, Wyoming, which is 50 to 
60 miles, I had no wireless, I had no voice. My cell phone 
didn't work. There was no service. Now that is not just a 
little spot. That is almost an hour where I don't have any 
access to voice. I understand the dynamics of investing in 
service. I know that you have to make money, but I also think 
there is something about service. So when I have heard the 
discussion here today about wireless broadband deployment and I 
don't even get wireless voice, I am just skeptical. And that is 
just one example. By the way, this area is flat. The area that 
I am talking about. It is not as though there are big mountains 
interrupting that--the service. This area is flat. It just 
doesn't have any service.
    So competition isn't working so well in Wyoming for us. The 
deployment of broadband fiber is very limited. And so I guess I 
would like you, Mr. Seidenberg, to just respond to that, 
because your company is what I use. Mr. Inslee read an article 
where someone said that the--this merger will squeeze out small 
companies. We are not getting this service from the big guys.
    Mr. Seidenberg. Well, I wrote it down, Newcastle to where?
    Ms. Cubin. To Torrington, Wyoming.
    Mr. Seidenberg. Excuse me?
    Ms. Cubin. Torrington.
    Mr. Seidenberg. Torrington, Wyoming. Okay. We are going to 
find out. Thank you for having our service. At least we serve 
most of the other places you operate.
    Ms. Cubin. Well----
    Mr. Seidenberg. Okay.
    Ms. Cubin. [continuing] my point is, you know, this isn't--
you know, everyone accepts that there is spotty service.
    Mr. Seidenberg. Yes.
    Ms. Cubin. Everybody--everyone accepts that. But all over 
Wyoming, this is the rule, not the exception.
    Mr. Seidenberg. Yeah. No, I think the simple answer to your 
question is we could do better. I don't have any debate or any 
disagreement that the issue is we could do better. And what I 
need to find out is whether or not we serve that jurisdiction. 
But let us assume we did. I need to find out why--or what the 
sequencing of events of putting more towers in. But I will go 
back to what I said before. You happened to choose us. 
Obviously, if there were another carrier serving it, you would 
have switched, and so maybe there isn't any carrier there. So 
the issue is all of us together need to keep filling out the 
footprint across the country, and I think--I don't want to 
speak for my colleagues, but I know that Donahue would agree 
with that. He absolutely would agree.
    Ms. Cubin. Well, my next question was going to be for him. 
And I wanted to ask how the Sprint Nextel spectrum will serve 
wireless broadband in rural America. And will Wyoming be left 
behind like it is in voice? I mean, what I want to say is when 
the rewrite comes up, you have heard everybody--practically 
everybody up here today talk about rural America and service to 
rural America. And I want you to know we are serious. We demand 
services. And whatever we have to do to get them, I am willing 
to do that. I represent 500,000 people over 100,000 square 
miles. That is really rural America.
    Anyway, so if you would answer my question.
    Mr. Donahue. Well, thank you for your question.
    Ms. Cubin. And Mr. Forsee, too, if you have any----
    Mr. Donahue. Of course. And as much as it pains me, I will 
say that Mr. Seidenberg is right that we--all of us are taking 
a look at expanding our footprint. If you take a look at our 2 
to 5-year bill plan, it covers a significant amount of rural 
America moving forward. And so it is our intent to continue to 
increase the coverage. And I think that this merger is going to 
help accommodate that, because we are going to have the 
financial resources and the wherewithal to get that done.
    Now in terms of broadband, I think that if you take a look 
at our spectrum position and what our future plans are, we are 
taking a look a deploying not only the third generation 
technology on the current networks, but we have an opportunity 
for a fourth generation technology using our 2.5 spectrum, and 
that spectrum is nationwide across the entire country, and it 
will give us a much better opportunity to cover those areas in 
rural America that aren't covered today.
    And finally, I would say that technology is getting more 
efficient. And as the technologies get more efficient, it gives 
us the capability of rolling out more coverage, because from a 
financial perspective, it makes much more sense for us.
    And finally, I would say the demand is there, and we see it 
all of the time. And we are very cognizant of it and are 
working very hard to try to increase coverage in rural America.
    Ms. Cubin. Thank you.
    I don't have anything further, Mr. Chairman.
    Mr. Murphy. The gentlelady's time has expired.
    The gentleman from Texas is recognized.
    Mr. Green. Thank you, Mr. Chairman.
    I was going to tell our guests that they could all be 
excused in a few minutes, but I see my colleague from New 
Hampshire back here.
    I have got a couple of things. One, SBC predominately 
provides the local telephone service, and of course, I have a 
Verizon Wireless center in Houston that is very familiar with 
us, but now with your District, you and I share part of 
Verizon's service area in Baytown in East Harris County. And so 
I have some questions concerning that, just like my other 
colleagues. But I have visited the SBC call centers in Houston 
that are predominately for the Hispanic market, and I don't 
know if any--see, I was there with both SBC and CWA 
representatives, so they didn't say they didn't want those 
jobs, at least in Houston. I don't know about California.
    But let me ask both Mr. Whitacre and Mr. Dorman. I would 
like to hear your views on the state of phone competition in 
both consumer and business markets in the major metropolitan 
areas, like Houston. And I think the area is a good example, 
because I have Time Warner, who is beginning to roll out their 
Voice-over IP, and service and bundled it with video and 
broadband. And one of the goals I think of everyone on the 
committee is make sure there is competition. And would be SBC 
be able to--at some time, be able to provide that competition 
for not only the phone service but also the broadband and 
video? I know you can do broadband now.
    Mr. Whitacre. We are in the broadband now, Congressman, as 
you say. We do offer a video product through a dish network, so 
we can provide video now, but it is satellite video, and what 
we are attempting to do is provide video through our 
infrastructure that we are building. I certainly hope that we 
can. The state in Houston, for example, is an amazing amount of 
competition. There are many C-lex. There are cable companies. 
There are wireless companies. On the business side, there are 
some big-name companies doing a lot of things there, so there 
is a lot of competition in all of the cities, and it is 
certainly our hope with this merger we can provide more than we 
are presently doing.
    Mr. Green. Okay. What do you think from--Mr. Dorman, from 
AT&T's side?
    Mr. Dorman. I really don't have anything to add. The 
business environment has continued to have dozens of 
competitors, particularly in places like Houston, and we see 
them every day.
    Mr. Green. Okay. But Mr. Whitacre, your goal is to be able 
to do the video over your infrastructure, not necessarily 
always have to do the satellite?
    Mr. Whitacre. No, we are going to do it over our 
infrastructure, and we have got Project Light Speed going full 
blast, and we hope to be out there with a video product near 
the end of this year, through our infrastructure and not 
satellite.
    Mr. Green. Good.
    Mr. Seidenberg and Mr. Capellas, I would like to ask a 
similar question, but the answer may be different, given the 
different companies that you have, and the committee is 
focusing on the convergence of phone service, residential 
business, and broadband and video. What would the merger with 
Verizon and MCI, would that be similar to what SBC and AT&T? 
Because, again, since I have Baytown and East Harris County 
now, I am interested in making sure they have some of those 
same services and competition to our local cable that does a 
great job, but I like to see the competition.
    Mr. Seidenberg. Well, just quickly, I think it is similar, 
but we are a smaller transaction, and we are focused on the 
enterprise market mostly, so I think you will continue to see 
robust competition for business services, and the government.
    Mr. Green. Okay.
    And the last thing, again, since it is in Houston and with 
the merger of SBC and AT&T, what does it mean to our jobs in 
our community, and I guess, Mr. Whitacre, you could probably 
answer that the best? I think AT&T probably has 100 employees 
in Houston, and I know SBC has thousands.
    Mr. Whitacre. We do have a large employment base there. 
Again, it is--it depends on how successful we are going to be, 
but in a local area like Houston where we have an operation 
center and AT&T does, too, I don't think it will have any 
impact at all. I don't see any job changes there of any 
significance.
    Mr. Green. Okay.
    Mr. Chairman, I have a few seconds left. Mr. Whitacre, just 
say hello to a former colleague of mine, John Mumford, who I 
served with in the State Senate and who was a good friend for 
many years. Just----
    Mr. Whitacre. I will do that, Congressman. He is very busy 
with the Texas legislature.
    Mr. Green. I understand, having been there, but again, just 
make sure he knows I said hello.
    Thank you, Mr. Chairman.
    Mr. Murphy. I think I am going to do the prerogative and 
ask next.
    Mr. Seidenberg, I think as reported recently in the 
Washington Post that there is alleged certain VoIP traffic is 
being blocked by some major providers. And I think the FCC is 
looking into this issue. I am concerned that post-merger 
Internet transport will be significantly consolidated to the 
point that network discrimination against unaffiliated VoIP 
providers will become a more frequent headache for the 
industry, and I guess Congress and the FCC, through complaints. 
I guess you could even raise anti-trust concerns. It seems that 
this is potentially an issue and could be reasonably addressed, 
perhaps, voluntarily as a condition to these mergers, just the 
case in point. I guess the question is are you open to such a 
suggestion?
    Mr. Seidenberg. Well, first of all, I am going to check 
into this, but I don't think that exists with us, I mean, not 
that I know of, and----
    Mr. Murphy. Okay. Well, I would ask Mr. Whitacre, too, the 
same question.
    Mr. Seidenberg. And just quickly, if I might, we also need 
to hand off VoIP traffic to others, so I don't know why we 
would block it if we needed others to carry our traffic.
    Mr. Murphy. Are you familiar with the Washington Post 
article I am talking about?
    Mr. Seidenberg. I am not, and I will look into it, but----
    Mr. Murphy. Okay.
    Mr. Seidenberg. [continuing] it is the Washington Post, 
so----
    Mr. Murphy. Yeah. Okay.
    Mr. Whitacre, would you like to--had--you are familiar with 
the Washington----
    Mr. Whitacre. I am not familiar with that article, either, 
but I am sure we are not doing that.
    Mr. Murphy. Maybe my staff is the only one that read this 
article.
    Mr. Forsee, Sprint is also a major government contractor 
when it comes to communications services. And if the SBC and 
AT&T and Verizon-MCI deals are approved, what impact, if any, 
would the deals have on the government service businesses, and 
do you see a reduction in competition in that market?
    Mr. Forsee. I think Sprint has been a long-time government 
contractor. Nextel has as well. As our two companies come 
together, we would intend to continue to invest 
disproportionately in public safety and homeland security. The 
issues have been very important to our country. And I see no 
diminishment of the competition today on any government bid. 
There are multiple providers that are willing to step forward. 
Wireless has become a much more important part of that 
discussion, and with Sprint's global IP capability, I think you 
will continue to see us invest in the government business and 
certainly with Nextel to continue to lead in the public safety 
sector.
    Mr. Murphy. Okay.
    Another question for you. I think you indicated earlier 
that Sprint will be ruling out wireless broadband services 
aggressively this year. And I guess the question is can you 
safely say, I guess, will the price of that service be 
competitive with DSL and with the cable modem services?
    Mr. Forsee. Yeah, the service we are rolling out this year, 
Mr. Congressman, is what we will consider our third generation 
wireless data network. The speeds on that network will not yet 
be up to the speeds of the landline-based services, like could 
be acquired from a DSL service or from a cable modem. But 
nevertheless, it will be significantly better than what 
wireless data networks that are deployed today as we continue 
to step up that capability. Tim mentioned earlier, as we 
consider deploying a fourth generation of wireless data, which 
would be in the 2007 and 2008 timeframe, perhaps, then you are 
at the point where there could be, if customers choose to use 
it for a substitution for DSL and broadband and rest assured 
price competition, because another alternative would be 
available, would certainly be part of that discussion.
    Mr. Murphy. This is just a question of personal--I just got 
back from Europe, and I had a phone, the Trio 650. And I could 
use it. And Cingular was the provider for this one. And I could 
use it in Germany and France. And I was sitting next to a man 
who was CEO of T-Mobile. And he pulled out a phone that he 
could use in 150 countries. And it combined everything the 650 
Trio had, but it seemed to have a little bit more capability. 
And the idea of the reciprocity between European countries and 
the United States and the access for Americans when they go 
over there to use it has been a little bit of a problem. And I 
guess I would ask Mr. Seidenberg, do you see Verizon being able 
to provide the service that--in 150 countries you could use 
your service and still use it in the United States with ease?
    Mr. Seidenberg. No, absolutely. I think in our case, you 
know, we measure this. You know, less than 5 percent of our 
customers roam in Europe. But we--you are probably one of them, 
I guess. But what I think--or Ed's customer. But I think in the 
long-term, we will have roaming agreements and interoperability 
agreements with all of the international carriers, and I think 
that is something that the industry will take care of over the 
course of the next few years.
    Mr. Murphy. Also, when I went on the web, when I first got 
to Germany, I couldn't get on the web with the 650, but it 
seemed after a day, it suddenly kicked in. So I guess there was 
a period there when I was roaming and that these interoperable 
agreements that they had, it either couldn't find it or 
something, so it came in. So what you are saying for the voice 
is also true for probably the web?
    Mr. Seidenberg. I don't know this, but in your--in that 
case, somebody may have just needed to validate the number and 
it took a little bit of time for that to happen.
    Mr. Murphy. Yeah. Okay.
    My time is expired.
    The gentleman----
    Mr. Bass. Am I recognized, Mr. Chairman?
    Mr. Murphy. The gentleman is recognized.
    Mr. Bass. Thank you.
    Mr. Murphy. Absolutely.
    Mr. Bass. Thank you. Thank you very much, and I apologize 
for keeping you guys here. Ten o'clock was a long time ago. I 
will be very brief.
    Mr. Seidenberg, I--one of the many memories of 9/11 and its 
aftermath that I will not forget is my visit with some of my 
colleagues here on the committee to the West Street facility 
and the heroic efforts that many of your employees were making 
to--in fact, the chairman was there in the same trip. In the--
on the streets of New York trying to reconnect all of the wires 
and the work that they did is truly extraordinary.
    Now I also understand, of course, since that time, you have 
had a number of other national security events, including the 
GOP and Democratic Conventions and others. My question is, by 
merging with MCI, you are going to have--you are going to be 
responsible for considerably a greater number of Federal 
agencies and clients. And are you willing to put the resources 
into homeland security and cybersecurity activities if the 
merger is approved that would--you would--that would normally 
have been expended? And do you see any special challenges 
facing the new company as a result of that merger in this 
particular area?
    Mr. Seidenberg. No, actually--thank you for the question, 
because it should be just the opposite. We want to do more, and 
we will do both. I don't think there is any--this is not an 
either/or question. Our interest in surveying large-scale 
projects like the GOP or the Democratic Convention or the 
Federal Government, we have a great interest in doing that, and 
we will put the resources to make that happen.
    Mr. Bass. The--if you merge, a lot of the technology that 
went into the creation of the Internet will be merged into your 
business, most notably Ray Tomlinson at BBM in Cambridge, 
Massachusetts who came up with the @ for the Internet and the--
Vint Cerf who is now at MCI created the Internet Protocol that 
we use today. Despite this legacy, many critics point to the 
rate of deployment of DSL and other advanced services by 
Verizon and claim that it has been too slow and only occurs 
when competitors offer the service first. How, in your opinion, 
would the merge firm use its--this legacy or its legacy to 
bring these innovations to all Americans, including those who 
live in rural areas, such as found in my District?
    Mr. Seidenberg. Okay. Am I blessed with this question, too?
    Mr. Bass. Sure.
    Mr. Seidenberg. Yes. Okay. The--here is the way I would 
respond to that. Very quickly, when we have had an absence of 
regulatory interference, we have deployed technology as fast as 
anybody in the industry. Just look at what we have done in 
wireless. I think what MCI lets--gives us the capability to do, 
as Michael mentioned before, all of the platforms, all of the 
Ethernet access, and all of the--all of those services that 
customers on the enterprise level, we will do that. And as far 
as the deployment of consumer-based technologies, I think, as 
we have said during the hearing, all of this will just increase 
the capacity of the company to generate the savings and the 
earnings and the capital formation to do that.
    Mr. Bass. Okay. Fair enough.
    Thank you very much, Mr. Chairman.
    Mr. Murphy. Thank you.
    And anyone else seek time?
    We want to thank you for your long patience and forbearance 
here, and you are excused. And we will ask the second panel to 
come forward: Dr. Mark Cooper, Director of Research, Consumer 
Federation of America; Mr. Jeffrey Halpern, Senior Equity 
Research Analyst at Telecommunication Services; Mr. Jim Speta, 
Associate Professor, Northwestern University School of Law; and 
Mr. Phil Weiser, Associate Professor of Law and 
Telecommunications, and Executive Director of Silicon Flatirons 
Telecommunications Program at the University of Colorado School 
of Law. I want to welcome all of you here, and we welcome your 
opening statement of 5 minutes, and we will start with Dr. 
Cooper.
    So if we will just make sure the people in the back are 
quiet for you, Mr. Cooper, I think we are--I beg your pardon, 
you each have 7 minutes. I have been corrected. So you have 7 
minutes for your opening statement.
    And with that, Dr. Cooper, I think we will start with you.

  STATEMENTS OF MARK N. COOPER, DIRECTOR OF RESEARCH, CONSUMER 
FEDERATION OF AMERICA; JEFFREY HALPERN, SENIOR EQUITY RESEARCH 
ANALYST, U.S. TELECOMMUNICATIONS SERVICES, SANFORD C. BERNSTEIN 
 & CO., LLC; JAMES B. SPETA, ASSOCIATE PROFESSOR, NORTHWESTERN 
   UNIVERSITY SCHOOL OF LAW; AND PHILIP J. WEISER, ASSOCIATE 
   PROFESSOR OF LAW AND TELECOMMUNICATIONS, AND DIRECTOR OF 
  SILICON FLATIRONS TELECOMMUNICATIONS PROGRAM, UNIVERSITY OF 
                     COLORADO SCHOOL OF LAW

    Mr. Cooper. Thank you, Mr. Chairman.
    We told you that the law wouldn't work. Mr. Buyer has stood 
up and said we have--he has to admit it. We told you to vote 
against it when it came to the floor. But frankly, this shell 
game you heard this morning is not going to solve the problem. 
And it was quite a shell game. You heard Mr. Whitacre say, 
``The law says we can't discriminate, so we won't.'' But then 
he is there at the FCC seeking to be excused from Section 201 
and 202 of the Communications Act, which is the obligation to 
not discriminate.
    Mr. Seidenberg says, ``We don't redline. We serve 
everybody,'' but in Pennsylvania when they forbade cities from 
providing community wireless networks, they committed to 
building out by 2015. That is 15 years rural Pennsylvania falls 
behind: 3, 4, 5 generations on the Internet. Justice delayed is 
justice denied.
    We heard wonderful figures about a 15 or 20-percent market 
share in Internet backbone, but access to Internet backbone is 
a local commodity. I can't connect to the Internet in Houston 
with facilities in Dallas. You have to look at this at a--as a 
local market. And those local market shares are much more 
concentrated than all of the numbers you heard this morning. 
You did hear a bit of truth this morning when all of the people 
at the table said, ``We have exited the consumer market.'' I 
represent consumers. They have exited our market. But of 
course, what happened was the Bells killed the competition by 
leaning on the FCC, and now that the competition is dead, they 
say, ``Nothing to lose here, because there is no competition in 
wireline facilities.''
    The merged entities you had before you today are 
essentially Bell behemoths reconstituting their Bell operating 
system. For the residential customer in local markets, they 
will have a 90-plus-percent market share of dial tone, a 70-
plus-percent market share of long distance, and a 40 to 50-
percent market share of wireless. They will own and control the 
assets of the public switch network and have the same anti-
competitive incentives that the old Bell system: to 
discriminate, to price squeeze by overcharging for access. And 
they are seeking the legal right to discriminate against 
competitors and application service providers who want to use 
their networks.
    The weakness of this industry structure from the 
residential consumer point of view is absolutely clear. The 
baby Bells you had here today, the Bell behemoths, will not 
sell naked DSL. I realize we have to be careful where that word 
is in public these days on TV, ``naked DSL'' means you sell 
someone DSL with--on a stand-alone basis. They require you to 
buy their voice service when you get DSL. Well, why would any 
consumer buy two voice services? How is VoIP going to compete 
when all of the DSL lines in their service territory require 
that--you to buy their voice service? And of course, the cable 
operators won't guarantee VoIP service's quality of service. 
All VoIP service providers will be subject to the 
discriminatory practices of the network owners.
    This is not competition. This is a crummy duopoly. In order 
to get VoIP, you have to have broadband. 70 percent of the 
people in this country don't have broadband. So in order to get 
VoIP, they would have to double or triple their phone bills. 
That is not competition. That is what in business we call a 
crummy duopoly.
    So from our point of view, the steps to reforming this 
industry are quite clear. The box, so to speak, that Mr. Buyer 
talked about, has to be built with certain fundamental 
principles. One, nondiscrimination in the access to the 
networks. That has been a principle of communications in this 
country since its founding. Two, access charge reform so there 
are no price squeezes. Three, community wireless, community 
services so that when, in fact, some communities aren't served, 
they can engage in some self-help. And community wireless is 
actually significantly less expensive than the services that 
these entities are rolling out.
    Meaningful universal service, the way the FCC has treated 
broadband, it will not be eligible for any support under 
universal service, because it is not a telecommunications 
service. That is a disaster for rural America. That is a 
disaster for low-income America, because the base of funds to 
support a ubiquitous affordable network will be destroyed. So 
yes, there is a way to reform this industry. But what we must 
not allow to happen is the thin competition between a couple of 
facility owners to destroy the vigorous competition we have had 
at the level of applications.
    And finally, the worst shell game you have heard today was 
the promise that this is the next merger that will unleash 
competition. We have been coming up here for 8 years. Each 
year, another merger, another promise. ``This is the one that 
will get me competition.'' And maybe there will be a new 
competitor in 2009 or 2010. The simple fact of the matter is 
that Congress adopted a bad law and has bought a bill of goods 
from entities who have now reconstituted the Bell operating 
system.
    Thank you.
    [The prepared statement of Mark N. Cooper follows:]
 Prepared Statement of Mark N. Cooper, Director of Research, Consumer 
 Federation of America on Behalf of The Consumer Federation of America 
                          and Consumers Union
                                summary
    The recent wave of proposed mergers in the telecommunications 
industry--SBC attempting to gobble up AT&T, and Verizon trying to 
swallow MCI--mark the ultimate demise of the era in which consumers 
could expect more and more choices and lower prices for local, long 
distance, wireless, and new Internet-based services exploding on the 
market.
    The Consumer Federation of America (CFA) 1 and Consumers 
Union 2 believe that the drumbeat of consolidation and ill-
conceived regulatory policies have already undermined consumers' 
greatest hopes for ongoing and expanding competition. If not rejected 
or dramatically altered, these mergers could set the marketplace back 
to a world more akin to monopoly than competition.3
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    \1\ The Consumer Federation of America is the nation's largest 
consumer advocacy group, composed of over 280 state and local 
affiliates representing consumer, senior, citizen, low-income, labor, 
farm, public power an cooperative organizations, with more than 50 
million individual members.
    \2\ Consumers Union is a nonprofit membership organization 
chartered in 1936 under the laws of the state of New York to Provide 
consumers with information, education and counsel about good, services, 
health and personal finance, and to initiate and cooperate with 
individual and group efforts to maintain and enhance the quality of 
life for consumers. Consumers Union's income is solely derived from the 
sale of Consumer Reports, its other publications and from noncommercial 
contributions, grants and fees. In addition to reports on Consumers 
Union's own product testing, Consumer Reports with more than 4 million 
paid circulation, regularly, carries articles on health, product 
safety, marketplace economics and legislative, judicial and regulatory 
actions which affect consumer welfare. Consumers Union's publications 
carry no advertising and receive no commercial support.
    \3\ I am making available to the committee for the record several 
studies prepared by our organizations in the past year that document 
how anticompetitive behavior and regulatory failures made it impossible 
to develop the vigorous competition that Congress hoped for in the 1996 
Telecommunications Act.
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                        overview of the industry
The Failure of Vigorous Competition for Residential Customers
    We urge you to ponder the following anecdote from the computer 
world, which demonstrates the level of competition consumers would like 
to see in the telecommunications sector--particularly the increasingly 
consolidated wireless and wireline industries. When asked about whether 
his company would buy another computer manufacturer, Michael Dell is 
reported to have said: ``I like to acquire my competitors one customer 
at a time.'' That competitive ethic simply never took hold among the 
Regional Bell Operating Companies (RBOCs).
    Instead of entering one another's service territories and competing 
to win customers in a new location, our nation's largest 
telecommunications companies chose to merge and buy each other up. As 
the companies acquired a larger and larger footprint, it became harder 
and harder for new entrants to gain a toehold in the market. The 
proposed SBC-AT&T and Verizon-MCI mergers, if approved, will be the 
final nails in the coffin of the local competition experiment the 
Congress launched in the 1996 Act.
    The residential consumer today is faced with at most only two 
facility-based alternatives--the local telephone and cable companies. 
These two form what Business Week has called a ``crummy duopoly.'' 
4 They do not compete vigorously on price or innovate. They 
are more concerned about protecting a core franchise product (phone or 
cable services) rather than in competing against the other's core 
product through lower price or better quality. Because their prime 
profit-maximizing customer base consists of upper-income households 
that purchase many telecom and video services, they tend to offer high-
priced bundles of services that the majority of consumers either do not 
want or cannot afford. As a result, to get a variety of good 
marketplace choices and prices, consumers must buy extra services--DSL 
tied to local phone service, or cable modem service tied to a cable 
video package or cable Internet Service Provider (ISP). In order to get 
the benefits of this ``bundle-only'' competition, the average household 
must double or triple its spending.5
---------------------------------------------------------------------------
    \4\ Yang, Catherine, ``Behind in Broadband,'' Business Week, 
September 6, 2004
    \5\ A Nation Online, (Washington, D.C.: National Telecommunications 
Information Administration, September 2004), Current Population Survey 
Data Base, for subscription to specific services. Zimmerman, Paul R., 
Reference Book of Rates, Price Indices, and Household Expenditures for 
Telephone Service (Washington, D.C.: Industry Analysis and Technology 
Division, Wireline Competition Bureau, Federal Communications 
Commission) for local and long distance bills. Bundle prices are from 
visits to web sites of major carriers. Comparisons based on average 
basic local plus average long distance. Cable modem service costs about 
$45 per month. DSL service costs about $30. However, the local phone 
companies serving 85 percent of the nation require DSL customers to 
also take voice, making the basic connectivity costs for a high speed 
line that will support VOIP even more expensive. UNE Fact Report 2004, 
Prepared for and Submitted by BellSouth, SBC, Qwest, and Verizon, In 
the Matter of Unbundled Access to Network Elements, Review of Section 
251 Unbundling Obligations of Incumbent Local Exchange Carriers, WC 
Docket No. 04-313, CC Docket No. 01-338, October 2004. Federal 
Communications Commission, Reference Book of Rates, Price Indices, and 
Household Expenditures for Telephone Service, 2004.
---------------------------------------------------------------------------
    At the end of the day, the Bell behemoths will have reconstituted 
and extended a dominant ``Ma Bell-type'' company in their service 
areas. They will have about a 90 percent market share in residential 
local wireline,6 70 percent in long distance,7 
and 40-50 percent in wireless.8 They will have the incentive 
and opportunity to discriminate by using a price squeeze against 
competitors (both ISPs and telephone service providers, TSPs) that need 
access to the local or interstate long-haul networks.9 If 
these mergers are not blocked or substantially altered by the Antitrust 
Division of the Department of Justice (DOJ) and the Federal 
Communications Commission (FCC), these so called Baby Bells will become 
regional Behemoth Bells that swallowed up their original parent company 
(AT&T) and its main competitor (MCI), leaving consumers almost no 
better off than they were before the old Bell monopoly was originally 
demolished.
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    \6\ Federal Communications Commission, Local Telephone Competition: 
Status as of June 31, 2004, December 2004, Tables 6, 11, show this 
figure at just over 80 percent of SBC and just under 80 percent for 
Verizon. This is prior to the impact of the UNE-P decision.
    \7\ Precursor, Telecom Vital Statistics: Pillars of the Bell 2005 
Competitive Respite Thesis, January 24, 2005, put Verizon and SBC long 
distance market shares at close to 40 percent at year-end 2004, and 
predicted a gain of another 10 percent, without the mergers. AT&T and 
MCI national market shares were approximately 30 percent and 20 
percent, respectively, as reported in Industry Analysis and Technology 
Division, Trends in Telephone Service (Washington, D.C.: Federal 
Communications Commission, May 2004), p. 9-5. Because of their 
respective geographic foci, the in-region market share of the long 
distance companies being acquired respectively is likely to be higher 
than the national average. Thus, a 70 percent residential market share 
is a cautious estimate.
    \8\ Consumer Federation of America and Consumers Union, Letter to 
Chairman Michael Powell, September 16, 2004.
    \9\ See Cooper, Mark, The Public Interest in Open Communications 
Network (Washington, D.C.: Consumer Federation Of America, July 2004), 
Chapter IV, for a discussion of past anticompetitive practices of 
telephone companies against CLEC and ISPs. For a discussion of the 
problem of vertical leverage against intermodal competitors see 
``Petition to Deny of Consumer Federation of America and Consumers 
Union,'' In the Matter of Application for the Transfer of Control of 
Licenses and Authorizations from AT&T Wireless Services Inc., and Its 
Subsidiaries to Cingular Wireless Corporation, WT Docket No. 04-70, May 
3, 2004 and ``Reply of Consumer Federation of America and Consumers 
Union,'' In the Matter of Application for the Transfer of Control of 
Licenses and Authorizations from AT&T Wireless Services Inc., and Its 
Subsidiaries to Cingular Wireless Corporation, WT Docket No. 04-70, May 
20, 2004.
---------------------------------------------------------------------------
    Making matters worse, the cable industry is dominated by behemoths 
as well. What's more, cable's two largest companies--Comcast and Time 
Warner--are threatening to become even larger with an acquisition of 
the Adelphia properties. The average cable operator has over a 75 
percent market share in video 10 and over an 80 percent 
market share in advanced services for high speed Internet.11 
They too have an incentive to discriminate against ISPs and 
TSPs.12
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    \10\ On a national average basis, cable has just under an 80 
percent share of the MVPD market (see Federal Communications 
Commission, In the Matter of Annual Assessment of the Status of 
Competition in the Market for the Delivery of Video Programming, 
Eleventh Annual Report MB Docket No. 04-227, February 4, 2005, Table B-
3). Since the market share of head-to-head cable competitors 
(overbuilders) is only about 1 percent (Eleventh Annual Report, pp. 48-
49), the cable market share is certainly greater than 75 percent. 
Moreover, the competitive overlap between cable and satellite is not 
perfect, with satellite still having a substantial rural base. Thus, on 
a market-by-market basis, cable's market share may be over 80 percent.
    \11\ Federal Communications Commission, High-Speed Services for 
Internet Access, June 30, 2004, Table 4.
    \12\ The vertical problem in the cable video and high speed 
Internet markets are discussed in Cooper, Mark, Cable Mergers and 
Monopolies: Market Power in Digital Communications Networks 
(Washington, D.C.: Economic Policy Institute, 2002), Chapters 4 and 5; 
see also The Public Interest in Open Communications Networks, Chapter 
IV.
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Administrative and Congressional Action That is Needed to Protect 
        Consumers
    The proposed telecommunications mergers would lead to such high 
levels of concentration that we believe the antitrust and regulatory 
authorities should not allow them to proceed without imposing extensive 
nondiscrimination requirements and requiring substantial divestitures 
of assets to restore competition in numerous in-region markets 
dominated by SBC and Verizon. These mergers must not be allowed to 
proceed until public policy ensures that these companies will not have 
the opportunity to squeeze out their competitors through inflated 
access charges or other anti-competitive practices.
    However, even if regulatory and antitrust authorities diminish the 
anticompetitive effect of these two mergers, the vigorous competition 
Congress had envisioned during passage of the 1996 Telecom Act has 
failed to materialize. Congress must take action to correct fundamental 
errors in the FCC's implementation of the Act.
    Congress must restore the obligation of nondiscriminatory 
interconnection and carriage that the FCC has abandoned. Communities 
must be allowed to meet the needs of their citizens to ensure 
ubiquitous, affordable service. This would also 0ensure that 
communities have the right to jump-start competition by providing 
telecommunications services. Policymakers must expand the availability 
of unlicensed use of the spectrum so that entrepreneurs and citizens 
are no longer dependent upon monopoly networks to expand competition 
across all telecommunications and media services. And Congress must 
reaffirm the goal of universal service, taking action to bring 
affordable telephone and broadband services to all citizens.
    the reintegration and reconsolidation of the telecommunications 
                                industry
    Today, RBOCs claim that they are no longer monopolies and face 
substantial competition within the wireline market and from cross-
technology competitors. This is not even the case today, pre-merger. If 
there is even further consolidation in the market, the problem will 
only grow worse for consumers.
Local Voice Competition
    Those who point to competitive local exchange carriers (CLECs) as 
the source of competition had better look again. SBC and Verizon have 
litigated, stymied, and strangled local voice competition until it has 
almost completely withered, and the CLECs that were supposed to offer 
so much competition to the dominating Bells are dying in 
droves.13 Born as local monopolies, the RBOCs have remained 
anti-competitive to the core. Once the 1996 Act was signed into law, 
the RBOCs immediately set out to bulk up their local monopolies into 
regional monopolies through mergers and acquisitions. In the end, they 
never competed in one another's regions as envisioned by Congress.
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    \13\ Cooper, Mark, Stonewalling Local Competition: The Baby Bell 
Strategy to Subvert the Telecommunications Act of 1996 (Consumer 
Federation of America, January 1998); Competition At The Crossroads: 
Can Public Utility Commissions Save Local Phone Competition? (Consumer 
Federation of America, October 7, 2003)
---------------------------------------------------------------------------
    There was a moment, however, soon after the 1996 Act passed when 
these telecom giants were considering whether to take on one another. 
Instead of growing by competing, however, they decided to do the 
opposite--to expand by merging, bringing more consolidation to the 
industry and less competition. Rather than earning an out-of-region 
market share one customer at a time, the way that Michael Dell had 
envisioned, the RBOCs decided to buy the entire out-of-region market, 
to create a bigger footprint. Verizon dominated the Northeast through 
the merger of Bell Atlantic and NYNEX and added to its heft with the 
acquisition of GTE. Texas-based SBC dominated the middle of the country 
as a result of its acquisition of Ameritech and held outposts on the 
coasts, with its acquisition of Pacific Telesis and Southern New 
England Telephone.
    Even when they promised to compete out of region, as a quid pro 
quo, as in SBC's ``national local strategy'' pledge in the Ameritech 
merger, they never did.14 It was (and remains) always the 
next merger that should unleash competition, but it never does. Only in 
the fantasy world of industry-funded think tanks do we get competition 
without competitors.
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    \14\ Cooper, Mark, The Consumer Case Against the SBC-Ameritech 
Merger (Consumer Federation, et. al, January 20, 1999)
---------------------------------------------------------------------------
    And in the residential market, SBC and Verizon today have about an 
80 percent market share,15 and that number will go up as a 
result of the latest acquisitions and the decision of the FCC to 
eliminate unbundled network element platforms (UNE-Ps), which AT&T and 
MCI--the two largest local-residential service competitors--relied on 
to compete.16 By buying up their largest competitors and 
eliminating UNE-P, the market share of these two behemoths will likely 
exceed 90 percent in the residential sector.
---------------------------------------------------------------------------
    \15\ See note 6 above.
    \16\ Facilities-based competition accounted for only about one-
fifth of total competition (Local Competition, Table 10). Most of this 
competition was in the medium or large business market.
---------------------------------------------------------------------------
    The big business service market, known as the ``enterprise'' market 
in the industry, appears to be only barely more competitive. On 
average, these two companies have about a 75 percent market share for 
medium and large business lines.17 These two proposed 
mergers, if allowed to go through, will increase this market share 
substantially. Because AT&T and MCI are the largest players in the 
enterprise market and because of the geographic patterns of 
competition, the in-region market shares of SBC and Verizon in the 
enterprise market for voice would rise to the mid-80 percent 
range.18 These regional fortresses would also anchor their 
dominance of national corporate accounts.
---------------------------------------------------------------------------
    \17\ Local Competition, Tables 6 and 11.
    \18\ Matt Richtel, ``Valuing MCI in an Industry Awash in 
Questions,'' New York Times, February 2, 2005, C-4, puts AT&T's 
national market share for the ``corporate telecommunications market'' 
at 15 percent and MCI's at 12 percent.
---------------------------------------------------------------------------
    Given this increasingly consolidated market for landline services, 
and especially considering the demise of the CLECs, it is critical for 
policymakers to consider the geographic distribution of the SBC and 
Verizon markets when analyzing these two mergers. MCI had its most 
intense competitive presence in Verizon's service territory; the MCI-
Verizon merger will eliminate Verizon's most vigorous in-region 
competitor.19 The situation with SBC ``AT&T is similar. AT&T 
has a large presence in SBC's service territory. If these mergers go 
through, SBC and Verizon will effectively be buying market power to 
eliminate their strongest in-region competitors. The market is 
concentrated enough now; these mergers would make it much more so.
---------------------------------------------------------------------------
    \19\ The fact that the geographic overlap of assets is more 
concentrated in specific regions and products than the national average 
has been noted in the press accounts of the proposed mergers. Almar 
Latour and Dennis K. Berman, ``Qwest Presses Its Bid for MCI,'' Wall 
Street Journal, February 4, 2005, C-4, the Wall Street Journal 
described Verizon and MCI as follows: ``A tie-up between Verizon and 
MCI also could fact cultural challenges: The companies have been fierce 
competitors and have been at loggerheads in court.'' The map 
accompanying Matt Richtel, ``Valuing MCI in an Industry Awash in 
Questions,'' New York Times, February 2, 2005, C-4, shows a 
concentration of MCI data centers in the Northeast.
---------------------------------------------------------------------------
Long Distance
    SBC and Verizon have run a brutal bait-and-switch game with long 
distance service. After having been allowed to re-enter the long-
distance market because policymakers determined local markets were 
open--a finding that was overwhelmingly based on the availability of 
UNE-Ps--they launched a vigorous campaign to eliminate the availability 
of UNE-Ps. SBC and Verizon's gambit was a success and, as expected, the 
competition is drying up.
    The two corporations each already has about a 40 percent market 
share in the residential long-distance market within their regions, but 
if this merger is approved, this will increase substantially to an 
estimated 70 percent.20 This is, of course, well above the 
threshold where antitrust authorities become concerned about the abuse 
of market power. Once again, this merger would further concentrate and 
already-too-concentrated market.
---------------------------------------------------------------------------
    \20\ See note 7 above.
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Voice Over Internet Protocol (VoIP)
    Given that 70 percent of households don't have broadband service 
and therefore cannot take advantage of Voice over Internet Protocol 
(VoIP) calling,21 which requires such a connection, VoIP is 
not an effective competitor to the traditional landline. It is one 
thing for big-spending residential customers to consider VoIP as an 
alternative, notwithstanding its lower reliability (because it does not 
run when the power goes out) and lack of a fully functional E-911 
service.22 It is quite another to expect those families who 
pay an average $25 per month 23 for local service to pay 
another $30-$50 for broadband in order to have access to VoIP, which 
costs another $25-$30.24
---------------------------------------------------------------------------
    \21\ Cooper, Mark, Expanding the Digital Divide and Falling Behind 
in Broadband Falling Behind in Broadband, (Consumer Federation of 
America and Consumers Union, October 2004), shows that penetration of 
the Internet into homes has stalled below 60 percent, while just over 
half of all Internet households have broadband.
    \22\ ``Comments Of Consumer Federation Of America and Consumers 
Union,'' In The Matter Of IP-Enabled Services, Petition Of SBC 
Communications Inc. For Forbearance, Before The Federal Communications 
Commission, WC Docket No. 04-29, 04-36, July 14, 2004.
    \23\ Reference Book of Rates, Table 1.6.
    \24\ These prices are based on web site visits, exclusive of short 
term promotions.
---------------------------------------------------------------------------
    Making matters worse, SBC and Verizon also use an anti-competitive 
bundling tactic to ensure that VoIP can never effectively compete with 
their basic local voice services. Neither Verizon nor SBC will sell a 
consumer DSL on a stand-alone basis, what is known as ``naked'' DSL. 
Both force consumers to buy their voice service in order to get a DSL 
line. So a consumer who wants to buy VoIP from a competitor has to pay 
for local service twice.
    While they cite VoIP as a competitive threat, SBC and Verizon are 
seeking to be excused from the obligation to allow VoIP service 
providers to have access to the underlying telecommunications network 
in a just, reasonable, and nondiscriminatory manner. They will do to 
these unaffiliated telephone service providers (TSPs) exactly what they 
did to CLECs and what the cable modem operators did to ISPs--foreclose, 
discriminate, and delay until they wither and die.
    Ironically, when AT&T and MCI exited or pulled back from local 
competition as a result of the FCC's decision to eliminate UNE-P, they 
both declared that they would look to VoIP as an alternative approach 
to putting the bundle of local and long distance together. These 
mergers, if approved, will remove the two largest potential VoIP 
competitors from the market where they are needed most--in the home 
service territories of the two largest RBOCs. AT&T will no longer exist 
to compete against SBC's wireline business in SBC's service territory. 
The same holds for MCI, which will no longer compete against Verizon's 
wireline business in Verizon's service territory.
Wireless
    Two critical factors limit the ability of wireless services to 
effectively compete with wireline. First, even with a big bundle, 
wireless costs about ten cents a minute for the typical pattern of use 
of local calls, five times as much, on a per-minute basis, as local 
flat-rate dialtone, which is the staple of local service. Wireless is 
also less reliable than wireline and still does not have 100 percent 
access to the E-911 system. Second, Cingular and Verizon Wireless, the 
nation's two largest cell phone companies, are owned by two large 
RBOCs--SBC (with BellSouth) and Verizon, respectively--and therefore 
have little incentive to compete with their own wireline 
business.25 Through mergers and acquisitions, as well as 
their brand name prominence, SBC and Verizon are each the leading 
wireless supplier within their local RBOC market.26
---------------------------------------------------------------------------
    \25\ ``Petition to Deny'' and ``Reply Comments,'' see note 9 above.
    \26\ Letter to Michael Powell, September 16, 2004.
---------------------------------------------------------------------------
Backbone Services
    These mergers also pose severe problems because they would increase 
the vertical integration of assets (i.e., when a firm owns the inputs 
into the process, making it that much more difficult for competitors to 
get those inputs). AT&T and MCI are large providers of Internet and 
interstate transport (backbone). As independent companies, their 
interest is in maximizing traffic. SBC and Verizon are larger 
purchasers of Internet and interstate backbone services. As 
unaffiliated buyers, they make up a large portion of the market. From a 
competition standpoint, it is important to keep SBC and Verizon, which 
need the Internet and interstate backbone services as inputs, separate 
from AT&T and MCI, which provide this critical input. Otherwise, SBC's 
and Verizon's competitors will have difficulty gaining this input and 
are more likely to go out of business.27
---------------------------------------------------------------------------
    \27\ See Cable Mergers and Monopolies, note 12 above, and 
``Petition to Deny'' and ``Reply Comments,'' note 9 above.
---------------------------------------------------------------------------
    The result of these proposed mergers--called ``upstream 
integration'' in the parlance of economics--would therefore likely have 
a dramatic impact on the rest of market for Internet and interstate 
backbone traffic. SBC and Verizon would have an incentive to abuse 
their control over those assets to diminish competition for their 
retail businesses, rather than maximize the revenue flowing over those 
assets.
    As a vertically integrated entity, both of the resulting behemoth 
companies would have an incentive to maximize profits by using their 
leverage in the form of a price squeeze. Unfortunately, the opportunity 
to run a classic price squeeze will be readily available in the form of 
excessive access charges. The RBOCs have been overcharging for access, 
particularly special access that was prematurely deregulated by the 
FCC. AT&T and MCI were the leading critics of the access charge system. 
Should these mergers go through, those who profit from those 
overcharges will have swallowed those who sought lower access charges 
that drive down prices for consumers. These mergers should not be 
allowed to proceed until access charges are reformed.
    This prediction is no paranoid delusion, but the logical extension 
of SBC and Verizon's current activities. In Court cases like Brand X, 
regulatory proceedings such as the wireline proceeding, and petitions 
to the FCC including those Bell South, Verizon and SBC, SBC and Verizon 
both support the elimination of the obligation to interconnect and 
carry traffic on just, reasonable, and nondiscriminatory rates terms 
and conditions. They are buying the assets that provide critical inputs 
for their competitors, but at the same time they are seeking the right 
to discriminate against those competitors. These mergers would 
undoubtedly exacerbate the price-inflating, anti-competitive dangers 
that already exist in today's market.
Intermodal Competition
    Intermodal competition is also limited, with a ``crummy duopoly'' 
an ineffective base of competition, and it is not substantial enough to 
protect the public from abuse. For evidence, just look at a parallel 
industry--cable--where operators were also born as monopolists and have 
faced only limited competition from satellite.28 Not 
surprisingly, they have remained anti-competitive to the core in order 
to maximize their profits.
---------------------------------------------------------------------------
    \28\ Cooper, Mark, The Failure of ``Intermodal Competition in Cable 
and Communications Markets (Consumer Federation of America and 
Consumers Union, April, 2002).
---------------------------------------------------------------------------
    Cable prices have been unaffected by intermodal competition from 
satellite (which lacks the capacity to deliver high-speed Internet, a 
critically-valued bundled product, particularly among the desirable 
high-income customers). Since the passage of the 1996 Act, the average 
monthly cable bill has more than doubled. Consumers are offered almost 
the very same type of choice they were nine years ago: take the bundle, 
switch to a similarly high-priced satellite alternative, or live 
without a decent package of television programming.
    Cable operators continue to have a market share in the 75 percent 
range in the multi-channel (MVPD) market 29--well above the 
minimum threshold level to count as a monopoly under antitrust law. 
Their high-speed Internet market-share in the residential sector is 
also in the same range.30 In fact, when one looks at what 
the FCC calls ``advanced services'' (those with at least 200k in both 
directions), cable has over an 80 percent market share.
---------------------------------------------------------------------------
    \29\ See note 10 above.
    \30\ See note 11 above.
---------------------------------------------------------------------------
    Cable companies bundle their services in a brutally anti-consumer 
and anti-competitive fashion. They discriminate against unaffiliated 
VoIP service providers, reserving for themselves quality-of-service 
guarantees, while relegating others to best effort delivery of voice 
traffic.31 They force consumers to pay for their affiliated 
ISP and foreclose competition for Internet access 
services.32 This has the effect of undermining ISP 
competition over the cable wire/platform. They create a virtual tie 
between the provision of video and Internet service. Consumers who only 
want to buy cable modem service are charged $55 to $60, but for those 
who buy the underlying cable service, the price is lower--$40 to $45 
dollars.
---------------------------------------------------------------------------
    \31\ Scovill, Kim Robert, ``Cable/Telephony IP Network Basics and 
the Relationship to Comcast Digital Voice,'' Pennsylvania Public 
Utility Law Conference, PBI NO. 2005--3354, Vol. III, p. 433.
    \32\ Public Interest in Open Communications, Chapter IV.
---------------------------------------------------------------------------
    This anticompetitive strategy substantially weakens satellite's 
ability to compete with cable. Moreover, cable companies bundle video 
programming and use it as lever to exclude competition (directly by 
refusing to sell programming they own and distribute through coaxial 
cable/fiber optic lines and indirectly where they can leverage their 
power over distribution to deny competitors unaffiliated programming).
    Unfortunately, the telecommunications industry looks like it is 
headed in the direction of cable. SBC and Verizon are scrambling to put 
together their own bundles. To do so, they want to be excused from the 
public interest obligations of video service providers, such as 
community-wide buildout and local access channels. For example, in one 
of the most outrageous examples of corporate chutzpah in recent years, 
SBC and Verizon are seeking to be excused from serving ``undesirable 
customers'' and simultaneously seeking to prevent local governments 
from serving those very same customers. This is redlining taken to a 
new level; ``we won't serve these customer and you cannot.''
     the economic and social consequence of the failure of telecom 
                              competition
    The ``crummy duopoly'' that now confronts residential customers--a 
cable wire centered on defending its franchise video market and a 
telephone wire centered on defending its franchise voice product--
simply will not serve the public or the nation well, especially if 
these two wire owners are excused from the obligations of 
nondiscriminatory interconnection and carriage. The vigorous 
competition that we have enjoyed in the applications marketplace 
created by the Internet is being strangled. Regulators have allowed 
feeble facilities-based competition to strangle vigorous applications-
based competition, and antitrust authorities have allowed huge cross-
platform, vertically integrated behemoths to dominate the 
telecommunications marketplace.
    Policymakers have made a gigantic public policy mistake, and all of 
us are paying a huge economic price for it. The United States has 
slipped from third in the world in broadband to fifteenth.33 
Americans pay more on a megabit basis for broadband than a dozen 
countries around the world, and the explanation is not population 
density or government subsidies; rather, it is the lack of competition 
and the abuse of vertical market power. With lagging penetration, 
innovation in the applications layer has gone abroad. Jobs follow the 
exit of innovation.
---------------------------------------------------------------------------
    \33\ Expanding the Digital Divide.
---------------------------------------------------------------------------
    Moreover, the digital divide that FCC Chairman Michael Powell 
belittled in his first press conference as a ``Mercedes Benz divide'' 
34 has substantially worsened during his tenure. Penetration 
of the Internet in households has stagnated. Half of all households 
with incomes above $75,000 per year have broadband; half of all 
households below $30,000 do not even have the dial-up Internet at 
home.35 Black and Hispanic households are particularly hard 
hit by Chairman Powell's ``Mercedes Benz'' divide; white households are 
fifty percent more likely that Black or Hispanic households to have 
Internet access at home and twice as likely to have high speed access.
---------------------------------------------------------------------------
    \34\ To quote Michael Powell's exact words: ``I think the term 
[``digital divide''] sometimes is dangerous in the sense that it 
suggests that the minute a new and innovative technology is introduced 
in the market, there is a divide unless it is equitably distributed 
among every part of society, and that is just an unreal understanding 
of an American capitalist system . . . I think there's a Mercedes Benz 
divide, I'd like one, but I can't afford it . . . I'm not meaning to be 
completely flip about this--I think its an important social issue--it 
shouldn't be used to justify the notion of, essentially, the 
socialization of deployment of infrastructure
    \35\ Expanding the Digital Divide.
---------------------------------------------------------------------------
    The false characterization of the ever-increasing digital divide as 
a ``Mercedes Benz'' divide highlights the reason why the bundled 
quadruple-play (local phone, long-distance/wireless, video and 
broadband) competition that the cable and telcos are pushing does not 
do the average consumer any good. There is little competition for 
voice, video, and high-speed Internet. Three-quarters of Americans do 
not have high-speed Internet access, so they can't benefit from VoIP. 
In order to get the ``benefit'' of intermodal competition the average 
American household has to double or triple its monthly bill.
                        the political landscape
    Policymakers and authorities in various arenas and at all levels of 
government could take action to alleviate some of these concerns. Here 
is a preview of what lies ahead:
    The Supreme Court's review of the Brand X case has the potential 
finally to press the FCC to restore the obligation of nondiscrimination 
in interconnection and carriage. The 9th Circuit Court of Appeals held, 
properly in our view, that the advanced telecommunications services 
offered by cable operators to the public are telecommunications 
services and therefore are subject to regulation and open access. The 
9th Circuit decision might have finally persuaded the FCC to enforce 
the obligation for nondiscrimination on the advanced telecommunications 
networks of the 21st century. Even if the Supreme Court upholds the 
Ninth Circuit, the FCC seems determined to go in the opposite 
direction, which the Congress should not allow.
    We hope the Department of Justice and the FCC will understand the 
brutally anticompetitive in-region impact of the SBC-AT&T and Verizon-
MCI mergers and order large-scale divestitures of long distance/
backbone capacity and impose nondiscrimination/fair access charge 
requirements as they review the mergers. Unfortunately, this is an 
equally unlikely outcome.
    On the state front, we hope state legislatures will resist the 
efforts by the RBOCs to completely deregulate basic phone service based 
on the smoke and mirrors of competition from wireless--owned by the 
very same Behemoth Bell--and from VoIP--available only to those 
households that can afford broadband and only if the cable and 
telephone behemoths do not strangle VoIP competitors with 
discrimination and price squeezes. As important, state legislatures 
must stop RBOC-led campaigns to prevent local communities from meeting 
the needs of their citizens, by banning community Internet systems. 
There are tough fights brewing all across the country and the outcome 
is up in the air.
            the role of congress: the telecom act revisited
    Given the troubling track record of the regulatory authorities and 
the behavior of these two ``crummy duopolists,'' it is imperative that 
in its review of the Telecommunications Act of 1996, Congress takes a 
critical look at the communications landscape.
    This time, Congress will have to restructure the landscape to 
ensure the existence of competitive markets and provide as little room 
as possible for the FCC to flaunt the will of the Congress. This will 
be even more important if the telecommunications market becomes even 
more concentrated through the approval of the proposed mergers. At the 
very least, Congress will have to address the following issues to even 
begin to create a semblance of competition.
Nondiscriminatory Interconnection and Carriage
    Congress must clearly establish that the obligation to provide 
nondiscriminatory access to the means of communications, which has been 
part of our national and cultural heritage for centuries, is 
inviolable. The tried and true principle of nondiscrimination is 
clearly stated in the Act
        All charges, practices, classifications, and regulation for and 
        in conjunction with such service, shall be just and reasonable 
        . . . It shall be unlawful . . . to make any unjust or 
        unreasonable discrimination in charges, practices, 
        classifications, regulations, facilities or services for or in 
        connection with like communications service, directly or 
        indirectly, by any means or device, or to make or give any 
        undue or unreasonable preference or advantage to any particular 
        person, class of persons, or locality or to subject any 
        particular person, class of persons, or locality to any undue 
        or unreasonable prejudice or disadvantage.
    This sounds good to consumers. Congress defined telecommunications 
service providers clearly in the 1996, regardless of the facility used. 
The FCC ignored this language and invented a new definition to let 
cable operators escape form the obligation of nondiscrimination. It is 
seeking to let the telephone companies evade the obligations as well. 
Just as the Congress recently took away the authority of the FCC to set 
the cap on national broadcast ownership, Congress should remove from 
the FCC the ability to abrogate the most basic right of 
nondiscriminatory treatment.
Community Access to the Public Airwaves
    Congress must reaffirm the interconnected principles of community-
based provision of local services, which has been part of our heritage 
since the founding of the Republic, and public ownership of the 
airwaves, which has been recognized for almost eighty years. When 
Congress says that ``any entity'' should be allowed to provide 
communications services, it should mean any entity, not just the ones 
the Bell or cable behemoth want.
    Unlicensed use of the spectrum, which is the transmission medium 
that supports Wifi and community Internet applications, must be 
expanded. The practice of licensing the public's spectrum for exclusive 
use by a single entity was adopted as an expedient, second-best 
solution eighty years ago in a response to weak technologies that could 
not handle interference well. Technological progress over the past 
century has rendered this expedient, second-best solution unnecessary. 
Allowing unlicensed use of the spectrum by all citizens subject to 
simple rules of noninterference is far more deregulatory and pro-
competitive than the status quo and serves the aspiration of the First 
Amendment to ensure ``the widest possible dissemination of information 
form diverse and antagonistic voices'' far better than the current 
regime of exclusive licenses.
Universal Service
    Congress must give much more precise meaning to the goal of 
universal service, which has been the cornerstone of the communications 
marketplace for seventy years. The Act has
        the purpose of regulating interstate and foreign commerce in 
        communications by wire and radio so as to make available, so 
        far as possible, to all people of the United States, without 
        discrimination on the basis of race, color, religion, national 
        origin or sex, a rapid, efficient, nationwide and worldwide 
        wire and radio communications service with adequate facilities 
        at reasonable changes.
    More specifically, it set forth the following requirement:
        Consumers in all regions of the Nation including low-income 
        consumers and those in rural, insular, and high cost areas, 
        should have access to telecommunications and information 
        services, including interexchange services and advanced 
        telecommunications and information services, that are 
        reasonably comparable to those services provided in urban areas 
        and that are available at rates that are reasonably comparable 
        to rates charged for similar services in urban areas.
    The FCC must be required to take this goal seriously and not cut 
advanced telecommunications services off from universal service by 
misclassifying them as information services.36 A Mercedes 
Benz divide has nothing to do with today's problem of affordable 
telephone and high-speed Internet services.
---------------------------------------------------------------------------
    \36\ ``Brief for the Respondents States and Consumer Groups in 
Opposition to Petitioners,'' National Cable & Telecommunications 
Association, et. al. v. Brand X, Nos. 04-277 & 04-281.
---------------------------------------------------------------------------
    Sometimes traditional values are the best. The balance that this 
nation struck between private investment and public obligations has 
worked remarkably well since the founding of the republic. We need to 
return to those basic principles.

    Mr. Murphy. I thank the gentleman.
    Mr. Halpern, welcome.

                  STATEMENT OF JEFFREY HALPERN

    Mr. Halpern. Thank you, Mr. Chairman and members of the 
committee, and thank you for inviting me to testify on the 
future of the telecomm industry at this exciting time in its 
development.
    I am Jeff Halpern, Senior Equity Research Analyst at 
Sanford C. Bernstein covering U.S. Telecomm. And those not 
familiar with Bernstein, we are the oldest and one of the best 
respected independent equity research firms.
    To keep Bernstein's lawyers happy and the SEC, I have to 
submit that--for the written record, a set of disclosures 
relative to the business we do with the companies we have 
discussed.
    Mr. Murphy. By unanimous consent, so ordered and put in as 
part of the record.
    [The information appears at the end of the hearing.]
    Mr. Halpern. Thank you.
    In the interest of brevity, I have organized my prepared 
remarks this morning into three parts.
    The first is the impact of consolidation on mass-market 
wireline customers. The second is the impact on enterprise 
customers. And third is the impact on the wireless segment.
    I have also submitted for the public record, several pieces 
of research that I have authored over the past 2 years that 
directly address a few of the topics I will discuss.
    Looking at the consumer and small business wireline 
services segment, I see no immediate risk to the 
competitiveness of the market from the proposed mergers. 
Specifically, the consumer and small business market can be 
divided into three competitive fronts: the Bells, who today 
dominate the retail voice services market; the large 
interexchange carriers, who have built positions competing on 
wholesale connections, as we have heard about; and the cable 
multi-system operators, who have the strongest positions in 
multi-channel video and broadband data.
    Within the past year, the changes in the regulatory 
landscape surrounding wholesale competition have fatally eroded 
the economics for the wholesale competitors, like AT&T and MCI, 
in the mass consumer and small business markets. These changes 
led both companies to announce their withdrawal from active 
customer acquisition or attention long before the proposed 
mergers were negotiated. This competitive capitulation, 
however, occurred at the same time that technological advances 
supporting the carriage of voice services over broadband 
connections has emerged. This capability is generically 
referred to, as we have heard, as Voice-over IP, or VoIP. By 
our estimates, over the next 5 years, the cable MSOs, the 
leading facilities-based providers for consumer VoIP services, 
as a group, will win at least as much share of the consumer 
primary connections as the Bells lost over the past 5 years to 
wholesale competitors. And importantly, the MSOs will compete 
against the Bells with far more favorable marginal economics 
than the wholesale competitors had. Therefore, we believe it is 
very reasonable to believe that--to expect that despite the 
withdrawal either organically or through consolidation of AT&T 
and MCI from this space, that voice prices in the future will 
fall at least as rapidly as they did over the past 5 years. And 
for comparison, that is about 7 to 8-percent on average for a 
bundled local and long distance line. Thus while the Bells are 
proposing to buy their largest consumer market competitors, we 
would note that those same companies are doing nothing to 
pursue new customers or retain existing ones and, thus, do not 
believe the mergers are inherently bad for consumers or small 
business competitors to choice--sorry, small business 
competition or choice.
    Turning to the enterprise market, we would draw the 
committee's attention to two reports authored over the past few 
years in a series entitled a ``Tough Nut to Crack.'' This 
series title attempts to say it all.
    This is a very tough market to enter. Providers competing 
for share of the large enterprise in government communication 
services market must be capable of delivering very high quality 
of service, provide redundancy, custom solutions, and 
frequently global connectivity. In addition, they must have the 
relationships and the credibility necessary to convince a 
customer the size of Citigroup or the Department of Defense 
that they can secure, monitor, and maintain mission critical 
communications under adverse conditions. To date, the Bells 
have been scrappy competitors relegated to the provision of 
only the most commoditized services. AT&T, MCI, and Sprint 
dominate this segment while backbone providers like Level 3 and 
Global Crossing, and I might add, about ten others, play price 
spoilers for basic transport. Absent consolidation, the four 
remaining regional Bells would need to spend, as we heard 
earlier this morning, my estimate is about $5 billion to $7 
billion at least, over the next 5 years to build their 
credibility and competency serving this market. In our opinion, 
for their investment, the Bells would add relatively little to 
the innovation in the industry and would likely drive the 
ultimate demise of AT&T and MCI, at least over the next 10 
years, if not sooner. Thus, while on the one end I could argue 
that combining the most likely share gainers, the Bells, with 
the incumbents and largest share losers, AT&T and MCI, is not 
inherently pro-competitive, it does, in my opinion, simply 
hasten the ultimate end game, which would have been the 
eventual removal of AT&T and MCI from the landscape.
    Finally, let me turn to wireless. Wireless is a business 
built on a capitalistic investment model, not a regulated 
monopoly one. Market forces drive quality and innovation. As 
evidence, I submit that T-Mobile and Verizon Wireless, the two 
carriers that have won the greatest number of customer 
satisfaction awards over the past several years, have also been 
the leading share gainers. By comparison, AT&T Wireless and 
Cingular, which have received the poorest service marks, have 
been the largest share losers. As we look at the impact of 
consolidation, I would say that so long as the U.S. is not 
allowed to devolve into a duopoly market structure in which the 
Bells control all of the scale wireless carriers, competition, 
investment, and innovation should remain robust.
    So where does this leave us? My conclusions are four-fold.
    First, none of the proposed wireline mergers is intuitively 
a recipe for higher consumer prices or reduced choice.
    Second, the SBC-AT&T and Verizon-MCI combinations will 
likely result in modestly greater stability for enterprise 
service pricing than we have seen over the past few years, but 
competitors like Level 3 will continue to exert downward 
pressure for less differentiated services.
    Third, in wireless, so long as there are three scale 
competitors and a handful of smaller players, I would not be 
overly concerned about choice pricing and service quality.
    And fourth, if there is a concern regarding the longer-term 
competitiveness of the industry once the cable companies and 
Bells achieve a measure of stability in their own consumer 
market positions, then I would very strongly encourage this 
committee and the FCC to jointly focus attention on fostering 
the development of additional broadband pipes to the home, not, 
again, shackling the Bell companies with outdated regulations.
    Finally, if I can just set the record straight on something 
Mr. Seidenberg said earlier, I have not actually endorsed any 
combination with MCI but think that both possible combinations, 
in a Verizon-MCI and a Quest-MCI combination, both have merit 
and both have risks. And I can elaborate at the committee's 
pleasure.
    And that concludes my prepared remarks.
    [The prepared statement of Jeffrey Halpern follows:]
Prepared Statement of Jeffrey Halpern, Senior Equity Research Analyst, 
   U.S. Telecommunication Services, Sanford C. Bernstein & Co., Inc.
    Good morning Mr. Chairman and members of the committee and thank 
you for inviting me to testify regarding the future of the US 
telecommunication services industry at this exciting time in its 
development. I am the Senior Analyst at Sanford C. Bernstein covering 
the US Telecommunications industry. For those of you not familiar with 
Sanford Bernstein, we are the oldest and one of the best respected 
independent sell-side equity research firms in the industry. We do no 
investment banking, and thus, have no conflicts on that front. I have, 
however, submitted for the written record a full list of relevant 
disclosures concerning my and my company's ownership of and business 
dealings with the all of the companies we will likely discuss today.
    In the interest of brevity, I have organized my prepared comments 
around the various wireline customer segments of consumer, small 
business, and enterprise and then separately address wireless. I have 
also submitted for the public record several pieces of research I have 
authored over the past two years that directly address a few of these 
topics.
                 consumer & small business competition
    Looking at the consumer and small business wireline services 
marketplace, I see no immediate risk to the competitiveness of the 
marketplace from the proposed mergers. Specifically, the consumer and 
small business market can be divided into three competitive fronts: the 
Bells--who, today, dominate the retail voice services market; the large 
interexchange carriers--AT&T, MCI most notably--that have built 
positions competing on wholesale connections leased from the Bells; 
and, the cable multi-system operators or MSOs who have the strongest 
positions in multichannel video services and broadband data.
    Within the past year, the changes in the regulatory landscape 
surrounding wholesale competition due both to FCC and court actions has 
fatally eroded the economics for competitors like AT&T and MCI, leading 
both companies last year to announce their intention to harvest their 
positions and to actively do so through the cessation of advertising 
and promotional activity. This competitive capitulation, however, has 
occurred at the same time that technological advances supporting the 
carriage of voice services over broadband connections has emerged. This 
capability, generically referred to as Voice over IP, offers those 
competitors capable of providing or transiting a broadband connection 
very favorable economics. By our estimates, over the next five years 
the cable MSOs as a group will win at least as much share of consumer 
primary connections as the Bells lost over the past five years to 
wholesale competitors. And, importantly, the MSOs will compete with the 
Bells on owned networks not wholesale ones and, thus, will have with 
far more favorable marginal economics than did the wholesale 
competitors competing over Unbundled Network Element Platform or UNE-P 
lines. Thus, it is reasonable to expect that despite the withdrawal 
either organically or through consolidation of AT&T and MCI from this 
space, that voice prices in the future could fall at least as rapidly 
as the 7-8% rate experienced over the past five years. Further 
supporting this point, I would highlight that where the Bells have 
already been competing head-to-head against the cable companies, in the 
consumer broadband market, prices have fallen on average over 10% 
annually--and at times faster--for the past five years. Thus, while the 
Bells are proposing to buy their largest consumer market competitors 
today, we would note that those same companies are doing nothing to 
pursue new customers or retain existing ones and, thus, we do not 
believe the mergers are inherently bad for consumer or small business 
competition so long as the cable companies and, potentially, other 
facilities-based competitors continue to pursue sales of bundled 
services.
                    enterprise services competition
    Turning to the enterprise market, we would draw the Committee's 
attention to two reports we authored over the past few years in a 
series entitled a Tough Nut to Crack. The title attempts to say it all.
    Providers competing for share of the large enterprise and 
government communication services market must be capable of controlling 
and delivering high quality of service on their own networks. In 
addition, they must be able to provide redundancy, custom solutions 
and, frequently, global connectivity. And, finally, they must have deep 
sales relationships with the customers and the credibility necessary to 
convince a customer the size of Citigroup or the Department of Defense 
that they can secure, monitor and maintain mission critical 
communications under adverse conditions. To date, the Bells have been 
scrappy competitors relegated to the provision of only the most 
commoditized services for this customer segment. AT&T, MCI and Sprint 
dominate this segment. While backbone providers like Level 3, Global 
Crossing play the price spoiler role for basic transport. Absent 
consolidation, the four remaining Regional Bells would need to spend 
between $5 billion and $7 billion in operating and capital expense over 
the next five years to build their credibility and competency serving 
this market and that investment would not even begin to cover the 
buildout of long-haul transport capacity for which each would still 
need to contract. In our opinion, for their investment, the Bells would 
add relatively little to the innovation in the industry and would 
likely, over the course of the next five to ten years, drive the demise 
of AT&T and MCI. Thus, while on the one hand I can argue that combining 
the most likely share gainers (the Bells) with the incumbents and 
largest share losers (AT&T and MCI) is not pro-competitive, it does, in 
my opinion, simply hasten the ultimate end-game which would have been 
the eventual removal of AT&T and MCI from the landscape.
                          wireless competition
    Finally, let me turn to wireless. Two years ago, we had six 
national competitors fighting aggressively for marketshare. Despite 
that competition, average monthly revenue per user didn't fall. Why? 
Because demand remained robust and network differentiation drove price 
stability. Though I know there has been an outcry for quality of 
service regulation for wireless, I would posit for the committee that 
wireless, a business built on a capitalistic investment model not a 
regulated monopoly one, will be far better served allowing market 
forces to drive quality and innovation than regulation. As evidence, I 
submit that T-Mobile and Verizon Wireless, the two carriers that have 
won the greatest number of customer satisfaction awards have also been 
the leading share gainers, have high customer loyalty and have shown 
some of the strongest average revenue per user trends. By comparison, 
AT&T Wireless and Cingular which have received the poorest service 
marks have been the largest share losers among the big-six carriers 
over the past three years. As we look at the impact of consolidation, I 
would say that so long as the US is not allowed to devolve into a 
duopoly market structure in which the Bells control all of the scale 
wireless carriers, competition, investment and innovation will remain 
robust.
                                summary
    So where does this leave us? My conclusions are four fold:
    First, none of the proposed wireline mergers is intuitively a 
recipe for higher consumer prices or reduced choice;
    Second, the SBC-AT&T and Verizon-MCI combinations will likely 
result in modestly greater stability for enterprise service pricing 
than we have seen over the past few years but it should also be noted 
that pricing in that market has been declining at very unhealthy rates 
since the bursting of the internet bubble unleashed massive 
overcapacity for transport services.
    Third, in wireless, so long as there are three scale competitors 
and a handful of smaller players, I would not be overly concerned about 
choice, pricing or service quality; and,
    Fourth, if there is concern regarding the longer-term 
competitiveness of the industry once the cable MSOs and Bells achieve a 
measure of stability in their consumer market positions, then I would 
encourage this committee and the FCC to jointly focus attention on 
fostering the development of additional broadband pipes to the home not 
once again shackling the incumbents. Further, given the Bells' desire 
to deploy video services in competition with another former monopoly 
business, the cable companies, I would encourage this committee to 
focus efforts on removing the outdated roadblocks currently standing in 
the way of that innovation and competition.
    Thank you, again, for the opportunity to share my thoughts.

    Mr. Murphy. Thank you, Mr. Halpern.
    We now want to hear from Mr. Jim Speta, who is an associate 
professor of the Northwestern University School of Law.

                   STATEMENT OF JAMES B. SPETA

    Mr. Speta. Thank you, Mr. Chairman.
    I am grateful to you and to the committee for the 
opportunity to testify on these topics. Telecom's policy and, 
in particular, competition policy for the emerging broadband 
era are the focus of my scholarship.
    Following on the testimony this morning, I don't want to 
dwell on the technological drivers that have changed the 
communications marketplace. Increases in bandwidth, in 
computing power, and in conversion and transmission protocols 
have made possible the new data-centric networks that we have 
heard about on which application services whether they are 
voice or video will ride merely as applications. And increasing 
penetration of these platforms into the mass market will 
increase competition in markets where we have traditionally 
seen relatively little: basic voice services and basic access 
services.
    I, therefore, want to address the bulk of my comments to 
what Congress can do to continue and perhaps even to accelerate 
the path of increasing competition, and that is to accomplish 
fundamental spectrum reform.
    The two wireline mergers that we here discussed of AT&T and 
SBC and of MCI and Verizon provoke the fear, which have been 
variously stated, that mass market consumers will face only two 
huge companies, their incumbent local telephone companies and 
their cable companies, for all of their communication services. 
And while two is better than one, having only two companies in 
the market, is not the ideal of competition.
    The best answer to getting a third competitor or a fourth 
competitor is to get a third platform, get it soon, and that is 
fundamental spectrum reform. I do not claim to be able to out-
guess the market as to where telecommunications technology is 
going, and that is one thing we should have learned in the last 
8 years since the 1996 Act. But we do know that decreasing 
barriers to entry into wireless services can allow new 
technologies to come to market. And we are seeing glimpses of 
high-speed wireless data services, vast Internet access 
provided by wireless technologies. Incredibly exciting things 
are happening in this market. But more spectrum needs to come 
to the commercial market for wireless to ensure the entry of 
new broadband competitors. And that new spectrum ought to be 
structured so that companies can use it with whatever new 
technologies develop. The Commercial Spectrum Enhancement Act, 
which was signed last December, was a step in the right 
direction. But that spectrum is likely to be used for premium 
mobile services, and most of the services that we heard about 
this morning are still premium services. Getting more spectrum 
into the market would allow truly mass-market data, wireless 
Internet access services to develop.
    In my written testimony, I have described in more detail 
some steps Congress should take in spectrum reform, which would 
increase the competitiveness of the total market.
    First, existing licensees ought to be given the fullest 
opportunity to introduce new, innovative services, even if that 
means ceasing to provide the services originally contemplated 
by their licenses. This sort of transition, creative 
destruction, if you will, is one of the central engines of this 
great American economy. And it just following on the 
technological development that has changed the structure of the 
communications marketplace.
    Second, the transition to digital television must be 
completed by a hard date and soon. The subcommittee recently 
held a hearing on this, but the analog TV licenses represent 
some of the most attractive spectrum for new broadband wireless 
data services.
    Third, legislation should increase incentives for 
government spectrum users to economize on spectrum to enable 
more of it to move to commercial uses.
    I have described in my written testimony some other steps 
that Congress could take to ensure that the law helps create 
conditions for increased competition wherever it may come from. 
And of course, the total right of the Communications Act has 
enormous appeal. The number of us academics are coming together 
with the Progress and Freedom Foundation to work on language 
for a new digital age communications act, and hopefully, over 
the summer, we will have some more to present to the committee 
on this question.
    But even apart from a complete rewrite, spectrum reform can 
be the first, most important step. It will create a third 
platform, and that third platform can have multiple companies 
competing with each other and in competition with cable and 
telephone companies. Perhaps equally significantly, wireless 
can bring true broadband data services to rural areas and other 
areas in which there is no broadband to address the concerns of 
a number of the members. Rural wireless ISPs, while still in 
relatively few areas, are an emerging success story that true 
spectrum reform could accelerate.
    As I said, this is an incredibly exciting time. Things are 
happening in the wireless space, and spectrum reform can be a 
first step toward increasing competition in the data-centric 
world we are entering.
    Thank you.
    [The prepared statement of James B. Speta follows:]
Prepared Statement of James B. Speta, Associate Professor, Northwestern 
                        University School of Law
                                summary
    We are beginning to see in the marketplace the effects of a 
technological convergence that began in earnest fifteen years ago, with 
the advent of fiber optics and digital transmission in long-haul 
communications networks. Today, developments in electronic switching, 
high-capacity transmission, and conversion and computing protocols are 
having three significant effects on the structure of the communications 
marketplace. First, distance is increasingly irrelevant as a matter of 
economics. Although capital costs still depend on distance, at the 
margin the transmission of data is largely insensitive to the distance 
it travels. Technological and legal distinctions between ``local'' and 
``long-distance'' services should increasingly disappear. Second, 
transmission platforms are no longer service-specific. ``Services''--be 
they voice or video or newer services--can be provided as applications 
on any data platform of sufficient bandwidth. Third, these advances are 
increasing competition in some markets that have historically seen 
little. Voice-over-Internet-protocol telephony is allowing cable 
companies to become more competitive for voice services; but the hype 
over VoIP hides the increasing competition that cellular telephony has 
brought to traditional telephone services. Similarly, assuming the 
announced build-outs by the telephone companies occur, video over IP 
will be the next stage of marketplace development, and will introduce a 
substantial new competitor in that domain. The announced mergers 
between SBC Communications, Inc., and AT&T Corp. and between Verizon 
Communications, Inc., and MCI, Inc., reflect many of the changes that 
technology has brought to the market structure.
    Looking to the future of the communications marketplace, several 
imperatives appear. First, Congress should ensure that competition 
continues to develop, by creating the conditions necessary to enable 
new access platforms to challenge those owned by the telephone and 
cable companies. Spectrum reform is of utmost importance: wireless 
could be a third, full-service access platform (with multiple providers 
in each market), but more spectrum, with flexible use rules, needs to 
come into the commercial market. Second, Congress should ensure that 
the Federal Communications Commission has adequate authority to preempt 
state laws that create barriers to or uncertainty for the development 
of new communications platforms, such as wireless and broadband over 
power line. Third, should it turn to a comprehensive re-write of the 
Communications Act, Congress should create a telecommunications law 
that is technologically neutral, that links regulatory authority in 
most regards to the principles of competition law, and that seeks to 
pursue social goals such as universal service through transparent and 
competitively balanced mechanisms.
                              introduction
    I am grateful for the opportunity to testify before the Committee 
on changes in telecommunications technology and the changes in the 
marketplace that technological change has wrought. My testimony here 
summarizes some of the work that I have been doing on broadband 
competition policy and on the need for legislative action to eliminate 
legal and economic barriers to the development of additional 
competition in the future. 1 The catalysts for this Hearing, 
the announced mergers between SBC and AT&T and between Verizon and 
MCI,2 are signs of a convergent and increasingly competitive 
marketplace. They are not, as some have suggested, simply the 
reincarnation of the Bell System twenty years after its breakup. For 
one, these two companies have the potential to compete with one another 
in many markets. More importantly, technological advance is allowing 
cable and wireless companies to be increasingly competitive with the 
traditional local telephone companies in their core local access 
markets. To be sure, competition in these and other telecommunications 
markets is not the perfect competition of micro-economics textbooks, 
due to the substantial investments required to build a network and the 
need to interconnect with multiple other networks to provide services. 
But, with a few cautionary notes, technological convergence seems to be 
advancing competition.
---------------------------------------------------------------------------
    \1\ See, e.g., James B. Speta, Deregulating Telecommunications in 
Internet Time, 61 Wash. & Lee L. Rev. 1063, 1069 (2004) (outlining a 
``comprehensive program to substantially increase the prospects for 
intermodal competition in local telecommunications services'' and 
telecommunications more generally) (also available at http://ssrn.com/
abstract=614523); James B. Speta, FCC Authority To Regulate the 
Internet: Creating It and Limiting It, 35 Loy. U. Chi. L.J. 15 (2003) 
(also available at http://ssrn.com/abstract=490122); James B. Speta, A 
Common Carrier Approach To Internet Interconnection, 54 Fed. Comm. L.J. 
225 (2002) (also available at http://www.law.northwestern.edu/faculty/
fulltime/Speta/Speta.html).
    \2\ As of the date of this written testimony, Qwest Communications 
International, Inc., continues to have a counter-offer pending for MCI, 
and the foregoing should not be read as a statement about the eventual 
acquisition of MCI. The two transactions have much in common from a 
structural marketplace perspective, however, and do not substantially 
affect the conclusions that I offer here.
---------------------------------------------------------------------------
    Looking to the future, communications law can either provide a 
hospitable environment for continuing technological change and the 
introduction of new, competing platforms and services, or it can itself 
be a barrier. The first priority should be to address the barriers that 
currently exist to the introduction of new competitive access 
platforms, and, here, the first priority is spectrum reform. Congress 
should continue the path set by the Commercial Spectrum Enhancement Act 
3 and move additional spectrum into commercial service, 
subject to flexible licensing or to full private ownership. Second, 
Congress should ensure that state and local regulation does not present 
a barrier to emerging technologies and services. Third, Congress should 
begin to address the competitive neutrality of the communications law 
as a whole, either through a strategy that essentially deregulates new 
platforms or that re-writes the Act from the bottom up.
---------------------------------------------------------------------------
    \3\ Pub. L. 108-494 (signed Dec. 23, 2004).
---------------------------------------------------------------------------
              i. where technological change has brought us
    Technological change, in the form of microwave technology, was one 
of the principal drivers of the break up of the Bell System in the 
early 1980s.4 That technology was rapidly replaced by fiber 
optics and the digitalization of the long-haul portions of the 
telecommunications network. On a largely independent track, the 
Internet protocols allowed the development of general purpose data 
networks, which could carry the data created by any application over 
any interconnected physical infrastructure.5 Today's 
telecommunications market reflects these revolutions in transmission 
and computing power and in the techniques of data conversion and 
transmission.
---------------------------------------------------------------------------
    \4\ See generally Joseph D. Kearney, From the Fall of the Bell 
System to the Telecommunications Act: Regulation of Telecommunications 
under Judge Greene, 50 Hastings L.J. 1395 (1999); Glen O. Robinson, The 
Titanic Remembered: AT&T and the Changing World of Telecommunications, 
5 Yale J. on Reg. 517 (1988) (reviewing Peter Temin, The Fall of the 
Bell System).
    \5\ See generally Philip J. Weiser, Law and Information Platforms, 
1 J. Telecomm. & High Tech. L. 1 (2002).
---------------------------------------------------------------------------
    The technological change experienced in the communications 
marketplace can usefully divided into three types. First, advances in 
electronics and in materials have greatly increased the bandwidth that 
carriers can deploy. Modern fiber optics, boosted by the development of 
dense wave division multiplex transmission electronics, can carry 
enormous amounts of data over long distances almost instantaneously. 
Similarly, digital transmission technologies in the access networks--
such as cable modem service, DSL, and digital cell phone service--have 
increased the capacity of those systems far beyond anything imagined 
when cable TV or wireline and wireless telephony were initially 
conceived. Demand has, of course, increased exponentially as well, and 
the bandwidth of many access services in the United States still lags. 
Telephone company DSL networks are not yet fast enough to provide 
multi-channel video services; in South Korea, by contrast, video over 
DSL is common.6 Still, this greater bandwidth begets new 
services.
---------------------------------------------------------------------------
    \6\ See generally James B. Speta, Policy Levers in Korean 
Broadband, 5 J. Korean L. 1, 6 (2004) (noting widespread availability 
of 20 megabit DSL service in South Korea, by contrast to typical 1.5 
megabit service in the U.S.).
---------------------------------------------------------------------------
    Second, advances in internetworking have allowed communications 
networks to transmit services widely, as soon as the new services have 
been deployed. In this category, the Internet protocols are the most 
notable. But advances in electronic switching and the development of 
multiple, high-capacity interconnections among Internet backbones have 
also played a significant role. These technologies erode the 
traditional barriers between types of networks and will, over time, 
completely erase the barriers between ``telephone networks,'' ``cable 
television networks,'' and ``Internet networks.'' In the core of the 
networks, such distinctions are almost without meaning today.
    Third, the increased computing power available to users of the 
telecommunications networks--in their telephones, cameras, and personal 
computers--drives the creation of digital information and new services 
for the use of that information. Scanning a picture at home and e-
mailing it to far-away relatives was but a precursor of video instant-
messaging and multiplayer on-line gaming.
    The consequences for market structure are significant. Costs of 
service have been falling, and platforms are now capable of providing 
multiple services. This has increased competition in several 
dimensions. Core network providers have substantial capacity and can 
serve the needs of large businesses, but they can also carry aggregated 
traffic from individual users and small businesses.
    This technological change is also introducing competition into 
historically less competitive access markets--reducing the so-called 
last mile problem. Although VoIP has been garnering much of the 
attention, cellular telephony has been quietly gaining ground on 
traditional, wireline voice. We are reaching a point at which there are 
at least as many wireless telephones as there are traditional, switched 
access lines to the telephone network. In fact, the number of 
traditional telephone lines has been falling in recent years, from a 
high of just over 192 million lines in 2000 to under 180 million lines 
in mid-2004, while the number of wireless phones reached almost 170 
million.7 The FCC reports an estimate that 5-6% of U.S. 
households have dropped wireline service entirely, in favor of 
wireless, and another that 23% of all voice minutes are originated from 
wireless telephones.8
---------------------------------------------------------------------------
    \7\ See FCC, Industry Analysis and Technology Division, Local 
Telephone Competition: Status as of June 30, 2004, table 1 (Dec. 2004); 
FCC, Industry Analysis and Technology Division, Trends in Telephone 
Service, tables 7.1, 11.1 (May 2004). To be accurate, the number of 
switched wireline access lines does not reflect all voice telephone 
lines, as many businesses use their own premises equipment to aggregate 
calls from extensions (both those that have their own telephone number 
and those that do not) and deliver those to the telephone network over 
a higher capacity connection.
    \8\ Implementation of Section 6002(b) of the Omnibus Budget 
Reconciliation Act of 1993, Annual Report and Analysis of Competitive 
Market Conditions With Respect to Commercial Mobile Services, Ninth 
Report, FCC 04-216, at para. 212 n.575, 213 (Sept. 28, 2004).
---------------------------------------------------------------------------
    The hype around VoIP seems justified to a large degree, as one 
research group has reported a 900% increase in the number of cable VoIP 
subscribers in just the past year,9 with total current VoIP 
subscribers being estimated variously between 600,000 and 1 
million.10 As cable companies convert existing voice 
customers to VoIP and as the technology otherwise matures, the service 
will continue to grow to reach the millions by year end.11
---------------------------------------------------------------------------
    \9\ See Cable VoIP Subs Jump 900%, Light Reading, Feb. 23, 2005 
(http://www.lightreading.com/
document.asp?site=lightreading&doc_id=67093) (reporting data from 
Infonetics Research).
    \10\ See, e.g., Ben Charny, Year in Review: VoIP's Voice Gets 
Stronger, Cnet.com, Jan. 5, 2005 (http://news.com.com/
Year+in+review+VoIPs+voice+gets+stronger/2009-7352--3-5499915.html).
    \11\ See also Ben Charny, Cablevision Rings in 270,000 Subscribers, 
zdnet.com, Feb. 23, 2005 (http://news.zdnet.com/2100-1035gG7X22-
5587465.html).
---------------------------------------------------------------------------
    The story is similar in multi-channel video services, where over 
the past 10 years DBS has gone from a mere 3% of the market to more 
than 25% of the market.12 Here, both technological advance 
and regulatory change were necessary to allow DBS to carry local 
television channels, which was important to its ability to compete with 
cable service. Nevertheless, DBS's growth rate of subscribers far 
exceeds that of cable.13
---------------------------------------------------------------------------
    \12\ See Annual Assessment of the Status of Competition in the 
Market for the Delivery of Video Programming, Eleventh Annual Report, 
FCC 05-13, table B-1 (Feb. 4, 2005).
    \13\ Id. at para. 53.
---------------------------------------------------------------------------
    These are significant changes, although competition is in many 
respects still emerging. Incumbent local telephone companies continue 
to dominate basic residential and small business voice services in most 
markets.14 VoIP service, although itself competitive in 
price with traditional telephone service, requires the subscriber to 
have broadband access, at least doubling the total price. For the 
nearly 30 million subscribers to high-speed services,15 VoIP 
may be in the same market as traditional service; for those not 
subscribing to high-speed services, the analysis is more 
complex.16 Similarly (but more speculatively), if developing 
services require significant increases in both up and downstream 
throughput to users and if the telephone companies do not quickly 
increase the amount of fiber optics in their local access networks, 
then the cable companies may not have a substantial competitor for 
these services in the mass market (barring the development of new 
access networks).17 Even if telephone companies do upgrade 
their networks and otherwise keep pace with the bandwidth possible over 
cable networks, the residential and small business high-speed access 
market will most likely have only two competitors for the foreseeable 
future.18
---------------------------------------------------------------------------
    \14\ See, e.g., Local Telephone Competition: Status as of June 30, 
2004, supra note 7, at 1-4.
    \15\ FCC, Industry Analysis and Technology Division, Wireline 
Competition Bureau, High-Speed Services for Internet Access: Status as 
of June 30, 2004, at 1-4 (Dec. 2004).
    \16\ The 1992 Horizontal Merger Guidelines focus on an increase in 
price of the relevant goods of, usually, 5% (sec. 1.1). Thus, a wide 
disparity between the price of two products suggests that they would 
not be in the same market.
    \17\ Compare Nondiscrimination in the Distribution of Interactive 
Television Services over Cable, Notice of Inquiry, 16 FCC Rcd. 1321,  
6 (2001) (discussing possibility that only cable television companies 
could offer the interactivity necessary for interactive television 
services).
    \18\ A second cable company provides service in only a few 
locations. See generally Eleventh Video Report, supra note 12, at 
paras. 66-70. DBS provides competing video service, but its two-way 
Internet service is not comparable. Some emerging wireless services, 
such as EVDO and WiMax, could provide another access platform. As I 
discuss later, this prospect justifies attention to spectrum reform.
---------------------------------------------------------------------------
    Despite these cautionary notes, this emerging competition is cause 
for optimism, for two reasons: it is platform-based, and it is often 
intermodal. Because this emerging competition is among facilities-based 
carriers, it stands in sharp contrast to the type of competition 
envisioned by the unbundling provisions of the 1996 Act, which were 
premised on the idea that local telephone company networks would not be 
duplicated.19 Facilities-based competition, especially where 
companies try different technologies to provide services, allows the 
market to reward efficient providers and efficient technologies.
---------------------------------------------------------------------------
    \19\ I do not share the unrelenting scorn that many have heaped on 
the 1996 Act's unbundling regime. See Speta, Deregulating 
Telecommunications, supra note 1, at 1151-53. But, there is no doubt 
that facilities-based competition is much more effective. See Jean-
Jacques Laffont & Jean Tirole, Competition in Telecommunications 207-09 
(2000) (discussing competitive difficulties of competition through 
unbundling, where squeezing monopoly profits out of wholesale prices 
decreases incentives to deploy new facilities while permitting 
incumbents to earn monopoly profits in their wholesale prices makes 
competition soft).
---------------------------------------------------------------------------
                         ii. where we should go
    The regulatory issues raised by these technological advances, by 
developing convergence, and by expanding competition are multifarious, 
and they range from those traditionally linked with sector-specific 
regulation, such as interconnection policy, to the social policies of 
telecommunications regulation, such as universal service, to the 
broader questions of efficient tax policy, for some states and local 
governments today raise significant revenues by taxing some 
communications services. The breadth of these challenges have led 
many--inside and outside of government--to call for a comprehensive re-
write of the nation's communications laws, and I am one of the co-
chairs of a project centered at the Progress and Freedom Foundation to 
write a new Communications Act for the Digital Age.20
---------------------------------------------------------------------------
    \20\ See Progress and Freedom Foundation Website (http://
www.pff.org/daca/).
---------------------------------------------------------------------------
A. Spectrum Reform
    Short of writing a new statute, however, some legal reforms should 
follow as a response to these changes in market structure, in order to 
build on the possibilities of competition. As noted above, the most 
likely market structure for mass market broadband IP access is one in 
which only the incumbent telephone companies and the cable television 
companies are significant players.21 Two companies are 
certainly better than one, but, as a rough rule of thumb, competition 
is increasingly likely when the market includes at least three 
substantial competitors.22
---------------------------------------------------------------------------
    \21\ In business markets, the possibility of multiple facilities-
based carriers is greater.
    \22\ Competition may improve as the number of market participants 
increases above three, but it is not the case that more competitors 
always increases the level of competition in a market. More 
importantly, this is not a law of economics, simply a rule of thumb 
based on experience.
---------------------------------------------------------------------------
    Wireless is the leading possibility for a third platform to 
challenge the telephone and cable companies, but the prospects of such 
wireless competitors are reduced due to the lack of available spectrum 
for such services. Although the Commercial Spectrum Enhancement Act 
(CSEA) took an important step to make spectrum available for third-
generation wireless services, more such spectrum should be made 
available for new data platforms. The FCC has been taking substantial, 
beneficial action in this regard, re-tasking certain underutilized 
spectrum and introducing a degree of flexible use rights,23 
but legislative action to confirm and accelerate these moves would be 
useful.
---------------------------------------------------------------------------
    \23\ Many of these actions are summarized in the FCC's Spectrum 
Policy Task Force Report. See FCC, Spectrum Policy Task Force Report, 
ET Docket No. 02-135 (2002) (available at http://hraunfoss.fcc.gov/
edocs--public/attachmatch/DOC-228542A1.pdf/).
---------------------------------------------------------------------------
    Indeed, wireless has, in several significant episodes, provided 
important competition to wireline incumbents. MCI originally used 
microwave transmission, the economics of which were more favorable, to 
challenge AT&T's long-distance monopoly. As noted above, DBS today 
provides the main competition to cable video services. The increasing 
numbers of especially young people dropping wireline service is another 
confirming factor, although these current wireless services are not 
competitors to high-speed IP-based services.
    Glimpses do exist of the wireless future, with higher-speed data 
services from cell phone companies now coming to market, such as 
Verizon Wireless's 300-500 kbps service. But truly broadband services, 
such as WiMax or EVDO, using speeds that compete with cable and DSL 
services, are still a few years away.24 More importantly, 
widespread deployment of these services will certainly require that 
additional spectrum be made available to the market. FCC Chairman 
Michael Powell has linked the availability of additional spectrum to 
the development of potentially competitive wireless broadband 
platforms.25
---------------------------------------------------------------------------
    \24\ Richard Shim, WiMax To Lead Broadband Wireless Market, Cnet 
news.com, April 21, 2004 (http://news.com.com/2102-1305--3-
5196795.html).
    \25\ E.g., Chairman Michael K. Powell, ``Broadband Migration III: 
New Directions in Wireless Policy, Remarks at the Silicon Flatirons 
Telecommunications Program,'' University of Colorado at Boulder, 
October 30, 2002 (available at http://www.fcc.gov/sptf/).
---------------------------------------------------------------------------
    A significant move in the direction of spectrum reform requires two 
steps. First, more spectrum must be made available to commercial 
markets, and such spectrum can only come from either government or 
existing private users.26 The CSEA's technique of using 
auction proceeds to fund the relocation of government users and the 
purchase of more efficient equipment does provide some balance between 
commercial demand and the interests of government users,27 
but the Act does not provide any systematic incentives for government 
users to economize on spectrum or release it for commercial uses. This 
could be done by giving government agencies the right to monetize their 
spectrum by auction or, in a more extreme version, requiring them to do 
so. Under this approach, government agencies would have to purchase 
spectrum rights on the open market, much as they must do with real 
property.28 Alternatively, government users could be 
required to include within their budgets expense amounts for the use of 
spectrum. This proposal has been made and well-received in the United 
Kingdom.29
---------------------------------------------------------------------------
    \26\ Spectrum is theoretically unlimited, and substantial open 
spectrum exists at extremely short wavelengths. But not all spectrum is 
created equal. Some has better propagation characteristics, such as the 
ability to penetrate walls, and transmitters and receivers are more 
expensive to produce in some ranges.
    \27\ See Pub. L. No. 108-494 (amendments to 47 U.S.C.  923(g)).
    \28\ See Ewan Kwerel & John Williams, A Proposal for a Rapid 
Transition to Market Allocation of Spectrum, FCC OPP Working Paper No. 
38, at 28-30 (Nov. 2002).
    \29\ See, e.g., Martin Cave, Independent Review of Spectrum Policy 
(2002).
---------------------------------------------------------------------------
    Current commercial licensees should also be given the right to 
auction their spectrum to those who would use it for new, more valuable 
uses.30 Although some have objected to this proposal on the 
ground that it creates a ``windfall'' where the licenses were 
originally granted without charge (or even by auction, but restricted 
to a limited term),31 this objection should not stand in the 
way of a transition to a more efficient, market mechanism. Today, many 
if not most of the holders of the most valuable licensees purchased 
those licenses on the secondary market at prices that included the 
economic value of the license. Any ``windfall'' from the no-cost 
allocation of licenses was received by the original licensees who are 
now long gone.32 Moreover, the statute already recognizes 
very strong expectations of renewal of licenses and of transfer 
approval and, in these two regards, the rights are already very similar 
to property rights.33 Thus, any ``windfall'' is likely 
small, and an acceptable cost of moving to a market-based system of 
allocation.
---------------------------------------------------------------------------
    \30\ This proposal is made in a number of articles, in addition to 
the Kwerel & Williams paper (supra note 28) and builds on Ronald 
Coase's seminal article pointing out that spectrum rights could be 
treated equivalently to private property. Ronald Coase, The Federal 
Communications Commission, 2 J.L. & Econ. 1 (1959). Several central 
articles, which themselves provide entry into most of the other 
literature, are: Stuart N. Benjamin, Spectrum Abundance and the Choice 
Between Private and Public Control, 78 N.Y.U. L. Rev. 2007 (2003); 
Thomas W. Hazlett, The Wireless Craze, The Unlimited Bandwidth Myth, 
The Spectrum Auction Faux Pas, and the Punchline to Ronald Coase's 
``Big Joke'': An Essay on Airwave Allocation Policy, 14 Harv. J.L. & 
Tech. 335 (2001); Gerald R. Faulhaber & David J. Farber, Spectrum 
Management: Property Rights, Markets, and the Commons, in Rethinking 
Rights and Regulations 193 (Lorrie Faith Cranor & Steven S. Wildman, 
eds. 2003); Ellen P. Goodman, Spectrum Rights in the Telecosm To Come, 
41 San Diego L. Rev. 269 (2004).
    \31\ Norman Ornstein & Michael Calabrese, A Private Windfall for 
Public Property, Wash. Post, Aug. 12, 2003, at A13.
    \32\ Current licensees who would sell their licenses as property 
would receive an increase in value if those licenses had greater 
flexibility of use, but trying to recapture that value is probably not 
worth the transaction and delay costs involved.
    \33\ See generally Howard A. Shelanski & Peter W. Huber, 
Administrative Creation of Property Rights to Radio Spectrum, 41 J.L. & 
Econ. 581 (1998); Douglas W. Webbink, Radio Licenses and Frequency 
Spectrum use Property Rights, 9 Comm. & L. 3 (1987).
---------------------------------------------------------------------------
    Short of a full-blown change to spectrum allocation policy, the 
Congress can continue to work to free up government and commercial 
spectrum. In the latter regard, the Committee has previously given 
attention to the need to accelerate the transition to digital 
television, because television broadcasters' analog licenses represent 
some of the most desirable spectrum for new data services.34 
Current statistics show that more than 85% of all U.S. households 
subscribe to either satellite or DBS.35 The transition 
raises important issues, but the value of moving that spectrum to other 
uses must be weighed against any transition costs suffered by the 
relatively small number of households receiving terrestrial service. 
Moreover, the cost of digital television tuners is falling rapidly, and 
is now below the $200 mark even for HDTV functionality.
---------------------------------------------------------------------------
    \34\ Most recently, the Subcommittee on Telecommunications and the 
Internet held a hearing on February 17, 2005, entitled ``The Role of 
Technology in Achieving a Hard Deadline for the DTV Transition.''
    \35\ Eleventh Video Report, supra note 12, at para. 8.
---------------------------------------------------------------------------
    It is my sense that new spectrum rights ought to be privatized, to 
allow owners instead of government to determine the most appropriate 
and efficient uses. At a minimum, licenses should permit the maximum 
amount of flexibility in use. Some spectrum should be dedicated to 
unlicensed uses, such as local networking and other low-power services 
that have proved recently successful. But property rights in spectrum 
have the advantage that a single provider can more easily internalize 
all of the coordination problems that a new service may entail, such as 
equipment standards, operating protocols, and interconnection with 
other networks. Similarly, a spectrum owner captures all of the gains 
from monitoring spectrum use, increasing the efficiency of equipment, 
and eliminating interference.36
---------------------------------------------------------------------------
    \36\ See generally Speta, Deregulating Telecommunications, supra 
note 1, at 1118-21 (arguing that the need to develop intermodal 
competition from wireless to wireline platforms suggests a property 
rights approach to spectrum reform); Farber & Faulhaber, supra note 30.
---------------------------------------------------------------------------
B. Reducing Legal Uncertainty
    Short of re-writing the Communications Act from top to bottom (on 
which more below), Congress could make several salutary changes that 
would have the effect of decreasing the barriers to entry for new 
services. The 1996 Act forbade state and local laws that prohibited (or 
had the effect of prohibiting) the provision of telecommunications 
services by any entity.37 But, to ensure that new services 
are not subject to the heavy-handed utility regulation of Title II of 
the Communications Act (which governs telecommunications services), the 
FCC has generally characterized newly emerging data services as 
``information services.'' 38 In so doing, the FCC exercises 
its so-called ``ancillary'' authority under Title I of the Act to 
prevent states and localities from themselves placing burdensome 
regulations on these new services,39 but the scope of the 
FCC's authority to do so is uncertain and subject to 
attack.40
---------------------------------------------------------------------------
    \37\ See 47 U.S.C.  253.
    \38\ Its ability to continue to do so will be at issue in the 
Supreme Court's consideration of the Brand X case, which is scheduled 
to be argued later this Term. See Inquiry Concerning High-Speed Access 
to the Internet over Cable and other Facilities, Declaratory Ruling and 
Notice of Proposed Rulemaking, 18 FCC Rcd. 4798 (2002) (classifying 
cable modem services as information services), rev'd in part, Brand X 
Internet Servs. v. FCC, 345 F.3d 1120 (9th Cir. 2003) (adhering to 
prior opinion that such services were telecommunications services), 
cert. granted.
    \39\ Most recently, the FCC has issued an order preempted state and 
local regulation of many aspects of VoIP. See In the Matter of Vonage 
Holdings Corp. Petition for a Declaratory Ruling Concerning an Order of 
the Minnesota Public Utilities Commission, Memorandum Opinion and 
Order, FCC 04-267 (Nov. 12, 2004).
    \40\ See generally Speta, FCC Authority To Regulate the Internet, 
supra note 1. But see Philip J. Weiser, Toward a Next Generation 
Regulatory Strategy, 35 Loy. U. Chi. L.J. 41, 66 (2003) (suggesting 
that FCC has adequate Title I authority to address new services, and 
advocating a common law approach, informed by antitrust principles, to 
regulation).
---------------------------------------------------------------------------
    Congress should confirm the FCC's authority to preempt state and 
local regulation of any emerging, facilities-based two-way data 
network, to decrease the barriers to entry for such services. To be 
sure, some networks will need to be regulated, to ensure the meeting of 
non-economic goals such as 911 service and law enforcement intercepts. 
But, as has been the case with VoIP, the FCC should have the power to 
move toward these goals in a manner that does not compromise the 
initial deployment of the services. Universal service (and other state 
and local revenue needs) will also require consideration, but a 
continuing patchwork of state and local regulation of 
telecommunications services can create a hurdle to entry of new 
services.
    Apart from confirming FCC authority, Congress should also consider 
a new category of federal regulation for new, two-way, facilities-based 
data networks. Such a move would not require eliminating the current 
service categories of the Communications Act, which continue to serve 
some important purposes. A new category of services--what Chairman 
Powell has called an IP-migration model--would allow the market, if 
deploying new facilities, to move itself into a much more unregulated 
status.
C. A New Act?
    Of course, the most intellectually appealing approach would be to 
draft a new Communications Act from the ground up. There is a 
widespread consensus that the current service-based categories of the 
Communications Act, which provide significantly different levels and 
kinds of regulation based on service classifications that are tied to 
legacy status, no longer match the converged data platforms that 
technological change has made possible. The European Union has recently 
adopted a new regulatory structure that attempts to address all 
``electronic communications,'' 41 and commentators have 
offered a number of other models, ranging from a regulatory scheme 
built on the technical ``layers'' of the network 42 to the 
use of a common-law, but antitrust-principles grounded, case-by-case 
approach to regulation.43
---------------------------------------------------------------------------
    \41\ The centerpiece of this effort is Directive 2002/21 of March 
7, 2002, on a Common Regulatory Framework for Electronic Communications 
Networks and Services, O.J. 2002 L108/33 (``Framework Directive''). See 
generally J. Scott Marcus, The Potential Relevance to the United States 
of the European Union's Newly Adopted Regulatory Framework for 
Telecommunications, in Rethinking Rights and Regulations 193 (Lorrie 
Faith Cranor & Steven S. Wildman, eds. 2003); James B. Speta, Rewriting 
U.S. Telecommunications Law with an Eye on Europe, in Connecting 
Societies and Markets (forthcoming 2005).
    \42\ E.g., Richard Whitt, A Horizontal Leap Forward: Formulating a 
New Communications Public Policy Framework Based on the Network Layers 
Model (MCI Layers Paper) http://global.mci.com/about/publicpolicy/
presentations/horizontallayerswhitepaper.pdf.
    \43\ See Weiser, supra note 40.
---------------------------------------------------------------------------
    Because our work on this continues and given the scope of this 
Hearing, I will only outline a few of the principles that should govern 
consideration of a new telecommunications statute.44 First, 
telecommunications law--as an independent body of law, superintended by 
some expert regulator--should continue. An expert regulator will 
address changing technology better than generalist antitrust courts. 
More importantly, telecommunications markets present problems that are 
beyond the traditional scope of competition law. For example, even 
where the market for telecommunications services is structurally 
competitive, each individual carrier will have a ``terminating 
monopoly'' on services delivered from other carriers or networks to 
that individual carrier's customers. As two leading economists have 
shown, even competitive carriers will have the incentive to raise off-
network termination charges, resulting in inefficient multiple 
marginalization.45 Price-setting regulation, or mandatory 
bill-and-keep rules, can increase efficiency.
---------------------------------------------------------------------------
    \44\ I have discussed most of these matters in greater depth in 
Speta, Deregulating Telecommunications, supra note 1.
    \45\ Jean-Jacques Laffont & Jean Tirole, Competition in 
Telecommunications 184 (2001).
---------------------------------------------------------------------------
    Moreover, government may wish to assure that network competition 
does not eliminate fundamental interconnection. Two-way 
telecommunications networks, such as telephone, Internet, and 
integrated data networks, exhibit direct network effects.46 
If network competition is simultaneous, with numerous relatively small 
communications networks competing against one another, then each 
network will have a strong incentive to interconnect with the others, 
ensuring that all consumers can reach one another as well as reaching 
all services and content available on other networks.47 But, 
if competition among networks is monopolistic or serial, then networks 
effects suggests that denial of interconnection may be a strategic tool 
in inter-network competition.48 Regulation to maintain 
interconnection may increase total welfare (or serve non-economic 
goals, such as maintaining a single community of speakers and access to 
information), even if it cabins the dimensions on which competition can 
occur.49 In particular, mandatory interconnection rules seem 
valuable at the physical and logical layers of communications 
networks--so that competition is channeled to the quality of service 
and price dimensions and away from the possibility of fragmenting an 
integrated communications network. Although such interconnection could 
potentially entrench certain kinds of networks, the social and economic 
benefits of maintaining an interoperable network probably outweigh the 
risks of entrenchment.
---------------------------------------------------------------------------
    \46\ Such effects may be, in the language of network economics, 
either direct or indirect. A direct network effect is where the good 
itself is a connectivity good, such that value derives from the number 
of others that one can connect with--such as telephony or fax machines. 
Indirect network effects prevail in markets characterized by a hardware 
and a software good--such as computer operating systems and software 
applications or video tape players and prerecorded movies--such that 
greater numbers of consumers purchasing the hardware good drives demand 
for a wider variety of software goods, which variety in turn makes the 
hardware good itself more valuable. See generally Michael L. Katz & 
Carl Shapiro, Network Externalities, Competition, and Compatibility, 75 
Am. Econ. Rev. 424, 426-27 (1985). Some network goods, such as the 
Internet, exhibit both characteristics.
    \47\ See generally id. at 190.
    \48\ See Stanley Besen & Joseph Farrell, Choosing How To Compete: 
Strategies and Tactics in Standardization, 8 J. Econ. Persp. 117, 119 
(1994).
    \49\ See generally id.; James B. Speta, Handicapping the Race for 
the Last Mile?: A Critique of Open Access Rules for Broadband 
Platforms, 17 Yale J. on Reg. 39, 81-85 (2000).
---------------------------------------------------------------------------
    Second, apart from maintaining fundamental interconnection, 
regulatory action under a new telecommunications law should be keyed to 
an affirmative finding of market power in a relevant market. The 
principles of antitrust law and economics provide a strong guide to 
reduce the burdens of regulation generally, by ensuring that regulation 
responds to a consumer welfare interest and not merely to the interests 
of other competitors. As Frank Easterbrook has noted in the antitrust 
context, ``the economic system corrects monopoly more readily than it 
corrects [regulatory] errors,'' 50 and legislatures, 
agencies, and courts should be circumspect about intervening in markets 
without a showing of market power in need of correction.
---------------------------------------------------------------------------
    \50\ Frank Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1, 
15 (1984).
---------------------------------------------------------------------------
    Third, a new statute ought to treat all newly-deployed, emerging 
data networks similarly, without regard to the legacy of their 
providers. Although the 1996 Act embraced competition, it did 
relatively little to address convergence. A new Communications Act 
would eliminate regulatory separation and competitively unbalanced 
treatment of identical services offered using different technologies 
and focus on the economic realities of the services.
    Fourth, social goals regulation--and especially universal service 
funding--should be applied broadly (in the sense of subjecting services 
to similar burdens), but should not be the basis for maintain 
regulatory separation or public utility regulation.51 It is 
necessary to reiterate that the most economically efficient manner of 
providing universal service is through the general income tax, and not 
through a specific tax on telecommunications services.52 But 
if sector-specific funding is necessary, that funding should be spread 
more widely. Currently, the universal service charge on interstate 
telecommunications is just over 10%, and the total tax burden on 
telecommunications services (but not Internet and not VoIP) in some 
areas reaches 25%. Given that telecommunications technology is itself 
an input into many other processes and increases their overall 
productivity, heavily taxing telecommunications is counterproductive. A 
statute designed to treat services equally would spread taxes in a 
competitively neutral manner.53
---------------------------------------------------------------------------
    \51\ It will be necessary to reevaluate the scope of the universal 
service commitment, and especially to consider whether Internet or 
video services should be brought further within its ambit. Those 
matters are beyond the scope of this paper. See generally Speta, 
Deregulating Telecommunications, supra note 1, at 1148-51.
    \52\ See, e.g., Gregory Rosston & Bradley S. Wimmer, The ABCs of 
Universal Service: Arbitrage, Big Bucks, and Competition, 50 Hastings 
L.J. 1585, 1606 (1999).
    \53\ This may mean taxing access--whether that access is voice, 
Internet, or other interactive service--or it might mean pegging the 
tax to the use of public telephone numbers. Although these would change 
the general notion that IP-based services should not be taxed at all, 
leveling the playing field requires addressing tax policy as well.
---------------------------------------------------------------------------
                               conclusion
    Technological advance is continuing to restructure 
telecommunications markets. The transition to IP networks and IP 
services effects several significant changes: platforms become service 
independent, distance diminishes in importance, and service competition 
can increase. In consumer markets, traditional cable and telephone 
companies will likely go head-to-head with a similar package of 
services. Spectrum reform is needed to enable a third competitive 
platform, with potentially multiple competitors, to challenge these two 
wireline platforms. And legislation should begin to eliminate utility 
regulation, to create a level playing field for these new data-centric 
services.

    Chairman Barton. Thank you, sir.
    Last but not least, we have Mr. Phil Weiser, who is an 
Associate Professor of Law and Telecommunications and Executive 
Director of the Silicon Flatirons Telecommunications Program at 
the University of Colorado School of Law. Welcome, sir, and you 
are recognized for 7 minutes.
    You have to push that button.
    Mr. Weiser. How am I doing now?
    Chairman Barton. There you go.

                  STATEMENT OF PHILIP J. WEISER

    Mr. Weiser. Thank you, Mr. Chairman. I appreciate the 
opportunity to testify today before you.
    And I would like to make one central point about the role 
of telecommunications regulation and anti-trust law in the 
information industries, which is vitally important to protect 
the possibility of technological change and innovation. As I 
think history teaches us, most of the established players in 
the information industries, like other industries, are unlikely 
to develop the new technologies and the disruptive technologies 
that will bring vast benefits to consumers. It was MCI and 
Sprint who developed fiber optic technologies and some of the 
precursors for today's Internet age that we are living in. It 
is Vonnage, a scrappy upstart, that helped us develop Voice-
over Internet Protocol and finally Tivo who helped pioneer 
digital video recorders. In these cases and others, the 
established companies will come in afterwards and compete with 
the upstarts, giving consumers double benefits. But it is 
vitally important that we protect the opportunity for 
innovation and new entry in these industries.
    Thus, the role of regulation, in a period of technological 
change, should be to look for market failures and to prevent 
the abuse of market powers, that any company could prevent 
entry. In the era of the Bell system, that was the major 
problem. As I recount my testimony, Dow Corning invented fiber 
optics and wanted to come in with this vastly better technology 
in the long-haul market. AT&T responded, ``Look, we are not 
going to lay off our existing network. And once we want to put 
in fiber optics, we will do it ourselves in about 20 years.'' 
So if AT&T still had a monopoly grip on long distance, we 
probably would still be waiting for fiber optics. We would 
probably still be waiting for the Internet.
    The point is, the vast era we have had with deregulation 
has enabled new entry and new technologies. And as we go 
forward, the most critical role for regulation, and the concern 
of this committee, should make sure that that form of entry can 
continue to happen.
    And I would like to echo what--a couple of things that have 
been said earlier. First, it is vitally important that we look 
to facilitate a new platform, because if you only have two 
rival platforms, that limits the opportunity for 
experimentation and innovation. The possibility of four, I 
think this was getting back to Congressman Markey's comment, 
the final four, if you get four platforms, that raises the 
possibility of innovation and entry. And the best opportunities 
we have for a third and fourth broadband platform is wireless, 
and the best opportunity to get more of those, a spectrum of 
four, I know you are pushing hard on the DTV transition, in 
short, that is why it is so important. And today's regime says 
if I am a UHF broadcaster and nobody is watching over the air, 
I can't sell my spectrum to a broadband provider who could 
provide rural services. That is crazy. The FCC is trying to 
figure out whether it can help on an unlicensed basis, wireless 
ISPs come in and provide wireless broadband where it won't 
disrupt existing transmissions. These sorts of initiatives are 
critical to our broadband feature, and I encourage the 
committee's leaderships in this regard.
    Finally, I want to get to one point that was talked about 
and eluded to by Dr. Cooper, which is in a broadband world, one 
of the exciting opportunities for innovation is I can be an 
applications provider of Voice-over Internet Protocol or Video-
over Internet Protocol. I don't need to own my own platform. 
And so a critical opportunity is if all sorts of application 
providers can provide new services, what they need to know, and 
I believe this was asked by Congressman Stearns, that they 
won't be discriminated against. And so one concern that the FCC 
has had is to ensure that anyone can provide their applications 
on a broadband network. That concern is an important one, and 
frankly, the state of the law in this area is somewhat cloudy.
    Finally, I would like to just underscore what many people 
have said, which is today's mergers are reflective of a 
changing marketplace environment. The expectations of the 
United States Telecommunications Act have not come to pass, but 
lots of other important things in wireless and broadband have. 
That has rendered this Act totally antiquated, focused on 
irrational distinctions, like local versus long distance, 
broadband services provided by cable companies as opposed to 
those provided by telephone companies. And in time, I am sure 
this committee will help to change those distinctions.
    Going forward, protecting the innovation and entry that we 
have seen is a critical role for regulation. Regulation should 
be smart. It should be succinct, and it should focus on 
avoiding market failures and abuses of market power. It also 
should invite the large companies to respond and to provide the 
benefits to consumers that will be a double benefit with 
respect to the original innovators.
    Thank you very much.
    [The prepared statement of Philip J. Weiser follows:]
Prepared Statement of Philip J. Weiser, Associate Professor of Law and 
               Telecommunications, University of Colorado
    Mr. Chairman and members of the Committee, thank you for the 
opportunity to speak with you today. Since working in the Justice 
Department's Antitrust Division from 1996-1998 as a senior counsel, I 
have observed, taught, and written about telecommunications policy. 
Most recently, I have co-authored the book Digital Crossroads: American 
Telecommunications Policy in the Internet Age (MIT Press) (with 
Jonathan Nuechterlein). I also have founded and serve as the Executive 
Director of the Silicon Flatirons Telecommunications Program, which 
holds regular conferences and seminars on cutting edge topics in 
technology policy, including the recent conference on ``Rewriting the 
Telecom Act.'' Finally, I am involved in the Progress and Freedom 
Foundation's Digital Age Communication Act project, which is developing 
a set of recommendations for Congress to consider in its deliberations 
over telecommunications policy.
    Today's topic is a very timely one, as it focuses on the main 
challenges of telecommunications policy: keeping up with technological 
changes as well as facilitating innovation. In my remarks, I will 
explain how competition and innovation have reshaped the 
telecommunications industry and how regulation can continue to 
facilitate competition and innovation in the future. In short, my 
bottom line is that the principal benefit of promoting competition is 
to facilitate innovation that challenges today's incumbents. 
Historically, both telecommunications policy and antitrust policy have 
promoted that objective to great effect and they should continue to do 
so.
                the essential rationale for competition
    In the midst of a number of high profile mergers that some claim 
are the effort to put Ma Bell back together, many consumers are asking 
whether the basic rationale of the 1996 Act--to facilitate competition 
and innovation in telecommunications--was sound. My answer is that the 
essential logic of the Act was sound, even if a number of its 
particular tactics and statutory provisions have proved flawed.
    To appreciate the power of competition, let me highlight one of the 
often under-appreciated aspects of the original antitrust case against 
AT&T. In general, commentators often underscore the cost savings that 
consumers enjoyed in long distance service as a result of the break-up. 
But equally important was the boom that the break-up provided to 
innovation in general and for the Internet in particular.
    In the late 1970s, Dow Corning began developing fiber optic 
technology and approached AT&T about installing this innovation in its 
long haul network. In response, AT&T replied that it would be thirty 
years before it installed fiber into its network and when it did, it 
would develop the technology itself. Thus, if AT&T still maintained its 
monopoly grip on telecommunications, as it had in the 1970s, consumers 
would probably still be waiting for the deployment of fiber optic 
technology.
    Almost immediately after the AT&T break-up guaranteed long distance 
competitors equal access to local telephone lines, both MCI and Sprint 
announced plans to deploy fiber optic long haul networks. And after 
Sprint began advertising that consumers could hear a pin drop on its 
network, AT&T wrote off its undepreciated long-haul assets and invested 
in its own fiber optic network.
    In terms of the Internet, AT&T evinced an attitude similar to its 
approach to fiber optic technology. In a famous rebuff of the Defense 
Department's request that it operate the Internet backbone, an AT&T 
executive replied that ``it can't possibly work, and if it did, damned 
if we are going to allow the creation of a competitor to ourselves.'' 
1 Consequently, the Internet developed in spite of AT&T and 
without its assistance, leaving both MCI and Sprint to play important 
roles in its development.
---------------------------------------------------------------------------
    \1\ John Naughton, A Brief History of the Future 107 (2000).
---------------------------------------------------------------------------
    Finally, the development of the market for telecommunications 
equipment provides yet another powerful reminder of how facilitating 
entry and innovation can pay huge dividends to consumers. After the FCC 
finally rejected the AT&T's stalling tactics to enable equipment to 
attach to the telephone network, rival manufacturers of a number of 
products from cordless telephones to fax machines to computer modems 
entered the market and brought a vast array of benefits to consumers.
                           digital disruption
    The principal oversight of those who criticize the Telecom Act as 
failing to produce benefits in the local telephone market is that they 
have defined success in telecommunications policy too narrowly. On a 
narrow definition that fails to appreciate the benefits of innovation, 
even the AT&T break-up can be judged a failure. After all, some 
consumers, like my grandmother, continued to rent her telephone from 
AT&T and did not change long distance providers. Unfortunately, for 
consumers who are unable to take advantage of technological progress, 
deregulatory policies will often present greater hassles and confusion 
than benefits.
    The continuing pro-competitive agenda in telecommunications policy 
has facilitated new technologies that have spurred significant consumer 
benefits. In telecommunications, the greatest consumer benefits have 
emerged in the long distance, wireless, and Internet-related markets--a 
number of which have challenged and have caused the prices of 
traditional telecommunications products and services to fall. 
Commenting on this trend, Qwest CEO Richard Notebaert put it 
succinctly: ``[t]he voice industry--whether long distance, local or 
wireless--finds itself in a commodity market with deflationary pricing. 
Volumes will rise, but prices will fall even faster.'' 2
---------------------------------------------------------------------------
    \2\ Scott Woolley, Into Thin Air, Forbes (April 26, 2004) (http://
forbes.com/forbes/2004/0426/098_print.html).
---------------------------------------------------------------------------
    Like the long distance example outlined above, the increased 
competition in wireless telecommunications markets provides consumers 
with significant benefits. In the late 1990s, wireless providers began 
offering packages of bundled minutes that did not distinguish between 
local and long distance services, leading consumers to increasingly 
rely on their cellphones for long distance calls. More recently, Sprint 
has enlisted an array of resellers--whom it invites to use its network 
on a wholesale basis--to use a variety of marketing techniques to lure 
new subscribers to its network. Of particular note is Virgin Mobile, 
which is a so-called ``Virtual Mobile Network Operator'' and has used a 
creative marketing approach and reliance on pre-paid services to lure 
many first-time cellphone subscribers onto Sprint's network.
    The most fundamental force transforming telecommunications today is 
the increasing shift of the entire system of communications toward the 
Internet.3 Initially developed as an academic curiosity, the 
Internet is increasingly the Pac-Man of telecommunications: gobbling up 
everything in its path. Part of why the Internet is such a disruptive 
force in telecommunications is that data traffic provides consumers far 
more value for the bit than traditional voice traffic. Thus, when a 
consumer signs up for a broadband connection, they will increasingly 
use email instead fax or instant messaging instead of telephone calls. 
More particularly, when consumers sign up for a voice over the Internet 
service--such as those provided by Vonage and, increasingly, the cable 
companies--they can actually make telephone voice calls at a far 
cheaper rate than they can with their traditional service providers.
---------------------------------------------------------------------------
    \3\ By ``the Internet,'' I mean Internet technology generally 
(including private or managed IP networks) and not simply the ``public 
Internet'' in particular.
---------------------------------------------------------------------------
                 the role for telecommunications policy
    Some argue that in a world of ``creative destruction'' and 
increasingly dynamic technological change, there is no role for 
telecommunications regulation. To be sure, there is no useful role for 
a telecommunications policy that distinguishes between local and long 
distance calls; data and voice traffic; or cable companies and 
telephone companies that provide broadband Internet access. In short, 
the statutory silos of the 1996 Act continue to impede sound 
communications policy and must be discarded for a more holistic view of 
the marketplace as it is being re-shaped around the Internet.
    In terms of the principal role for a new policy framework, its key 
objective should be to address important concerns about supporting 
rival service providers and ensuring that innovation and entry are not 
stalled or deterred by incumbent providers. Moreover, it can also be 
crafted to achieve certain social policy goals--such as supporting 
universal service--but those goals should be advanced in a manner that 
does not distort efficient entry and innovation.
    The recent spate of mergers is causing some to ask at what point 
consumers should worry about losing the benefits that comes from 
rivalry between different service providers. In short, Chairman Powell 
eloquently answered this question in explaining ``[m]agical things 
happen in competitive markets when there are at least three viable, 
facilities-based competitors.'' 4 In the wireless market, 
for example, the merger of Sprint and Nextel would leave consumers with 
four rival national service providers, almost assuredly still providing 
this ``magical rivalry.'' In continuing to provide such rivalry, we can 
expect Sprint to continue its practice of affording outside 
innovators--such as Virgin Mobile--access to its network.
---------------------------------------------------------------------------
    \4\ Michael K. Powell, Remarks at the Wireless Communications 
Association International 1 (June 3, 2004) (http://hraunfoss.fcc.gov/
edocs_public/attachmatch/DOC-248003A1.pdf).
---------------------------------------------------------------------------
    In the case of broadband platforms, the Holy Grail remains spurring 
additional competition in this important market. The most promising 
opportunity for additional entry is through the use of wireless 
spectrum, such as either next generation mobile services (the so-called 
3G offerings) or fixed wireless services such as the much touted Wi-Max 
standard. At this point, we are still a long way away from knowing 
whether these new technologies will succeed. Among other challenges, it 
is critical that the FCC and Congress press ahead in reforming the 
legacy regulation of wireless spectrum to ensure that more 
opportunities for both licensed and unlicensed spectrum are available 
to those who are developing new wireless technologies.5
---------------------------------------------------------------------------
    \5\ For the Report from the FCC Spectrum Policy Task Force, see 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-228542A1.pdf. For 
Chairman Powell's explanation of its this initiative, see Michael K. 
Powell, ``Broadband Migration III: New Directions in Wireless Policy,'' 
Remarks at the Silicon Flatirons Telecommunications Program, University 
of Colorado at Boulder, October 30, 2002 (http://www.fcc.gov/Speeches/
Powell/2002/spmkp212.html).
---------------------------------------------------------------------------
    In the current broadband environment, where cable companies and 
telephone companies are the primary service providers, there is an 
important role for telecommunications policy to ensure that all 
application and content providers are able to enjoy non-discriminatory 
access to broadband platforms. In terms of appreciating the role of 
outside innovation, it is important to recall, as Andrew Odlyzko 
observes, that ``[i]n spite of many attempts, the established service 
providers and their suppliers have an abysmal record in innovation in 
user services . . . The real ``killer apps,'' such as email, the Web, 
browsers, search engines, [instant messaging], and Napster, have all 
come from users.'' 6
---------------------------------------------------------------------------
    \6\ Andrew Odlyzko, Telecom Dogma and Spectrum Allocations 7 (June 
20, 2004) (http://wirelessunleashed.com/papers/TelecomDogmas.pdf).
---------------------------------------------------------------------------
    The role for regulation to ensure continued access to broadband 
networks does not necessarily mean a heavy-handed approach to ensuring 
access to broadband networks. Rather, as Chairman Powell's Net Freedom 
initiative underscores, policymakers can announce the forms of 
protection they advocate and await any departures from it before taking 
action.7 If there are any attempts to discriminate against 
or block rival services, it is critical that the FCC not tolerate those 
that lack a legitimate business purpose (such as those related to 
reasonable network management).8
---------------------------------------------------------------------------
    \7\ See Michael K. Powell, Preserving Internet Freedom: Guiding 
Principles for the Industry, Remarks at the Silicon Flatirons 
Telecommunications Program, University of Colorado at Boulder, February 
8, 2004 (http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-
243556A1.pdf).
    \8\ For my suggestion as to how the FCC could do this, see Philip 
J. Weiser, Toward a Next Generation Regulatory Strategy, 35 Loy. U. 
Chi. L.J. 41, 66 (2003) (http://www.luc.edu/law/activities/
opportunities/docs/weiser_revised_II.pdf).
---------------------------------------------------------------------------
    The FCC's legal authority to regulate broadband platforms is under 
great strain and a set of currently litigated cases (namely, the Brand 
X case now at the Supreme Court and the Broadcast Flag litigation at 
the D.C. Circuit) will test whether its regulatory authority holds up. 
In particular, (1) if the FCC is not able to use its ``ancillary 
jurisdiction'' to regulate broadband; or (2) if it is afforded only 
limited authority under that doctrine, its ability to regulate 
broadband platforms effectively will be greatly compromised. In short, 
if the FCC loses on either score in court, Congress will almost 
assuredly have to remedy the matter by providing the FCC with 
sufficient and appropriate authority to regulate broadband markets.
                     the role for antitrust policy
    The challenge of reviewing mergers that emerge out of a 
deregulatory environment is one of the most difficult jobs assigned to 
antitrust authorities. In many cases, antitrust authorities will not 
have a prior baseline to examine in assessing whether a particular 
merger would truly restrain competition. At the same time, the 
artificial market structures that emerged from a regulated era may well 
mean that certain combinations will produce more efficient operations. 
Balancing the expected competitive harms and benefits is the mainstay 
of antitrust analysis and the authorities' access to a variety of 
documents, business plans, and experts enable them to make the best 
informed judgments they can.
    My respect for the fact-intensive nature of the merger review 
process makes me reluctant to offer too many observations about any 
specific merger that will undergo such a careful scrutiny. Nonetheless, 
in the case of two major pending long distance-Bell mergers, I will 
offer two preliminary observations that will be, I suspect, a starting 
point for the relevant antitrust reviews.
    First, it is very important for policymakers to get past the 
``emotional logic'' against a merger of AT&T (or MCI) and a Bell 
company. Notably, AT&T and MCI were the firms who were supposed to be 
the main competition to the Bell companies and thus a merger between 
them strikes many as antithetical to the goals of the Telecom Act. This 
``supposed to,'' however, is increasingly at odds with reality, as AT&T 
and MCI's base of long distance customers is eroding and their future 
is increasingly cloudy. To be sure, one could imagine a recent history 
in which AT&T (or MCI) emerged as a far more formidable and important 
competitive force than it is today. But due to a series of unfortunate 
circumstances (ranging from Worldcom's accounting fraud to AT&T's 
overpaying for its cable assets), events did not turn out that way.
    Second, in examining the real areas of overlap between the long 
distance and Bell companies, the one that is likely to attract the most 
scrutiny is where the companies own competitive assets that would go to 
waste if combined into a single firm. In particular, I am confident 
that the antitrust authorities will take a close look at the fiber 
networks that MCI and AT&T purchased over the last ten years to compete 
directly with the Bell companies for big business customers. At the 
height of the boom, both AT&T and MCI (then Worldcom) paid billions of 
dollars for companies specializing in local access networks; whether 
those assets can and should be divested are likely to be a main area 
for antitrust authorities to scrutinize carefully on a market-by-market 
basis. Although I raise this as a concern, I recognize that this issue 
requires a careful fact-specific inquiry and thus I am not in a 
position to judge how antitrust authorities should address this issue.
                         the role for congress
    The Telecommunications Act of 1996 is unquestionably broken. It was 
designed primarily to address the expected entry of the Bell companies 
into long distance and the long distance companies into the local 
Bells' markets. It did not anticipate the rise of the broadband 
Internet or even the increased importance of wireless services. Almost 
ten years later, it is quite clear that broadband and wireless services 
are increasingly defining the challenges of telecommunications policy. 
In many important respects, the recent mergers are both a recognition 
of and response to this reality.
    In evaluating any possible revisions to the 1996 Act, Congress 
should be careful not to codify a particular technology or vision of 
competition into law. Similarly, Congress should be succinct in 
drafting the relevant statutory provisions and thus avoid the risk of 
providing self-contradictory instructions to the FCC. In providing 
self-contradictory and vague instructions to the FCC in the 1996 Act, 
Congress set the stage for an array of litigation that undermined many 
of the Act's goals and left a legacy of legal uncertainty.
    To be more specific, Congress should seek to transition away from a 
number of policies that are in tension with the current realities of 
the telecommunications marketplace. In particular, the rules governing 
both the hand-off of traffic between different networks (the matter of 
``intercarrier compensation'') and universal service support for 
subsidized telephone service are increasingly out-of-date and a 
hindrance to efficient competition. Similarly, ensuring the most 
effective use of spectrum--including allowing some users (such as UHF 
broadcasters) to sell to others (say, wireless broadband providers)--
should be a very high priority for Congress and the FCC. Finally, 
Congress should evaluate how best to reform the FCC itself so that it 
can carry out a mission very different from the one it was designed to 
perform.9
---------------------------------------------------------------------------
    \9\ All of these issues are taken up at length in Jonathan E. 
Nuechterlein & Philip J. Weiser, Digital Crossroads: American 
Telecommunications Policy in the Internet Age (MIT Press, 2005).
---------------------------------------------------------------------------
                               conclusion
    The anxiety over the developments in the telecommunications 
marketplace is understandable and can be constructive if it helps to 
frame the appropriate policy debate. That debate should not center on 
what some may have expected to happen or what some wished would happen 
in the wake of the 1996 Act. Rather, it should focus on the realities 
of the telecommunications marketplace and ask how regulation can 
continue to facilitate entry, technological change, and innovation.

    Chairman Barton. Thank you.
    And we want to thank all of you gentlemen for waiting so 
patiently to provide your testimony.
    The Chair recognizes himself for 5 minutes.
    I am going to start with you, Dr. Cooper. I was visiting 
with some of my local constituents and wasn't able to be here 
in person, but I did listen to it on a television set. You are 
very opposed to these mergers. Could you consolidate--I mean, 
do you--your primary reason, you just think the market will not 
work. Is that why you oppose them?
    Mr. Cooper. The--there are two levels of concern here. One 
is--as I said, there is a bit of a shell game here. The dial 
tone competition we had from C-lex was killed by a regulatory 
decision, which was pushed by the baby Bells. And so we are 
losing the people who competed for basic telephone service, not 
VoIP and not the big bundles, because you need broadband. So we 
are losing those. The fact that these two companies that are 
about to be bought out exited the market after that decision 
doesn't change the fact that that decision will hurt consumers. 
First answer.
    Chairman Barton. But we are not repealing the universal 
service requirement for basic telephone service. So everybody 
is still going to be guaranteed one basic phone line if they 
don't want anything else, and that will--that basic service 
will still be regulated in terms of the price at the State 
level.
    Mr. Cooper. Well, it----
    Chairman Barton. So what----
    Mr. Cooper. [continuing] may be, it may not be. In Texas, 
there are proposals to do away with that. The problem here is--
though, if you look at the two mergers, what we have here is a 
series of markets in which the acquiring companies are, in one 
sense, eliminating competition. And you could hear a little bit 
of it. Well, they are buying up the people who serve most of 
the local competitors for dial tone. Even though AT&T and MCI 
had stopped getting new customers, they have the bulk of the 
old customers of the C-lex.
    Second of all, they are eliminating competition for 
enterprise customers, especially in region, but also a little 
bit out of region.
    Third, they are vertically integrating between the local 
public switch network and the Internet backbone. And that is 
exactly the vertical integration that gave us trouble in the 
old Bell system, because once you are vertically integrated, 
you have a different set of incentives about how you are going 
to let other people interconnect with your network. And of 
course, at the same time that they are vertically integrating, 
they are asking the FCC to eliminate the obligation of 
nondiscrimination.
    Chairman Barton. Well, I have got--I would love to have a--
I mean, I am sincerely glad you are here to present that--and I 
don't mean this facetiously, because it needs to be presented 
and both us and the Justice Department need to think about 
those kind of issues. So I have got a few other questions, but 
you know, we may follow up with you in writing on some of those 
questions.
    Mr. Halpern, you gave us more information than anybody--
everybody else put together. You have got about a 100-page 
document where you have looked at the telecom industry. And if 
I could summarize it, you are very bullish on the cable 
companies, and you are not nearly as bullish on these 
companies, these merged companies. Why do you think that the 
cable platform is going to be preferred over these merged 
platforms that are based on the more traditional telephone 
service? And if I have misstated your thesis, then correct me 
on that.
    Mr. Halpern. When I tried and--said it a little bit--my 
thesis a little bit differently than you put it, which is, 
first, I don't cover the cable companies. To say I am bullish 
on them is outside of my realm of expertise. But what I would 
say is when you look at the telephone companies, and there is 
plenty of research that also--that I have done that shows that 
if you look at how many employees that have been cut out of the 
telephone companies over the last couple of years, the regional 
Bell companies, since 2000, it is about 25 percent of the 
workforce is--has been reduced, and largely a function of the 
competition that the Bells have faced as a result of wholesale 
competition from AT&T and MCI, which as we now know, is going 
away. That said, costs have stayed almost completely flat. So 
you are talking about companies who are losing a tremendous 
amount of people out of their workforce and still can't cut 
costs. That is a function of the networks they are operating 
under--the networks are operating with. When you look at the 
consumer market, and I respectfully disagree with Dr. Cooper, I 
think that you are going to have a tremendous amount of 
competition in the consumer market, and I think the cable 
companies are going to be the largest drivers of that 
competition. They have a cost structure for voice services that 
will be very, very competitive against the Bell companies. Just 
to give you an example, CableVision, when it came into New 
York, Verizon's prevailing price for a bundle of local and long 
distance was $59.95. That is what I was paying every month. 
CableVision came in, and they offered $35. That is 
approximately a 40-percent discount to Verizon's prevailing 
rate. That is a very difficult--if you can't cut your costs and 
you are competing against a competitor who is willing to be 
incredibly aggressive on your core business, that has nowhere 
to go but straight--you know, to take money straight out of 
your bottom line.
    Chairman Barton. So you believe that while you may not have 
the traditional type of competition, you are going to have 
different sources of competition that will be just as 
effective. Is that safe to say?
    Mr. Halpern. I think that is--and it is very safe to say, 
and I would add to that that I think that that competition will 
drive some very significant investment by the Bell companies. 
One document I didn't submit, which would have been another 100 
pages for you, was another one of the big studies that I did, 
which was on fiber and the economics thereof. And one of the 
things that we showed in that was that if the Bells roll out 
fiber, I can actually make you a financial and economic 
justification, if they do a certain way, for why it makes 
tremendous sense to do it. And that is not fiber everywhere 
with respect to some of--you know, some of the other 
Congressmen and women here who cover more rural markets. Those 
are not going to be markets that are--that the economic case is 
particularly justifiable for fiber, which is very expensive. 
But there is a very real economic case to be made for a fiber 
network.
    Chairman Barton. And my--I will let Dr. Cooper comment, and 
then I have a question for Mr. Weiser, and then we are going to 
go to Mr. Stupak.
    Mr. Cooper. One simple point. The $35 for VoIP assumed $45 
for your cable modem service. So that is $80. And 70 percent of 
the American people don't pay the $45. The average local bill 
is $25. So at one level----
    Chairman Barton. But for basic telephone service.
    Mr. Cooper. For basic telephone service, but--so at one 
level, the comparison is between that $25, and throw in $15 for 
long distance, even. So $40 versus $80, okay. And that is the 
fundamental problem for \1/2\ to \3/4\ of the American----
    Chairman Barton. Well, there is no question that if you are 
not a wired household, and you are not of--if you are a low-
income household and you have basic phone service and over-the-
air television service, so you don't have a cable, then to 
participate in this revolution is going to cost you more, 
unless you decide to ditch all of that and get a wireless 
telephone. You can get a wireless telephone, and you can get 
basic wireless service for $30 a month. And--anyway, I need to 
ask Mr. Weiser a question, because you talk about allowing the 
innovation--these entrepreneurial companies that we don't know 
who they are but we want to protect their right to get into the 
marketplace to force the big boys to do something, it is very 
difficult proactively to protect something that doesn't exist. 
So when we get ready to rewrite these--the Telecommunications 
Act, which we are going to do, and Mr. Speta talked about that, 
how do we proactively protect and guarantee entry into a market 
that we don't even know might exist?
    Mr. Weiser. It is a terrifically important question. Let me 
offer a couple perspectives. One is the importance of spectrum 
policy. I believe a sound spectrum policy allows a healthy role 
for unlicensed spectrum. And one role that unlicensed spectrum 
has proven exceptionally good at is allowing lots of innovation 
and new developments, like Y-fi, which came from outside the 
established players. And Y-fi is an unbelievable, you know, 
revolution in terms of this marketplace growing hugely every 
year, using, you know, outside innovation.
    Another important role is ensuring access to broadband 
platforms. The FCC's authority to ensure that anyone, like 
Vonnage or like the next Video-over IP player, can make sure 
that their application is available to you on your SBC DSL line 
or me on my cable modem line, or what have you. And the FCC's 
authority to ensure that is shaky. There are some court cases 
going on now about that, and at the end of the day, who knows 
how it will get settled out.
    Chairman Barton. That would be something to put into the 
statute at some----
    Mr. Weiser. That is right. To make clear the FCC--that is 
right.
    Chairman Barton. Access guarantee.
    Mr. Weiser. That is right. And if there are reasons for 
concern about whether people will get that access, it is going 
to be a huge deterrent for innovation. So these people who 
don't know who they are, they are going to be deterred from 
innovating.
    Chairman Barton. I would assume, Dr. Cooper, you would 
support that.
    Mr. Cooper. Yeah, I--there is not a lot of disagreement on 
this panel. I mean, some form of nondiscrimination is critical. 
I support the use of spectrum. I prefer to unlicense, which is 
the Y-fi example. I bet we could agree on universal service 
reform pretty quickly, because I firmly believe, as was said 
earlier, we need to get every connection. We need to shift, in 
my opinion, to a connection-based fee where we count cable, we 
count everybody who is hooked to that public network 
contributes. So I think the principles for reform are clearer 
now, after 10 fairly ugly years in the industry, of how to go 
forward.
    Chairman Barton. All right. Last comment before I go to Mr. 
Stupak.
    Mr. Halpern, you have been raising your hand, which you 
don't have to do when you are--but----
    Mr. Halpern. Quick question--a quick point on that, which 
is when do--we haven't said it all, but when we are talking 
about other platforms, I would--we have one--we already have 
one there, and that is the power lines. You have power line 
coming into the home. You know, I think there--and I could 
certainly provide this committee, you know, some research that 
we have done on power line, but there are tremendous 
opportunities for the power companies to do what we are talking 
about, to provide a third broadband pipe into the home.
    Chairman Barton. That is a very good----
    Mr. Halpern. And one of the biggest issues, if you want to 
create an incentive for them, is allow them to cross-subsidize 
it, if you need to. Because the benefits actually fall under 
the ability to manage the power grid better, more reliably and 
more securely, et cetera. And then there is a secondary 
opportunity, which is the ability to provide a broadband pipe.
    Chairman Barton. Very good idea.
    Okay. Congressman Stupak.
    Mr. Stupak. Well, thank you, Mr. Chairman.
    You mentioned power companies. I actually mentioned in my 
opening statement, because I would like to see them come to 
rural areas, like I represent, because many times that is the 
only--where we are going to get anything done. I would have to 
disagree with my chairman that all people would have to do is 
get a wireless phone and they would be connected, because where 
I come from, one part of my house I can get cell phone service, 
the other part of my house, I can't get it at all. So we do 
need some better development and competition in rural areas, 
which I think the FCC has taken away from us underneath the 
current law. So--and in fact, my blackberry, you know, after 9/
11 they gave us all of these blackberries to keep in 
instantaneous touch with Members of Congress. It worked 
beautifully everywhere in the United States except my District. 
They couldn't get a hold of me if they had to. It is just 
crazy.
    But Dr. Cooper, let me ask you this, because some of the 
questions that the chairman asked I was interested in. What do 
these mergers mean for rural broadband deployment in phone 
service? The Bells have argued that if Congress relieves them 
of the overly burdensome State regulations, they can go and 
invest in broadband for rural America. It is basically, like, 
``Unleash us and we will go build it.'' That is sort of the 
argument they make. And I know Mr. Whitacre and I went back and 
forth a little bit, you know, when I said they were going to 
pull out of the Upper Peninsula of Michigan, and he said, ``No, 
no. Those are just news stories. Don't believe it.'' But at the 
same time, they are talking to Michigan Public Service 
Commission basically saying, ``You better stop regulating us or 
we will pull out of the Upper Peninsula of Michigan.'' So I had 
my facts based on more than just what I read in the newspaper. 
So what is the evidence that this has happened in States that 
have deregulated?
    Mr. Cooper. Well, I think rural America is a tremendous 
challenge for these kinds of services. We have a 70-year 
commitment, which was strengthened in the 1996 Act, to assure 
ubiquitous, affordable, comparable service for all areas of the 
nation. That doesn't always make economic sense. It makes darn 
good political and social sense from my point of view. So the 
fundamental--and the claims that we will have more resources so 
we will build out in more rural areas, they are going to go 
where the money is, and low-density rural areas are not the 
most attractive places. That is why I mentioned the 
Pennsylvania statute, which promises to build out to serve the 
whole State in 10 years a 1.5 megabit network, at the same 
time, denying local communities the possibility of building 
their own networks next year for 5 megabits. All right. And so 
from our point of view, the--we can not analyze service in 
rural America as a purely economic issue. It is a social issue. 
We thought we handled it well in the 1996 Act. We didn't get 
there. I have been--I have participated in cases where the 
companies decided that relatively--reasonably comparable cost--
was relationship to cost. They wanted to charge people $150 a 
month for a phone in rural areas under the statute. This 
commission--this committee has to really write a commitment, a 
genuine commitment to universal service, which we point out in 
my testimony.
    Mr. Stupak. Well, go ahead, Mr. Speta.
    Mr. Speta. If I could just say something about wireless in 
rural areas, and that it is about spectrum reform and 
especially the digital television transition, because not all 
spectrum is created equal.
    Mr. Stupak. Correct.
    Mr. Speta. Right. Your cell phone spectrum probably isn't 
the kind of spectrum that really penetrates walls very well, 
and it needs a lot more towers a lot more closely spaced 
together. It----
    Mr. Stupak. Which is more expensive for them to put in----
    Mr. Speta. Right.
    Mr. Stupak. [continuing] if they are going to come to the 
rural areas.
    Mr. Speta. Spectrum reform can get us the----
    Mr. Stupak. Right.
    Mr. Speta. [continuing] kinds of spectrum at an economic 
case where the price of buying that spectrum at auction goes 
down to make the business case for rural areas a lot better.
    Mr. Stupak. Well, that was my next need, because you and 
both Professor Weiser mention the spectrum and spectrum reform. 
And I was going to ask you to explain why is it important for 
wireless development and competition, and what would your 
recommendations for this reform be? And then this--let these--
and then we will go back to----
    Mr. Weiser. Sir, let me start with one point, which is 
painful from a policy standpoint. In the UHF spectrum, because 
of the way it was originally allocated, they are spaced really 
far apart, right, so channel 55 and then channel 45.
    Mr. Stupak. Right.
    Mr. Weiser. If you could get some of those people, 
literally, off the air, you free up an amazing amount of 
spectrum, which is referred to as beachfront property.
    Mr. Stupak. Right.
    Mr. Weiser. What you can do with that for public safety, 
for commercial providers, and with unlicensed spectrum is 
tantalizing. For example, in the case of your house, you can 
have community networks that can help strengthen existing cell 
phone coverage that you and your neighbors can get together to 
do.
    Mr. Stupak. Sure.
    Mr. Weiser. You can have new generation of technology, 
which will have a cell phone, which will actually work over 
your home wireless networks. So it will actually move between 
where you have cell coverage. It will work on that, and where 
you don't it will work over a Wi-fi network. And----
    Mr. Stupak. But we have to change the spectrum to do that.
    Mr. Weiser. You have to change the regulations and laws 
governing spectrum to do that. That is right. And you have to 
be more thoughtful about universal service policy, which is to 
say it is not going to be a one-size-fits-all program.
    Mr. Stupak. Correct.
    Mr. Weiser. If you can allow for some experimentation and 
adaptation so that where you can support innovative wireless-
based universal service programs, that might well be superior 
to a tradition notion of universal service. And so the amount, 
I think, of thought and flexibility that should go into the new 
Act is a point I can't stress enough.
    Mr. Cooper. The ultimate kick in the pants about spectrum 
is that in the Upper Peninsula, most of that beachfront 
property is empty.
    Mr. Weiser. Correct. Yes.
    Mr. Cooper. Because you only get 2 or 3 broadcast stations, 
and all of it--the rest of it is right there, so you don't even 
have to kick anybody off. You just have to have the right to 
use it. And it has essentially been laid--it is laying fallow. 
And so that is the area where we can solve those kinds of 
problems, and it is very, very effective stuff.
    Mr. Stupak. But you are going to need some incentive to go 
in there to use that----
    Mr. Cooper. Well----
    Mr. Stupak. [continuing] because there is only 300,000 
people spread across----
    Mr. Cooper. That--well, and so you need to support that 
with a universal service fund. As long as the service provider 
is willing to commit to what we consider basic telephone 
service.
    Mr. Stupak. Well, as we all know, universal service fund is 
shrinking because technology is making----
    Mr. Cooper. Well, we have to----
    Mr. Stupak. [continuing] it less----
    Mr. Cooper. [continuing] fix the fund.
    Mr. Stupak. Well, we brought that up a little bit earlier 
in the first panel. Go ahead, Mr. Halpern.
    Mr. Halpern. Well, I was going to say, but there is a 
solution to that----
    Mr. Stupak. Sure.
    Mr. Halpern. [continuing] and I think we have talked about 
it.
    Mr. Stupak. I would like to hear it. Sure.
    Mr. Halpern. Which you have, you know--if you look--assume 
the universal service is, first and foremost, a voice service 
capability or you want to ensure. Now the President has 
obviously indicated his desire to have universal service for 
broadband. That raises a whole list of other types of issues. 
But what I would say there is the North American Numbering Plan 
does--you know, why not just have universal service funded 
through the North American Numbering Plan? If you are assigned 
a number, there is a tax on your bill that is associated with 
funding it, and it spreads across everybody, and it solves that 
issue.
    Mr. Stupak. And even if you had the money available, we 
wrote the rural utility service, which it brought up forth 
Federal money to do it. And then as soon as we tried to put it 
in the Upper Peninsula, because we are identifying with 
Traverse City below the bridge, which is a more affluent area, 
we were denied the whole application by the regulator. It goes 
back to the regulation of the Department of Commerce. And----
    Chairman Barton. This will have to be the gentleman's last 
question.
    Mr. Stupak. Thank you.
    Chairman Barton. You might want to comment on what he just 
said before we go.
    The gentlelady from Tennessee, Ms. Blackburn.
    Ms. Blackburn. Thank you, Mr. Chairman, and I thank all of 
you for your patience with us today.
    A quick question for Mr. Weiser, Mr. Halpern, and then I 
will go to Dr. Cooper.
    Mr. Weiser, I--you have worked with the end trust division 
of the Department of Justice, and I would like for you just to 
comment a little bit. Talk about the sure number of competitors 
in a market as opposed to the financial health of those 
companies. And if you would quickly just talk about which do 
you see as being the most important.
    Mr. Weiser. This is a really important question. Let me 
start by saying that this marketplace, the telecom marketplace, 
generally, is not like the market for sandwich shops, so in my 
neighborhood, there are probably about--within walking 
distance, about eight sandwich shops. They are very low-entry 
barriers. We have much more, what we think about as textbook 
competition. These markets are capital-intensive. There tend to 
be less numbers to providers. In terms of, I would say, a 
safety zone or a comfort level, I would disagree slightly with 
Mr. Halpern. Let us say in wireless, I am comfortable with four 
providers. With three, I would say it depends. Clearly, if it 
gets down to two major wireless providers, I get very 
uncomfortable. So the current wireless marketplace has 
generally been very healthy. If it stays at four, I continue to 
be comfortable.
    The question is how do you find the right balance between 
the concerns about making the capital investments, financial 
health, as opposed to consumer welfare. In the broadband 
marketplace, we are sort of at an opposite perspective, which 
is we have two major broadband providers, and the question is 
how do we get more, which is not so much a question of anti-
trust policy, it is more the regulatory policy concerns we have 
talked about.
    Ms. Blackburn. Okay.
    Mr. Weiser. And I think--does that answer your question?
    Ms. Blackburn. Yeah, it does. And I thank you. I thank you 
for that.
    I--you know, as we look at the options that are there, as 
we look at convergence and the different technologies, and as 
one of our former panelists had said, everything over IP. You 
know. I think that it does cause us to think more closely on 
those issues.
    Mr. Halpern, very quickly, what do you see with the 
financial condition of AT&T and MCI in 5 years or 3 years or a 
year if the merger doesn't take place?
    Mr. Halpern. I think that you see AT&T continue to shrink 
at rates similar to what you have seen now. What happened--if 
you think about AT&T, think about it as a bunch of waves. The 
first wave was very much the Bell companies getting into long 
distance and consumer. That broke on the side of their--you 
know, their ship and caused a massive degradation. I think the 
average decline rate in the consumer business over the last 4 
years, average per year, has been about 20 percent of revenues.
    The next wave was, obviously, the wholesale--the impact on 
wholesale from regulation and the courts. And that has just 
further exacerbated the situation ultimately that led them to 
exit that market.
    The next wave is here and coming, and that is really the 
small business market. And you are seeing that now. And the 
following on that, you are going to have the Bells basically 
going into the enterprise market, you know, the way we have 
described, which is a slow, organic, you know, very unpleasant 
strategy for the Bells to undertake, but they will do it. And 
it will take, you know, 4 or 5 years, and it is going to be a 
very tough thing, and it will continue to cause AT&T a 
tremendous amount of pain. As I said in my opening comments, I 
personally would bet that, you know, 7 to 10 years from now, 
AT&T would not be here necessarily.
    Ms. Blackburn. Okay. Thank you very much.
    Dr. Cooper, I have got two things for you.
    First of all, in your testimony, you express concerns about 
concentration in the cable industry, and then your testimony 
seems to call for more regulation on the R-box, and even as 
they plan to offer IP TV and trying to get into competition. So 
I am trying to figure out if you are for more competition or if 
you are for more regulation. What is most important to you?
    And let me ask a second question to finish this.
    I also noticed in your testimony, when I was reading 
through this last night, you kept referencing a crummy duopoly 
and crummy duopolist. And so this morning, I went in and pulled 
this Business Week article that you referenced. And you even, 
when you were doing your testimony, referenced that. It--and 
the article talks about a cozy duopoly. So did you just 
misappropriate the term, or is there something there that we 
are missing?
    Mr. Cooper. Well, I--if you are a consumer and you have got 
two duopolists who are cozy, from your point of view, it is 
pretty crummy, because they don't compete very hard. And that 
is the point here. I think here is a way to describe the 
balance between competition and regulation that we need now, 
because you have heard discussion about 2 or 3 or 4. We need 
another platform, which is the facilities, okay. But my point 
is that--and so we want more facilities, but two is not enough. 
They won't compete. They will--it is too easy for two guys to 
figure out, or two gals to figure out, how not to really go at 
it head-to-head, how not to drop prices. And that is why we 
have been falling behind the rest of the world. But the point 
is, we want more. We want 2--we want 3 or 4. There is an 
expression in economics that 4 is few and 6 is many, but the 
problem is, these are very capital-intensive industries.
    But here is the question. Suppose I have four platforms. Do 
I want to allow those platform owners to pick and choose, 
discriminate against, the VoIP providers so that each platform 
owner only has one VoIP provider who can then--so now I have 
taken what could be competition among 50 applications companies 
and shrunk them down to 4 or 3. Right. I don't want to give up 
the vibrant competition we have had on the Internet for this 
crummy competition among facilities owners. So that is the 
balance. I want more competitors, but given the facilities, it 
is not going to be enough. I need some regulatory principles to 
let me capture the other benefits as well as applications 
competition. And that is a balance that I think was struck in 
the 1996 Act. The courts may decide otherwise, but I think this 
committee needs to make some form of nondiscrimination among 
application service providers. The more platforms, the better. 
If we were talking about ten platforms, you probably wouldn't 
listen very long, because ten is a big number. But we are only 
talking 2, 3, or 4. And that is not enough to really guarantee 
me competition.
    Chairman Barton. The gentlelady's time has expired.
    Ms. Blackburn. Thank you, sir.
    Chairman Barton. For our last round of questions, the good 
doctor from Denton, Texas, Dr. Burgess.
    Mr. Burgess. Thank you, Mr. Chairman.
    I--and I apologize for being out of the room, and if this 
question has already been answered, but Mr. Halpern, if we 
could just start over today with a blank sheet of paper, what--
from a financial perspective, what types of companies would be 
the strongest competitors and what, ultimately, would be best 
for the consumers?
    Mr. Halpern. Boy, there is a tough question for you.
    Chairman Barton. That is why we saved him for last.
    Mr. Halpern. Well, I am going to actually ask the question 
back again, which is when you say start over with a clean sheet 
of paper, how far back are we going with--in getting clean? Are 
we going to eliminate the----
    Mr. Burgess. The stone tablets. The Ten Commandments. I 
don't know. You pick a point in history and go forward from 
there.
    Mr. Halpern. All right. I mean, if I look and I say, okay, 
we can't do anything about where we are today, to some degree, 
and you say okay, so what would I do if I were going to figure 
out, you know, what I was going to do from here, you have in 
front of you a bunch of companies saying they want to get 
together. On the wireless side, as I said in my opening 
comments, I feel pretty comfortable. I agree 3 versus 4--I 
mean, ideally you would really want four big-scale competitors, 
but frankly, I am not sure how you get four big-scale 
competitors. Right. At this point, I am very happy to see 
Sprint and Nextel getting together, because you know they will 
provide a--you know, a sort of a safety net in the market for 
competition against, sort of, the Verizon Wireless, Cingular 
Wireless, you know, behemoths. And they will be able to 
compete, I think, very effectively at that. If I look at the--
and I separate wireline and wireless. I recognize these things 
are all sort of converging in their own ways. If I look at the 
enterprise market, I mean, you know, Verizon conveniently used 
a bunch of my research this morning, which I thought was 
humorous that Mr. Seidenberg, you know, then said he had no 
idea, you know, what I had been saying and it was wrong, even 
though he didn't know what it was. But I thought the 
Congresswoman from New Mexico may--you know, when she asked him 
the question, I will tell you there are, you know, 13. I--
literally, I counted up 13 backbone providers in the U.S. Right 
now it is true. Level 3 does not get nearly the credibility 
when they walk into an enterprise customer, but they certainly 
play a price spoiler role. Right. And those 13 backbone 
providers, to go to Mr. Cooper's 10, I have got 13, and that is 
a lot. If I could write who would buy what and who would be 
where and feel comfortable with it, I don't really personally 
care if Verizon gets MCI or Quest gets MCI from a regulatory 
perspective. I think similarly why Sprint and Nextel is a good 
thing. I think certainly a Quest-MCI deal is probably better 
regulatory-wise than a Verizon-MCI deal. Verizon can, frankly, 
do it themselves if they wanted to. Quest is going to have a 
very hard time organically building its own, you know, scale, 
and so they really need to go merge with someone like MCI to 
get that scale. But from a clean slate, it is hard to say, 
because, you know, it is a difficult question that way.
    Mr. Burgess. Just in the remaining time that I have, I get 
a lot of questions from my Ham radio operators about broadband 
over power line, but what can I tell them? What comfort can I 
give them?
    Mr. Halpern. Well, I--the issue of interference on BPL is--
it is a real issue. I have--from what I have been told by 
people who are much more technically savvy than I am, there are 
ways to carve out, you know, where there is--where the 
interference resides. That alone is not--I don't think a reason 
not to pursue BPL. I think that there are technological 
workarounds on the interference for Ham radio operators. And I 
think--if you just think about from, again, consumer good, 
right, I think anything you can do to try to encourage another 
emphasis--and now I am going to put the emphasis on the word 
scale, another scale competitor, to the regional Bell companies 
and the cable companies, the guy--the only guy I think of that 
is going to give you that scale on day one is going to be a 
power company.
    Mr. Weiser. Let me--one thing to tell them, which is 
important, this effort by the FCC is a regulatory innovation. 
They are putting a little bit of burden on the Hams to quickly 
identify interference and report it, and at which point the 
power guys have to remedy it. And so the traditional model of 
spectrum management was let us be as proactive, preventing any 
possibility of any interference. The consequence was a lot of 
spectrumalized fallow. That is a little bit why we have this 
UHF problem that Dr. Cooper referred to earlier. The Hams now 
are suffering a little bit in the new model, which is, we will 
take some risks but make sure to remedy them very quickly if 
they actually materialize. So tell them the FCC is putting them 
a little bit at risk, but that there is a regime in place so 
that the risk will get remedied very quickly, as soon as they 
can report that they are experiencing interference.
    Mr. Cooper. I want to go back to the first point, because 
this also will go back to the first question that Mr. Barton 
asked. Mr. Halpern has outlined in his scenario in which it is 
quite clear that, boy, it is hard to break into markets. 
Verizon will have to spend a bunch of money to get in. That is 
what capitalism is about. The interesting thing here is that 
the proposition he has offered is the following: If Quest 
acquires MCI, they will be in the enterprise market, and 
Verizon will have to get in it as well, which is the 
different--so I end up with two competitors when I would have 
had one. Now we don't always do that thinking right, but the--
and certainly anti-trust authorities don't get into that game, 
but this committee needs to think about that and say, ``Well, 
too bad. You know. You have to earn your way into this 
market.'' And so if I can end up in a situation where I have 
two competitors or three competitors or four competitors as 
opposed to losing that competitor, that is a public policy 
concern.
    Mr. Burgess. Thank you. My time has expired, I yield back.
    Chairman Barton. We thank the gentleman.
    I want to thank this panel and our audience. I want to make 
one announcement since there was quite a bit of discussion in 
this panel about digital transition. I expect to introduce very 
quickly a, hopefully, bipartisan bill with a hard date of 
December 31, 2006 for digital transition, and we are working 
with Mr. Upton, Mr. Dingell, and Mr. Markey to get the details. 
And of course, we have to work with the Senate where the senior 
Senator over there, Mr. Stevens, has indicated some support for 
a hard date, but not necessarily that hard date. So your 
testimony had an added benefit in that it has put on the record 
some support for that concept.
    I want to thank you all. We may have written questions for 
each of you, and if so, you know, reply very quickly. I would 
tell Mr. Speta, who talked about an academic group that is 
being formed, to look at putting together some legislative 
language for a rewrite of the Telecommunications Act. This 
committee is going to work more quickly than your academic 
committee. I think we are going to--Mr. Upton has every 
indication to put a bill together and report it out this summer 
and report it to the floor before August.
    Mr. Speta. We will get moving.
    Chairman Barton. Yes. If your group is going to do 
something, you better put your saddle on and put the spurs on 
the horse, because we are going to move on that.
    The last announcement, the Energy and Air Quality 
Subcommittee is going to hold a hearing in this room, and it is 
going to start at approximately 3 this afternoon. This hearing 
is adjourned.
    [Whereupon, at 2:35 p.m., the committee was adjourned.]
    [Additional material submitted for the record follows:]

                             Alliance for Public Technology
                                                     March 10, 2005
The Honorable Joe Barton, Chairman
Committee on Energy and Commerce
U.S. House of Representatives
2125 Rayburn House Office Building
Washington, DC 20515
    Dear Mr. Chairman: The Alliance for Public Technology (``APT'') 
1 applauds the Committee's decision to conduct hearings on a 
number of recently announced mergers within the telecommunications 
industry. APT respectfully requests that this letter be included in the 
Committee's hearing record.
---------------------------------------------------------------------------
    \1\ APT is a nonprofit membership organization based in Washington, 
D.C., which was founded in 1989 to foster public policies that ensure 
access to advanced telecommunications technologies for all Americans.
---------------------------------------------------------------------------
    The pending and proposed transactions highlight a number of 
significant trends within the telecommunications industry: the end of 
meaningful distinctions between markets for local and long distance 
voice services; the growing importance of IP-based services and 
wireless technologies; the impact of intermodal competition on 
incumbent providers; and, the need for many companies to be able to 
serve customers of all sizes, on a national, if not global, basis. 
Without question, these mergers will reshape the telecommunications 
marketplace, and they are likely to spur additional deals among the 
remaining industry players. As the Committee's title for this hearing 
suggests, however, such transactions are less the cause of the massive 
changes underway within the industry, than they are reactions by 
corporate entities to the technological forces that are rapidly 
changing how we communicate in the 21st century.
    You and your colleagues asked a number of critical questions of the 
merging parties, and they will face many more as they undergo the 
formal process of demonstrating that their specific transactions serve 
the ``public interest, convenience and necessity.'' At this time, APT 
does not seek to comment on the merits of any particular merger or 
proposed combination. Instead, we wish to urge the Committee, as well 
as the FCC and the state regulatory bodies specifically charged with 
reviewing the transactions, to examine them in light of whether they 
promote the goals of Section 706 of the Telecommunications Act of 1996: 
to ``. . . encourage the deployment on a reasonable and timely basis of 
advanced telecommunications capability to all Americans . . .''
    The issues the reviewing agencies must consider include the 
following: What effect will a particular transaction have on deployment 
of affordable broadband services in rural areas, communities with lower 
income residents, or among Native American populations? Will a 
resulting entity be better equipped to ensure the accessibility of 
advanced services and equipment to persons with disabilities or other 
functional limitations? Will a merged company be in a position to 
improve access to essential health care facilities and educational 
opportunities, in every community it serves? Will a transaction help or 
hinder the achievement of important social goals, including better 
public safety communications and E911 services? As a combined entity 
seeks to derive potential cost savings from the integration of 
previously separate operations, what will be the impact on its future 
investments in human capital, new equipment, and research and 
development?
    In short, the names and structures of the corporate entities that 
compete in the communications marketplace of the 21st century will 
surely continue to evolve. The technologies that are deployed within 
our telecommunications networks will continue to change, as well. What 
will not change, however, is the need for all Americans to have 
affordable access to a modern telecommunications infrastructure. The 
FCC and the state regulatory agencies that review such mergers should 
remain mindful of their ongoing obligations under Section 706 to take 
appropriate measures to promote such access.
    Finally, these transactions and your hearing have helped to focus 
national attention on how the legislative framework established by the 
Telecommunications Act of 1996 has been impacted by rapidly evolving 
communications technologies. APT agrees that these technologies are 
making a number of the core provisions of the 1996 Act increasingly 
outmoded or irrelevant. Our current regulatory structure may be serving 
to discourage needed investments and growth in our telecommunications 
industry. We are pleased that your Committee has commenced the process 
of considering necessary legislative reforms, and APT's members stand 
ready to work with you in these efforts. In part, our goal should be a 
structure under which future telecommunications deals will be made for 
sound economic, business, and public service reasons, not because 
current regulations may favor certain providers and technologies over 
others, in contravention of the ``competitive'' and ``technological'' 
neutrality mandates of the 1996 Act.
    Thank you for your consideration of APT's views.
            Sincerely,
                                               Dan Phythyon
                                             Public Policy Director
cc: The Honorable John Dingell
   The Honorable Fred Upton
   The Honorable Ed Markey
                                 ______
                                 
    Response for the Record from Tim Donahue, Nextel Communications
                     the honorable joseph r. pitts
    Question #1: Early last year, many wireless companies, including 
yours, were ready to unveil a wireless directory assistance program. 
This received significant opposition from the public and Sprint 
withdrew its decision to participate in the directory. What will the 
plan be for directory assistance for the new company?
    Response: Sprint and Nextel will remain competitors until the 
merger is complete and thus we have not made a joint strategic decision 
concerning WDA.
    Question #2: It has become clear over the last 18 months that the 
biggest wireless companies are planning to implement a wireless 
directory assistance service. This met significant resistance from the 
public and Sprint, along with Alltel, withdrew their participation in 
the directory. No such decision was made by Nextel. Once your companies 
merge how will the new company approach the directory? Will you 
participate? If so, how will you inform subscribers? If not, can you 
please share your reasons?
    Response: The proposed merger between Sprint and Nextel has not 
been completed and as such any decision regarding WDA on behalf of the 
merged company has not yet been made.
                                 ______
                                 
                                                     Sprint
                                                      April 4, 2005
The Honorable Joe Barton
2125 Rayburn House Office Building
Washington, D.C. 20515
    Dear Chairman Barton: Thank you for giving me the opportunity to 
appear before the Committee on Energy and Commerce on March 2, 2005, to 
present Sprint's views on ``Competition in the Communications 
Marketplace: How Technology is Changing the Structure of Industry.''
    I am in receipt of your follow up questions regarding Wireless 
Directory Assistance (WDA) asking whether a merged Sprint-Nextel 
company will participate in a WDA, and, if so, how subscribers would be 
informed that they may be listed. Due to the still pending Sprint and 
Nextel merger application, it would be premature to comment on the 
company's future business plans with respect to offering WDA.
    Sprint believes that there are substantial numbers of customers who 
want to have their wireless numbers listed. As you note, however, 
Sprint has elected not to offer WDA at this time. I can assure you that 
if we decide to implement WDA at some point in the future, it would be 
offered in a consumer friendly manner that respects the privacy of our 
customers.
            Sincerely,
                                             Gary D. Forsee
                               Chairman and Chief Executive Officer
cc: Congressman Joe Pitts


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