[Senate Hearing 106-1069]
[From the U.S. Government Publishing Office]
S. Hrg. 106-1069
LOCAL COMPETITION IN THE VOICE AND
DATA MARKETPLACE
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
NOVEMBER 4, 1999
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
U.S. GOVERNMENT PRINTING OFFICE
75-224 WASHINGTON : 2002
________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington JOHN D. ROCKEFELLER IV, West
TRENT LOTT, Mississippi Virginia
KAY BAILEY HUTCHISON, Texas JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan RON WYDEN, Oregon
SAM BROWNBACK, Kansas MAX CLELAND, Georgia
Mark Buse, Staff Director
Martha P. Allbright, General Counsel
Ivan A. Schlager, Democratic Chief Counsel and Staff Director
Kevin D. Kayes, Democratic General Counsel
C O N T E N T S
----------
Page
Hearing held November 4, 1999.................................... 1
Statement of Senator Ashcroft.................................... 22
Statement of Senator Breaux...................................... 66
Statement of Senator Brownback................................... 8
Statement of Senator Burns....................................... 1
Statement of Senator Cleland..................................... 25
Statement of Senator Dorgan...................................... 7
Statement of Senator Gorton...................................... 6
Statement of Senator Hollings.................................... 3
Submittals for the record:
Communications Act of 1934, Section 271, Competitive
Checklist.................................................. 52
Additional materials pp..............................54,57,61,71-75
Statement of Senator Rockefeller................................. 4
Statement of Senator Stevens..................................... 4
Witnesses
Holland, Royce J., Chairman and CEO, Allegiance Telecom, Inc..... 25
Prepared statement........................................... 28
Submittals for the record:
John Windhausen, Jr., President, letter dated June 23, 1999,
and the testimony of US West CEO Sol Trujillo to Hon. John
McCain and Hon. Ernest F. Hollings......................... 83
Houser, Charles S., Chairman and CEO, TriVergent................. 37
Prepared statement........................................... 40
Neel, Roy, President and CEO, United States Telecom Association.. 10
Prepared statement........................................... 13
Pegg, Daniel O., Senior Vice President, Leap Wireless
International, Inc............................................. 23
Prepared statement........................................... 23
Tidwell, Rick, Vice President, Birch Telecom..................... 46
Prepared statement........................................... 47
Appendix
Sloan, Catherine R., letter dated November 15, 1999 and Chart on
Long Distance Rates, to Hon. John McCain....................... 89
LOCAL COMPETITION IN THE VOICE AND DATA MARKETPLACE
----------
THURSDAY, NOVEMBER 4, 1999
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The committee met, pursuant to notice, at 10 a.m. in room
SR-253, Russell Senate Office Building, Hon. Conrad Burns
presiding.
Staff members assigned to this hearing: Lauren Belvin,
Republican senior counsel; Paula Ford, Democratic senior
counsel; and Al Mottur, Democratic counsel.
OPENING STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Senator Burns. I call the hearing to order, and good
morning everybody, and thank you for coming this morning. The
purpose of today's hearing is to learn more about the current
progress of implementing the Telecommunications Act of 1996 as
it pertains to local competition.
It is, of course, almost 4 years since Congress adopted
that Act. While all of us on this committee would like to have
seen faster progress made in the first 3 years, I doubt if any
of us believe that it was going to happen overnight. The task
of this committee is to ensure the transition to a fully
competitive telecommunications marketplace as quickly as
possible.
In a State like mine, a State where we have got quite a lot
of dirt between light bulbs, we do not have any urban areas in
our State, so we haven't seen much in the way of investment in
wire line networks. However, we have seen an increase in
consumer choice by local services, by wireless providers, and I
look forward to the prospect of the local telephone competition
through the AT&T and TCI cable systems in our State.
Since the Act passed, there has been significant activity
in the telecommunications industry. Incoming local carriers
have been forced to consider new ways of doing business. That
might mean an erosion of their local market share in order to
venture out into new business opportunities. Mergers and
acquisitions have resulted in a new way of thinking for
traditional telephone companies.
New technologies have allowed companies to think outside of
the box in ways never contemplated before the 1996 Act. New
entrants have been initially drawn to more profitable business
markets. Federal and State court litigation over the Act has
resulted in significant delays, though, that took time and
injected some uncertainty in the process. Even while the
lawyers were fighting, some innovative new firms were beginning
to take advantage of the opportunities made possible under the
act.
The FCC issued the latest local competition report in
August 1999 and it contains some encouraging information. The
number of competitive local carriers increased from 94 so-
called CLEC's in 1996 to 355 in 1998. Some of these competitive
carriers resell the services of the incumbent local carriers
under section 251 of the Act. Others are building their
facilities, and the number of fiber miles deployed is
staggering, 3.1 million fiber miles by 1998, up 72 percent from
just a year before.
Still, though, the basic f Act remains that incumbent local
exchange carriers continue to retain 96 percent of the local
telephone market. Properly implementing the interconnection
requirements of the Act is critical to ensuring not only a
choice of local telephone providers but also a choice of
broadband service providers. I look forward to the day when
there is true broadband service in both directions, upstream
and downstream.
I am heartened by the rapid pace of DSL deployment over the
past year, which from where I sit looks to be almost entirely
driven by competition. In fact, last March, GTE and the RBOC's
announced that they would deploy the long-awaited ADSL
technology to about 25 million lines by the end of this year.
By September, GTE and the RBOC's had accelerated their
deployment projections to 45 million lines by the year's end.
While I am still far from satisfied at the pace of broadband
build-out, these numbers are, nonetheless, encouraging.
The FCC generally or recently gave GTE and the RBOC's some
relief that they had argued that they needed to deploy
broadband. I am referring to the FCC decision not to require
them to make their advance equipment available to competitors
as unbundled network elements to deliver high speed DSL service
CLEC's and DLEC's, which have to do--has already been done by
their own advanced equipment and connected to the incumbent's
loop in colocated space.
This is a good example of the FCC employing the flexibility
built into the 1996 Act to respond to the evolution of the
market. In light of the FCC decision, we will be working for
even more rapid GTE and RBOC deployment. It is clear that
everyone should play by the same rule book. When that happens,
competition does flourish, and consumers benefit from the new
service.
In short, though, the pace of change may frustrate many. It
is clear that the Act is indeed working to open up historically
closed markets and provide an increased consumer choice. I am
convinced that the Act has been critical to generating the
explosion of the economic growth that we have seen recently in
the overall economy. The task we face as policymakers is how
best to unleash market forces to make sure that the intent of
the Act is fulfilled without further delay, and I thank you for
coming this morning and would yield to my good friend from
South Carolina, Senator Hollings.
STATEMENT OF HON. ERNEST F. HOLLINGS,
U.S. SENATOR FROM SOUTH CAROLINA
Senator Hollings. I thank you, Mr. Chairman. The chairman
has really keynoted our situation. Chairman Burns has just
stated what we all know, that the Bell Companies control 96
percent, actually the stock market says 3.4, so it is really
96.6 percent of that last line going into the business of going
into the home. And so to have a hearing, most respectfully, Mr.
Chairman, on local competition, and not have the Bell Companies
up here to tell us why they still squat on their monopolies,
makes it difficult to get to the source of the problem perhaps
they know out there that we really have got an unconstitutional
situation.
That was one of their first pleas, that the Act--which they
helped write--was unconstitutional. Then they tried to use
subterfuge with respect to how they were opening up. Then they
went before the locals and later all the way up to the Supreme
Court, where it was made clear that no, they were not
complying. Again most recently where we had hope where by I
know that the distinguished chairman, I and others on this
committee were looking with favor on Bell Atlantic's initiative
there in the New York area, and yet we find the Justice
Department has said already that there is not enough
unbundling, and certainly that the FCC should not approve this
application unless it is conditioned that there is sufficient
unbundling.
Namely, we know at the national level in long distance that
they have 50 million switches a year at least. That is almost a
million a week. Now, you go into the New York market, Mr.
Chairman, without a sufficient switch arrangement, what you
have really visited upon the people themselves is gridlock and,
of course, loss of life and total chaos and everything else of
that kind, and so it is not a question of politically whether
we like it or we do not like it or whatever. It is, we are on
the spot.
We constantly hear the caterwauling all over the Congress
that it is not adequate. The Act has got to be amended. We have
got to get into data services, or namely long distance, because
we did not contemplate technology, such nonsense as that. All
we talked about for 4 years was technological advance.
To the credit of the competitive local exchange carriers
they have been nibbling. They have got some 54 million in
business, and my hat is off to them, and we have got some
wonderful witnesses here coming with respect to that. But to
have a hearing without the people controlling the monopoly to
come and give their complaints openly to us, rather than around
the corner, and trying to introduce side bills and takeovers
and complain that the Act is a bad one, really complicates the
ability to get to the bottom of this issue. I ask why don't
they come up here and tell us about the local competition? The
fact is that they are not here. They are not here.
So in reality, with respect to you and all the colleagues
on the committee itself, this hearing is over. What we are
going to hear about are the nibblers, the 3.4 percent, and we
will give it a lot of adjectives and adverbs and gusto and
everything else like that, like, ooh, we have got really local
competition. You have adjourned the hearing in essence by way
of fact, because we do not have--and were invited, I take it,
Mr. Chairman.
Senator Burns. They were.
Senator Hollings. They refused?
Senator Burns. They are not here.
Senator Hollings. Thank you a lot.
Senator Burns. Senator Stevens.
STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
Senator Stevens. I will try to be brief and not take on my
friend from South Carolina too much. I am pleased you are
holding the hearing. I think you are right that the progress so
far proves that the Act could work, should work.
Local competition has lagged. I am certain some local
exchanges are making inroads in embracing competition, but some
have used the powers they have to frustrate reform. I am
pleased to hear--and I hope others have heard that Bell
Atlantic is coming closer to meeting the checklist under
section 271 of the Act, and with their help we could prove that
that series of standards could work for everybody.
The path to competition really is through the Act, and I am
hopeful that those who come before us will give us some idea of
what we might be able to do to strengthen it, but we made no
distinctions between voice and data in the 1996 Act. Some want
to have the checklist apply only to voice-based telephony. That
would make what we did into just a hollow vessel and
meaningless.
I think data is really going to be the dominant player in
this whole system, and if we are going to make a really, truly
competitive situation on the local level, data and voice must
be governed by the same rules.
So I look forward to working with you. Unfortunately, I
cannot stay for the whole hearing, but I do thank you for
holding it, and I am sorry, as my friend from South Carolina
is, that some of those who could explain why this competition
is not truly taking hold are not here.
Senator Burns: Thank you, Senator Stevens. You go back and
sit next to the safe, would you? You are watching the money
here these last 2 or 3 days.
[Laughter.]
Senator Burns. Senator Rockefeller.
Senator Stevens. If you would just give me a little more
competition, that spectrum would be worth even more.
Senator Burns. How many times have we got to sell it?
[Laughter.]
STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA.
Senator Rockefeller. Mr. Chairman, I am going to make a
statement. I have to go back to my office for about 20 minutes,
then I will be back, which I know you will want to hear.
[Laughter.]
Senator Burns. Silence is golden at this point.
[Laughter.]
Senator Rockefeller. The first thing I want to say is, I
have a tremendously deep sense of disappointment that we have
not had a hearing, in spite of many requests on my part and
others, on the confirmation of Susan Ness. I just wanted to put
that on the record.
She has served longer on the FCC than anybody else. She is
extremely valuable and she will be there. When the Commerce
Committee fails to have a hearing to renominate somebody, or to
give her the chance to be renominated, it is not good in
telecommunications, and all the things they have to do. It is
particularly not good, in view of what we are discussing this
morning and in view of fairness to individuals like Susan Ness
it is not good.
So we need her expertise, we need her hard work, and she I
think deserves to be a commissioner, and I regret the f Act
that we did not have that chance for this year, and hope that
we will do it the very first thing next year, or even in the
waning days of this year.
Then I want to say the following. The purpose of the Act
was to promote competition, and I was born in Manhattan, and my
jurisdiction is McDowell County in West Virginia, one of the
poorest counties in the Nation, and I think they should both be
equal in terms of access to all forms of technology, and at
affordable prices.
There are examples of increased competition, and that is
good, and that includes the long distance market, wireless
services, Internet backbone, electronic commerce sales.
Internet and broadband services continue to be more accessible.
Importantly, competition in local phone service is
beginning to appear. CLEC's already serve business customers
across the country, and beginning the possibility for
residential consumers. Now, therein lies my concern. Local
rates for businesses are drastically lower, and let us hope
that rates for residential users will also benefit from
competition.
We have a very long way to go. Byron Dorgan and I would say
that until this reaches rural America and residential users
everywhere, we do not have a choice in North Dakota, in
Montana, in South Carolina, any place. This has to improve. We
cannot abandon the promise that all Americans will have
comparable services. So far, the telecommunications industry is
not meeting that requirement. The chairman said it will take
time, but movement is very, very slow.
The broadband services are not yet available in most rural
areas. That hurts West Virginia and other rural States. Most of
America is rural. This has to change. I hope the FCC will
closely monitor whether the same critical broadband services
are available in all parts of the country equally.
It is important to note that the Act is working with
respect to advanced services. Section 706 of the Act wisely
requires the FCC to constantly monitor the availability of
these services, and it gives the Commission the power to Act if
necessary to encourage further deployment. I applaud Bill
Kennard's recent commitments to opening a new proceeding on
this issue.
We also have to ensure, and I digress a little bit here,
but this is a point that I want to make very strongly. We have
to make sure that consumers know what they are paying for, and
that they can take advantage of competition because they have
the knowledge with which to do that. Most residential consumers
are enormously confused by the telephone bills that they get.
They do not understand how to find the best deal for them and
their families. They are confronted with dozens of pages of
information, confusing rate plans, and it includes charges,
slamming, which they did not sign up for, which I would think
would be fraud.
AT&T's recent attempt to increase their universal service
line by 50 percent is a good example of why we need truth in
billing legislation, which I have introduced. AT&T tried to
justify this 50 percent increase, but their justifications come
up very short. I will explain.
They claim that the recent Fifth Circuit ruling on the
universal service funding base resulted in increased universal
service contributions. That is what they said. But they fail to
tell consumers in their bills or anywhere else that they will
receive almost $400 million in access reduction almost
simultaneously, or that this reduction is part of about a $5
billion in access reduction amount since 1996, reductions that
they should pass through to residential consumers.
Too, they claim that last month's well-founded FCC decision
to help carriers provide local service to rural States under
the universal service program would also increase their
universal service payments, they claim. But they wanted to bill
consumers several months before they started paying the FCC.
Now, how does that work? Why is that legal? They would have
been receiving money without paying it to the universal service
fund. They would have been making interest on that money,
gaining advantage from that money, from consumers, residential
consumers. This is not acceptable. It is not acceptable.
They also argue they needed to increase charges to
consumers because they cannot, as they said, collect on 8
percent of their customers' bills. I severely doubt that. If
so, they are way out of sync with the rest of the long distance
market.
They propose to have paying customers cover for their
inability to collect 8 percent from their customers when States
like New York say it is only around 2 percent of bills are
uncollectible. Do customers know that this is occurring? Of
course not. Of course they do not.
Luckily, the FCC stopped the AT&T dead in its tracks, and I
commend Bill Kennard for that very good decision. These types
of situations confuse consumers. They create great distress in
Commerce Committee members like myself, and I think we have to
work to reduce this confusion and if any of my colleagues want
to sign up for my truth in billing legislation, we will do ex
actly that.
I thank the chairman for allowing me to wander onto that
subject, and I will be back shortly.
Senator Burns. Thank you. Senator Gorton.
STATEMENT OF HON. SLADE GORTON,
U.S. SENATOR FROM WASHINGTON
Senator Gorton. Well, Mr. Chairman, the divisions that
became evident during the debate in leading up to the 1996 Act
seem to remain here today. This is an interesting hearing. It
is too bad it is not a little bit more extensive, but I think
we are probably fairly close to seeing how the 1996 Act can, in
fact, work, with the imminence, I think, at least of one major
Bell Operating Company meeting the requirements of the 1996
Act, and I think it may be wise to see how that works and to
determine whether or not any changes are needed.
In any event, this is a controversial issue, because it is
such an important issue, because so much is at stake both for
many large companies and for many small companies attempting to
make the field competitive, but even more for the people of the
United States who are the customers of these companies and the
beneficiaries of competition.
Senator Burns. Senator Dorgan.
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Mr. Chairman, thank you very much. Let me
add my voice to that of Senator Rockefeller, encouraging the
committee to consider the confirmation of Susan Ness. She has
been a particularly strong voice for rural America on the
Commission, and this commission has a lot of challenges and a
lot of difficulties trying to find its way through the fog, and
they need predictability and certainty of membership. I would
encourage the committee to proceed with that nomination.
First of all, I should say that last evening I had two
telephone calls, one during dinner, trying to sell me long
distance services, one of them attached to a credit card
service, so there is some competition out there that is
unabated, especially around dinner time, and especially in the
long distance area. They are aggressive.
The hearing is about competition in local exchanges, and we
know, I think all of us, that there is not the kind of
competition that we want at this point. It has been slow
coming. Those who have had monopoly positions have been very
stubborn in resisting changes. I understand that. That is a
behavior that obviously all of us could have predicted.
Has the Act worked as well as we would have hoped? No, I do
not think so. The Act was billed as something that would foster
competition. There is less competition than I would like to
see, and there is substantially more concentration than one
would have anticipated, but that ought not persuade anyone at
this point to rush in to try to change the Act itself.
There are ways, it seems to me, to meet these challenges.
The Senator from Alaska, and I think my colleague just
indicated from Washington, that one of the Bell Systems might
likely meet the checklist soon, perhaps another. You know, it
seems to me that we ought to proceed down this road and do what
we can to make certain that we make progress in opening these
local exchanges to competition, and we also have the challenge,
in addition to promoting more competition, of building out the
advanced services, and that is very important.
What kind of model will we follow? Will we follow the model
of electricity and telephone service, and requiring it to be
service to all parts of this country? In order to do that, when
the market system does not provide it, and it will not in many
areas of the country, with respect to the build-out of advanced
services, then we have to have the assistance of the FCC
following the Act, which attaches advanced services to
universal service.
That attachment exists in law, in the Act, and what we
really require at this point is a set of actions on behalf of
the FCC that are bold, rather than timid. The FCC has to be
bold in pursuing some of these policy objectives, and I might
also say I suppose it is gratuitous to say that when this Act
was passed, en acted, and the FCC first got a hold of it, they
made some horrible mistakes in judgment, in my judgment, on how
they began to construct universal service and some other
issues, but they are trying very hard now with the new
commission to reconstruct and redo some of that.
They need now to be bold in these areas, and I regret--I
was asking Senator Hollings what word he used for the
witnesses. What word was that again?
Senator Hollings. Nibblers. You know, small fish, not the
big ones.
Senator Dorgan. I think we should say that he would not
mean that personally to any of you who are about to testify.
That was a figure of speech.
Senator Hollings. Well, I would say they made up for $54
million worth of business, and they are in there struggling,
and more power to them.
Senator Dorgan. Well, we are happy you are all here. More
power to all of you, and I agree with Senator Hollings that for
the hearing to be productive it should have had the Bell
Systems here, and should have had all the players at this table
talking about what this market is and what is happening in the
market, and why, because there are very serious questions about
why there is so little competition in local exchanges.
Senator Burns. Senator Brownback.
STATEMENT OF HON. SAM BROWNBACK,
U.S. SENATOR FROM KANSAS
Senator Brownback. Two points I would like to make. One is,
I think competition is occurring in the local telephone
service, and I have got some f actual numbers I want to put
forward to back that up, and it is following a very logical
progression along the market development. I think it will
follow more as the market develops more.
Then a second point that I want to make quickly is, I think
if we look on broadband services for advanced services,
deregulating some of those will not hurt the broadband
competition. I think it will actually expand services across
the country, including into rural areas.
Now, let me just put forward some f acts. I think probably
the chairman cited to some items here, but by the end of June
facility-based CLEC's were in every State and in all but 18 of
the United States, 193 local access and transportation areas.
We were in virtually all of those.
The number of ILEC lines resold by competitors doubled from
1997 to 1998. That is a f Act. The number of loops used by
CLEC's to provide service tripled over that same 1-year time
period. In f Act, there are only four States in which loops are
not used as an entrance strategy right now.
By the end of last year, CLEC's were reported to have
operational colocation arrangements in switching centers
serving almost half of all ILEC customer lines, representing a
67-percent increase over the number of such arrangements that
existed at the end of 1997. That is a f Act, that that is the
case.
In terms of the types of customers these switching centers
serve an approximately 40 percent of ILEC residential lines,
but 60 percent of ILEC business in Government lines. I think
they are just following the marketplace that is most developed
the earliest on.
Then we go on, there is other f actual basis that the
competition is occurring. It is occurring logically. It is
occurring as the market would develop. It is occurring where
there is reward for that, and I think it will continue to occur
as we let that market develop.
The second point I want to make is that I think we need to
look at, in the broadband services--and I put forward a bill on
this--some minor deregulation to actually increase the
broadband services being available to all, and particularly to
places like my State, Kansas, that has a lot of rural areas.
I think we need to look at that as a way of getting at more
of these broadband services, and the notion that we should go
back in and force more regulation or not provide the
deregulatory atmosphere to encourage the investment to be able
to get the capital into some of these expensive equipments and
technology would be the wrong strategy to pursue, so I would
hope we could actually provide some minor relief there,
particularly in the broadband area, so we can get that out to
rural customers as well, and I think that will be the most
logical way it will happen so that they can get access to
capital to develop those markets.
I know that is not in agreement with everybody on this
committee, those comments, but the one is a set of f acts, and
the other I believe is the way it will actually, logically
develop.
Mr. Chairman, thanks for holding the hearing.
Senator Burns. Thank you.
Senator Hollings. Would the chairman yield just for a
second?
Senator Burns. You want some time for clarification here?
Senator Hollings. Please.
Senator Burns. OK.
Senator Hollings. One, with respect to our overall
chairman, he has committed to holding a hearing on Susan Ness
at the beginning of next year. You and I, all of us have been
very vitally interested in her reappointment and, as has been
stated, she has done an outstanding job.
Second, when I talk about nibblers, let's look at the big
fish. I will never forget MCI spent $800 million, and British
Telecom said that is a waste of money. If you have got to
resell something, or a product that is controlled by the amount
of supply and the price itself, you cannot make money because
if you are making money, then the original entity will start
selling it itself.
So they lost $800 million. AT&T, the big fish, went after
it, and they spent $3.2 billion. Now they have gone totally
round, and into cable TV to try to get into the local market,
bust in the back door, and they are even trying to stop them
there, at the local city councils, saying that monopoly,
monopoly, we ought to have access.
Let us get it clear. You and I, we built these taxpayer
monopolies the seven Bell Companies. They came in and they
said, it is a competitive thing. We want one-stop shopping.
That is what the public wants, that is what we are going to
provide, and everything else like that, and then they
immediately went instead to the constitutionality of it and
tried to go around and not comply and try to bust up the
accounting system at the FCC.
They have had an onslaught from every particular direction
with all kinds of bills and what-have-you, and attempts to do
what, to hold onto their monopoly. More power to them, if we
are going to let them do it. If I ran Bell South, I would do
the same thing, because they are making one heck of a big
profit, and they are a well-run company, so it is just the sort
of breach of faith on behalf of the Bells who came in for 4
years saying they want to compete, compete, instead of
combining.
Now, these cable lines, they are investor entities. They
are not taxpayer monopolies. You and I, all of us paid in for
these public monopolies, and we said we want to break up the
monopolies. We wanted competition, and you are not going to get
competition in the local market. You are going to cut some
CLEC's, and they are nibbling, but with all of their 4 years of
nibbling they have gotten less than 4 percent into the local
market. That is my point, and we ought to find out, with these
Bell Companies, where are they?
Senator Burns. Well, I suspect we will probably find out.
Do not wish for too much. You might get it.
The first panel, and I am looking forward to hearing their
testimony, Roy Neel, president and CEO of United States Telecom
Association, Dan Pegg of Leap Wireless, Royce Holland with
Allegiance Telecom, Charles Houser with Trivergent, and Rick
Tidwell, who is with Birch Telecom.
I am always reminded, you know, my folks when they had
their 50th wedding anniversary we had more people drop by the
house than we had chairs for, and my mother was hollering and
says, we don't have enough chairs, and dad said, we've got
enough chairs, we've got too damn much company.
[Laughter.]
That is the way an old farmer looks at things, you know,
but Mr. Neel, thank you for coming this morning. We look
forward to your statement.
STATEMENT OF ROY NEEL, PRESIDENT AND CEO,
UNITED STATES TELECOM ASSOCIATION
Mr. Neel. Thank you, Mr. Chairman, Senator Hollings. It is
always a pleasure to come back in this room. I do not know
whether the United States Telecom Association is a nibbler or a
big fish, but I can tell you, I am here to represent all the
local exchange companies, the Bell Companies, GTE, and about a
thousand small companies. I don't really know where to start in
taking exception with Senator Hollings in terms of the degree
of openness in this market, because who are we going to
believe?
The so-called new competitors have reached nearly 10,000
agreements with the local companies to offer local service.
They go to Wall Street and tout their ability to compete, that
they are well-financed, that they have the markets open.
You know, Senator Hollings, our good mutual friend John
Windhausen, who is here with us today, testified here not long
ago about what would represent a test for local competition. He
has studied this and was one of the real driving forces behind
the 1996 Act. He said that the realistic choice test is really
more like a yellow pages test.
In other words, can a consumer open the yellow pages, find
another local phone company willing and able to offer service,
and then sign up with that carrier? When a consumer can do
this, then the market would be considered open.
Well, I have the Charleston phone book here, where you and
I both have homes. On the first page of the Charleston phone
book is a listing for local service providers, and there are 15
of them here. Now, we called every one of them yesterday, and
13 of them will offer local residential service.
Now, these folks believe that the market is open, and they
can get into the business, and this is repeated throughout the
country. It is really important to look at what the real issue
is here. When you say that the Bell Companies control 96.5
percent of the local market, that is really, really not the
story. They may serve 96 percent of the local residential
customers, but they have been losing massive revenues from the
business market. They are also losing millions of local
residential customers every month.
These are important statistics. In urban areas, the
business markets are open and critically the data markets have
been extremely competitive. In the first quarter of 1999 alone,
a million CLEC access lines were installed. This goes on and
on. As I said, nearly 10,000 certification, 5,500 signed
agreements, nearly 3 million resold lines.
The Washington Post business section has had dozens of
local service providers listed in the last few days.
Facilities-based competitive local exchange companies are in
all but 18 of the country's 193 local area markets. They are in
every State. They believe the markets are open and they can do
business. They go to Wall Street and they talk about how strong
they are going to be. So who is telling the truth here.
I think it is absolutely critical that everyone on this
panel represents rural markets, and everyone wants to get new
enhanced services out to rural customers. Everyone says that is
what they want to do.
Well, how are we going to do it? The so-called new
competitive providers are not going to do it. They will tell
Wall Street they are staying away from that market because they
cannot make any money at it. They go into the business market.
It is like the famous old bank robber said, when he was asked
why he robbed banks and he said, that is because that is where
the money is. Well, that is where they are going to go.
Competitive providers are going to go into the urban market.
So how are you going to get those services out to rural
markets? One of the impediments is the FCC's stubborn refusal
to follow the law and deregulate these markets to let these
companies get out and serve rural areas, and everyone else.
We have had a lot of attention to this current debate
between the cable modem and the digital subscriber line service
as a way to really push out service into rural areas. Mr.
Chairman, I would like to ask the members of the committee to
look at simple chart we have here. There are about 15 or 20
issues or services or functions in this data market that are
provided either through DSL service by local providers or by
cable operators.
If you look at this chart, this gives you a sense of what
is regulated and what is not. In every case, the local service
provider providing DSL service has these components heavily
regulated. The company providing the same service by cable
modem has no regulation whatsoever.
Further complicating this is that the two main providers
now of Internet interstate backbone services will serve more
than 75 percent of this market. Now, that is a massive duopoly,
so where is the competition here? The goal should be to let the
local phone companies get out there and build these data
services to the last mile to every consumer, whether they are
in Missoula or some of your smallest towns, whether they are in
Charleston or some of your smallest towns in South Carolina.
That is the reality, and that is what they have to do.
You can go through example and example, there is
competition out there. The business marketplace is extremely
competitive, and the FCC is simply not following the law. You
are going to hear anecdotes about abuses in the interconnection
process, and about how companies cannot compete. But that is
not what they are telling Wall Street. For every anecdote about
a problem that a competitor is having interconnecting or
getting lines provided, there are literally tens of thousands,
if not millions of examples where those customers are
transferred easily, quickly, and to the competitor's satisf
action.
It is no secret a competitor is going to want to have the
rules go their way. It used to be said MCI was really not a
telecom company, it was a law firm with an antenna.
Competitions are trying to get competitive advantage anywhere
they can, and the point here is that you have got to be
discriminating about these complaints.
We look at what has been done as opposed to the few
examples where it is not working. The critical issue is how
these companies are meeting their obligations under the 1996
Act, under section 251. Not a single enforcement proceedings
has gone against any of the local exchange providers for
failure to comply, Senator, with the Act, not a single one. If
complaints have been made, they have been dismissed by the
commission, or they do not exist, so that is a very critical f
actor here as we go forward.
It is really important that the FCC get on with the process
of deregulation, and not simply holding back one of the real
engines of force in the local telecom economy, the local
exchange providers. The FCC needs to let the local exchange
companies get out and compete with the likes of this huge AT&T
megalopoly that is coming together, and now this Worldcom-
Sprint monster that is coming together. The way to really get
competition out there is to let local exchange companies get
out there and compete.
So I appreciate your time. We have asked that our statement
be included in full in the record.
Senator Burns. Your full statement will be included in the
record.
[The prepared statement of Mr. Neel follows:]
Prepared Statement of Roy Neel, President and CEO, United States
Telecom Association
Thank you very much, Mr. Chairman, for giving me the opportunity to
testify at this hearing. The hearing is timely and an important one. As
the President and CEO of the United States Telecom Association, I am
here on behalf of the over 1100 local telephone companies that we
represent throughout the United States. Our members are at the front
lines of local competition and the thrust of my testimony today will be
that if you are a business in a large urban market you have many
competitive opportunities. In contrast, if you are a residential
customer in a rural market you will have very limited competitive
options. We also expect that cable operators who are today providing
telephone service in some markets will greatly expand that service to
other markets.
Let me begin by quoting a recent remark made by the Chairman of the
Federal Communications Commission, William E. Kennard with respect to
local competition. Chairman Kennard made the following statement at a
hearing before the House Commerce Committee's Subcommittee on
Telecommunications, Trade and Consumer Protection on October 26, 1999.
In the local phone sector, we are starting to see the fruits of
our pro-competitive policies. There are now at least 20
publicly traded CLEC with a total market cap of 33 billion
(dollars). That compares with only 6 CLECs with a market cap of
$1.3 billion at the time of the passage of the 1996 Act. In the
first quarter of 1999 alone, almost a million CLEC access lines
were installed. (Emphasis Added)
The Local Market Is Open
As a starting point, let me share with you some summary information
on the state of local competition that USTA provided to the House
Commerce last December (1998):
Demonstrate Competitive activity with: LEC Total
PSC CLEC Certifications................... 9,762
Signed Agreements with Competitors........ 5,475
PSC Approved Agreements................... 2,881
Unbundled Loops........................... 285,402
Resold Lines.............................. 2,849,469
Resold Business Lines................. 1,650,092
Resold Residential Lines.............. 1,260,751
Resold Coin........................... 35,226
Resold Private Lines/Data CKTs.......... 78,756
Minutes of Use (MOUs) Exchanged (Since 307.1 Billion
1995)....................................
Interconnection Trunks in Operation (Local 1,801,977
Only)....................................
Collocation Arrangement ( activity).......
Physical.......................... 2,385
Virtual........................... 2,220
Wire Centers with Collocation............. 4,956
Number of Lines in Offices with One or 44,593,956
More Collocators.........................
NXX Codes Assigned to CLECs............... 11,413
Total CLEC-Provided Local Exchange Service 3,510,476
Lines....................................
The above information was compiled by our local telephone companies
and its shows that there are a lot of competitive entrants. This
original research done by USTA has been validated by subsequent studies
done by both us and others. I also intend to demonstrate to you that,
as Chairman Kennard noted, the competitive situation has become much
more competitive in just this last year of 1999.
In May of this year, USTA submitted to the FCC (CC Docket No. 96-
98) a report prepared by Peter Huber and Evan Leo for the Bell
operating companies and GTE entitled the UNE FACT REPORT. The report
was done in contemplation of the UNE remand proceeding at the FCC so it
emphasized network elements, such as switches which are a key component
to facilities-based local competition. This extensive research
confirmed our earlier (December 1998) assessment regarding the state of
local competition. This report showed, for instance, that 167 CLECs had
deployed 724 switches in 320 cities as of March 1999. A chart showing
the locations of the switches is attached to my testimony, and it
graphically corroborates my earlier statement about where the
competition is going. What leaps off the page of the attached chart is
that competitors have business plans that target urban areas. In
Washington, D.C. , for instance, 14 CLECs operate 23 switches in the
Washington Metropolitan Statistical Area.
The UNE FACT REPORTS econdly looked at 3 categories of RBOC/GTE
Wire Centers those with 40,000 lines or more, those with 30,000 lines
or more and those with 20,000 lines or more (see attached charts). The
research showed dispositively that wire centers with the greatest
density have the greatest degree of competition, thus providing
probative evidence that the CLEC business plans place their emphasis on
business customers, as it is within the reach of these dense wire
centers that the great preponderance of business locate. Drive around
Washington today, for instance, and observe where the streets are being
torn up to install fiber optic cable and this point will be made. As
our UNE FACT REPORT further observes, there is more local competition
three and a half years after passage of the 1996 Act than there was
three and a half years after EXCUNET II opened up the long distance
market to competition in 1978, by requiring AT&T to interconnect with
long distance competitors.
In the advanced service market, the UNE FACT REPORT points out that
the competitive situation is even more pronounced. CLECs already lead
incumbent local exchange carriers (ILECs) in providing advanced
services over ILEC loops. CLECs offer advanced services to over 5
million homes and ALTS, the CLEC trade association, predicts that
number will quadruple in 1999, with data constituting 20 percent of
CLEC revenue by 1999.
Our two studies on local competition have been confirmed by the
Local Competition: August 1999 report of the FCC's Common Carrier
Bureau. This report indicates that by the end of June 1999, facilities-
based CLECs were in every state and in all but 18 of the nations 193
LATAs. Furthermore, this report's assessment of where competition is
developing corresponds precisely with our own analysis. The report
says:
One such assertion, made by virtually all analysts is that
competition is emerging most rapidly in urban business
districts. This observation meets with prior expectations,
which are based on historical telephone cost and usage
patterns. For example, a large body of literature describing
the cost structure of the telephone network supports the
conclusion that local telephone companies incur greater costs
by serving rural customers than by serving urban customers.
Furthermore, business customers, which are often concentrated
in urban areas, have historically used the network more
intensively than residential customers. Consequently, local
telephone companies have historically collected a
disproportionate share of their local telephone revenue from
business customers. In concert, these f actors indicate that
the high-volume, low-cost customers in urban business districts
are more attr active to new entrants than either rural or
residential customers. (Emphasis Added)
The business plans of CLECs reflect the economic realities of the
marketplace. There is considerable profit to be made in serving
business customers, but there is less in serving the overwhelming
majority of residential customers. US West in its territory has, for
instance, lost to competitors 70% of its high capacity traffic. For
most residential customers in most states, local residential telephone
service is still highly subsidized by a 50 year old system of implicit
subsidies. Investors behind CLECs know this and well over 95% of all
capital flowing to CLECs is targeted at business customers, even though
these customers represent only 35% of the total U.S. telecommunications
market. CLECs are also no longer small companies as their market
capitalization in 1999 is larger than the United States airline
industry.
The competition situation is changing and growing everyday. Just
yesterday, for instance, Bell South announced that Network One will
spend $500 million with Bell South's unbundled network element
combinations or so-called UNE-P. This is the largest such deal reached
to date in the telecommunications industry.
CRITICAL IMPEDIMENTS TO THE FURTHER DEVELOPMENT OF LOCAL TELEPHONE
COMPETITION
1. lack of comprehensive universal service reform.
In March 1994, USTA submitted to this Committee its universal
service amendments to Senator Hollings' bill, S. 1822. We had been, by
this time in 1994, internally assessing and developing for 3 years our
policy recommendations to preserve universal service in an era of local
competition. USTA's evaluation concluded that the system of implicit
subsidies could not survive in a competitive era; that subsidies need
to be explicit; that all providers of telecommunications services
needed to contribute to universal service preservation; and that local
telephone rates had to be rebalanced. The USTA amendments proposed four
basic universal service proposals for a competitive era:
1--eliminate implicit universal service subsidies
2--require all providers of telecommunications service to
contribute to the preservation of universal service
3--establish explicit subsidies to provide adequate and sustainable
support for universal service
4--authorize ILECs to rebalance their local telephone rates
During deliberations on the 1996 Act, several highly motivated
Senators formed a coalition that became known as the ``Farm Team'' to
protect telephone services, especially in rural areas. Senators,
including Dorgan, Exon, Pressler, Rockefeller, Kerrey (Nebraska) and
Stevens made this objective the centerpiece in the debate on
legislation that ultimately became the 1996 Act. By August 1994, the
``Farm Team'' had embraced three of these four USTA principles.
Elimination of implicit subsidies was not adopted by the ``Farm Team,''
but rate rebalancing was. (See, Rural Area Amendments ``Farm Team''
Draft III -- August 1, 1994.)
I am emphasizing the Senate and the ``Farm Team'' deliberations,
because it was the Senate's universal service provisions that were
adopted by the 1996 Act. The 1996 Act embraced three of the four USTA
universal service principles or at least that is what we thought on
February 8, 1996 when President Clinton signed the Telecommunications
Act of 1996. The 1996 Act did quite clearly rejected our rate
rebalancing proposal. Had it been adopted local competition in my
judgment would be much further along, especially with respect to local
residential competition. Most states are reluctant to rebalance rates,
because rebalancing rates results in local residential telephone rate
increases and local business telephone rate decreases. Some states,
such as Nebraska have rebalanced rates and created a state universal
telephone service fund, and it has proven successful. In our March 1994
submission to you, we emphasized how important rate rebalancing is and
we said: ``The universal service provisions of this legislation do not
permit the adjustment of prices for telecommunications services,
especially in light of the competition that it fosters.'' In other
words, if you want local residential telephone competition to flourish
you must rebalance local telephone rates.
The FCC was required by Section 254 of the 1996 Act to complete
action on universal service reform by May 8, 1997. To date, the FCC has
failed to do so. This failure in combination with the Congress'
rejection of rate rebalancing in the 1996 the Act has perpetuated the
economic distortions that existed at the time of the 1996 act's passage
and that work against the competitive goals of the Act. I am talking
here about the f Act that local residential service is supported by a
vast array of implicit subsidies mechanisms which include: interstate
access charges, vertical services (e.g., call waiting and caller ID),
local business service, intrastate toll services and urban to rural
support. These subsidy pr actices which began in 1949 and which
continue unabated today result in ILEC provision of residential service
in many areas at below cost rates.
Without rate rebalancing and/or complete universal service reform,
local residential service, except in low cost urban or similarly
densely populated areas or provided by means of alternative technology
or resale, will be uneconomical for competitors to provide.
Consequently, there is a dearth of local residential competition, but
there is significant local business telephone competition. As the
Department of Justice observed in its recent Evaluation of Bell
Atlantic's New York interLATA application, loops in Manhattan are 2000
times more dense than in upstate New York. Such density will
economically support both competitive business and residential service,
but low density in rural areas, for instance, will not.
The 1996 Act has, as we have seen, accelerated the trend towards
competition in the provision of local telephone service. Competitors,
however, are immediately drawn to the business customers of the ILEC,
because the CLEC realizes that the ILEC in most states is still
required to price local telephone service to the business customer
above cost in order to subsidize local telephone service. Quite
obviously, this regulatory scheme is one that could exist in the
monopoly telephone era, but not the competitive. Neither the states nor
the FCC have eliminated implicit subsidies, which seemed to be one of
the clarion calls of the 1996 Act, even if rate rebalancing was not.
2. Section 271 Relief.-- A second critical impediment to local
competition is the failure to date to authorize a single RBOC to
provide interLATA telecommunications service in their regions. I doubt
seriously if any of you who were on the Committee in 1995 and 1996
would have ever envisioned that statement being made at the end of 1999
-- 3 years and 9 months after the 1996 act's signing. One of the
principal goals of the 1996 Act was to get BOCs into the long distance
market in order to enhance competition in that telecommunications
market segment as well. The watchword during the consideration of the
1996 Act was simultaneity, meaning that BOCs should be authorized to
provide long distance through Section 271 simultaneous with the opening
up of the local market through Section 251. Simultaneity was abandoned
within six months of the 1996 act's passage. Chairman Pressler, for
instance, opined on the Senate floor during debate on S. 652 that the
Competitive Checklist would be easy for BOCs to pass, because it was
simply an amalgam of extant state regulatory requirements.
The 1996 act's requirements for RBOC entry were pretty
straightforward. If a BOC had a facilities-based or predominantly
facility-based competing provider of telephone exchange service to
businesses and residences and if the RBOC met the 14-point checklist,
the RBOC should be approved for long distance service if the FCC
determined that entry was in the public interest. As Solomon Trujillo
Chairman and CEO of US West testified before this Committee in April of
this year, and reinforced in his letter of May 7, 1999 to Senators
McCain and Hollings, the FCC has made this entry very much more
complicated. In his letter, Mr. Trujillo pointed out that the 14-point
statutory checklist has been, by US West's fully documented count,
increased to a 690-point checklist. Section 271(d)(4) of the 1996 Act
prohibited the FCC from expanding the checklist. In 1999, to find out
what requirements a BOC must meet for interLATA authority forget about
the 1996 Act. The only place to find the state of the law at any one
point is to look at all of the FCC orders and rules. As Mr. Trujillo
pointed out, however, in his letter:
Over the three years since passage of the Act, the FCC has
conducted at least ten rule making proceedings creating Section
271 compliance obligations and has rejected each of the Section
271 applications filed by three different BOCs. A consistent
pattern has emerged where each rulemaking and decision adds to
or alters the compliance requirements, sometimes very
significantly. (Emphasis Added)
The continually evolving nature of these requirements points up
the difficulties that BOCs face in their effort to obtain long
distance relief within their regions. In performing the
analysis necessary to identify these regulatory accretions to
the statutory scheme en acted by the Congress, a number of
regulatory approaches adopted by the FCC are so noteworthy that
they require brief, separate discussion. (Emphasis Added)
All told, the existing or proposed FCC requirements enumerated
in the Study levy enormous operational, administrative and
economic burdens on BOCs in their effort to gain Section 271
relief. The costs associated with meeting these requirements
constitute a significant barrier to BOC entry into the
interLATA market. Insofar as these requirements are extended to
BOC provision of advanced data services, as proposed by the
FCC, they could also delay, if not foreclose, rapid, wide-scale
entry by BOC's into the broadband service market. (Emphasis
Added)
Even the Department of Justice agrees that the compliance
requirements for Section 271 have expanded. In its recent evaluation of
Bell Atlantic's New York application, the Department of Justice refers
to the ``ever receding finish line for meeting the requirements for
entry into the long distance market.''
Despite all of this, I am advised by the Bell operating companies
that there are three very promising Section 271 applications in the
pipeline: Bell Atlantic for New York; Bell South for Georgia; and SBC
for Texas. These, I am advised, will even meet the 690-point
checklist--if the goalpost is not moved even further. Bell Atlantic's
application is currently before the FCC for its 90-day review, after
having received the endorsement of the New York Public Service
Commission following a lengthy and rigorous analysis by that state. The
Department of Justice has even concluded that the FCC ``... may be able
to approve Bell Atlantic's application at the culmination of these
proceedings.''
All three of these states (New York, Texas, Georgia) have
facilities-based competition for both residential and business
customers. An abbreviated snapshot of the competitive situation in
these 3 states would be as described in the below chart:
----------------------------------------------------------------------------------------------------------------
STATE NEW YORK TEXAS GEORGIA
----------------------------------------------------------------------------------------------------------------
CLEC Certifications.................................... Over 500 294 138
Operational CLECs...................................... 100 162 61
CLEC...................................................
Provided Access Lines.................................. 1.3 million 1.3 million 305,000
----------------------------------------------------------------------------------------------------------------
Today, long distance carriers have a very real incentive to keep
the BOCs out of the in-Region interLATA business as they will surely
lose some of their long distance market share to the BOCs.
Consequently, they are not significantly entering the local telephone
market for residential customers. This business customer oriented
business plan will end in a hurry once the BOCs are given in-Region
interLATA authority. A good example of this occurred in Connecticut
where SNET, prior to being acquired by SBC, was allowed to offer a
package of local and long distance services. Both AT&T and MCI lowered
their intrastate long distance rates and offered a bundled package of
local and long distance services to compete with SNET.The failure to
provide BOCs with interLATA relief is one of the most critical
impediments to local competition. Once Section 271 relief is
authorized, competitors will no longer purposely avoid serving
residential subscribers. Today, if competitors provided wireline
facilities-based services to both businesses and residences, this would
unquestionably show that the local market is open, thus enabling BOCs
to obtain Section 271 relief. Once BOCs are permitted to offer long
distance, the long distance companies will find it necessary to enter
the local market.
DEPLOYMENT OF ADVANCED SERVICES
The 1996 Act requires the FCC take steps in ensure rapid deployment
of advanced telecommunications services as mandated in Section 706(b).
There is no company that possesses market power in provision of
advanced telecommunications service; hence, there is no reason for
ILECs to be regulated differently than any other provider of advanced
services. USTA agrees with AT&T CEO Michael Armstrong, who recently
stated: ``No company will invest billions of dollars to become a
facilities-base broadband services provider if competitors who have not
invested a penny of capital nor taken an ounce of risk can come along
and get a free ride on the investments and risks of others.'' All
providers, CLECs, ILECs, and cable providers should receive the same
regulatory treatment that is no regulation of advanced services
regardless of who the provider is. Second, BOCs should be given
immediate authority to provide interLATA data services in order to
enhance the Internet backbone and provide high speed Internet access
throughout the country. Many, even relatively large cities and some
states, have no Internet Point of Presence (POP).
There is no reason, for instance, why DSL which is an interstate
telecommunications service should be regulated differently from Cable
Modem Service, a cable service, but it is! DSL is pervasively regulated
as a telecommunications service, but cable modem service is virtually
unregulated as a cable service. Chairman Kennard just last week
testified at the earlier cited House hearing that these two services,
cable modem provided by cable operators and DSL services provided by
ILECs are functionally equivalent. Look, however, at the regulatory
differences between these two functionally equivalent services:
The Internet is changing the world in ways never contemplated. Data
and high speed access to the Internet are the important competitive
matters of today and tomorrow and this is no David/Goliath story. ILECs
have as their principal competitors in advanced services such companies
as AT&T, which when its Media One merger is complete, will be not only
one of the nation's largest long distance telephone carrier, but also
the #1 cable television company. In the area of cable-based, high-speed
Internet access, AT&T would own 78% of @Home (330,000 customers) as
well as nearly 40% of Road Runner (75,000 subscribers) -- bringing AT&T
one step closer to offering a nationwide, all-in-one Internet, video
and voice communications service. AT&T will have direct access to at
least 60% of U.S. homes. Moreover, AT&T will also have significant
chunks of:
--Three of the top four cable firms
--The two largest high-speed Internet companies, and
--A share of virtually every major cable TV network
CONCLUSION
To summarize, there is certainly competition for business
subscribers. Residential competition has been frustrated by the failure
of most states to rebalance local phone rates, and the failure of the
FCC and most states to reform universal service to eliminate implicit
universal service subsidies. Third, we need regulatory parity in the
provision of advanced services -- cable modem service and DSL service
are functionally equivalent and neither should be regulated.
Senator Ashcroft has joined us. Do you have a statement, or
anything that you would like to say?
STATEMENT OF HON. JOHN ASHCROFT,
U.S. SENATOR FROM MISSOURI
Senator Burns. We thank you for your attendance.
Mr. Dan Pegg, senior vice president, Leap Wireless, San
Diego, California. Welcome.
STATEMENT OF DANIEL O. PEGG, SENIOR VICE PRESIDENT,
LEAP WIRELESS INTERNATIONAL, INC.
Mr. Pegg. Thank you, Mr. Chairman. I, too, have some
remarks that I would request be made a part of the record.
Senator Burns. Your full statement will be made a part of
the record.
Mr. Pegg. Thank you. Leap Wireless International is a
wireless service provider. We have international properties in
Mexico and Chile, but what I am here today to talk about is our
U.S. operating company, which is called Cricket. We have been
in business for 1 year now. We are an independent publicly
traded company, but we are different than the traditional
wireless services that most of us are used to.
We offer our customers unlimited use for $29.95 a month. We
do not have any contr acts. There are no hidden costs, and
there are no credit checks. It is quite like your cable
company. You give us $29.95 at the first of the month, call all
you want, inbound, outbound, then at the end of the month we
will ask you for another $29.95 if you want to continue the
service. If you do not, that is fine, too.
We truly do, I think, fulfill the intent of the 1996 Act
for those communities that we operate in. We take the freedom
of wireless to the mass market within the local loop, but we do
it, as I said, in a very different way.
The offer has been so compelling in our first market,
Chattanooga, which we operate under a management agreement,
that in just 6 short months we were able to achieve 4 percent
penetration, which is quite high for any other type of wireless
service.
In addition, market surveys would indicate that of all the
new subscribers within that market to both cellular and PCS 62
percent are opting for this Cricket opportunity, because again,
it is simple, it is trouble-free, you can talk all you want
where you live, work, and play, and there are no contr acts or
obligations.
Of the 62 percent new subscribers that came to Cricket, 61
percent had never used wireless before, which I think tells you
that there is a pent-up demand there for this product at the
right price and under the right conditions.
We currently have licenses for 50 markets -- excuse me, 50
licenses that comprise about 20 markets. We think that Cricket
is bringing competition to the local loop by using technology
in a unique way. We think it provides the customers with a very
strong value at $29.95. We would certainly like to have more
spectrum. We would just like to keep nibbling, Senator, because
with more spectrum we could take this value to more people and
with that, as Senator Burns says, silence is golden, so I will
quiet down.
[The prepared statement of Mr. Pegg follows:]
Prepared Statement of Daniel O. Pegg, Senior Vice President,
Leap Wireless International, Inc.
Mr. Chairman and members of the Committee, my name is Dan Pegg. I
am Senior Vice President of Leap Wireless International and I
appreciate the opportunity to be before you today.
Leap Wireless International, Inc. (``Leap'') is a wireless carrier
that deploys, owns and operates networks in domestic and international
markets with strong growth potential. Through its operating companies,
Leap has launched or is in the process of launching all-digital
wireless networks in Mexico, Chile, and the United States. We are
dedicated to bringing the economic benefits of reliable, cost-effective
and high-quality voice and data services to domestic and emerging
markets. Leap was spun off from Qualcomm Incorporated as an independent
company in September 1998. The company is listed on the Nasdaq National
Market under the symbol LWIN and had approximately 80,000 shareholders
and 18.2 million shares outstanding as of July 1, 1999.
Leap is working to expand the wireless world by providing need-
based, value-priced, quality services to underserved market segments.
Common synergies of Leap operating companies include high-quality, 100
percent digital voice systems, dedicated local management, innovative
service offerings, strong marketing and distribution channels, and
premium customer care.
In the United States, Leap's operating concept, is called Cricket
Sm and that will be the focus of my remarks today. Cricket
is designed to change the way wireless telephones are used by offering
a unique service that meets the needs of the mass consumer market.
Cricket's flat-rate service is designed to make wireless communications
a simple, worry-free, and affordable alternative for local calling. For
$29.95 per month our customers can use their Cricket phones as much as
they wish. By offering a compelling value and customer-friendly
product, Cricket is capturing a previously underserved market segment
and achieving remarkable market penetration. In f Act, the vast
majority of Cricket customers are completely new to wireless. Just as
Southwest Airlines created a new value standard and expanded the market
for airline travel, Cricket is seeking to change the way consumers
think about and use wireless.
The Cricket service model was introduced in March 1999 in
Chattanooga, Tennessee by Chase Telecommunications working together
with Leap. The Cricket service lets customers make and receive all the
calls they want within the local service area for one low, flat rate.
While roaming is not available, full mobility exists within the local
area in which people live, work and play. As of August 31, 1999,
approximately 12,400 subscribers had chosen Cricket as their service
provider, bringing Cricket's total penetration of the Chattanooga
market to 4 percent of covered POPs after only two quarters of
operation--a remarkable achievement for a wireless company.
In total, Leap has licenses or rights to acquire licenses to offer
the Cricket service to approximately 24 million potential subscribers
(1998 POPs). Leap will be launching Cricket in cities across middle
America through the next 24 months. Through the introduction of
Cricket, Leap believes that it will change not only the way telephones
are used, but also provide a viable, affordable alternative to the
current wireless service for consumers. Leap will achieve this goal
because we are new and innovative, allowing us to take the full
advantage of both technology and efficiency that comes with change. As
an example, Leap believes that Cricket's customer acquisition costs
will be significantly lower than those of a typical PCS company due to
our simple and straightforward product. Cricket's planned simple
billing, lower customer care cost, lower distribution cost, and lower
bad debt cost from a pay-in-advance system are designed to re-shape the
economic models of wireless and virtually all telephone service
delivery.
Cricket brings wireless communications to the mass market in the
same way Ford created affordable automobiles, Wal-Mart created an
affordable retail shopping destination, or, as I mentioned, Southwest
Airlines created affordable air travel. Cricket is striving to deliver
on the promise of the 1996 Telecommunications Act, which was intended
to create competition in the local loop and increase accessibility and
affordability so that everyone can enjoy the benefits of improved
communications. Our service isn't like traditional wireless service,
because customers can call without worrying about paying by the minute.
It's not like a home (landline) phone, because it works well beyond the
range of home cordless phones.
Unlike many communications companies, Cricket differentiates itself
by starting with the needs of the consumer, and using technology to
deliver what they want and need. Every aspect of Cricket service is
considered from the consumer point of view before it is fully
developed. Many current newer communications alternatives are aimed at
the business customers, along with most of the incumbents that compete
both in the local loop and for communications services in general.
Cricket does not target the business user or the current wireless user.
Most of them have different needs, like roaming outside the local area
(which Cricket does not offer), or the ability to connect to the office
computer to check e-mail or access the Internet. Neither of these
capabilities is a priority for Cricket's target, the non-wireless user
who lives, works and plays in the local area.
The convenience of making and receiving phone calls away from the
home provides many benefits to these people at costs close to landline
is overwhelming given the increasing demands on consumers time. Staying
in touch with friends, family, business cont acts is still important,
but there is less time available to do this. Wireless service allows
people to use ``down time''--time spent going from place to place,
standing in line, running errands, as productive time, or communication
time. The usefulness of a landline phone as a voice communication tool
is diminishing. More and more often the landline telephone jack in the
wall is being used for Internet access, e-mail, etc. and less for voice
conversations. Being ``tethered'' to the home is becoming more of a
constraint as lifestyles continue to become more active and on the
move.
Research indicates that two main concerns are keeping interested
non-users from going wireless:
First, they realize they will use a wireless phone frequently, and
are afraid of what it will cost. That's because available wireless
services are ``open-ended.'' The total bill depends on minutes of use,
regardless of whether a big bucket of minutes are included in a rate
plan (large monthly fee) or whether additional minutes beyond the
bucket amount are used. They would be afraid to give out their number
because they pay by the minute for incoming calls, too. Moving towards
wireless requires consumers to move out of the billing experience that
they have become accustomed to with their fixed local loop service.
Second, they are confused by wireless offerings and don't trust
wireless providers, who sometimes have used sales tricks and gimmicks
in the past to lure, then surprise, subscribers. They've heard the
horror stories from wireless users. These include:
Poor voice quality
Phones for free (what's the catch?)
Long term contr acts that require a stiff cancellation fee
(that's the catch!)
Confusing and complicated rate plans which cause anxiety about
choosing the right one
Hidden charges, like landline interconnect, roaming, peak/off
peak pricing, activation fees
Fine print
Poor customer service
Misleading advertising
Prepay offerings, which penalize credit-challenged people with
high ``per-minute'' rates.
In contrast to these pitfalls, the Cricket offering has been so
well received that in Chattanooga, 62% of all new PCS/Cellular
additions have been Cricket. The Cricket service has achieved an
amazing 4% penetration in less than six months. And, based on market
research, 61% of Cricket subscribers use Cricket service as their
primary service for personal calls. At $29.95 per month, with no hidden
costs or credit checks, Cricket not only brings wireless telephony to
the mass market--it brings true competition to the local loop.
Senator Burns. Thank you. I must apologize to my friend
from Georgia. He and Senator Ashcroft came about the same time.
Senator Cleland, do you have a statement you want to make? How
can we accommodate you?
STATEMENT OF HON. MAX CLELAND,
U.S. SENATOR FROM GEORGIA
Senator Cleland. Mr. Chairman, I am just here to listen and
learn, but we thank our panelists for coming, and thank you for
having the hearing. Thank you.
Senator Burns. We have with us Royce Holland, chairman and
CEO of Allegiance Telecom, Dallas, Texas. Thank you for coming
this morning.
STATEMENT OF ROYCE J. HOLLAND, CHAIRMAN AND CEO,
ALLEGIANCE TELECOM, INC.
Mr. Holland. Thank you very much, Mr. Chairman, and Senator
Hollings and members of the committee. In addition to being
chairman and CEO of Allegiance Telecom, which is a competitive
local exchange carrier, I am also here representing the CLEC
industry as a whole through my post as chairman of the ALTS
organization, which is our industry trade group.
In f Act, the president of that trade group is one Mr. John
Windhausen, who used to be a member of your staff, and he is
doing a great job. You all trained him well.
Since ALTS does represent facilities-based carriers, I
guess I am a spokesman for the nibblers today.
I really wanted to make four points today. First, we are
for competition. We are not an RBOC. We are not a long distance
carrier. We are for opening the local market to competition,
and number 2, like a lot of you, we are sick and tired of
seeing so many of the big fish competing in the halls of
Congress, competing at the FCC, and clogging up the court
dockets rather than getting out there and competing in the
market.
I see the battles between the Bell Companies and the long
distance carriers, the cable TV companies and the Bell
Companies, and mainly what they are trying to do is avoid
competition. They are trying to protect legacy markets and keep
those from being open to competition. Well, in my opinion they
ought to be complying with the Act and we ought to get the
market opened.
I feel that the Telecom Act of 1996, which many of you
gentlemen on the committee had a big hand in, and my good
friend and fellow Texan, former Congressman Jack Fields, along
with Congressman Markey, your counterparts in the House,
developed, I think that is one of the most significant pieces
of commercial legislation to come out of this town in 50 years,
and it has really provided a foundation for America's
continuing increasing competitiveness in the global economy.
The Telecom Act does not need fixing. The enforcement
process is what needs fixing, and I would also say, a corollary
to that is, do not treat these Bell Companies monolithically.
They may all have been hatched along with AT&T in 1984, but you
have got to reward the good behavior, and you have got to
severely penalize the bad behavior. The message ought to be
very clear, comply with the competitive checklist and you are
in long distance. Compliance with the Act, though, is not
optional. If you do not comply, we need self-executing
penalties that will kick in and make you comply.
Now, in elaborating on this, we have heard a lot of
statistics about whether the market is competitive, or the
market is not competitive, and certainly Mr. Neel mentioned the
yellow pages test. Well, merely offering competition does not
get it done.
The key is, can you deliver in a quality manner
competition, and I call it the 13-year-old kid test. My son
David is 13 years old, and he plays ice hockey, and he can tell
you if a goal is scored or not. Does it cross the line and go
in the net, or does it not?
Likewise, he can tell you if there is true, effective local
competition by a simple test. That simple test is, can you, as
a customer, change your local carrier as seamlessly and easily
as you can change your long distance carrier? Well, I will tell
you today you cannot, though it is improving with some of the
RBOC's, most notably Bell Atlantic in New York.
By and large it takes you 2 to 3 days to change your long
distance carrier. 9 months ago it was taking 30 to 60 days on
average to change your local carrier, with a 40 percent
service-effecting outage rate at the time of cutover using the
unbundled elements.
Allegiance Telecom serves 18 markets today. We are working
with Bell Atlantic, Southwestern Bell, and PAC Bell on
implementing the electronic bonding of OSS and putting in
procedures to do this. Customer cutover intervals are down in
some of these States, notably New York and Texas, to probably
10 to 15 days now, and our bad cut rate is down to 10 to 15
percent. That is still nowhere near where it needs to be.
Well, the key to fixing that is compliance with the
competitive checklist. Really, I think the three keys to
success are:
Number 1, we have got to force compliance with the
checklist. It is not an option to obey the law or not. You
know, I would love to have an option to pay my income tax or
not. I do not have that option, and there are quick, self-
executing penalties that hit me if I do try to choose that.
Number 2 is, when they comply, you have got to let them
into long distance when they comply but not before, and you
will see a lot of players out there in this industry objecting
till hell freezes over about letting them in. I will tell you,
the nibblers here, the CLEC group, we are willing to give the
carrot when they do perform.
Number 3, do not let them bypass the Telecom Act. We have
got to not treat them monolithically. A lot of these ruses like
this thing, well, we have got to be in for data, we do not have
to comply with the competitive checklist for data, that makes
no sense at all. That is rewarding the bad players as well as
the good.
Let me just give you an example of who I think is a bad
player and who is a good, because I will start the trend and
not treat them monolithically. Bell Atlantic in New York, we
are supporting their 271 application, Allegiance Telecom is.
They will get in. It is not a matter of if, it is when. It will
be by the end of this year or early next year. We have worked
with them since June of last year to make it a reality.
On the other side of the coin, U.S. West ought to be
punished. I mean, our members in the ALTS Association have seen
what we feel is one willful Act after another throughout their
region not to comply with the checklist. So when it gets right
down to it, I think Senator Hollings' bill, S. 1312, is moving
in the right direction with self-executing penalties. We see
howls of protest against it. I will tell you who is protesting
the loudest are those that are most guilty. The guilty dog
barks first.
Thank you very much for the oportunity to testify, and I am
really looking forward to seeing the continued movement toward
competition so that the Telecom Act will be a reality in the
marketplace.
Senator Burns. Thank you very much, Mr. Holland.
[The prepared statement of Mr. Holland follows:]
Prepared Statement of Royce J. Holland, Chairman and CEO,
Allegiance Telecom, Inc.
Good Morning, Chairman Burns, Senator Hollings, and Members of the
Committee. I am pleased to testify this morning on the state of
competition in the local telecommunications marketplace.
I am Chairman and CEO of Allegiance Telecom, a competitive local
exchange carder (CLEC) that is headquartered in Dallas, Texas.
Allegiance is a nationwide provider of competitive voice and data
services in 16 markets across the country. Allegiance was formed in
1996, after passage of the Telecommunications Act of 1996. In f Act,
Allegiance is one of over one hundred companies whose founding and
growth is directly attributable to the passage of that landmark1996
Act.
I also appear before you today as the Chairman of the Association
for Local Telecommunications Services, or ALTS. ALTS is the leading
trade association representing the facilities-based CLECs, the
competitors to the incumbent local telephone companies. ALTS does not
represent any of the "big three" (soon to be big two) long distance
companies, and ALTS also does not represent the Regional Bell Operating
Companies (RBOCs). ALTS' membership includes only the CLECs that are
deploying their own facilities (switches, fiber optic cables,
wirelessantennas, etc.) to provide competitive local telecommunications
service. ALTS' membership has grown substantially since passage of the
1996 Act, and now claims almost 200 members, 88 of whom are CLECs. I am
also pleased to note that the President of ALTS is John Windhausen, who
served for many years as a staff member to this Committee.
Mr. Chairman, I have a long history of experience in the local
telecommunications industry. Prior to founding Allegiance Telecom, I
founded MFS Communications, one of the first competitive providers of
local service in the late 1980's and early 1990's. MFS first operated
in the local market as a competitive access provider, or CAP. At the
time, MFS was allowed to compete with the incumbent telecommunications
companies in the provision of access services to long distance
companies, but many states prohibited the provision of local exchange
service to end user consumers in competition with the incumbent
telecommunications company. MFS was purchased by WorldCom in 1996.
In short, I have been at the business of trying to break open the
monopoly owned by the Bell Companies and GTE for many, many years, and
I am happy to report that the we are making great progress in turning
that former monopoly market into a competitive one. Most of the
progress we have made over the last three and one-half years is
directly attributable to the passage of the Telecommunications Act of
1996. Congress should be congratulated for its foresight in opening up
the local telecommunications marketplace to competition. But, despite
our progress, local competitors continue to encounter substantial
roadblocks that impede the growth of local telephone competition. These
roadblocks fall into three categories: (1) the failure of the local
telephone companies to open their networks to competition; (2)
excessive regulation and delays by municipal regulators; and (3)
unwillingness of building owners to grant competitors the same rights
of access to buildings that they have granted to the incumbent
telephone companies. Because of these continuing impediments, consumers
in many regions of the country are being denied the lower prices and
advanced services that competitors are bringing to the marketplace. I
will expound upon each of these types of difficulties later in my
testimony.
But first, I would like to share with you some basic f acts about
the progress we have made in making the local telecommunications
marketplace more competitive since passage of the 1996 act:
in 1996, there were approximately 15 companies
competing for local telecommunications service; today there are
over 200 companies earning revenue in the market, and there are
several hundred more companies that have received state
approval to offer competitive service;
in 1996, the CLECs' market share was approximately
one-half of one percent (0.5%); today, the CLECs take in
approximately 6-7% of the local market revenues; CLECs have
more than doubled their market share each of the three years
since passage of the 1996 act;
in 1996, CLECs had deployed approximately 60
switches; today, CLECs have deployed over 700 switches to
provide competitive local exchange service;
The CLECs that have gone public currently have a
market capitalization of more than $54 billion. In other words,
the 1996 Telecom Act has created more than $54 billion in new
wealth for investors and the American economy.
There is no doubt that competition has brought significant price
reductions. Competitive companies generally offer prices that are
anywhere from 10 to 30% lower than the prices offered by the incumbent
telephone companies.
Perhaps even more important, however, is that competition is
brining advanced broadband services to American consumers more quickly
than ever before. CLECs are leading the deployment of advanced
broadband services. The introduction of broadband services by the CLECs
has forced the incumbents to shelve outmoded technology and pricing
regimes and replace two thousand dollar analog T-1 lines with hundred
dollar digital subscriber lines -offering the same services at a fr
action of the price. In other words, the growth of local
telecommunications competition is transforming the local
telecommunications marketplace from a sleepy, slow-growth, basic
telephone business to an innovative, high-speed, entrepreneurial
battleground. The emergence of innovative, competitive
telecommunications companies has brought, not only price competition,
but new options to consumers, services and technologies that Americans
otherwise may not have seen- at least not for years to come. Now, where
CLECs begin deploying new technologies, ILECs are forced to follow
suit, offering similar services at comparable prices. (Unfortunately,
where competition does not yet exist, monopolists are still free to
overcharge or not deploy broadband services.) There is no doubt, that
CLECs are leading the way in the rollout of new services.
Witness the following examples of innovations in the local
telecommunications marketplace:
digital subscriber line (dsl) services:
CLECs are leading the deployment of Digital Subscribe Line (DSL)
technology. DSL, which stands for digital subscriber line, provides
consumers with an always-on, high-speed connection to the internet
using basic copper wire that already runs into every consumer's home or
business. DSL provides high-speed data communications to provide
connectivity on a wholesale basis to Internet Service Providers (ISPs)
or on a retail basis to consumers. The so-called data competitive local
exchange carders (Data CLECs) offer these high-speed local access
services by leasing the copper lines of the telecommunications company
and connecting those lines to their own equipment, called DSLAMs. They
purchase "conditioned" (free of load coils and bridge taps) unbundled
copper loops from incumbent local exchange carders (ILECs),collocate
their own DSL equipment in the central office, and backhaul the traffic
through leased transport. Some companies have plans to build their own
backbone network in the future, but for the most part, these service
providers are dependent on ILECs for the connection to the customer.
DSL technology provides several advantages over competing
technologies. DSL offers a dedicated connection, increased security and
guaranteed bandwidth. Service is consistent, irrespective of the number
of users in a geographic location, unlike cable modems, where all
residential subscribers on a coaxial connection contend for bandwidth.
Also, DSL simultaneously supports multiple sessions, so that multiple
PCs can be connected at the same tune. The connection is always on.
A study from Communications Industry Researchers Inc. of
Charlottesville, Va., indicates that by 2003 there will be more than
31.7 million households in North America using data connections that
feature transmission speeds of at least 1.5 Mbps, up from just 1.6
million households using such connections currently. CIR includes both
DSL-modem and cable-modem deployments in its study, as well as wireless
and satellite access technologies.
Allegiance is rapidly deploying these new digital technologies. In
June of this year, Allegiance rolled out DSL services from 24 central
offices in seven of our 16 markets nationwide. For small and medium-
sized business customers, we are deploying what we believe to be the
first commercial application of HDSL2, the new symmetric DSL standard
that requires the use of only one unbundled loop to achieve T-1
capacity (1.544 Mbps). We plan to collocate our DSL equipment in 110
central offices by year-end. We believe that DSL is one of the best
enabling technologies to hit the CLEC space in a number of years,
especially for the medium and small business market. In addition to
improving our gross margins, DSL should allow our customers to
significantly upgrade their data transmission and Internet connections
on a cost-effective basis.
As the DSL deployment progresses, Allegiance is accelerating the
acquisition of local fiber networks to replace the leased bandwidth we
have relied upon through the company's startup phase. For instance,
earlier this year, Allegiance completed the deployment of high-
capacity SONET networks in New York City and Dallas using fiber
acquired from Metromedia Fiber Networks. Construction also has begun in
Houston on a similar network using fiber acquired from Metromedia. The
company is negotiating the acquisition of fiber in several additional
markets. The Telecom Act knocked down the barriers, and now we're
seeing all the forces that have driven the computer and software
industries for the last 20 years moving into telecom.
Allegiance is not alone in deploying this high-speed technology.
Perhaps the first three companies to identify the value of the DSL
technology and announce nationwide rollout plans were Covad, NorthPoint
and Rhythms NetConnections. Their reach extends to residential, as well
as business customers. For instance, Covad just announced that it would
extend its DSL services to 40% of residential consumers and 45% of
business consumers by the end of the year 2000. Many of the companies
that have traditionally provided voice services have jumped on the DSL
bandwagon and have announced their own DSL offerings, including
McLeodUSA,FirstWorld, and MGC, just to name a few.
In addition, newer companies are already entering the DSL market to
serve smaller Tier 2 and Tier 3 cities. Companies such as New
EdgeNetworks, @Link, HarvardNet, Network Access Solutions (NAS),
BlueStar, and many others are rapidly deploying DSL service to smaller
communities. These technologies are also being deployed in some rural
areas as well, although progress in rural areas is slower because many
of the rural telecommunications companies do nothave the same
obligations or incentives to open their networks to competitors.
Because of the CLECs' rapid deployment of DSL services, all the
RBOCs and GTE are now planning their own roll-out of these services. U
S WEST and SBC currently appear to be the leading RBOC providers of DSL
services. U S WEST has already deployed roughly 80,000 DSL lines
(projected to be 100,000 by the end of the year. SBC has about 100,000
DSL lines (projected to be 200,000 by year end. Additionally, SBC just
announced plans to deploy to invest some $6 billion dollars for
broadband deployment over the next few years. The other Bell Companies
and GTE have also announced similar plans.
In short, the passage of the 1996 Telecommunications Act, and the
growth of competition for local telecommunications services, has
dramatically increased the deployment of high-speed internet access to
all consumers.
broadband wireless technologies:
A number of companies are rapidly deploying fixed wireless services
to small business and residential consumers in multi-tenant buildings.
These companies, such as Teligent, WinStar, NEXTLINK, Advanced Radio
Telecom, OpTel and others, beam high-speed communications from a
central antenna to the rooftops of buildings in metropolitan areas. The
company then connects the antenna with the inside wire in the building
to reach the consumer. Fixed wireless service is similar to cellular
telecommunications service, except its users stay in one place.
Conventional wiring and telecommunications apparatus is used inside the
building. But an antenna bolted to the building's roof transmits calls
to a base station. The base stations ends the signals, via fiber link
or wireless transmission, to a switch operation, where calls arerouted
locally, to long-distance networks or to the Internet.
This technology can deliver high-bandwidth services more
efficiently and at lower cost than the dominant fiber-based carders.
Unlike their fiber counterparts, wireless carders do not have to dig up
streets to access buildings and can start services within a matter of
days, not weeks. About two-thirds of the nation's 55 million business
lines are in buildings where it's uneconomical to extend fiber optic
lines, according to a recent Salomon Smith Barney report. That adds up
to a potential $57 billion "niche" for wireless providers.
Teligent teams are working in 30 markets, including San Francisco,
San Jose, Dallas, Houston, Austin, San Antonio, Chicago, Washington,
D.C., New York, Orlando, Jacksonville, Miami, and Denver. The company
plans to launch another 25 markets in 1999 and 34 markets in 2001.
WinStar recently announced that it is offering data and Internet
services in the top 60 U.S. markets, one year ahead of schedule. The
company also announced plans to construct data centers in every WinStar
central office across the country. WinStar operates one of the most
widely available broadband networks in the country. Through its
agreements with Metromedia Fiber and Williams Communications, WinStar
has acquired more than 16,000 long-haul route miles of fiber and nearly
6,000 intra-city route miles of fiber that are already being delivered.
In addition, the company has deployed more than 100 data switches
across the nation. The combination of fixed wireless broadband
technology and local and long haul fiber, allows WinStar to route
traffic at a local level across the country, improving network
efficiency, speed and quality of service.
electric utilities
The ability of electric utilities to use their infrastructure to
provide telecommunications services also holds a great deal of promise.
In the 1990's, electric utilities owned the third largest
telecommunications system in the U.S.--created originally for internal
use. By the mid 1990's, however, many utilities' fiber-based
communications systems had been overbuilt, and in some cases only 2
percent of the fiber capacity was in use. Consequently, utilities began
investigating the possibility of utilizing their facilities for
commercial telecommunications services. By 1998, more than 40 electric
and gas utilities were engaged in some form of telecommunications.
While most of the utilities' telecom subsidiaries sell transmission
capacity to other telecom carriers, several have become CLECs
themselves, such as Conectiv communications and Electric Lightwave,
while others have engaged in joint ventures with CLECs, such as
Hyperion Telecommunications and PEPCO's partnership with RCN in the
Washington, D.C. area.
rural telecommunications companies
Several independent incumbent local exchange carriers serving rural
areas have also begun to establish their own CLECs to attack markets of
their larger RBOC brethren. For instance, AllTel, an ILEC headquartered
in Little Rock, Arkansas, has begun to provide CLEC services in other
parts of the southeast. Several rural ILECs in North Dakota have formed
a CLEC called IdeaOne to compete against US West. I expect these small
ILECs will expand once the large ILECs complete the job of opening
their markets to competition.
cable company affiliates
Several cable companies have entered the local telephony market by
targeting the residential customers that they already serve through
their existing cable plant. The cable plant, which was designed for
one-way transmission of video programming, must be upgraded at a
substantial costs to carry two-way voice and data telephone services.
Nevertheless, Cox Cable, MediaOne, Cablevision Lightpath, and Time
Warner Telecom have made substantial progress in entering the local
telephone marketplace since 1996.
Cox operates local telephone services in Orange County, CA, Omaha,
Merieen, CT, San Diego and Phoenix and Hampton Roads, VA. Cox's prices
average 10% lower than the incumbent for the consumers' first line, and
50% below the incumbent's price for the second telephone line. MediaOne
offers Digital Telephone service to residential consumers in Atlanta,
Los Angeles, Jacksonville and Pompano Beach, FL, Boston and Richmond,
VA. Time Warner Telecom, by contrast, has focused its efforts on mid-
size and large business customers, using its own fiber optic cable
network in approximately 20 cities nationwide.
As the above summary indicates, the market for local
telecommunications service is attr acting several kinds of new entrants
and technologies. Nevertheless, several consumer organizations, the
media, and some Members of Congress have expressed disappointment in
the pace of local competition since passage of the 1996 Act. Of course,
it should be expected that competition cannot begin overnight, and
policymakers should understand that it takes time to raise capital,
deploy networks, develop marketing plans, and serve customers.
Perhaps most important, however, is that competitors still face a
number of significant roadblocks that make it exceptionally difficult
to compete on even terms with the incumbent telecommunications company.
Even in those areas that have attr acted the most intense interest
among local telecommunications competitors, the CLECs still face a
competitive disadvantage when it comes to competing with the Bell
Companies and GTE. If Congress wants to help speed the growth of more
local telecommunications competition, it should address the following
three impediments to local telecommunications competition:
1. The ILECs' failure to open their networks to competition.
Three and one-half years after passage of the 1996 Telecom Act, not
a single ILEC has complied with Congress' directive to open its network
to competitors. CLECs continue to face enormous service provisioning
difficulties when interconnecting with the incumbent. The
Telecommunications Act correctly requires the ILECs to give the CLECs
the same quality of service that it provides to itself. Only when this
principle of nondiscrimination is enforced will the local market truly
be able to compete on the same terms as the incumbent. To date,
however, CLECs face a number of discriminatory pr actices by the ILECs,
including the following:
a. access to unbundled network elements
The 1996 Telecom Act requires the ILECs to provide
nondiscriminatory access to the piece parts of their networks to
competitors at cost- based rates. The telephone companies agreed to
open their network to competition as part of the bargain that would
allow them to enter the long distance market. Further, this requirement
that the ILECs provide unbundled network elements (UNEs) is essential
to the development of facilities-based competition. Most competitors
can purchase some of their own equipment (switches, fiber optic cables,
wireless antennas, etc.) but they must interconnect their own equipment
with the ILEC network in order to complete calls. These facilities-
based CLECs must purchase, or lease, the piece parts of the network to
supplement the components of the network that they cannot yet provide
on their own.
To date, however, the ILECs have not made these components
available to competitors on the same terms and conditions that they
provide these components to themselves. In particular, the ILECs have
consistently failed to provide nondiscriminatory access to unbundled
local loops that connect the customer to the CLEC network equipment.
The ILEC often fails to connect the customer properly, causing the
consumer to lose service altogether. Often the ILEC does not provide
the UNE on the proper date and time, causing delay and confusion on the
part of the consumer. Further, the ILEC often does not provide
directory listings of consumers who take service from a CLEC, a severe
competitive disadvantage. In other cases, the ILEC fails to repair or
maintain loops that are connected to the CLEC network.
Service provisioning difficulties are not limited to provisioning
loops. The ILECs also have difficulty in providing high-capacity trunks
on a timely and efficient manner, and they have often resisted allowing
the CLECs to obtain collocation space in the ILEC central office. Even
though the FCC issued an order earlier this year to require the ILECs
to provide such collocation, in too many cases, the ILEC claims that
there is no space available, or attempts to charge an outrageous sum of
money (sometimes hundreds of thousands of dollars) to allow the CLEC
equipment into the central office.
b. operations support systems
In addition, several ILECs have had great difficulty in providing
operations support systems (OSS). As the Department of Justice noted in
its comments on the Bell Atlantic-New York application, too often the
ILEC must rely upon manual procedures to process CLEC service orders.
Manual procedures are simply more prone to error and delay than
electronic procedures. The ILECs should move to an electronic bonding
approach as soon as possible to ensure that service is provided
efficiently. Allegiance has recently had some promising experiences
with Bell Atlantic's OSS in New York and with SBC's OSS process in
Texas. I believe our experience demonstrates that the ILEC can ``get it
right'' if it puts its mind to it. I understand, however, that other
CLECs have not had the same positive experience as Allegiance. I hope
that the ILECs and CLECs can follow the example that Bell Atlantic and
SBC have set with Allegiance so that the ordering process can operate
in a smooth, seamless manner that is transparent to the customer.
(Although the ILECs complain that OSS does not appear in the 1996
Telecom Act, that is not the case. OSS is the process by which the ILEC
receives and fulfills orders to provide service to the CLEC. In other
words, the ILEC must provide a transparent OSS in order to fulfill its
obligation under the Act to provide ``nondiscriminatory'' service to
CLECs.)
c. performance measures and self-executing penalties
Finally, most of the ILECs have yet to establish adequate
performance measures and to abide by such measures (including the
enforcement of such measures through penalties/damages) The rationale
behind the Commission's ``self-executing remedy'' requirement is to
promote the rapid development of local exchange competition by
preventing competitors from being driven out of business by being
forced to litigate operational issues with the ILEC each time such
issues arise. To operate properly, this ``self-executing'' remedy must
have well- defined and properly implemented performance measures of
ILEC pr actices in regard to relations with CLEC. There also must be
swift resolution of problems with sufficiently severe penalties to
deter further abuses. To date, while ILECs have implemented part of
this requirement, they still fall short of establishing the self-
executing commercial type relationships that ILECs have, for instance,
with their own customers.
Much attention has been focused in the last few months on Bell
Atlantic in New York and SBC in Texas. Bell Atlantic filed its
application to enter the long distance market in New York under section
271 last month; SBC is expected to be the next RBOC to file a long
distance application before the end of this year. Without going into
all the details of those efforts, I would like to note briefly that
both Bell Atlantic and SBC have made significant improvements in
opening their networks to competition. At the moment, however, neither
Bell Atlantic nor SBC is currently ready to provide long distance
service. ALTS and Allegiance have no objection to allowing the RBOCs
into the long distance market after they have opened their local
markets to competition. Bell Atlantic, however, is still encountering
major difficulty in providing loops to CLECs at the same rate and
quality as it provides these loops to itself. While Allegiance's
experience may be better on this front than some other ALTS members, it
is clear from the data submitted to the FCC that consumers are
suffering unacceptable numbers of service cut-offs when they try to
switch to a competitor. As for SBC, the major impediment to its
application is that SBC has not implemented a fully transparent process
for processing orders from CLECs for interconnection. The Texas Public
Utilities Commission recently found that the independent, third-party
tests of SBC's operations support systems (OSS) continues to find
errors that hamper CLECs' performance. Allegiance and ALTS hope that
these problems can be addressed as soon as possible, as these loop
provisioning and OSS problems run to the heart of the CLECs'
businesses. Once these problems are fixed, ALTS and Allegiance will be
pleased to supportthese companies' applications under section 271.
2. Excessive regulation by municipal governments.
The members of ALTS have found that in many circumstances their
ability to provide service in a timely, efficient and cost effective
manner has been hampered by municipal ordinances (and, sometimes, state
laws) that make it difficult, time consuming, and costly to use the
municipal rights-of-way for the provisioning of facilities. Three years
after the passage of theTelecommunications Act of 1996 and after many
negotiations with numerous municipal governments, the members of ALTS
find that the vast majority of municipalities are not managing their
rights-of-way in an efficient, competitively neutral manner.
Rather, the members of ALTS have found that significant numbers of
municipalities have been very wary of CLECs and/or have seen them as a
potential new source of revenue. These attitudes have resulted in
hundreds (and possibly thousands) of municipalities considering and
often adopting regulations or ordinances that have had a chilling
effect upon competition. In addition to exorbitant fees, some
municipalities have imposed a broad range of regulations that are often
duplicative of the state's regulatory role and encroach upon the
states' role of regulating intrastate communications. Even though the
carriers (including CLECs and ILECs) have sometimes prevailed upon the
local governments not to adopt the more onerous provisions considered,
significant resources have been expended by the entire industry simply
attempting to hold back the flood of new ordinances.
In addition, of course, carriers often have not been successful in
convincing the municipalities to en Act reasonable ordinances. In those
cases, carders are left with three undesirable choices: agreeing to
onerous terms (that often place them at a competitive disadvantage visa
vis the incumbent) just to be able to provide service, engaging in
expensive,protr acted litigation, or simply abandoning plans to provide
service in the particular community.
States have an interest in ensuring that municipal regulation of
the use of public rights-of way is relatively uniform, does not burden
telecommunications carders, and does not duplicate the states'
regulatory role. Therefore, there has been movement in some state
legislatures in the past three years for the adoption of state statutes
that would ensure that access to public rights-of way is administered
in a reasonable, predictable and non-discriminatory manner. While there
has been progress made in this area and a number of state statutes
improve on the pre-existing status quo, far fewer than half the states
have managed to pass legislation and there has not been uniformity in
the statutes that have been passed. In addition, some state statutes
that have been passed in the past several years have significant
discriminatory provisions in them. And, in some states that have passed
legislation limiting the ability of local governments to unreasonably
manage their rights-of-way, cities have disregarded the legislation and
passed ordinances that violate state law.
In addition to state legislatures, there have been some state
public utility commissions that have taken actions to address the
rights-of- way issues. For example, in California the PUC in Docket 98-
10-058, when faced with complaints from carriers about excessive fees,
held that while municipalities have an interest in managing local
rights- of-way, the State has ``an interest in removing barriers to
open and competitive markets and in ensuring that there is recourse for
actions which may violate state and federal laws regarding
nondiscriminatory access and fair and reasonable compensation.''
Therefore, the California PUC decided that it could intervene in
disputes over municipal rights-of-way access ``when a party seeking ROW
access contends that local action impedes statewide goals, or when
local agencies contend that a carrier's actions are frustrating local
interests.'' Some state statutes specifically give the state regulatory
commissions jurisdiction over rights-of-way issues, but others either
deny the commission authority or are silent or ambiguous as to the
commission's authority.
In addition to the time and effort expanded in negotiating with
individual municipalities and working with state legislators, there
have been several instances in which carriers have decided that their
only recourse is to file suit against a municipality. These decisions
are not made lightly; it is always preferable to work out differences
in an amicable manner with the municipalities with whom the carder
clearly needs to have a long-term relationship. Nonetheless, in a
number of municipalities across the country carriers have felt that
there is no alternative left to them and have filed suit against the
municipality.
The members of ALTS understand that if they (or any other carrier)
construct facilities in public rights-of-way they should repair the
rights-of-way. Enforcement of the cities' right to insist that streets
are returned to a state close to what it was prior to the construction
is not at issue. In addition, the members of ALTS would not challenge a
permitting fee that is administered in a nondiscriminatory manner and
is directly related to the costs incurred to manage the public rights-
of-way. No carrier, however, should be subject to different standards
or requirements than other carriers, thus putting some carders at a
significant competitive disadvantage vis-a-vis the other carriers. And
no carrier should be subject to fees or requirements that are wholly
unrelated to reasonable regulation of the public rights-of-way.
The members of ALTS who are spending significant resources and time
negotiating with cities believe that this is one of the biggest
bottlenecks preventing the rapid growth of facilities based
competition. Although the FCC and the courts have several times
articulated what they believe are the limits of the municipalities'
police powers to manage the rights-of-way and some state legislatures
have attempted to pass legislation that would make municipal
regulations more consistent throughout a state, new ordinances are
being proposed all the time. And, it appears that the drafters of the
new ordinances are either unaware of the Commission and court precedent
in this area or simply do not care what that precedent teaches.
3. Inability to obtain access to buildings.
Telecommunications carrier access to tenants in multi-tenant
buildings is essential to the development of local competition. In
order to provide facilities-based service to a tenant in a multi-tenant
building, a local telecommunications carrier must install its
facilities on or within the building, sometimes to the individual
tenant's premises (such as their office or apartment). In some cases,
the carrier's facilities extend only from the building owner's property
line to the basement telephone equipment room. For example, the
carrier's line extends from the curb, across the parking lot to the
building. Although this distance may be very short, it is impenetrable
without the building owner's consent--the operation of state property
laws generally requires that a telecommunications carrier obtain the
permission of the building owner prior to installing facilities within
and on top of that owner's building.
However, building owners can and do exclude telecommunications
carriers from buildings in many different ways. For example, absent a
landlord-tenant lease to the contrary--which is very uncommon--the
landlord can eliminate a tenant's choice in telecommunications carriers
simply by refusing carrier access to the building. Other landlords
impose such unreasonable conditions and demand such high rates for
access that competitive telecommunications service in those buildings
becomes an uneconomic enterprise. Consequently, landlords can
perpetuate the monopoly local telephone environment--the bottleneck--
that the 1996 Telecommunications Act sought to dismantle.
To give you an idea of the problems that ALTS members confront, I
offer you a sampling of examples. This is by no means an exhaustive
list of the problems that competitive carriers face, but it does
provide some concrete understanding of the unreasonable barriers to
competition that some landlords are erecting.
The manager of one large Florida property has
demanded from a CLEC a rooftop access fee of $1,000 per month
and a $100 per month fee for each hook up in the building. The
company estimates that this fee structure would cost it about
$300,000 per year--just to service one building.
The management company for another Florida building
demands that a telecommunications carrier pay the management
company $700 per customer for access to the building, in
addition to a sizable deposit, a separate monthly rooftop fee,
and a substantial monthly fee for access to the building's
risers which are the dedicated, horizontal and vertical spaces
within a building that contain utility facilities. Taken
together, these fees preclude the company from providing
tenants in that building a choice of telecommunications
carriers.
In one Arizona building, a CLEC had pulled its fiber
cable into the building, had access to the telephone closet and
building risers, and had begun providing service to customers
in the building with the landlord's permission. However, one of
the CLEC's customers in that building recently requested
expanded service from the CLEC, requiting an expansion of
facilities. The building owner informed the CLEC that it could
no longer have access to the telephone closet--that it was the
property of the incumbent LEC. Moreover, the building owner
informed the CLEC that the building was now under exclusive
contr Act to another carder and that the CLEC would have to
obtain permission from that carder to service the equipment
that the CLEC had already installed in the building. As a
result, the customer in the building is experiencing delays in
receiving expanded service while the CLEC negotiates with the
building owner and the ``exclusive'' telecommunications carrier
for access. Moreover, the CLEC's relationship withthe customer
is at risk and the CLEC's facilities that were installed in the
building several years ago are in jeopardy of becoming stranded
assets.
One CLEC sought a building access agreement with a
large property holding and management company with properties
nationwide. This company required an agreement fee of $2,500
per building in addition to space rental of approximately $800
to $1,500 per month per building. Moreover, the company refused
to negotiate an agreement for fewer than 50 buildings. Finally,
as a condition of entering into the agreement, the company
insisted that the CLEC agree to refrain from making any
regulatory filings concerning the building access issue.
Another large property owner and management company
demanded $10,000 per month per building just for access rights
to building risers.
In an Arizona property, the incumbent and one
competitive provider had installed facilities. Four additional
CLECs requested access. The property owner demanded that the
four new CLECs provide conduit, fiber connectivity between
buildings, and dark fiber to the property owner free of charge
-- approximately $200,000 of in-kind contributed facilities.
The property owner also seeks to charge a $750 per month access
fee for access to the property even though the access will not
deprive the property owner of leasable space to tenants. This
situation places the four new CLECs at a competitive
disadvantage to the two providers already inside the building.
A large number of building owners and managers do not
want a second telecommunications carder in the building because
of revenue sharing arrangements with the first carrier and many
have entered into exclusive access contr acts with a single
carder; indeed, one building management company told a CLEC not
to solicit its tenants.
In Washington state, the owner of a new building put
the provision of telecommunications services to the tenants out
to bid. The winning bidder would gain exclusive access to
provide telecommunications service to the tenants in the
building. The incumbent provider was able to outbid all other
providers, offering to pay $10,000 every year to the building
owner. The incumbent was thereby able to shut its competitors
out of the building entirely.
Management companies for many other buildings demand
revenue sharing arrangements in exchange for access.
Some owners of newly constructed buildings are
installing ``central distribution systems'' (``CDS'') in their
buildings--an intra-building telecommunications network. Rather
than allowing carders to install their own facilities all the
way to the customer, the building owner requires the carders to
utilize the CDS. However, some of these facilities are not
advanced enough to carry adequately the traffic of more
advanced carriers. Moreover, the building owners will not
guarantee the reliability of these CDS intra-building networks.
In addition, building owners often seek to charge excessive
rates for use of a CDS that many carders would rather not use.
Finally, some building owners are requiting telecommunications
carriers to sign agreements that once a CDS system is
installed, it must be used--forcing CLECs to promise to strand
their installed investments within buildings. This creates a
tremendous disincentive to serving customers in these
buildings.
The tenants in these buildings often are without recourse and
cannot obtain access to telecommunications options. Building owner
interests sometimes say that the market will take care of the problem -
- that landlords have the incentive to keep their tenants happy and to
allow them access to the telecommunications carders of their choice.
They say that tenants will move out of the building if they are unhappy
with their telecommunications options. These arguments are simply
wrong.
The building access problem exists, suggesting that these ``market
incentives'' are not working. Of course, in some instances, the market
may provide competitive choices, but not until tenants are legally and
financially able and willing to move their residence or business for
the sake of competitive telecommunications choices. Tenants would be
required to incur the substantial expense and inconvenience of breaking
their leases and moving locations. Moreover, they may often confront
higher leases, given the strength of the real estate markets and the
economy generally. This is an unreasonable pre-condition to the
enjoyment of the competition envisioned by the 1996 Telecommunications
Act. In f Act, may of these tenants--particularly individuals and small
and medium-sized businesses (those who have the least power when
dealing with landlords)--have never had the opportunity to experience
the benefits of telecommunications competition. This is largely a
theoretical phenomenon to them. The notion that these tenants would
break a lease and incur all of the other identified expenses for this
unknown benefit is unrealistic.
The 1996 Telecommunications Act represents a laudable effort to
open local telephone markets to competition. A good deal of work went
into the construction of the statute to eliminate barriers to
competitive entry. However, to a large degree, the 1996
Telecommunications Act assumes that once the incumbent LEC-imposed
barriers are removed,competition will be able to flourish. It does not
contemplate that even after incumbent LEC barriers are dismantled,
telecommunications carders may still be prevented from reaching and
serving consumers. In short, the 1996 Telecommunications Act assumes
that building access is available. Unfortunately, that assumption has
proven incorrect. Building access remains a formidable barrier to the
accomplishment of local competition.
Universal Service
In addition to these explicit barriers to competition, there are
several other impediments that hamper the growth of local
telecommunications competition.
For instance, neither the FCC nor the states have made universal
service subsidies accessible to competitive providers of local
telecommunications service. It is unfair and uneconomic for CLECs to
compete with rural telecommunications companies that receive subsidies
from the government that the CLECs cannot receive. Further, many rural
telecommunications companies are under no obligation to open their
networks to competition because of the extensive "rural exemptions" in
the 1996 Telecommunications Act. ALTS believes that the rural exemption
harms citizens of rural areas by making it less likely that
competition, and high-speed communications will be delivered to rural
consumers as soon as they are being deployed in urban areas. If
Congress is concerned about the so-called ``Digital Divide,'' it should
immediately open the rural telecommunications markets to competition as
it opened the urban markets.
The Need for Enforcement
The most important role that Congress could take to spur the
development of competition can be summarized in one word--enforcement.
In short, we do not need changes to the 1996 Telecommunications Act, we
need enforcement of the existing Act.
On this point, I must congratulate Senator Hollings for the
introduction of his legislation, S. 1312. Senator Hollings' bill would
require the RBOCs to complete opening their networks according to the
14-point competitive checklist or face severe penalties. The RBOCs
would face penalties of $100,000 per day for every day after 2001, or
would require divestiture of the RBOCs into wholesale and retail units
if they fail to comply with the checklist by the 2003. While this
legislation would certainly impose a drastic remedy, there are other
efforts that the FCC could undertake under the current law, with the
support of Congress, to spur local competition. These actions include
the following:
a. Anti-backsliding measures.
ALTS submits that prior to the grant of Bell Atlantic's
Application, the Commission must adopt mechanisms to ensure that Bell
Atlantic does not backslide on its obligations pursuant to section 271
of the Act. As Allegiance Telecom indicated in its Petition for
Expedited Rulemaking,\1\ a BOC's statutory obligation to provide each
element of the competitive checklist continues even after a it has
obtained in-region interLATA relief. However, as evidenced by the three
year long process in New York, compliance with key procompetitive
provisions of the Act has been slow in coming, and advances have
largely resulted from pressure imposed by regulators and competitors.
Therefore, ALTS submits that backsliding framework be in place prior to
the grant of 271 authority to Bell Atlantic.
---------------------------------------------------------------------------
\1\ See Allegiance Petition.
---------------------------------------------------------------------------
b. Fresh Look provisions.
In order to foster and ensure the development of an open, robust
market for local telecommunications, the FCC should provide ``flesh
look'' opportunities for consumers immediately upon the grant of any
authority to enter the long distance market under section 271. This
would eliminate the anti-competitive imp Act created by the termination
penalties contained in an RBOC's tariffs and customer contr acts, terms
that clearly discourage RBOC customers from purchasing the same or
similar services from a CLEC. To facilitate the goals of open local
markets and increased competition in such markets, customers should be
allowed to re-examine existing service arrangements where circumstances
have changed significantly, as when competitors enter a historically
monopoly market. The FCC should allow customers with existing long term
contr actual termination penalties the ability to ``opt out'' of those
provisions where the contr acts were entered into prior to the RBOC's
receipt of 271 authority. Such customers should be permitted to
terminate their contr acts without the imposition of harsh (usually the
full contr Act price) penalties, at least for a reasonable period of
time following the grant of 271 approval. To the extent the FCC is
unwilling to completely eliminate termination liabilities for an RBOC's
customers, customers' termination penalties could be limited to a
reasonable time period, e.g., six months.
Conclusion
Mr. Chairman, Allegiance and ALTS look forward to the day when the
local telecommunications market is truly and``irreversibly'' open to
competition. ALTS' goal is that the CLECs should have 25% of the local
telecommunications market by the 2003. I believe that this goal is
readily attainable. Once the local market is truly competitive, with a
variety of facilities deployed, then policymakers would be wise to
deregulate the incumbent local telecommunications companies altogether,
allow the RBOCs into the long distance market, and rely upon market
forces to protect the interests of the consumer and the information
economy.
Unfortunately, we are not yet at that point, and we have much work
to do for that vision to become a reality. As mentioned at the
beginning of my testimony, CLECs have only about 6% of the local
telecommunications market today in revenues. The local
telecommunications market cannot be considered competitive when the
incumbent carders retain 94% of all the local telecommunications
revenues. If local competition is truly to take hold and become
entrenched, we must have your help in opening up that local market.
I suggest that policymakers use one simple metric to judge whether
or not the local market is truly open: when it is as easy for consumers
to switch local telecommunications companies as it is to switch long
distance companies, then we will know that the market is truly and
irreversibly open. Today, however, it takes consumers only three days
to switch long distance companies, it can take 30 to 90 days to switch
local companies. Until this competitive disparity is addressed, we
cannot determine that the market is open. I urge you to encourage the
FCC, the states, the courts, and everyone involved in the process to
keep the pressure on and make the Telecommunications Act of 1996 a
reality.
Thank you.
Senator Burns. We have Charles Houser, chairman and CEO of
Trivergent.
STATEMENT OF CHARLES S. HOUSER,
CHAIRMAN AND CEO, TRIVERGENT
Mr. Houser. Thank you, Mr. Chairman, Senator Hollings, and
members of the Committee. My name is Charlie Houser, and since
1982 I have been an investor, executive board member, and a CEO
of several telecommunications companies. I have served as
chairman of the Telecommunications Resellers Association that
represents 800 companies. I have been on the board of directors
of CompTel, that represents over 400 competitive telephone
companies. In short, you are looking at a guy with a lot of
battle scars.
Today, I serve as chairman and CEO of Trivergent in
Greenville, South Carolina. We are a privately held, integrated
service communications provider serving small businesses and
residential customers with a wide range of products that
includes DSL, high-speed Internet, Web hosting and design,
local services, and long distance.
We are attempting to build an 18-switch, ATM backbone, high
speed voice and data network that will cover 26 Southeastern
markets, many, in f Act most, in second and third-tier markets
with capital expenditure budget of $350 million. We owe our
very existence to the Telecom Act of 1996.
Now, over 20 years ago, obviously Federal policymakers
ended AT&T's monopoly in the provision of long distance
services, and under the watchful eye of Judge Green and the
guidance of the FCC things worked. Prices dropped dramatically,
new services came to market, over 800 new competitors came to
market, and huge amounts of capital were spent on the latest
technologies. For the life of me, I do not understand why we
cannot open the local markets to competition in the same
manner.
Now, as far as the status, I guess there is good news in
that there are over 250 competitive local exchange companies in
business today. True, they serve a little over 3 percent of the
market today. We and other CLEC's are making progress in
deploying advanced broadband technologies, but the bad news is,
is that Bell South and the other RBOC's and ILEC's have fought
the process tooth and nail. You know it, I know it, and
everyone knows it.
In our case there are several reasons why the local markets
still fall short of being competitive. We and our customers
still encounter latent discriminatory and anticompetitive
treatment from Bell South through delays and unethical and in
some cases illegal t actics. They have hampered our efforts to
compete.
Let me be clear on this one point. The most oppressive
obstacle to local competition in our area is Bell South's
refusal to really open their markets to competition, not just
in word but in deed, and believe me, I have dozens of specific
documented examples.
In our case in 1998 we started out to provide local and
long distance services primarily to residential customers. We
were one of the largest CLEC's in the country and, in f Act,
enrolled over 100,000 customers to our service in a seven-State
area, including every small hamlet that you can name.
The bad news is, is that we have virtually abandoned that
market. We have abandoned our efforts for resale of local
services to residential customers after investing and losing
about $18 million. Now, for me, that is still a lot of money.
Look, the primary reason is, we do not have acceptable
wholesale discounts, and we do not have support from Bell
South, and we have discriminatory secondary charges that have
cost us an extra $2 million. We did prove three things, though.
One is, the customers want an alternative to Bell South. We
also proved that we could attr Act huge numbers of customers
and provision those customers.
3. Bell South's reluctance to open and support its markets
really prevented resale from being a viable plan of entry into
the market.
Now, in addition to inadequate discounts in working with
Bell South, let me list some specific things that have happened
to us. We have discriminatory nonrecurring charges and fees, we
have a failure to meet firm order confirmations, we have a
totally inadequate and incomplete customer support system, we
have disconnections and interruptions in service, we have
severe, severe provisioning difficulties and delays, we have
totally inadequate invoice dispute policies and procedures, and
last but surely not least, we have illegal inter action by Bell
South employees with our customers.
Let me be clear. The primary f actors, certainly not the
only ones, in explaining why resale is not a viable option, but
is a dismal failure, is a lack of wholesale discounts and
discriminatory charges that we have to eat.
It is for these and other reasons we have reevaluated our
marketing plan in favor of deploying our own network with the
objective of moving our customers over to that network.
Unfortunately, we still continue to experience the ex Act same
problems with Bell South as we did before. Let me just give you
one example.
Regarding the colocation process, under section 2.1 of our
agreement, Bell South is obligated to respond to colocation
space requests within 10 days of our request. Responses on our
162 requests have ranged from 19 to 86 working days, with an
average time of 50 days. Now, these are the type issues that I
think the committee should make a priority.
Now, as far as fostering competition, I think it is really
only two things, and it is fairly simple.
1. Preserve the integrity of the Act. Despite the RBOC's
failure to live up to the obligations now they have the goal to
ask for regulatory relief. Any decision to give them regulatory
relief from the terms and conditions of the Act could really
delay competition even further. As long as they hold a monopoly
over the loop and other facilities new market entrants continue
to rely on the FCC and the other regulatory agencies for
survival.
Now, second, support the FCC and its procompetitive efforts
for the same competition to develop in the local sector we have
had in the long distance area. We need the same framework and
oversight. The continued need for regulatory oversight in the
local market cannot be overstated. We have to have it. Give the
FCC the resources and encourage them to enforce the rules.
Expand their legal authority to impose real, meaningful
penalties for failing to live up to open up the local networks,
and support their efforts to promote fair terms and their
efforts to promote full implementation of the interconnection,
colocation, unbundling, and resale provisions of the act.
In conclusion, national policy guidance has been and will
be an essential element of the regulatory scheme designed to
promote competition. That is unfortunate, but that is the case.
Despite delay brought about by the reluctance of the ILEC's and
the RBOC's to comply, the 1996 Act is beginning to produce
benefits, but if there are amendments to the Act, it is simply
going to delay all of us getting competitive.
It is not complicated. We have the 1996 Act in place. Let
us enforce it. We have a regulatory agency in place, the FCC,
that can administer the Act. Let us support them.
Thank you.
[The prepared statement of Mr. Houser follows:]
Prepared Statement of Charles S. Houser, Chairman and Ceo, TriVergent
Good morning Mr. Chairman and members of the Committee. My
name is Charlie Houser. Since 1982, I have been involved in the
telecommunications industry as an entrepreneur, investor,
executive, board member, and/or CEO of several successful
telecommunications companies. I have served as Chairman of the
Telecommunications Resellers Association, an organization that
represents 800 companies involved in the resale of
telecommunications services--a multi billion-dollar industry
led by an estimated $13 billion long distance resale segment. I
have also served on the board of directors of CompTel, an
association representing over 300 competitive
telecommunications companies. During this time I have been
fortunate to see huge positive changes in the long distance
market and the initial positive changes in the local services
market.
Today, I serve as the Chairman and Chief Executive Officer
of TriVergent Communications, Inc. (``TriVergent''). TriVergent
is a privately held Integrated Communications Provider.
TriVergent provides business and residential consumers with a
wide range of communications products and services, including
DSL, high-speed Internet, Web hosting and design, local
exchange, long-distance, and data-integration products. The
company is building an 18-switch ATM-backbone, high-speed data
network that will cover 26 southeastern metropolitan areas,
including many second and third tier markets. TriVergent, with
a capital expenses budget of $350,000,000, owes its existence
to the Telecommunications Act of 1996 (``1996 act'' or ``
act'') and is making huge economic investment and employing the
efforts of hundreds of partners to bring about the changes to
the local telecommunications landscape that Congress intended
by the en actment of the 1996 Act.
A. INTRODUCTION
Thank you for the opportunity to discuss the challenges
facing the development of local competition. To explain the
position of TriVergent Communications further, let me provide
the Committee with some additional background. I think we can
all agree that, generally speaking, monopolies do not best
serve the public interest. Monopolies do not adequately respond
to or meet customer demand; they offer few service choices;
they generally do not innovate; they do not price
competitively; and they have a history of using their market
power to squash new entrants. Over 20 years ago, federal policy
makers ended AT&T's monopoly in the provision of long distance
services and the manuf acturing of telecommunications
equipment. Under the watchful eye of Judge Greene and the
guidance of the FCC, the results speak for themselves: over 800
new competitors have entered the long distance market, prices
have dropped dramatically, new services constantly come to
market, and huge amounts of capital are being expended to
upgrade plant with the latest technologies. For the life of me,
I don't understand why the opening of the local markets to
competition can't be handled in the same way.
The 1996 Act, which many of you worked hard to bring about,
was designed to bring the same benefits of competition to the
local telephone marketplace. The act's passage was supported
equally by the RBOCs and other ILECs, the long distance
companies, and by the new entrants into local markets, the
competitive local exchange carriers (``CLEC'')--companies like
TriVergent.
The 1996 Act focused on turning a sector of the economy
serviced by monopolies, the local telephone markets for voice,
data, and video services, into a competitive market.
Accordingly, the 1996 Act requires the RBOCs to open the local
market to competition first, and after the local market is
opened, then--and only then--do they have the right to enter
the long distance market. At the time of the passage of the
Act, Congress in its wisdom recognized that if the RBOCs were
allowed into long distance first, they would have no incentive
to open their local networks to competitors and the legislation
would not achieve its purpose.
B. THE STATUS OF LOCAL TELECOMMUNICATIONS COMPETITION
Three and a half years after its passage, there is evidence
of the development of competition envisioned by the Act. The
good news is that well over one hundred and fifty CLECs have
entered the local market since the passage of the Act. Many of
these companies, like TriVergent, are rapidly building high-
speed voice and data networks to serve residential and business
customers. Collectively, CLECs have increased their market
share each of the past two years, and now provide services to
approximately 3% of the local services market. Furthermore,
CLECs have already deployed approximately 20% of the fiber
optic cable capacity available in the United States. The bad
news is that the RBOCs and ILECs have fought the process tooth
and nail and have prevented vibrant, open competition.
TriVergent and other CLECs offering local services are also
making particular progress in deploying advanced, broadband
technologies. Along with its local, long distance and internet
service offerings, TriVergent will deploy advanced DSL service
throughout the southeastern United States over the next two
years. When combined with the efforts of other like-minded
CLECs, over two-thirds of the nation's population will be able
to take advantage of this remarkable service in the next two to
three years.
The Act is beginning to work, but I repeat it is only
beginning to work. CLECs are just beginning to establish a
presence in the market and bring local service to business and
residential customers for lower prices. Additionally, CLECs are
bundling local service with other offerings including long
distance, internet, and DSL services. Because of the threat of
competition, RBOCs and ILECs are being forced to develop better
products and offer these products for better prices. Despite
these gains, let me make certain that you understand that we
are still a long way from the robustly competitive local
telecom marketplace that Congress envisioned at the time of the
Passage of the 1996 Act. As I said earlier, after three years,
CLECs serve only 3% of all the nation's local telephone service
customers. As is apparent by this figure, while competition is
growing, the market is far from a fully competitive model
today.
There are several major reasons why the local
telecommunications market still falls short of being fully
competitive. CLECs and, more importantly, their customers,
still encounter discriminatory and anti-competitive treatment
from RBOCs and ILECs. RBOCs and ILECs, through delay tactics
and other frustrating and, in some cases, illegal tactics,
hamper efforts of CLECs to install their own facilities or
interconnect these facilities with those of the RBOC or ILEC.
Let me be clear on this one point--the most oppressive obstacle
to local telephone competition is the RBOCs' and ILECs' refusal
to really open their markets to competition, not just in word,
but in deed. With adequate time I can site dozens of examples.
In an effort to add a face to this message, consider the
story of TriVergent. We began offering local and long distance
services as a reseller in April of 1998 under the name of State
Communications. In order to prevent any undo confusion, I will
refer to the company as TriVergent. TriVergent set out to
provide local and long distance telecommunications service to
residential and small business customers, primarily through
resale, in Kentucky, Tennessee, Louisiana, Alabama, South
Carolina, Mississippi and Georgia. We were one of the largest
CLECs in the country (in terms of number of residential
customers) and one of the few alternative telephone companies
targeting primarily the residential market. By March of 1999,
TriVergent had enrolled over 100,000 customers on its local and
long distance service. It is important to note that over 90% of
TriVergent' customer base were of the residential consumer
flavor. Our projections had us enrolling an additional 150,000
customers over the course of 1999. The bad news is that we have
virtually abandoned our efforts in resale of local services to
residential and small business customers after investing over
$18,000,000 to that effort.
During the eleven months from April of 1998 until March of
1999, we proved three things: (1) customers wanted an
alternative to BellSouth; (2) TriVergent could attr Act and
provision huge numbers of customers; and (3) that BellSouth'
reluctance to open and support its markets prevented resale
from being a viable alternative to facility deployment for
successful entry into the local services market. Unlike long
distance, local resale as an entry strategy into the local
services market is a dismal failure. In addition to totally
inadequate discounts, in working with BellSouth we encountered
the following difficulties:
NONRECURRING CHARGES AND FEES\1\
\1\ NONRECURRING CHARGES AND FEES: Anytime a customer made a change
to his/her account, BellSouth charged TriVergent a Secondary Service
Charge. These charges were incurred when a customer added or deleted an
ancillary service such as call waiting and in almost every situation in
which a customer altered his/her account. This cost TriVergent
literally millions of dollars and hampered its ability to make an
acceptable gross margin.
The charges BellSouth imposed on TriVergent varied from state to
state despite the f Act that all work performed by BellSouth to make
the customer requested change was made in a single central office in
Atlanta or Birmingham. The following list includes a breakdown of
Secondary Service Charges on a state-by state basis:
Tennessee - $17.00
Louisiana - $13.94
Georgia - $9.72
SC - $4.51
Kentucky - $12.55
NC - $4.25
Florida - $7.87
Alabama - $6.80
Mississippi - $7.65
Additionally, if BellSouth' OSS interfaces are electronic and user
friendly as described by BellSouth, why does BellSouth charge the CLECs
these amounts to make a change that should only require a software
load?
To date, TriVergent has paid over $2,000,000 in disputed Secondary
Service charges that, generally speaking, BellSouth would and do waive
for its own retail customers.
Monthly Minimum
When a customer signs up with TriVergent, we are forced to pay
BellSouth a monthly minimum for all services ordered by that customer
through TriVergent. The issues involved with these charges are more
easily identified by way of the following example:
Customer A signs up with TriVergent on February 1, 1999. After a
call from BellSouth, that customer makes a change back to BellSouth on
February 15, 1999. Rather than bill TriVergent for the 15 days for
which the customer was serviced through TriVergent, BellSouth bills
TriVergent for a full month of service.
Realize that 95% of TriVergent' customers have been with BellSouth
and are simply requesting a ``change as is'' order and all of these
customers have already paid the initial one-month minimum. By making
the change to TriVergent they are asked to pay an additional one-month
minimum not by TriVergent, but by BellSouth. Additionally, when and if
the customer switches back to BellSouth, they are asked to pay a third
monthly minimum charge. By way of example, please review documents
included in ATTACHMENT A.
---------------------------------------------------------------------------
FAILURE TO MEET FIRM ORDER CONFIRMATIONS\2\
\2\ FAILURE TO MEET FIRM ORDER CONFIRMATIONS: BellSouth regularly
ignored Firm Order Confirmations (``FOC'') in provisioning orders for
TriVergent customers. BellSouth's inability to complete the orders on
time, if at all, severely crippled the company's ability to deliver
quality customer service to our customers. Without this notification
TriVergent had no record of order completion, requiring the Company to
place a call to BellSouth after the due date. More importantly, the
company lost the ability to complete the order on the due date and was
forced to request a new, much later due date for the order, delaying
provisioning for days. By way of example, please review documents
included in ATTACHMENT B.
---------------------------------------------------------------------------
DISCONNECTIONS AND INTERRUPTIONS IN SERVICE\3\
\3\ DISCONNECTIONS AND INTERRUPTIONS IN SERVICE: Consumers that
chose to switch to TriVergent and who, after signing up with
TriVergent, cont acted BellSouth for one reason or another--to request
a final bill, ask about credits, or pay final invoices--reported that
they lost service before TriVergent had provisioned the order through
BellSouth. By way of example, please review documents included in
ATTACHMENT C.
---------------------------------------------------------------------------
PROVISIONING DIFFICULTIES AND DELAYS\4\
\4\ PROVISIONING DIFFICULTIES AND DELAYS: BellSouth commonly
delayed - sometimes for days on end--in provisioning orders for
TriVergent customers while BellSouth representatives cont acted those
same individuals and promised that BellSouth would have the customer's
service up and running as soon as possible. This type of discriminatory
treatment significantly injured TriVergent's business. By way of
example, please review documents included in ATTACHMENT D.
---------------------------------------------------------------------------
INVOICE DISPUTES\5\
\5\ INVOICE DISPUTES: The mechanisms in place for the resolution of
disputes are inadequate. TriVergent issues a notice to BellSouth
disputing specific charges included by BellSouth on the latest
BellSouth invoice. In every instance it takes BellSouth months to issue
a credit to TriVergent even though BellSouth has acknowledged the
billing error when disputed. If TriVergent refuses to pay portions of
its invoice, BellSouth threatens to stop provisioning TriVergent
orders. Therefore, TriVergent is forced to pay out amounts that are not
due to BellSouth and, in doing so, lose the ability to put these
resources to better use for the Company while BellSouth hangs onto the
funds for months until it issues a credit. BellSouth's failure to
promptly credit TriVergent's account directly and negatively imp acts
TriVergent's business plan and financials. By way of example, please
review documents included in ATTACHMENT E.
---------------------------------------------------------------------------
ILLEGAL INTERACTION BY BELLSOUTH WITH TRIVERGENT CUSTOMERS\6\
\6\ ILLEGAL INTERACTION BY BELLSOUTH WITH TRIVERGENT COMMUNICATIONS
CUSTOMERS: Reports from TriVergent customers and TriVergent customer
service representatives indicate that (1) BellSouth continues to engage
in improper activity with regard to provisioning TriVergent's orders
and (2) BellSouth operators and representatives continue to make
erroneous and inflammatory statements to TriVergent customers. By way
of example, please review documents included in ATTACHMENT F.
However, if you don't remember anything else about my presentation,
please realize this: The most important f actor in explaining why
resale is not a viable option, but in f Act a dismal failure, as a
means of entry into the local services market is the lack of an
adequate wholesale discount and the refusal of the RBOCs to offer
alternative pricing structures. That is, there remain consistent
shortfalls between the wholesale discounts on local phone service and
the minimum discounts needed to make local service resale a feasible
long-term business.\7\ Again, resale of local phone service simply is
not feasible as a stand-alone, long-term business strategy, especially
for companies targeting residential customers. The proof is evident by
the f Act that we don't know of a single company successfully deploying
resale of local service as a viable business strategy. The situation is
insidious for two reasons. First, it nearly eliminates a key market
entry channel for small business service providers. Unfortunately, we
have witnessed several business failures in this arena. Second, it
denies consumers the benefits of a healthy resale market--competition,
innovation, and choice. Even when TriVergent approached BellSouth on
numerous occasions to request more reasonable discounts in exchange for
volume and term commitments, BellSouth would not work with TriVergent
or respond to proposals.\8\ The losers in this game are the residential
---------------------------------------------------------------------------
and small business customers.
\7\ The Telecommunications Resellers Association study consists of
a state-by-state analysis of two different business strategies over a
five-year startup period: one solely using resale and one employing the
UNE-platform approach. While the models utilizing the UNE-platform
consistently generated revenues and margins, this was not the case with
resale. The report determined that not a single state-authorized
wholesale discount was capable of producing positive cash flow after
five years. The findings prompted TRA to go a step further with the
study and determine on a state-by-state basis the minimum discounts
required by resellers to reach the breakpoint after five years of
utilizing local resale as a stand alone business. The results found
consistently large gaps between state-approved wholesale discounts and
those needed to break even.
\8\ By way of example, please review documents included in
ATTACHMENT G.
Space Availability Response Interval
BellSouth is required to provide a response to an application for
collocation space within 10 business days as to whether space is
available within a BellSouth central office premise. [Exhibit 2,
Amendment to the Agreement between State Communications and BellSouth,
Dated April 20, 1999, Page 4, Section 2.1, Availability of Space,
Signed 7/28/99].
Below is a breakdown of BellSouth's average response interval per
market:
Greenville - 37 days
Atlanta - 57-65 days
Greensboro - 37 days
Jacksonville - 49-69 days
Miami - 49-86 days
Charlotte - 19 days
Charleston - 37 days
Louisville - 40 days
Nashville - 35 days
Birmingham - 19 days
New Orleans - 42-49 days
Jackson - 30 days
Wilmington - 37 days
It is for these reasons that TriVergent has reevaluated its
marketing plan in favor of deploying its own facilities with the
objective of migrating its customers to these facilities.
Unfortunately, we are experiencing similar problems interfacing with
BellSouth. In short, the antics of the ILECs and RBOCs severely
constrain the CLEC's ability to bring consumers the products, services,
better prices, and choices that are being promised them. Further, the
RBOCs' and ILECs' efforts to persistently and continually litigate
against the policies of the Federal Communications Commission (FCC) and
state regulators, rather than work fairly with new market entrants has
severely hampered the development of competitors and the competitive
process. The continuing failure by ILECs to provide nondiscriminatory
access to their networks and OSS functionalities stands as a major
impediment of local service competition.
As a result, TriVergent and other CLECs continue to encounter
obstacles when ordering loops, collocating in central offices\9\, and
achieving number portability necessary to allow consumers to switch
seamlessly to a CLEC. For example, under the section 2.1 of our
interconnection agreement with BellSouth, BellSouth is obligated to
respond to collocation space requests within 10 days of receipt of the
request. We have 162 applications on file with BellSouth. Responses to
the applications have ranged from 19 to 86 days with the average
response time being approximately 50 days. These are issues the
Committee should make a priority. The Committee should remedy these
problems so that we achieve a fully competitive environment.
\9\ COLLOCATION: The following are some examples of situations
TriVergent has run into in attempting to collocate with BellSouth and
complete build out of its own facilities.
Application Cancellation
TriVergent submitted New Orleans collocation applications 6/17/99.
BellSouth provided comprehensive responses, including price quotes on
8/17/99 and 8/25/99. TriVergent submitted Firm Orders 8/20/99 & 8/27/
99. TriVergent notified BellSouth to cancel these applications 9/10/99
and requested a refund of any unused funds. TriVergent requested status
of the cancellation and refund and was informed by Eddie Trant that no
monies would be refunded. TriVergent escalated to the BellSouth Account
Team 9/17/99 for resolution. BellSouth informed TriVergent 9/17/99 that
the issue was under review. TriVergent requested resolution of this
issue 9/24/99. TriVergent again requested BellSouth position 9/30/99.
BellSouth responded to previous status inquiries 10/13/99 with the
following ``I feel nothing [sic]. It is like it has gone to the black
hole of collo [sic]. Even Duane don't know [sic].''" Eddie Trant,
Regional Collocation manager. BellSouth offered to refund prepayments
10/14/99 or allow TriVergent to proceed with applications when
cancelled if additional application fees were provided. 10/29/99
TriVergent resubmitted applications with fees totaling $63,830.
Collocation Cage Construction Fees
BellSouth erroneously charged TriVergent for cage construction when
it was clearly indicated on the collocation applications that
TriVergent intended to construct its own cage. TriVergent requested a
refund of these incorrect charges 9/13/99 totaling $ 326,250. Despite
several requests to BellSouth for a response to our refund request none
has been received to date.
Power Feed Fees
Despite having charged an average of $30,000 for power at
collocation sites throughout Florida (38 collocation sites), BellSouth
claims that TriVergent must provide its own power feeder cables from
BellSouth' power distribution frame. Clearly BellSouth has included the
provision of these services in the costs it has assessed TriVergent.
TriVergent requested a clarification and/or refund of this incorrect
assumption by BellSouth on 10/19/99 and has received no response other
than they are looking into the issue.
---------------------------------------------------------------------------
C. KEY COMPONENTS FOR FOSTERING COMPETITION
1. PRESERVE THE INTEGRITY OF THE 1996 ACT
For many years prior to the passage of the 1996 Act, RBOCs and
ILECs worked with Congress to pass the legislation like the '96 Act.
The RBOCs and ILECs were proponents of the Act and accepted its
provisions. Despite their failure to live up to their obligations under
the 1996 Act and open their networks to competition, several of the
RBOCs and ILECs now propose that they be granted exemptions from the
act's market-opening requirements. The RBOCs and ILECs are now arguing
that they must be deregulated in order to encourage broadband
deployment. In reality, the RBOCs and ILECs don't want to meet their
obligations under the Act but want the ability to tilt the playing
field in their favor by lobbying for ``Regulatory Relief''.
The ILECs' and RBOCs' argument that without such relief they do not
have sufficient incentives to deploy advanced broadband services is
preposterous. Contrary to their claims, the pace of broadband
deployment is accelerating faster than ever before because of the
passage of the Act. Companies like TriVergent are deploying broadband
data services throughout the United States. These competitors are
meeting consumer's demands by offering consumers access to technologies
that the RBOCs and ILECs have long ignored.The small but steady
progress made by CLECs and other new market entrants has forced the
RBOCs' and ILECs' hand. Only after competitors offered new services,
the RBOCs and ILECs have been forced to offer new services to keep from
losing customers. However, any decision to allow RBOCs Regulatory
Relief regarding data services could crush competitive efforts in the
data services arena and negatively imp Act competition in the local
services arena, as well. As long as the ILECs and RBOCs hold a monopoly
over the loop and other local network facilities used to carry voice,
video and data calls, new market entrants must rely on pro-competitive
legislation, regulation and the oversight of the FCC in order to
survive. Allowing the ILEC or RBOC to exempt the parts of their
networks from the unbundling requirements will destroy voice and data
competition because competitors need collocation, access to the loop
and other network facilities to provide competitive data services.
The balanced approach laid out by the Act has opened the door to
hundreds of small businesses to compete in the local telecommunications
marketplace. Three years of RBOC litigation and non-compliance with the
Act is standing in the way of the growth of competition. Don't reward
anti-competitive behavior with a change of the ground rules under which
the ILECs and RBOCs must operate.
2. KEEP THE PRO-COMPETITIVE REGULATORY FRAMEWORK
The 1996 Act gives great impetus for investment in
telecommunications facilities because it opens markets to competitors.
In three years, the Act has produced tens of billions of dollars of new
investment. Facilities-based CLECs are rapidly building new,
sophisticated networks, and ILECs are upgrading their old ones. The
beneficiaries of these facilities build-outs will be customers, who
finally have suppliers who want to meet their demands, and equipment
vendors, who are bringing out new products every day. So long as
competition is allowed to develop and gain steam, this investment is
sure to continue. However, the opposite is also true. Any legislative
activity to alter the Act, especially to roll back pro-competitive
rules, could freeze this investment activity. Deregulation the ILECs
and RBOCs claim as an entitlement under the Act was to be a product of
the local competition the statute was intended to engender. The
continued need for regulatory oversight of the local market cannot be
overstated. The burdens associated with such oversight flow directly
from the ILECs' and RBOCs' failure to have met their statutory
responsibilities more than three years following en actment of the 1996
Act.
3. SUPPORT THE FCC AND ITS PRO-COMPETITIVE EFFORTS
With the proper framework and oversight, competition in the long
distance market has become a reality. For the same robust competition
to develop in the local arena, the same framework and, more
importantly, oversight mechanisms, must be in place. Give the FCC the
resources to enforce its rules. Expand the FCC's legal authority to
impose penalties on the ILECs and RBOCs for failing to open up their
local networks and/or impede CLECs' progress. Urge the FCC to complete
its universal service proceeding; without subsidies that are explicit
and available to competitors, it will be virtually impossible to bring
competition to rural areas. Support the FCC's efforts to promote
reasonable rates and fair terms and conditions for collocation as
excessive rates and unreasonable terms have become important barriers
to competitive entry into data service markets. Support the FCC's
efforts to promote full implementation of the interconnection,
collocation, unbundling and resale provisions of the act.
Regulatory efforts should be focused on eliminating the many
remaining obstacles to the competitive provision of local exchange
service, such as inadequate discounts. As we all know, competition
promotes innovation and the efficient deployment and use of
telecommunications facilities, which generates increased research and
development and positively imp acts the growth of the market for
telecommunications services.
D. CONCLUSION
National policy guidance will be an essential element of any
regulatory scheme designed to promote local services competition for
the foreseeable future. By the passage of the 1996 Act, Congress ``en
acted...sweeping reforms'' to ``open local telecommunications markets
to previously precluded competitors.'' After much delay brought about
by the reluctance of the ILECs and RBOCs to comply with its terms, the
1996 Act is only beginning to produce significant benefits. While CLECs
have driven the increasing availability of local exchange and advanced
services, RBOC and ILEC obstructionist t actics in this regard are
hampering CLEC efforts. Strict adherence to, support for and
enforcement of the Act will foster the development of competition.
Support for the FCC, the regulatory body charged with enforcement of
the Act, will foster development of competition. We can then rely on
competition to drive investment and innovation. If, however, there are
amendments to the Act in the form of Regulatory Relief for ILECs and
RBOCs, there could be a significant cost: capital could dry up and
competition in the local exchange and advanced services arena might not
develop. It's not complicated. We have the 1996 Telecommunications Act
in place. Let's enforce it. We have a regulatory agency, the FCC, to
administer the Act. Let's support them.
Senator Burns. Thank you, Mr. Houser.
We have Mr. Tidwell, Rick Tidwell, vice president, Birch
Telecom, Emporia, Kansas.
STATEMENT OF RICK TIDWELL, VICE PRESIDENT,
BIRCH TELECOM
Mr. Tidwell: Thank you, Mr. Chairman. I would like to thank
you for allowing me to speak this morning. Birch Telecom is a
small but growing competitive local exchange provider with our
headquarters in Kansas City, Missouri, and our operations
center in Emporia, Kansas.
We started doing business in resale in Southwestern Bell
territory in Kansas in 1997. We have since grown into Missouri,
and we are also now doing business in the State of Texas.
We began, as I said, doing business as a resale provider
using Southwestern Bell telephone services. We expanded to
switch-based services and now our switching systems are located
in the St. Louis, Missouri, Metropolitan Area, the Kansas City
Metropolitan Area, and Wichita Metropolitan Area, Kansas. Most
recently, but we began serving customers using the unbundled
network element platform, or UNE-P, as we call it in the
business.
What I am here today to talk about is the primary concern
of Birch Telecom, and that is our concern that as we are
expanding our toehold into local competition in the
Southwestern Bell territory, it appears that Southwestern Bell
is failing to provide the adequate resources to its wholesale
account provider teams and operations groups.
Birch is both a competitor of the Southwestern Bell and
also a customer. We need Southwestern Bell's cooperation to get
Southwestern Bell to open up their market and open up the
bottled network of facilities that they have access to.
Although Southwestern Bell was mandated in 1996 to cooperate
with Birch, it has strong financial incentives to continue not
to cooperate wherever possible.
As reflected in Senator Hollings' bill, S. 1312,
Southwestern Bell has long paid lip service in opening up its
markets to competition, but continues to resist providing the
resources and meaningful cooperation required to make
competition work.
A couple of examples that I can outline for you. We have
numbers of customers that are losing dial tone upon conversion
to Birch from Southwestern Bell. We have a number of customers
that have lost their directory listings in the local telephone
book or 411 upon conversion to Birch from Southwestern Bell. I
do not have to tell you what it is like for a residential or a
business subscriber to lose those types of services, and by the
way, we do provide service in both the rural and metropolitan
areas in all of our territory, and we provide service in a
variety of ways to those customers.
We are at the point in Texas where we have had to file a
complaint because of the operational issues and problems that
are occurring, and we have a complaint in front of the Texas
Public Utility Commission at this time. Southwestern Bell has
agreed on paper to take steps to solve a lot of our problems,
but we have yet to see the real resources being put forth to be
able to make this work.
It does not appear that the operational people that we work
with are causing all of the problem. There are some people in
Southwestern Bell we work with directly that appear to be
trying to get the job done, but from a corporate standpoint it
certainly appears that the resources are simply not being
devoted to providing services to CLEC's at this point in time.
Southwestern Bell, even when they have an ongoing
relationship with the Texas PUC and are trying to get into the
long distance business in Texas continue to stall every step of
the way at providing us parity service, which I believe the
1996 Act required.
If, in fact, Southwestern Bell does not promptly match its
promises with action and, most importantly, provide these
greater resources necessary for competition, and absent any
immediate commitment, we may well need Senator Hollings' bill,
1312, to provide relief so we can continue to move forward.
What we need is for Southwestern Bell to get into the long
distance business, but to get in with an A on the 14-point
checklist. Right now, I feel like they are trying to pass the
class on the 14-point checklist with a D minus, and we cannot
let that happen. If we cannot continue to get better at what we
are doing and create a better working relationship with the
incumbent telephone companies, competition very likely will not
flourish, but in f Act we may be backsliding a couple of years
from now, and we might truly have just one or two providers in
an area, and I do not think that is what the 1996 Act ever was
to provide for.
Thank you. I appreciate your time.
[The prepared statement of Mr. Tidwell follows:]
Prepared Statement of Rick Tidwell, Vice President, Birch Telecom
Senator Burns and members of the Committee, I am Rick Tidwell, Vice
President of Regulatory and Industry Relations for Birch Telecom, Inc,
a small but growing competitive local exchange carrier with principal
offices in Kansas City, Missouri and Emporia, Kansas. Birch is a member
of the Competitive Telecommunications Association, also known as
CompTel.
Thank you for inviting me to testify before the Committee today on
the state of local competition in our nation. I will focus my remarks
on issues influencing the development of competition in the states
where Birch currently operates - Kansas, Missouri and Texas. All three
states fall within Southwestern Bell's territory.
Before I turn to the specific issues affecting the development of
local telecommunications competition and the availability of consumer
choice in this region of the country, it may be helpful if I provide
you with a brief description of Birch.
About Birch
Birch currently serves approximately 90,000 access lines. We employ
850 people, including 250 at our headquarters in Kansas City, and 250
employees in Emporia, Kansas where our customer service and call center
is located.
In early 1997, Birch began operations in Kansas as a reseller of
Southwestern Bell's local exchange services. Resale operations were
later expanded to Missouri. In 1998 Birch began switch based operations
in some Missouri markets. In 1999, Birch began service in Texas through
the use of the unbundled network element platform (``UNE-P'') service.
In Missouri, we operate switches in Kansas City and St. Louis. We
have customers located throughout the state, including Carthage,
Chillicothe, St. Joseph and Springfield. In Kansas, we have customers
in every county of the state, and we have substantial operations in
Dodge City, Emporia, Lawrence, Manhattan, Salina, Topeka and Wichita
(where we also operate a switch). In Texas, we recently began
operations in Austin, Beaumont, Corpus Christi, Dallas/Fort Worth,
Houston, Lubbock, Tyler/Longview and Waco.
We offer a menu that includes local and long distance services,
high-speed internet access services and customer premises equipment to
residential and small and mid-sized business customers. Forty percent
of our customers are residential customers.
In addition to our voice-oriented circuit switches in Kansas City,
St. Louis and Wichita that route local and long distance calls, we are
deploying an ATM packet switching network. Packet switches initially
are being installed in Kansas City, St. Louis, Wichita and Fort Worth.
These data-oriented packet switches will be linked by high-speed ATM
transport facilities.
We provide our services through our own switching equipment and,
pursuant to provisions of the Telecommunications Act of 1996, through
use of leased network facilities and resold services obtained primarily
from Southwestern Bell.
Southwestern Bell is also our principal competitor. Although it has
been a struggle, and although we still are a small company, we have
grown into one of the larger competitive local exchange carriers
(``CLECs'') in the territory served by Southwestern Bell.
That's who we are today. Tomorrow, if we continue to work harder
and smarter than Southwestern Bell and our other competitors, we expect
to emerge as a major regional provider of telecommunications services
to small and mid-sized businesses and residential customers. However,
unless Southwestern Bell has the incentives to cooperate actively in
complying fully with its duties under the 1996 Act, the development of
competition and the benefits it brings to consumers will be seriously
retarded.
Southwestern Bell's Duties And Incentives Under The 1996 act
The duties and incentives of Southwestern Bell and other incumbent
carriers to open their local exchange markets to competition were set
by the 1996 Act, a law which several of you on the Committee were
instrumental in fashioning. Overall, Birch believes the Act established
a reasonable balance between the interests of incumbent local exchange
carriers and competitors, such as Birch, who want to enter local
markets. Most importantly, the Act recognized that incumbent carriers
have strong economic motives to maintain their de f acto control of
essential bottleneck facilities, and that a combination of duties and
incentives would be required to open the local exchange market.
Sections 251 and 252 of the Act set forth the duties of incumbents
to open their markets to new entrants by mandating interconnection,
access to unbundled network elements and resale on just, reasonable and
nondiscriminatory terms. Access to such facilities and services is
absolutely essential to CLECs such as Birch.
The incumbent Bell Companies' incentive is contained in Section 271
of the Act which allows a Bell Company into in-region long distance
markets once it has opened its monopoly local markets to competition.
Until recently, the Bell Companies did not appear to have been strongly
incented by the prospect of offering long distance voice service.
Perhaps that is because prices and profit margins for long distance
voice traffic have been plummeting since the passage of the Act.
More recently, however, Bell Companies' behavior evidences somewhat
stronger interest in entering the interLATA market. Birch believes that
apparent stronger interest stems from the Bells' desire to enter the
rapidly growing market for interLATA data services and their desire to
become the complete provider of services for customers, including
everything from local wireline and wireless service to broadband
internet and data services.
Southwestern Bell's Incentives Under Its Proposed Merger with Ameritech
Another incentive for Southwestern Bell to open its local exchange
market to competition stems from its proposed merger with Ameritech.
The Federal Communications Commission (``FCC''), in approving the
transfer of control of licenses triggered by the proposed merger,
imposed a variety of conditions, including conditions designed to push
Southwestern Bell toward opening its local markets.
These conditions, coupled with the performance standards and
remedies that Southwestern Bell has agreed to in Section 271
proceedings in Texas, are encouraging steps. They lay out a plan that
leads toward the opening of Southwestern Bell's local markets. However,
to implement the plan, Southwestern Bell will have to dedicate adequate
resources to correct the many deficiencies in its current methods of
providing CLECs interconnection, UNE and resale services. Moreover,
Southwestern Bell requires a fundamental change its mindset in its
dealings with CLECs such as Birch.
Birch's Experience To Date With Southwestern Bell
Even with the duties and incentives the 1996 Act imposes on and
offers to the Bell Companies to open their local exchange markets to
competition, Birch's experience in dealing with Southwestern Bell has
been frustrating. The following is a list of some of the Southwestern
Bell t actics Birch has encountered.:
Unreasonable ``UNE-P'' charges: ``UNE-P'' allows a competitor
to purchase a complete package of network elements combined to
provide service to the competitor's customer. Even though
Southwestern Bell has signed agreements in Texas and Missouri
allowing UNE-P Birch cannot get Southwestern Bell to provide
the service in Kansas without unreasonable recombination
charges. Additionally in Texas, when converting existing
service Birch must only pay the conversion charges. In Kansas
and Missouri Southwestern Bell requires Birch to pay the non-
recurring charges for new installation of the service even
though all the facilities are in place and working. These
charges are unecessary and unreasonable yet, in order to do
business Birch has no choice but to pay them. This is
especially disconcerting in the rural areas as there is little
chance that a secondary network such as a cable TV sytem or
fiber provider will enter the smaller markets due to the
limited total market size. As a result, Ssouthwestern Bell will
most likley remain the only provider of outside plant
facilities for many of these markets for years to come.
Resale Restrictions: Southwestern Bell refuses to allow Birch
to resell customer specific arrangements or contr Act
arrangements at the standard resale discount. In f Act,
Southwestern Bell even refuses to allow birch to assume the
liability on those contr acts and resell them to Birch's
customers with no reduction in the amounts payable to
Southwestern Bell. Rather, Southwestern Bell takes the position
that any attempt to convert the service covered by the contr
Act requires the customer to pay large termination fees to
Southwestern Bell. The only exception to this is Texas in which
Southwestern Bell was ordered to allow assumption of existing
contr acts.
Inadequate Operational Support Systems: These systems simply
are inadequate and fail to provide competitors such as Birch
the ability to provide their customers the same level of
service as Southwestern Bell representatives are able to
provide Southwestern Bell customer's using Southwestern Bell's
internal systems, as required by the statute. One of the major
issues in Texas in the Southwestern Bell 271 proceeding is the
issue of OSS systems and their current ``state of readiness''
and scalability. In September, Birch filed a complaint in Texas
regarding a number of OSS issues. In subsequent meetings and
conference calls Birch has found that there are many flaws in
Southwestern Bell's provisioning systems. One problem in
particular is that of coordination of orders. When a CLEC
places an order for the conversion of a service under UNE-P,
Southwestern Bell's back-office systems actually generate 3
orders, a Disconnect order, a New order, and a Change order.
Not all orders are generated by the same system and the orders
do not appear to be coordinated in any way. As a result, many
customers converting to Birch are experiencing loss of dialtone
at conversion. To make matters worse, Southwestern Bell has not
provided an expedited method for restoring service and
consequently customers have lost dial-tone for days at a time.
Omitted Directory Listings: Since 1997 Birch has from time to
time found customers that had listings in the Southwestern Bell
telephone directory omitted after they converted to Birch. In
late 1998, Southwestern Bell admitted that a problem had been
found and reported that it had been fixed. Yet omissions still
occur. This issue continues to haunt CLECs. Birch first
reported the problem almost two years ago, and Southwestern
Bell still has not completely eliminated the problem.
Premature Disconnection of Service: In several cases
Southwestern Bell has disconnected the customer's Southwestern
Bell service before the specified time for conversion of the
customer service to Birch, leaving the customer without any
telephone service. This has happened to business customers. The
end result is that some customers are now afraid to move their
service. This continues to occur for both our UNE-P and switch
based customers and is related to inadequate OSS identified
above.
Untimely and Inaccurate Billing: Southwestern Bell ignores due
dates and deadlines. Over the last year Southwestern Bell has
repeatedly failed to deliver timely and accurate billing
information which Birch must have in order to bill our
customers. Southwestern Bell's failure to provide the billing
records in the proper manner forced Birch to suspend its own
billing, bringing Birch's cash flow to a halt. Yet,
Southwestern Bell demands prompt payments.
There are many other examples of Southwestern Bell's deficiencies.
Upon request, I will be glad to furnish the Committee a more detailed
list of Birch's grievances. I will end this discussion by highlighting
one of Southwestern Bell's most effective t actics for frustrating the
development of competition--under-resourcing its CLEC account teams.
Inadequate CLEC Account Team Resources.
For years, interexchange carrier account teams have been assigned a
technical representative to deal with the many operational issues that
arise. We understand Southwestern Bell CLEC account teams have
requested this technical support and yet Southwestern Bell management
has not allocated the required resources. The results are unnecessary
service disruptions and delays in providing services for companies like
Birch, all of which serves to protect Southwestern Bell's monopoly
market from competitive incursions. Southwestern Bell's Local Service
Center (LSC) and Local Operations Center (LOC) also are understaffed.
Here is a recent example. A few weeks ago, Birch personnel had three
trouble reports to work with Southwestern Bell. Three separate Birch
employees called Southwestern Bell's CAST center where Birch has been
instructed to call. One of the calls was answered. The other two calls
rolled into a recording advising the caller to stay on the line until
someone answered. The call that was answered lasted 45 minutes. During
this time the other calls were left on hold. Birch escalated the
problem to Southwestern Bell's LOC management. The report back to Birch
indicated that only one person was available at the time of the calls.
I want to emphasize that this Southwestern Bell group is not a group
dedicated to Birch but is used by many CLECs. Birch has no idea how
many other trouble calls went unanswered during that time.
The Need for an ``Attitude Adjustment.''
In a meeting in May 1998, the Texas Public Utility Commission was
char acterized as saying that Southwestern Bell needs an ``attitude
adjustment.'' At Birch we don't feel that Southwestern Bell has taken
this advice to heart. It ``talks the talk'' but has yet to ``walk the
walk.'' Without a genuine change of attitude and a commitment of the
necessary resources by Southwestern Bell, Birch and other CLECs will
continue to be frustrated in their efforts to bring consumers choice in
local telecommunications services in Southwestern Bell's territories.
Birch would welcome tangible evidence that Southwestern Bell has
experienced such an adjustment without the need for further
legislation. Absent such evidence, the types of penalties contemplated
in Senator Hollings' Bill, S. 1312, may be necessary.
That concludes my testimony. Thank you for your time and attention
to this important matter.
Senator Burns. Thank you, Mr. Tidwell.
I have just got a couple of questions here. The RBOC's had
to make some kind of investment to facilitate a switchover. I
have asked some for those figures just recently, and they have
not responded yet.
Mr. Neel, do you have any idea on what the cost has been to
facilitate the switch for conversion?
Mr. Neel. Well, Mr. Chairman, the number is into the
multiple billions. US West informs me that it alone has spent
$1.2 billion on its systems and operation network to facilitate
local competition. SBC's numbers are even higher, and then it
goes all through the system that way.
Let me make a point here that these companies, the Bell
Operating Companies, have every incentive to comply with the
checklist. These are the companies that want the relief from
the FCC and the States and they are forced to do this.
Now, it is a voluntary proceeding if they want to get into
the long distance business, but they have every incentive to
comply with the checklist and enter the long distance market.
They have no incentive to minder these new competitors,
frankly, for local residential service, because they want to
get into a very important long distance and data markets.
These companies have an obligation to serve everyone in the
country, everyone in each of your States. These competitors
have no such obligation. They have an opportunity that is made
possible by the Act and the thousands of interconnection
agreements that have been signed. They have no regulation. They
have no obligation to provide service to everyone, but the Bell
Companies and the thousand other local companies do have that
obligation. It is a very important consideration here.----
Senator Burns. Now, let us take that one step further,
then. How come we hear all the complaints that it is not
happening? In other words, we have got a 60 to a 90-day
complaint here. Where do the competitors go to file or to get
relief if a conversion is not made?
Mr. Neel. Mr. Chairman, there is a very clear procedure for
doing that with State regulators and with the FCC, and as I
pointed out earlier, the FCC has not held in favor of a single
CLEC filing a complaint under the 251 requirements. Remember,
the requirements under 271 are to get into the long distance
business. It would be patently unfair to sanction these
companies for not meeting the checklist requirements for long
distance if they are not even filing an application. It does
not make any sense, so do not confuse the checklist to get into
the long distance business against the requirements in section
251.
On interconnection they are required to meet those rules
under section 251 and the CLEC's aren't going to the FCC, or
the FCC is turning them down in any complaints on meeting
section 251 requirements, but on section 271, this is a
voluntary proceeding to give them the benefit of entry into the
long distance business, and that is an important consideration.
But in terms of anecdotal issues, I am sure there are
hundreds of these all through the country, but there are
millions of cases where these customers have been transferred
and serviced smoothly. Every financial statement and every
statement of Wall Street of all of these companies says ex
actly that case, so it is working. It is working. It can always
work better, but I would also submit that some of these CLEC's
are not doing their part of it.
The local exchange companies are providing training
assistance on things as simple as how to fill out these
customer transfer forms, and one of the companies informs me
that the vast majority of these delays are often related to the
new provider failing to fill out the form correctly. It is a
new business, so we understand that, and they should understand
on the other side that there are going to be difficulties.
But it is a new Act. These are new procedures, but they are
working, and they will continue to work, because the local
companies, the Bell Companies have every incentive to comply
with the Act, every incentive.
Senator Burns. Mr. Houser, I know you want to make a
comment. I saw that.
Mr. Houser. I sure do. I cannot sit still much longer. That
response is just ex actly typical of what the RBOC's and ILEC's
want us to do. They want us to have to go to the PSC. We have
to go to the FCC. We have to go to court to fight all of this.
They know it is going to take forever for us to do that.
Instead of complying with the orders, all they want to do is
delay, delay, delay.
This is a perfect example right here. Sure, there is a
procedure. Go to the FCC and complain, and how long will it
take? We are talking about months and months and months, as
with the PSC's and in the courts. All they have to do is go
ahead and comply with the rules, and we can get on with
business.
In the area of resale--I want you to think about this. In
the area of resale, for the Bell Operating Company to change
from a residential customer to our billing, it is all software.
It can be done in a matter of minutes, but in f Act it takes
days and weeks, and then half the time it is not correct.
So they just simply have not put the resources where it is
needed to be put, and I said earlier that we attr acted 100,000
residential customers, but what I did not tell you is, we lost
over half of them because the Bell Operating Companies would
intercede. In the process of us getting the customer they would
call the customer and say, gee, you know, if you changed to
Trivergent you are probably going to lose dial tone, and sure
enough, sometimes they did, and that is the ex Act type thing
we have had to fight.
Senator Burns. Senator Hollings.
Senator Hollings. I take back the original observation that
the hearing was over because we did not have the Bell companies
here, with their chance to talk about local competition and be
properly cross-examined. I take that back, because I am glad we
have got Mr. Holland, Mr. Houser and Mr. Tidwell to testify so
that Mr. Neel can hear it. He sounds like he never has heard
this before.
Now, let me get right to some of these points here. No. 1,
Section 271, the 14-point checklist, Mr. Chairman, I ask we
include this in the record at this particular point.
Senator Burns. Without objection.
[The information referred to follows:]
COMMUNICATIONS ACT OF 1934, Sect. 271
COMPETITIVE CHECKLIST.--Access or interconnection provided or
generally offered by a Bell operating company to other
telecommunications carriers meets the requirements of this subparagraph
if such access and interconnection includes each of the following:
(i) Interconnection in accordance with the requirements of
sections 251(c)(2) and 252(d)(1).
(ii) Nondiscriminatory access to network elements in accordance
with the requirements of sections 251(c)(3) and 252(d)(1).
(iii) Nondiscriminatory access to the poles, ducts, conduits,
and rights-of-way owned or controlled by the Bell operating
company at just and reasonable rates in accordance with the
requirements of section 224.
(iv) Local loop transmission from the central office to the
customer's premises, unbundled from local switching or other
services.
(v) Local transport from the trunk side of a wireline local
exchange carrier switch unbundled from switching or other
services.
(vi) Local switching unbundled from transport, local loop
transmission, or other services.
(vii) Nondiscriminatory access to--
(I) 911 and E911 services;
(II) directory assistance services to allow the other
carrier's customers to obtain telephone numbers; and
(III) operator call completion services.
(viii) White pages directory listings for customers of the
other carrier's telephone exchange service.
(ix) Until the date by which telecommunications numbering
administration guidelines, plan, or rules are established,
nondiscriminatory access to telephone numbers for assignment to
the other carrier's telephone exchange service customers. After
that date, compliance with such guidelines, plan, or rules.
(x) Nondiscriminatory access to databases and associated
signaling necessary for call routing and completion.
(xi) Until the date by which the Commission issues regulations
pursuant to section 251 to require number portability, interim
telecommunications number portability through remote call
forwarding, direct inward dialing trunks, or other comparable
arrangements, with as little impairment of functioning,
quality, reliability, and convenience as possible. After that
date, full compliance with such regulations.
(xii) Nondiscriminatory access to such services or information
as are necessary to allow the requesting carrier to implement
local dialing parity in accordance with the requirements of
section 251(b)(3).
(xiii) Reciprocal compensation arrangements in accordance with
the requirements of section 252(d)(2).
(xiv) Telecommunications services are available for resale in
accordance with the requirements of sections 251(c)(4) and
252(d)(3).
Senator Hollings. Now, this is a list of 14 things. And
this Senator worked for 4 years with all the lawyers. This town
has got 60,000 lawyers registered to pr actice in the District
of Columbia. I think 59,000 are communications lawyers and I
have met every one of them.
[Laughter.]
I have met every one of them. And they are expert and they
know all the things, Mr. Houser, Mr. Holland and Mr. Tidwell,
that you all rare talking about. And it is not too complicated,
but it is complicated. So they had to hammer this out. They
wrote this. Their lawyers wrote this, Mr. Neel. They wanted to
comply, they said.
Let me read this to you. On March the 5th, Bell South said
the Telecommunications Act now means that consumers--this is
back in 1996--will have more choices. We are going full speed
ahead. And within a year, we can offer long distance to our
residential and business wiring customers. They are not doing
it in 4 years. Do not give me no 15 people in the telephone
book in Charleston.
They have not gotten a CLEC down to your house in Kiawah,
and they will not have one down there because it will not pay.
In fact, by gosh, the co-ops have got the telephone down there.
I used to be their lawyer on Kiawah and Seabrook Islands.
Because why? Because the Bell telephones, it did not pay.
Let me read this. On February the 8th, 1996, US West: The
interLATA long distance potential is a tremendous business
opportunity for US West. Customers have made it clear they want
one-stop shopping. They went on to predict that US West would
meet the 14-point checklist in a majority of its States within
12 to 18 months. They did not do that at all. They have not met
any of it.
In fact, I have got the testimony in a book here, when they
talk about we did not even consider--this is back in 1994--the
contention is now, Mr. Chairman, that we did not consider data.
Here is Mr. McCormick, Richard McCormick, of US West, quote: I
want to touch briefly on US West's business plan. We have
embarked on an aggressive program both within our 14-State
region and outside to deploy broadband. We want to be the
leader in providing inter active--that is, two-way--multimedia
services, voice, data, video. We see a tremendous potential for
multimedia, and blah, blah, blah, right on down the line.
They were into data, they said, but let us put this one in
the record, too.
[The information referred to follows:]
s. hrg. 103-599
HEARING ON S. 1822, THE COMMUNICATIONS ACT OF 1994
before the
COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
march 17, 1994
PREPARED STATEMENT OF RICHARD D. MCCORMICK
Mr. Chairman, members of the Senate Commerce Committee, I'm Dick
McCormick, Chairman and Chief Executive Officer of US WEST. I
appreciate the opportunity to appear here today to testify on S. 1822.
By way of background, let me mention that I served in a variety of
assignments in the Bell System prior to divestiture, including
positions at both the operating telephone company level and at AT&T. I
began my telecommunications career in 1961.
My understanding is I'm to confine my remarks to provisions of the
bill that address the manuf acturing restriction of the Modification of
Final Judgment. As you've heard in previous hearings and will probably
hear in future proceedings, the Regional Bell Operating Companies have
serious concerns about a number of provisions of S. 1822. But the manuf
acturing section, on the whole, is something we enthusiastically
support. I'm convinced that lifting the manuf acturing prohibition
offers real opportunity for job growth, increased innovation and for
enhancing this country's global competitiveness.
Unfortunately, we should have been able to exercise that
opportunity three years ago. Thanks to your leadership, Senator
Hollings, the Senate, in the 102nd Congress, overwhelmingly passed S.
173, legislation to permit Bell entry into manuf acturing. A companion
measure in the House had 138 co-sponsors. But despite our best effort,
even though we pushed the matter aggressively, the House refused to
take up manuf acturing as a stand-alone issue. Because a federal court
had lifted the MFJ restriction on Bell provision of information
services, there was some sentiment in the House that the price for
manuf acturing freedom should be that we give back some of our court-
won freedom to offer information services. We were unable to resolve
that matter before Congress adjourned.
So American consumers have been denied for another three years, 10
total, the benefits the half million RBOC employees could bring to
communications design and development. The result has been fewer jobs,
decreased innovation and needless frustration. Let me be specific.
After the break up of the Bell System, US WEST decided to build a
world class research and development facility. Because we saw the
communications business becoming increasingly competitive and because
the communications needs of the sparsely-populated geography we serve
tend to be different than the communications needs of customers in more
densely-populated areas, we saw research and development as both a
competitive advantage and as necessary to addressing the unique needs
of our customers.
So we committed to building a state-of-the-art laboratory to house
some 1,500 scientific and technical people, with plans to expand as
demand warranted. But, as they say, ``a funny thing happened'' on the
way to site selection. In December 1987, Judge Greene ruled that the
manuf acturing restriction extended beyond metal-bending or fabrication
to design and development as well.
In the wake of the Judge's decision, we went ahead with our plans,
but those plans were scaled back significantly. Instead of employing
1,500 scientists, researchers, engineers, technical and support
personnel, we employ 600. And instead of having free rein to use their
imaginations--to think, to dream, to innovate--the work activity of
those 600 people is very tightly restricted.
I think it's fair to say that in the early days of adjusting to
Judge Greene's expanded definition of what constitutes manuf acturing,
our people struggled mightily to find that unknown line between what is
and is not permissible under the MFJ. That's the needless frustration
referred to. Whenever one of our people has a good idea, that
individual must share that idea with a battery of attorneys who make
their best judgment as to whether carrying that idea forward would
violate the MFJ. As you might appreciate, scientific and technical
people would rather spend their time with science and technology than
with unknown legal issues. And so, regrettably, they find ways to work
around the legal morass. They don't let their imaginations run as
freely. They're not as creative. They're more disappointed than
entrepreneurial.
And something is lost as a result. It would be interesting, but
probably impossible to try to quantify how many new products and
services, how many new ideas for doing something better, cheaper,
faster, died on the innovation table, And to what end? What possible
good is served by keeping in excess of 50 percent of the domestic
communications capacity of this country on the design and development
sideline?
I want to touch briefly on US WEST's business plan. We have
embarked on an aggressive program--both within our 14-state region and
outside--to deploy broadband. We want to be the leader in providing
inter active--that is, two-way--multi-media services--voice, data,
video. We see a tremendous potential for multimedia--in health care
,education, telecommuting and entertainment.
But we're largely sailing in uncharted waters. The set-box and
video servers it will take to make multi-media a reality aren't
available from ``off the shelf.'' They're still in the laboratory where
engineers are trying to get the bugs out of them. The restriction
severely compromises our ability to engage in design discussions with
manuf acturers. We can talk in generalities. We can say ``no'' to this
and ``yes'' to that, but we can't talk in specifics. We cannot fully
take advantage of our technical expertise, of our knowledge of our
customers and of what they want and don't want. And so, instead of
better, faster, cheaper, we do things adequately, slower and maybe a
little more expensively. That's a prescription for the past, not the
future. We cannot be leading edge if we're not free to follow through
on our ideas.
Curiously, we are free to do this offshore, just not in this
country. So opportunity will migrate to Europe and Asia where we are
free to invest, innovate, design, develop and manuf acture. Yet under
the current restriction, consumers in this country are denied the
benefits of our experience elsewhere.
And we're denied a return on our intellectual property. If a US
WEST scientist invents and patents a communications solution, the MFJ
does not permit us to share in the royalties from that invention. At
least not according to a recent court of appeals ruling.
The manufacturing provisions of S. 1822 largely address those
issues. As you did in 1991, Mr. Chairman, you've again demonstrated
that the manuf acturing restriction can be set aside without harm to
customers or competitors. There are adequate safeguards in the
legislation to quiet any concern about anti-competitive behavior, while
at the same time, sufficient flexibility to enable the RBOCs to use
their expertise to the benefit of the economy, the marketplace and
international competitiveness.
The seven Regional Bell Operating Companies support provisions in
S. 1822 dealing with lifting the manuf acturing restriction.
Thank you, Senator Hollings, for your leadership on this issue and
the opportunity to testify. I'd be glad to try to answer any questions
members of the committee might have.
Senator Hollings. The title of one is the Seattle Post
Intelligence Reporter: Two sentences made public yesterday in a
US West document that the company fought to keep secret for
more than a year may cause MCI-Metro to reopen legal
proceedings against US West. The sentences appear to show that
US West, based in Denver, pursued a corporate policy of
declining to reconfigure its equipment to allow use by
competitive local carriers like MCI-Metro. The sentences read,
quote:
At the time of this CPD's distribution, corporate policy
dictates that we will not privately engineer for CLEC
interconnections. However, the continued policy of actually
honoring orders for CLEC interconnection will cause DTC port
shortages in these offices.
These sentences are contained in confidential documents
that served as evidence in the proceeding in 1997, by MCI-Metro
against US West, verifying, Mr. Houser, what you said about
punishing them.
Now, let us get on to some of these other things that they
want to talk about. Mr. Chairman, they say they are not making
money. That there is really bothersome. The third quarter of
this year, how much they have spent and everything else like
that. Bell Atlantic profit in the third quarter of this year,
just reported, rose 10 percent, to $1.2 billion. Bell South, in
this third quarter, just reported profit rose 19 percent, to
$972 million. SBC Communications, profit rose 22.5 percent, to
$1.28 billion. US West, profit rose 11.1 percent, to $421
million. And they are paying the chairmen of these entities a
million dollars a month. I ran for the wrong job.
[Laughter.]
Senator Hollings: I know the board members at Bell South.
They are good friends. I think I can get their vote. Yes. Yes.
This here little 130,000 or whatever this is, hah. Man, come
on.
[Laughter.]
Senator Hollings [continuing]. I tell you right now they
are guaranteed a profit. Obligation, just feed the obligation
to me. Talking about the rest of these folks here at the table
do not have an obligation, give me some more of that
obligation. You cannot lose. You have got a monopoly. You are
guaranteed a profit. You have got a hearing and they will make
it profitable for you.
Let me get on to some other parts of this thing here.
Deregulate, yes. Mr. Neel now says to deregulate. Well, we have
got a deregulation bill, S. 1312. That will deregulate you.
That is where, by gosh, you have gotten your monopoly. And you
said you wanted to compete.
We have put the record in here and everywhere else in the
world. And you do not compete, you combine. You are buying up
each other. We had seven; now you have only got four left. And
they are trying to merge even more of them, with long distance
and everything else to go around in from the 271 of the
checklist that they wrote and said they wanted to comply with,
knew it at the time and failed to comply.
And I am glad, Mr. Holland, that you have testified here
and stated just ex actly what is going on. Because that is why
I put in S. 1312. Just like the Dutch boy at the dike, you say
they are trying to change the accounting system. They say, we
never got into data, to try to get into long distance. They
come from every direction around here. They come into town.
They put on these puff pieces at the policy committees, and
with the leadership in the back room and everything else of
that kind. And communications is very complicated. And the next
thing you know, I find out that we are getting the bum's rush.
And, right to the point, deregulate, what I would like to
do is deregulate. Give them, by the year 2001, and then,
thereafter, $100,000 a day if they do not comply with the
checklist that they wrote themselves. That is what they said
they wanted to do. And they refuse to do it. They squat on
their monopolies, making these exorbitant profits, paying these
million-dollars-a-month chairmen and everything else, and
sending a very smart, attr active lawyer up here to give us
these charts and 15--let me put that in the record--let us get
in the 15 people. We have got the full-time record right here
from Merrill Lynch.
Mr. Chairman, this is dated September of this year. I ask
consent to put this chart in here from Merrill Lynch.
Senator Burns. Without objection.
[The information referred to follows:]
Senator Hollings. It is the local telephone revenue loss to
CLEC's. It has got every CLEC, including AT&T and Sprint. Total
lines and service, 161 million. The total estimated U.S. access
lines, let me correct that, 161 million, and the total lines in
service of the CLEC's is 6,175,417. The local competitor's
share is 3.4 percent.
So you can run around with your telephone books and your 15
and the millions, how you are spending and everything else. You
are not telling the people the millions that you are making and
buying up down in Argentina, Mexico, all the countries, buying
each other up around here, refusing to appear and sending a
smart lawyer up here to cover for them. They ought to be
ashamed of themselves. This is the record. This is the market.
And these are the f acts.
I thank you, Mr. Chairman.
Senator Burns. Thank you.
Senator Brownback.
Senator Brownback. Thank you, Mr. Chairman.
Thank you to the panelists, too. I have found it a very
interesting and informative panel. When you pass acts and then
you get to hear how people see it being implemented--because I
hear most of you saying you agree with the Act, you are having
some questions on the implementation.
Mr. Tidwell, first, welcome to a fellow Kansan. I am
delighted to have you here. Your service is doing quite well in
Topeka, where I live. My next door neighbor is in Birch now.
And I am going to go home and look at it. And I hope Cricket
comes to Kansas soon. You may get Senator Ashcroft and I, both,
at 29.95. That is an awfully good service.
Mr. Tidwell, your competition, at least in my community of
Topeka, is doing quite well. You have got great billboard
advertising, 100 percent of our customers fired Southwestern
Bell. It is real effective. Where have you gone in the
marketplace? You stated, I think, that you started in 1997. And
I would just be curious, even in Topeka if you could, where
have you gone for market penetration in that period of time
that you have been in?
Mr. Tidwell. Are you looking for numbers, percentages?
Senator Brownback. Yes, please.
Mr. Tidwell. I do not have those with me. I believe our
markets in Kansas are some of our oldest markets, so they would
be where some of our penetration is highest.
Senator Brownback. When did you start there?
Mr. Tidwell. We actually started providing local resale
service in 1997, probably May 1997.
Senator Brownback. Can you give me any estimates or any
specifics on markets that you are in, that you have been in 2
years now?
Mr. Tidwell. I did not bring that information with me that
is city specific, but we do have, I think, approximately 40,000
to 45,000 lines up in Kansas as a whole. They are primarily in
what we would refer to here as the secondary or third tier
markets. Quite a bit of business. And it is all in resale right
now, by the way, except for the Wichita metropolitan area. We
have customers in Dodge City, Hayes, Salina, and a fairly good
concentration in the Topeka area.
In the last 12 months, we have increased our market share
in the Kansas City metropolitan area, in the Kansas and
Missouri side both of course, and are starting to provide
facility-based services there. But much of what we are doing in
Kansas to this date is resale operations.
Senator Brownback. Do you have a percentage of penetration
in the Kansas City market that you could share with us?
Mr. Tidwell. I do not. I believe we are still under 1.5
percent.
Senator Brownback. And how long have you been in it?
Mr. Tidwell. Approximately a year.
Senator Brownback. When you started in these markets, you
had projections for how far you would be how soon. Are you
reaching those projections that you had established for your
company?
Mr. Tidwell. We are under resale. Resale proved to be the
simplest way to get into this business, but it is not very----
Senator Brownback. Just to go in and start advertising?
Mr. Tidwell. Right.
Senator Brownback. And then using the current----
Mr. Tidwell. Resell the incumbents' telephone service, in
effect. It is still Southwestern Bell service for reselling
their service. We buy it at wholesale and sell it to our
customers at a retail price.
Senator Brownback. And that has proved to be the most
effective way for you to penetrate into these markets
initially?
Mr. Tidwell. Really, in Kansas, that has been almost the
only way. Our problem in Kansas with moving to the next step is
that Southwestern Bell has been in active or very negative
toward trying to provide-- getting them to provide anything to
us to make that next step. From a facility-based standpoint, we
paid almost $250,000 to collocate in one central office in
Wichita, Kansas. And with numbers that high, it is pretty hard
for us to make a business case to go to a Salina or Topeka, or
especially a Dodge City or an Emporia, and be able to afford to
go in and collocate and provide true facility-based services.
Senator Brownback. What do you think that number should
have been in Wichita? I presume there was a negotiation that
took place for you on that $250,000.
Mr. Tidwell. What we are seeing in Texas--and maybe Mr.
Holland can help me a little bit here--some of the collocation
prices that we see in Texas I believe are in the $40,000 to
$70,000 range. And we do not understand how there could be so
much disparity between States. Because the equipment and the
real estate we feel is somewhat the same, at least. So those
numbers need to come down significantly, at least down under
six figures.
Senator Brownback. I want to get right into the specifics
if I can. Because actually I am very encouraged that you all
are here. I think this is a good process. I am encouraged with
the competition I see at home when I go there. And I hope
Godspeed. I hope you keep growing well and doing well. But as I
hear you talk, particularly you, Mr. Tidwell, you are saying,
OK, Southwestern Bell is trying to slip in just barely to
passing.
I think the actual thing you said is they are not providing
the resources that you think they need to, to allow others to
get in to the field. Did I take your testimony correct? And if
that is correct, what is it that they should be providing?
Because apparently you are working OK with the guy right there
next to you at the plant at Southwestern Bell, but you think,
on up the system, there is some blockage.
Mr. Tidwell. Well, what we are seeing is as we turn on more
and more lines and as we grow and start to really, as we call
it sometimes, turn on the tap and start really sending larger
numbers of orders to Southwestern Bell, they do not seem to be
able to keep up with the number of orders. Orders are sitting.
Orders are not being handled expediently.
And as we start to turn on the tap and as more CLEC's come
on board, we are hearing from the Southwestern Bell line people
that they simply do not have the staff, the manpower and the
system resources to be able to process all the orders. We also
have a situation -- when I read the report the other evening
the report from the Department of Justice on Bell Atlantic,
something that it made quite an issue of was the manual
processes and intervention that are still required in the
ordering process. And we are seeing the ex Act same thing with
Southwestern Bell's territory.
I will have to give Bell a little bit of a break here. I am
not sure anyone anticipated how involved some of this would be.
But the other side of the coin is Southwestern Bell has clearly
been told they are the ones that have to provide the resources
to make this work. And these manual processes are causing
significant delays to occur, were causing significant losses of
dial tone of our customers when they convert. And they need to
provide the resources to be able to process orders and maintain
the service in parity with what they are doing at retail.
We have had cases where customers have lost dial tone. They
have been very frustrated. And they have actually called the
Southwestern Bell business office for the retail side, and
Southwestern Bell has explained to the customer that if they
would be willing to change back, they would get the dial tone
back on for them that day. Yet it has taken us 24 to 36 hours
more to get it done through the wholesale side because of
supposedly system or manpower limitations.
Senator Brownback. And I think that is clearly something
that--and I am glad that is coming to the attention of people
on the dial tone issue if that is occurring.
How many CLEC's are you competing against, or do you
anticipate competing against in the markets you are going into?
Mr. Tidwell. On a daily basis our main competitor is still
Southwestern Bell. CLEC's that we compete against, we are
seeing, in the State of Texas, there are probably a half a
dozen that seem to be relatively active.
In Kansas, frankly, there are only two others that I know
of that are very active at all, that are doing much of anything
in Kansas.
Senator Brownback. Thank you, Mr. Chairman.
And thank you for coming here and sharing with us both the
specifics and also kind of the state of the dynamic capitalism
that is happening in the marketplace. You are operating in a
market that is quite dynamic, and I am glad it is moving
forward. I hope we can fix some of the problems, but not, in
the process, re-regulate a system that by some deregulation has
allowed you to come into it.
Thank you, Mr. Chairman.
Senator Hollings. Mr. Chairman, at this particular point,
if the distinguished chairman would permit, the Austin Business
Report, dated November the 2nd--today is just the 4th I think--
whereby the Texas Public Utility Commission ordered sanctions
in September against Southwestern Bell, amounting to $850,000.
A Southwestern Bell official, in January, ordered a group of
employees to immediately destroy certain records relevant to
its hotly contested dispute with two competitors, whereas our
colleague on the other side, Chairman Bliley, had tried to get
the records and they said they did not have them. And now we
find out they ordered the records be destroyed. That is the
full report. Include that in the record, please.
[The information referred to follows:]
November 2, 1999,
austin american-statesman
Records at SBC ordered destroyed
A Southwestern Bell official in an e-mail message sent in January
ordered a group of employees to immediately destroy certain records
relevant to its hotly contested legal dispute with two competitors.
That message, first disclosed on Monday, helped persuade the Texas
Public Utility Commission to order sanctions in September against
Southwestern Bell amounting to almost $850,000.
The e-mail likely will be cited by critics as evidence that
Southwestern Bell continues to resist opening its network to local
competition, which under law it must do before it can get into the
Texas long-distance market.
The e-mail was released Monday by the commission after Attorney
General John Cornyn ruled it was not protected from disclosure. The
Austin American-Statesman had filed an open records request for a copy.
Southwestern Bell said it decided not to contest Cornyn's decision
in court. Spokesman Bill Maddox said the company decided to release the
e-mail to demonstrate its ``insignificance.''
The company had earlier rebuffed U.S. Rep. Tom Bliley, R-Va.,
chairman of the U.S. House Commerce Committee, when he asked for copies
of the e-mail, saying it raised questions about whether Southwestern
Bell was negotiating with competitors in good faith.
Attorney Christopher Goodpastor of Covad Communications Inc., one
of the companies involved in the dispute, said, ``We think this e-mail
shows a pervasive and fundamental disrespect for the proceedings before
not only the Texas commission but also the Federal Communications
Commission and the commissions of other states.''
The subject of the e-mail was a new service from Southwestern Bell,
Asymmetrical Digital Subscriber Line, which provides high-speed
connections to the Internet using ordinary telephone lines. The
company, which began selling ADSL in Texas this year, must also make it
available to wholesale competitors under federal law.
In December, Covad and Rhythms NetConnections Inc., failing to get
access to ADSL from Southwestern Bell, took their dispute to the PUC.
On Jan. 6 they began the legal process of disclosing to each other
relevant internal information.
The e-mail, sent Jan. 14 in reference to "Midwest Retail ADSL,"
said in its entirety:
``This is an attorney/client privileged communication. Ensure that
all documents, including `Word', e-mail, and attachments that do not
represent SBC's current retail plans are destroyed and/or deleted from
the hard drive of your computer immediately.''
Southwestern Bell agreed in September to pay about $850,000 in
sanctions to Covad and Rhythms after PUC arbitrators ruled that
Southwestern Bell had failed to produce numerous witnesses and
documents as required.
Maddox said Southwestern Bell released the e-mail so that it won't
be used by those opposed to the company selling long-distance service.
The PUC could decide as soon as Thursday whether to recommend to the
FCC that Southwestern Bell be allowed into the Texas long-distance
market.
Senator Burns. For the Senators involved up here, Senator
Lott is wishing that all Senators go to the floor for the
swearing in of the son of former Senator Chafee. Anyone that
wants to do that. I think we ought to continue with the hearing
here and finish this hearing up without any kind of a break. Is
that OK with the Senators?
Senator Cleland. Mr. Chairman and members of the panel,
hearing the back and forth here at the table and between the
committee members and the table reminds me of an African
proverb that when the elephants fight, the grass gets trampled.
And I am feeling a lot like the grass this morning. And I am
wondering if my citizens out in rural Georgia are feeling a
little bit like the grass when the elephants are fighting, and
if they are not getting trampled in the process. That is kind
of my political questioning today.
Let me just say, Mr. Holland, for all of the ranting and
raving by my dear colleague from the great State of South
Carolina against Bell South, headquartered in Atlanta, you are
indeed alive and well and competing against Bell South in
Georgia; is that not correct?
Mr. Holland. We are competing in Atlanta, yes, sir.
Senator Cleland. That is ex actly my point. Where are you
competing?
Mr. Holland. We are competing throughout the greater
Atlanta metro area.
Senator Cleland. Where most of the businesses are located?
Mr. Holland. That is correct.
Senator Cleland. Are most of your clients and customers
businesses as opposed to residences?
Mr. Holland. The vast majority, like 99 percent-plus, are
medium and small businesses. Our typical customer ranges from
like five employees up to maybe 50 employees in an office.
Senator Cleland. So more than 90 percent of your clientele
that you are competing against Bell South on has to do with
businesses, is that correct, as opposed to service of
residences?
Mr. Holland. actually, as I say, 99-plus percent. And it
is medium and small businesses.
Senator Cleland. Why did you decide to go after businesses,
which pay more for telephone service, as opposed to residences,
who pay less?
Mr. Holland. The principal reason is, to play in the
consumer market--and certainly we have some CLEC's, like RCM
and 21st Century Group and others, and certainly all of the DSL
providers, they are in the consumer market--the problem in the
consumer market is if you do not have a brand name and a $500
million a year advertising budget, it is very hard to play
there. In the medium and small business market, which, I will
tell you, is a far more neglected market than the consumer
market--I mean the Bell companies do not even call on medium
and small businesses; they are order takers there--in that
market, we do send out people door to door. And that is the
only way we can compete.
I mean we are not going to get a lot of customers by
running a few ads with a real shoestring-type budget. We cannot
compete with Bell South in Atlanta if it comes down to a media
war, because they have got the brand name. Frankly, we do not.
We can beat them by going in and offering personalized service
with people going in the door and doing it. And that is what we
have done.
Where you see consumer competition today is typically where
you have sales agents. RCN is a great example. They operate all
up and down the East Coast, as well as the California market.
And they use the building owners, you know, the landlords, of
multi-dwelling units as their agents. That is the way they
overcome the lack of brand name and the lack of the advertising
budget.
Certainly, we are going to see robust competition in the
consumer market. It is ultimately going to be brought by the
people with the brand names, AT&T, MCI-WorldComm, Sprint, in a
big way. The CLEC's, though, where we can win is where we can
offer the personalized service.
Now, the problem we have got and what we really need to be
able to extend that competition to like rural Georgia--as an
example, I am an investor in a company that is going into
Lubbock, Texas, and Tyler, Texas, and certainly they ought to
be able to go into a lot of areas in Georgia. If you can make
it in Lubbock, I think you can make it anywhere.
Senator Cleland. Well, we welcome you to Umadilla, Georgia,
any time you want to come.
[Laughter.]
Senator Cleland. I think that is part of the point here,
Mr. Chairman. In some areas they call it cherry picking. You
come into Atlanta, you pick off the best customers, where it is
most advantageous to you. I do not blame you. If I was in your
business, I would do the same thing. But there are other people
in Georgia, too. Most of my State is rural. It is not Atlanta.
It is not medium to small businesses. It is average people out
there that want telephone service.
Do you feel, Mr. Holland, that you are actually prohibited
in any way from competing in the residential market? Do you
feel any restriction in competing there if you so chose?
Mr. Holland. You can compete as a reseller in that market.
But reselling is not competition. That is maybe a market entry
strategy, but you lose money reselling, and you are not
providing any differentiated service.
Senator Cleland. So you are not into residential, as you
say, consumer telephones placement, because it does not pay?
Mr. Holland. No, it would pay if Bell South complied with
the competitive checklist, where you could easily and
seamlessly -- if you, as a residential customer, could change
your local carrier within 3 business days, no one has to come
to your home and do anything----
Senator Cleland. But you are in the business market. Do
those same obstacles apply to the business market? Are they
putting up the same obstacles? You are in the business market
and seem to be doing well.
Mr. Holland. They put up the same obstacles everywhere. And
competing does not necessarily mean doing as well as we should
be. And the Bell South region is a classic example. Bell South,
we still have to fax orders to them. We do not have electronic
bonding. Every morning our people have to call up Bell South's
regional service center in Birmingham, Alabama, and we have to
reconcile what faxes were sent and what were received. I mean
the completion rate is not up to Dan Marino's standards, I
guarantee you, on getting those faxes.
Senator Cleland. Maybe up to the Atlanta Falcon's
quarterback.
[Laughter.]
Senator Cleland. Let me just say, Mr. Houser, you attacked
Bell South pretty heavily here, using terms ``illegal'' and
``unethical.'' You are competing with Bell South in South
Carolina; is that correct?
Mr. Houser. Yes, we compete with Bell South in seven States
all over the States. And we have gotten our brains beat in by
trying to compete for residential customers on a resale basis.
It is not viable----
Senator Cleland. Are most of your customers, like Mr.
Holland, most of them businesses?
Mr. Houser. No, 95 percent of ours are residential and
very, very small is business customers. About 90 percent are
residential today.
Senator Cleland. So you specialize in residential
customers?
Mr. Houser. Well, I have been, but I cannot make it. I have
lost $18 million fooling around with that. I cannot fight Bell
South anymore. Let me just give you one example. Not to get off
on a tangent, but let me just explain the economic side of it.
For a residential customer that spends $20 or $25 a month
on a local line, if they want to change their service to say
call waiting or call forwarding or whatever it might be, as a
residential customer they will not charge you to change to that
service, back or forth. As a CLEC, I have to pay a fee every
time there is a change in that billing record. And the strange
thing is, even though it is done either in Birmingham, Alabama,
or Atlanta, Georgia, electronically, on a billing system, the
charges range from $4 to $17.
Now, on a customer that is spending $25 a month and I am
getting a 15 percent discount, that is $3.75.
Senator Cleland. Is that illegal or unethical?
Mr. Houser. Oh, I definitely think it is unethical,
absolutely. Because what they are saying is that they have got
different costs by State when they know they have got one
center that does it. How can it vary by State? That makes no
sense. If I have a computer system, why would I charge $17 in
Kentucky and $3 in Georgia?
The other thing is ex actly what was stated before, when we
change a customer from Bell South to us, if in f Act the
customer wants to change back to Bell South, because Bell South
typically calls them and says, you know, we can give you better
service if you will stay with us, or whatever, when they change
back, and if it is in the middle of the month, we have to pay
for a full month. Now, as a consumer, you would not have to do
that.
Senator Cleland. Do you have any plans to come into Georgia
and offer residential service in rural areas?
Mr. Houser. We are in Georgia today. I would take
residential customers anywhere there is a Bell South.
Senator Cleland. Where in Georgia are you?
Mr. Houser. All over the State. We did massive advertising
in seven States, and we took customers anywhere that they were.
Senator Cleland. So you have some residential customers in
rural Georgia?
Mr. Houser. Absolutely. Absolutely.
Senator Cleland. Mr. Pegg, is wireless the wave of the
future? Is that one of the ways competition can be improved?
Mr. Pegg. I certainly think it is one of the ways. It is
gaining more and more strength daily, as the technology
improves. I think the response to our offering in Chattanooga
has been extraordinary, 4 percent. And that says there is not
perhaps enough competition, because people gravitate to
unlimited usage at $29.95.
Senator Cleland. Mr. Neel, what is your evaluation of the
two applications that maybe have the best chance of being
approved by the FCC for the access by the regional Bell
companies to go into long distance, the Bell Atlantic
application and the Bell South application? What is your
estimation of both of those applications the way they stand
right now?
Mr. Neel. Well, Senator, the Bell Atlantic application is
at the Commission. And they are under a deadline to Act on that
before the end of the year. Our best estimation is that they
have met the checklist, they have done a fantastic job. The
Justice Department, in its report, gives them very high marks,
despite the f Act that the Justice Department acknowledges that
the goal line keeps moving, that the Commission and even the
States know that they keep moving that goal line back. I mean
the Citadel would never win a football game if they had to play
under these rules.
So they are doing their job, and that application may be
approved. We are hopeful that that will be approved and it
could set a mark. Bell South is reported to be moving an
application along in Georgia. It has not yet been presented to
the FCC, but we are hopeful that will move. Texas, and SBC, as
well. They are having to jump through hundreds of hoops.
The CEO of US West, in communication with this committee,
pointed out and documented it very carefully that we do not
have a 14-point checklist anymore, we have about a 650-point
checklist. Despite that, Bell Atlantic is meeting that in New
York. And we suspect that the other companies, as they move
those applications to the FCC, they will be good and solid
ones.
So it is a very important question and it will make a big
difference in this market. And I would also point out that your
question about rural service and the very CLEC's willingness to
go into rural areas is a very critical one as it relates to
universal service.
One reason that these companies are not that interested in
ordinary, plain old telephone service for ordinary customers
that do not buy a lot of enhanced services is that that service
is heavily subsidized. What the customer pays is only a fr
action of what it costs that company to deliver that service.
So it is a major issue here.
With business, it is totally different. You can go in and
you can undercut the local company, whether it is cherry
picking or whatever it is, you can do that and you can make a
lot of money. And, in fact, the earnings of the major Bell
companies pale in comparison to what these CLEC's are making--a
150 percent increase and so on, Sprint and so on, on and on and
on. So the earnings of those companies is not really an issue
here.
And the issue of whether these new companies are willing to
serve rural customers and residential customers everywhere
should be a major concern of this committee. Thank you,
Senator.
Senator Cleland. Mr. Neel, one more question, if I may, Mr.
Chairman.
Under the rules of universal service, are the regional
Bells obligated to provide that service?
Mr. Neel. Absolutely. And they have been doing it for 100
years. And they do it for prices well below cost, and they
provide great value in rural areas and everywhere. If you live
in a rural area, if you live in Lumber City, where my
grandparents once lived, they have got to sell you telephone
service at about the same price they are selling in an urban
area. And if you want it, they have got to give it to you.
Cable does not have that requirement. No one else has that.
And certainly the competitive local exchange companies do not
have that obligation. It is a universal service obligation. It
is the backbone of this industry. And it will be continued. So
the answer to that is, absolutely.
Senator Cleland. Thank you very much, Mr. Chairman.
Senator Burns. Senator Breaux.
STATEMENT OF HON. JOHN B. BREAUX,
U.S. SENATOR FROM LOUISIANA
Senator Breaux. Thank you very much, Mr. Chairman. I thank
the witnesses. I apologize that I was at another hearing and I
did not get to hear your presentations, but I would like to ask
just a couple of questions.
I think, back in 1996, we were trying to sort of set the
ground rules or the rules and regulations for what was supposed
to be the Superbowl of telecommunications competition. And I
think probably we made a mistake in adopting the rules. I do
not think we hired enough referees. Because it really has been
an absolute sight to behold as to what has happened since we
passed that act.
I doubt very many of us who were here then would have
thought that, in 1999, as we moved toward the 21st century
here, that we would still have a situation where we still do
not have any of the people we are trying to move into long
distance yet in--not one. I kind of thought then that basically
what we were trying to do is to come up and said, all right,
you can get in mine when I can get in yours. When you let us
into long distance, we are going to let you into local service.
And today, after all these years, we have seen litigation
and lawsuits and everybody has been part of them and everybody
has been hiring more lawyers than we could possibly count to
litigate these applications and to file suit on everything that
we could possibly sue on--and that is everybody--yet it seems
to me that the Act really has not done what I certainly was
hoping that it would be able to do. And that is to let
everybody compete.
Mr. Neel, maybe you could address this. How many of the
regional Bell operating companies are now into long distance?
Mr. Neel. None, Senator.
Senator Breaux. My staff briefing memo says that they are
now over 150 competitive local exchange carriers that are now
in the local service market, competing. Is that the number you
all have?
Mr. Neel. That is about right. And they are in all 50
States and they have signed 5,000 agreements with the local
company to share customers and provide those services.
Senator Breaux. The staff briefing says that that
represents over $40 billion of new investment in local
competition. And it also says that that amount has doubled
every year since the passage of the 1996 Act. It seems to me
that half of what we were trying to do has been done. There is
one heck of a lot more competition in the local market.
Every one of these gentleman here are out there trying and
fighting to make a buck in the local market. So we have got
over
$40 billion invested in local competition, over 150 competitive
local exchange carriers now in the market that were not there
before, and yet not a single Bell company that we were trying
to allow to go into long distance when people came into the
local market, not one of them has gotten there.
Mr. Neel. Senator, that is right. And it is even more
dramatic than that. When the Act was passed, the first thing
the FCC did, under Chairman Hundt, was allow CLECs, to get into
the business, with great deals, with deep discounts for resale,
where you do not have to build any facilities. You and I could
go take out an ad in the newspaper and buy a computer and we
can be in the resale business.
Senator Breaux. How could they get in the market under the
rules existing at that time? Were they not prohibited from
doing so?
Mr. Neel. What happened is the rules required the local
companies, under Section 251, to open up their markets, provide
these facilities, interconnection and so on and so forth. So
that basically put them in the business.
Senator Breaux. How could we make the argument, as some
would, that the local market is not open when all of these
companies are in the local market?
Mr. Neel. We do not make that argument. We believe that
local market is wide open. But my point is that the FCC, the
first thing it did was blow open the local market. It dragged
its feet on ensuring universal service. We still do not have a
firm plan in place. It has done absolutely nothing to open up
the long distance market for voice, although that is important,
but also for these high-speed data services, to allow local
phone companies to build this information superhighway into
every part of the country. They have done nothing to advance
that.
And on cable, we have probably less competition now than we
had 4 years ago. The big MSO carriers are more powerful now
than they were then.
Senator Breaux. Why have not your companies just gone ahead
and provided data service? Did we prohibit that in the act?
Mr. Neel. It is prevented by regulation, not by the Act. It
is not prevented in the Act. It is prevented by regulation at
the FCC that chooses to interpret the 271 restrictions as a ban
on data. There was nothing mentioned in that Act. It was a
switched voice network law. It made virtually no mention of the
Internet and virtually no mention of data. But yet they have
done nothing to deregulate the data market to allow that
competition to exist.
And, again, I point to this chart over here. On one side
you have 1,000 local phone companies whose hands are tied,
particularly the Bell companies. On the right side you have got
AT&T/MediaOne, this monster company that is going to pass more
than half of the homes in this country. They have no
regulation. They can do it, but nobody else can get into that
business.
So it is a very critical thing. Because of the cobweb of
regulation, the local companies cannot provide that data
service now or in the near future, until the FCC relaxes these
rules.
Senator Breaux. I have maybe just one other question. You
said something about moving the goal posts, and you quoted one
of the companies--I am not sure which one--about there was a
14-point checklist that we fought over and tried to come up
with something that made sense, and you said the 14 has
increased or multiplied to--what is your argument on that?
Mr. Neel. Well, the chairman of US West provided this
committee a very detailed documentation of all of the new
requirements to meet the 271 rules.
The Justice Department itself, as I said, has even
acknowledged that that goalpost keeps moving. So how are you
going to expect these companies to meet an elusive requirement
under those conditions?
Senator Breaux. I just go back to the point that I made
initially. I thought that really the purpose of the Act was to
try and set up a level playing field that said, all right, come
get in mine when I get in yours. And it seems like half of that
is being done, but the second half is not being done. And that
is a real disappointment.
Thank you, Mr. Chairman.
Senator Burns. Mr. Pegg, you say you are offering this
$29.95 per month unlimited service. Do you find that your
customers are taking your service and supplanting their wired
lines as being their primary line?
Mr. Pegg. We do not have a long enough history to see them
turning off their wire line. But they are using it as their
primary means of personal communication, yes.
Senator Burns. We just passed the E-911. How does that
affect you?
Mr. Pegg. We are obligated to provide it, and we do.
Senator Burns. Just listening to this conversation, I just
love to get these fights started at the table and we just sit
here and listen and we learn a lot more, I will tell you that.
And you were talking about referees, I have got 20 years of
refereeing football, so we do not have to go very far to look
for a fight. I am going to write a book one of these days on
that.
Mr. Houser, if you could change one thing in 271, one
thing, what would you change? What would you recommend? Now,
you all get ready to answer this, because I am going to ask
every one of you. I thought I would let him lead off.
Mr. Houser. I think I am going to let my friend from Texas
go start, because that is an important question.
[Laughter.]
Senator Burns. Because we, as policymakers, have listened
to this debate at that table, and if there is one thing that we
have to mull over, what would you change in order to facilitate
competition?
Mr. Holland. You want me to go then?
Senator Burns. Yes, he handed the ball off to you.
Mr. Holland. OK. What I would do is we see huge barriers
today to expanding competition by municipalities and by
building owners, frankly, who throw up huge barriers to the
competitive local exchange carriers to try to get into
buildings, to get access to right-of-way under the same parity
conditions as the incumbent. And the Act certainly helped in
that regard, but it did not go near far enough.
I really congratulate Senator Stevens and Senator Hollings
for a bill they recently introduced, where the Federal
Government would set a good example for everyone else by
allowing equal access to all Federal buildings in the country
by competitors. That is probably the biggest shortcoming.
The only other one would be is--I know, as Mr. Neel pointed
out a while ago, there seems to be confusion over whether the
checklist is voluntary of mandatory. He says it is voluntary.
That is the problem. Maybe the Act should have been drafted to
where it said if you do not do this by X date, you are going to
pay $100,000 a day, maybe a million a day, or something. The
enforcement process is the problem. It is not the Act itself.
It is a great act.
Senator Burns. Mr. Tidwell.
Mr. Tidwell. I would have to echo Mr. Holland's statements.
I think enforcement is the key. Provide some key for ongoing
enforcement of the Act and the 14-point checklist. The Act
itself is working. I do not think any of us here at the table
today have any grandiose plans to deliberately try to keep any
of the Bell operating companies out of business. I think we all
know that they are going to get into the long distance
business.
But we have got to have some incentive, on a long-term,
ongoing basis, to keep them playing on an even and fair way
with us as competitors, to get the markets truly open once the
checklist is passed and the telephone company, or the Bell
operating company, is allowed into the interLATA market in a
specific area.
I think maybe there was an assumption that irreversible
competition has hit. I do not think that is going to be the
case. There have to be incentives to continue to move forward
and get better. And if there is backsliding, provide specific
disincentives for that backslide.
Senator Burns. Mr. Neel.
Mr. Neel. Well, Mr. Chairman, there is a reason you had a
14-point checklist. You wanted to create an incentive for these
companies to do certain things before they could get into the
long distance market. It is voluntary under 271. There are
severe penalties at the FCC's disposal if these companies do
not meet their 251 local competition obligations, as envisioned
in the act.
So, I think if anything has to be done to Section 271, it
is to send the commissioners a strong message that you do not
want the goalposts to move any further. You set the rules in
1996. You want them to follow what the Congress set forward and
not to simply keep adding to those requirements.
Senator Burns. Mr. Pegg, would you like to comment on that?
Or being that Mr. Houser has now had time to collect his
thoughts, any comments on that?
Mr. Houser. Let me just say this. I agree that I think
enforcement is a key. But let me back up for just a minute,
because I think there is a key point here.
There has been a lot of talk today about the RBOC's being
able to get into long distance and it is not fair that they
have to open their markets and so forth. The RBOC's have been
able to get into long distance since 1996. Not one has taken
the opportunity. All they had to do is go outside their
territory, like we have all had to do, and to open up for
business. Not one has done it. They have had plenty of
opportunity to get into long distance. They do not want any
part of that fight.
But I do think that the key thing is enforcement. Let me
just give you another little example of the type of things that
you probably will not read about. And some of these may sound
funny, but, believe me, they are not funny when you are trying
to compete. In the area of collocations, as you know, the Bell
operating companies have to give us collocation space when we
are putting in our facilities. Well, in many cases, the
responses were coming back that we simply do not have the
space.
Well, fortunately, the FCC said, look, you are going to
have the right to go and inspect in a central office whether
there is actually space or not. Two examples.
One example, we went into a central office in Atlanta and,
sure enough, the first floor was full, the second floor was
full, and we finally got up on the third floor. The third floor
was just about empty. They said, well, this space is not
available. And we said, well, why not? They said, well, we are
going to put a museum up here. Again, it sounds funny, but it
was not funny when we were trying to get that space.
A second thing. We went into a central office where there
was very little space. And finally we got into a room that was
empty. We said, why is this space not available? They said,
well, because it only has 8-foot ceilings. We said, none of our
technicians are
8 feet tall, so we will take the space. But that is the type of
thing that we are talking about.
The RBOC's need to follow the spirit of the law, right?
They know what they are doing and we know what they are doing.
The sad part of it is there is good people in Bell South and in
every RBOC. But the management of these companies are not
putting the resources where it is needed and they are not
enforcing what is required. And they are not taking the
initiative to make sure that they live up to the letter of the
law.
Senator Burns. It sounds like us trying to do business with
Canada, in Montana, on the border up there. You do not know
what barriers are.
[Laughter.]
Senator Burns [continuing]. Senator Hollings.
Senator Hollings. Thank you, Mr. Chairman.
Let me clarify the approach of my distinguished friend here
from Louisiana, because he says it seems like half have been
able to get into the local, but the local have not been
permitted into the long distance. Absolutely false.
We wrote the Act. I know it better than any. And getting
right to the point, and Mr. Houser, touched on it, the local
folks were allowed to get into long distance without any
goalposts or anything else like that outside of where they had
a monopoly. Now, we all sat around this same rostrum up here
and tables where you are seated and we said, now we want to
make sure there is competition, and we do not want to extend
the monopoly. And they said, oh, do not worry about that, we
are going to get into it with one-stop service.
I do not know that the Senator from Louisiana was here, but
that is why I put in the statements from US West, Bell South,
Ameritech, all of them. I have got the documents in my file
that I would like to include in the record at this time. They
wrote the goalposts. And they have not been moved. They use
that lawyer's talk. They went all the way to the Supreme Court
about the goalposts being posts. They have not been moved at
all. You can tell from the witnesses here at the table today
that they just do not want to comply with what they wrote.
[Documents submitted for the record by Senator Hollings
follow:]
BELLSOUTH NEWS RELEASE
BELLSOUTH TO QUICKLY SEEK CLEARANCE TO OFFER CUSTOMERS LONG DISTANCE IN
TOTAL TELECOM PACKAGE
February 1, 1996
Contact: Bill McCloskey
WASHINGTON--Congress today approved Bell entry into the long-distance
business, and BellSouth said it is expending every effort to begin
offering its customers the quality choice and absolute convenience of a
full-service telecommunications company.
``We are making the last preparations in anticipation of President
Clinton's signing the bill, and we are moving aggressively to meet all
checklist requirements so our customers can benefit from this law as
soon as possible'', said John L. Clendenin, Chairman and CEO of
BellSouth. This legislation requires a checklist of steps leading to a
fully competitive marketplace.
In addition, the legislation, which was given final approval by the
House and Senate today, fully opens the video market to BellSouth,
allowing the company to compete on equal terms and conditions with
existing cable TV companies. This new law allows BellSouth to market
its cellular and local services together and via the manufacturing
relief, lets BellSouth participate in the research, development and
design of telecommunications equipment to better meet our customers
needs.
The Telecommunications Act of 1996, which President Clinton has pledged
to sign, is an attic-to-basement rewrite of the communications law
which opens up many competitive choices for customers and new growth-
market opportunities for BellSouth.
``It gives us the opportunity to provide all our communications
services through all of our sales channels to all of our customers,''
Clendenin said. ``It allows us to grow by providing what our customers
have asked for--the convenient availability of a range of
communications services from a company they rely on, BellSouth.''
``BellSouth intends to aggressively compete for our customers' long-
distance business, and we have been working actively for months to meet
the requirements of the new law so we can make all communications
services available through one-stop shopping in the very near future,''
Clendenin said.
Clendenin also announced that BellSouth is establishing BellSouth Long
Distance as a subsidiary to handle the company's entry into that
business and that William F. Reddersen, currently senior vice
president-broadband, will head the long distance effort. Reddersen's
new title is group president-long distance and video services. ``Bill
has more than 18 years experience in long distance,'' said Clendenin.
``He has proven himself as an excellent marketer who is focused on the
customer and delivers what they want, when they want it. He's the ideal
person to lead our long distance and video efforts.''
``For our cellular customers, our networks are ready, our systems are
ready and our marketing plans are in place,'' Reddersen said. ``Well
begin selectively offering quality, cellular long-distance service to
our customers in a matter of days after the President signs the bill.''
``We plan to aggressively market our services wherever we serve
customers, including our new Personal Communications Service (PCS)
wireless customers in the Carolinas and eastern Tennessee when we
inaugurate that service at mid-year,'' he continued.
In anticipation of this legislation, BellSouth has been aggressively
pursuing changes in the regulatory environment. ``In eight of our nine
BellSouth states, we have price regulation and related regulatory
structures in place which facilitates our entry into long distance. In
addition, we are well along in negotiations of interconnection
agreements with other service providers, especially in our largest
states of Florida and Georgia. We believe this will allow us to
demonstrate to the Federal Communications Commission at an early date
that we have met the bills checklist requirements for entry,''
Reddersen said. ``We intend to aggressively meet all of the law
requirements so we can serve our customers.''
``We have always been a leader in providing quality services--including
short-haul long distance--and we intend to extend that into these new
long-distance and video markets,'' Reddersen pledged.
BellSouth is on schedule to begin its video trial in Chamblee, Georgia,
near Atlanta and is proceeding with franchise-approved video efforts in
Vestavia Hills, Ala.; World Golf Village, Fla.; and Daniel Island, S.C.
Passage of legislation will speed up the process by eliminating some of
the regulatory hurdles BellSouth had faced.
BellSouth is a $17.9 billion communications services company. It
provides telecommunications, wireless communications, directory
advertising and publishing, and information services to more than 25
million customers in 17 countries worldwide.
______
AMERITECH RELEASE
Feb. 01, 1996
Contact: David A. Pacholczyk
AMERITECH APPLAUDS PASSAGE OF SWEEPING TELECOM LEGISLATION
attribute statement to richard c. notebaert, chairman and ceo
CHICAGO--Consumers are the big winners today. The real and open
competition this bill promotes will bring customers more choices,
competitive prices and better quality services. In one day, this
industry has gone from 1934 to the year 2000 and beyond. We're excited
about a future in which customers will have real choice and competition
will abound.
With the bill expected to help create millions of new jobs within ten
years, it's good news for American workers, too.
But this has been a long, arduous task, and we applaud members of
Congress for their perseverance and courage. We believe this bill will
rank as one of the most important and far-reaching pieces of federal
legislation passed this decade.
It offers a comprehensive communications policy, solidly grounded on
the principles of the competitive marketplace. It's truly a framework
for the information age. We look forward to the Pesident signing the
bill so that we can get on with creating jobs and competition in the
upper midwest.
For background on the Telecommunications Bill, check the Alliance for
Competitive Communications web site.
Ameritech, one of the world's largest communications companies, helps
more than 13 million customers keep in touch. The company provides a
wide array of local phone, data and video services in Illinois,
Indiana, Michigan, Ohio and Wisconsin. Ameritech is creating dozens of
new information, entertainment and interactive services for homes,
businesses and governments around the world.
One of the world's leading cellular companies, Ameritech serves more
than 1.7 million cellular and 750,000 paging customers, and holds
cellular interests in China, Norway and Poland. Ameritech owns
interests in telephone companies in New Zealand and Hungary and in
business directories in Germany and other countries. Nearly 1 million
investors hold Ameritech (NYSE: AIT) shares.
VERIZON RELEASE
February 8, 1996
NYNEX Contact: Media Relations
NYNEX CEO PRAISES TELECOMMUNICATIONS ACT OF 1996
NEW YORK, NY--Ivan Seidenberg, NYNEX chairman and chief executive
officer, said after President Clinton signed the Telecommunications Act
of 1996:
The President and Congress have done their job--now it's time for us to
do ours.
This new law promises communications users more choice, lower prices
and better service, and NYNEX is committed to delivering them.
The legislation is complex, but the outcome will be simplicity. NYNEX
will offer one-stop shopping for a full array of communications
services--local, long distance, wireline, wireless, video entertainment
and information services--and customers will be able to package what
they want, the way they want it.
NYNEX is moving aggressively to meet all requirements that will enable
us to offer this full spectrum of communications to our current
customers and to new customers, across the nation and around the globe.
NYNEX is a global communications and media company that provides a full
range of services in the northeastern United States and high-growth
markets around the world, including the United Kingdom, Thailand,
Gibraltar, Greece, Indonesia, the Philippines, Poland, Slovakia and the
Czech Republic.
The Corporation is a leader in the telecommunications, wireless
communications, cable television, directory publishing and
entertainment and information services.
______
U S WEST RELEASE
February 8, 1996
Contact: Bob Kelley, Dave Banks
U S WEST MOVES QUICKLY FOLLOWING PASSAGE OF TELECOMMUNICATIONS
LEGISLATION
--coleman heads new u s west long distance business--
DENVER--As President Clinton signed the sweeping telecommunications
reform bill into law today, U S WEST moved quickly to compete for
customers' long distance business.
Richard K. Coleman, Jr., formerly a leading executive with Frontier
Communications International, has been hired by U S WEST Communications
to head the company's entry into the $70 billion-a-year national inter-
LATA long distance market.
As president of the newly-formed long distance business, Coleman will
be in charge of long distance service and marketing.
``We intend to be in the inter-LATA long distance business as soon as
we can meet the checklist requirements of the new legislation,'' said
Coleman. ``Customers are anxious to receive the benefits of this new
law as soon as possible.''
Coleman has extensive experience in telecommunications and with long
distance companies. At Frontier Communications International of
Rochester, N.Y., the fifth largest long distance company in the
country, he was vice president of operations and network planning. He
has also held executive positions with Sprint Communications
Corporation, United Telephone, and Centex Telemanagement.
``The inter-LATA long distance potential is a tremendous business
opportunity for U S WEST,'' said Coleman. ``Customers have made it
clear they want one-stop shopping for both their local and long
distance service. We are preparing to give them exactly what they've
been asking for.''
Coleman estimates that U S WEST will be able to reach a reasonable
resolution on the bill's checklist requirements in the majority of its
states within 12-18 months. He expects to capture 15-20% of the inter-
LATA long distance market within five years of entry.
Although U S WEST's highest priority is to provide long distance
services to its existing customers, the company is exploring a full
range of service options and developing targeted solutions to deliver
on the one-stop shopping promise that customers have long been asking
for.
Industry analysts have noted that the cost of entry for the regional
Bells from a capital standpoint is very low. They point out that the
RBOCs have high brand recognition and are already well-positioned with
the customer base in their operating regions.
According to industry figures, the national inter-LATA long distance
market is between $65 and $70 billion a year. About ten percent of that
market is in the region served by U S WEST.
U S WEST Communications provides telecommunications services to more
than 25 million customers in 14 western and midwestern states. The
company is one of two major groups that make up U S WEST. U S WEST is
in the connections business, helping customers share information,
entertainment and communications services in local markets worldwide. U
S WEST's other major group, U S WEST Media Group, is involved in
domestic and international cable and wireless networks, directory
publishing and interactive multimedia services.
For 1994, U S WEST reported revenues of nearly $11 billion. The company
has 61,000 employees.
______
THE ORANGE COUNTY REGISTER
February 9, 1996
By Liza McDonald, Bloomberg Business News
STAKES ARE HUGE AS SCRAMBLE TO GAIN MARKET SHARE GEARS UP;
OUTLOOK: INVESTORS WILL HAVE TO SORT THROUGH A FRENZY OF DEAL
MAKING OVER THE NEXT FEW WEEKS.
Telecommunications companies wasted no time touting plans to enter one
another's markets after President Clinton signed into law the most
sweeping industry reform in 62 years.
``The gloves are off and we are now free to take on the monopolies
head-on,'' said Nate Davis, chief operating officer for MCI
Communications Corp.'s local phone unit.
As the ink on the new law was drying, MCI said it would become the
first U.S. long-distance company to offer local phone service in
Boston.
Not to be outdone, AT&T Corp. said it would start making moves into the
$ 90 billion local phone market in all 50 states by March 1. ``We're
ready to play, we're ready to win, and we don't intend to lose any time
doing it,'' Chairman Robert Allen said.
And the largest local telephone company, GTE Corp., announced that it
had a contract with WorldCom Inc., the fourth-largest long distance
company, to resell long-distance service under the GTE name.
While the jockeying created a frenzy among telecommunications
companies, investors weren't quite so euphoric.
``Who knows if they (telecom companies) will do it correctly?'' said
Scott Vergin, portfolio manager at Lutheran Brotherhood in Minneapolis.
``The concern, as an investor, is all the spending they are going to
do.''
Investors will have to sort through a frenzy of deal making over the
next few weeks. Communications companies will be trying to fill gaps in
their service with alliances or acquisitions.
Wall Street analysts say small long-distance companies and so-called
competitive-access providers, which let businesses bypass local
carriers when connecting to long distance, are in great positions to
make deals or even be acquired.
US West Inc., one of the seven local Bells, made its first overture
into the $ 70 billion long-distance market by naming the head of its
long-distance unit. Pacific Telesis Group said it plans to be in the
long-distance market in 10 to 12 months.
Some companies decided to forgo the bill-signing festivities in
Washington.
``While (Bell Atlantic Chairman) Ray Smith, Robert Allen, and other
industry bigwigs were toasting the bill, we've been sitting in a war
room in San Antonio planning our next offense,'' said Brian Posnanski,
spokesman for SBC Communications Inc.
SBC said it will immediately begin offering long-distance service to
its cellular phone customers. ``It's not a time to celebrate, it's a
time to get down to business,'' he said.
At stake is the $ 200 billion phone and cable TV market. Not since
before AT&T was broken up in 1984, creating the Baby Bells, has there
been such a frenzy to stake a claim in the telecommunications market.
And not everybody's going to be a winner. ``There will have to be some
sort of shakeout, because not everybody can get rich at everybody
else's game just because the restrictions have been lifted,'' said
Albert Lin, an analyst at Cowen & Co.
Consumer advocates, meanwhile, wondered what's in it for phone
customers. They said the telecommunications overhaul may mean a rash of
mergers that may lead to higher prices.
But Vice President Al Gore said: ``Over time, we'll all see prices come
down significantly.''
______
THE NEW YORK TIMES
February 9, 1996
By Edmund L. Andrews
COMMUNICATIONS BILL SIGNED, AND THE BATTLES BEGIN ANEW
President Clinton today signed a sweeping bill to overhaul the
telecommunications industry, starting a new round of warfare between
the giant media and communications companies even before the ink was
dry.
Scores of industry executives, from Ted Turner to the chairman of AT&T,
crowded into the signing ceremony along with politicians of both
parties and the lobbyists, lawyers and regulators who will be the foot
soldiers in the struggles ahead.
``Today, with the stroke of a pen, our laws will catch up with the
future,'' Mr. Clinton said, signing a bill that knocks down regulatory
barriers and opens up local telephone, long-distance service and cable
television to new competition.
Within hours of the signing at the Library of Congress, however, civil
liberties groups filed a lawsuit challenging provisions that block
indecent sexual material from being transmitted over computer networks.
Television broadcasters began bracing for a new battle with the Clinton
Administration over provisions aimed at reducing violence on
television. And top executives at local and long-distance telephone
companies immediately vowed to start attacking each other's markets
within the next 12 months.
Robert E. Allen, chairman and chief executive of AT&T, vowed that his
company would try to offer local telephone service in every state and
pledged to capture one-third of the business now controlled by the
regional Bell companies. Elsewhere in the same room, the president of
the Bell Atlantic Corporation all but said publicly that his company
was actively seeking some kind of alliance or merger with the Nynex
Corporation--a deal that would create a company that controls local
phone service from Virginia through Maine.
The measure, passed after years of struggle and lobbying between rival
segments of the communications industry, is expected to unleash a wave
of mergers and acquisitions but eventually knock down traditional
monopolies in local telephone service and cable television.
Its most immediate impact will probably be ferocious legal battles in
the the courtroom and at the Federal Communications Commission. In
Philadelphia, a broad range of civil liberties groups led by the
American Civil Liberties Union immediately sought a court injunction
against provisions that impose heavy fines and prison terms on those
who make available pornography or indecent sexual material over
computer networks.
In Brooklyn, abortion-rights groups went to court to block a provision
that some say would make it illegal to transmit information about
abortions over computer networks. But the Justice Department said the
provision, which expanded the reach of a little-known law passed in
1873, was clearly unconstitutional and would never be enforced.
President Clinton also put new pressure on television broadcasters to
develop a system for rating violence on their shows. The new law
requires manufacturers of television sets to install a special V-chip
in every new set to allow parents to automatically block any program
with a special code.
To be effective, however, broadcasters must develop a system for
deciding which shows are violent and then transmit the signal.
Commercial broadcasters are adamantly opposed to the whole idea, and
some have threatened to challenge the law in court.
Today, Mr. Clinton announced that the White House would meet with
representatives of the entertainment industry on Feb. 29 to discuss
ways of reducing gratuitous violence on television and to make a plea
for a new rating system.
``However well intentioned, legislative proposals to restrict violence
or access to programs deemed to contain `objectionable content' mean
government control of what people see and hear and violate the First
Amendment,'' the National Association of Broadcasters said in a
statement today.
Much of today's ceremony was couched in theater and hoopla, a rare
moment of relief shared by political leaders from both parties and
executives of most segments of industry after finally passing the huge
bill.
To that end, Vice President Al Gore engaged in a bid of cybershtick
with Lily Tomlin, the comedian, who reprised her famous role as
Ernestine the telephone operator. Ms. Tomlin, who appeared over a
voice-and-video link through the Internet, told Mr. Gore he wasn't as
stiff as he he seemed. ``You're just a techno-nerd,'' she snorted, as
Mr. Gore politely thanked her.
Behind the theater, however, the country's biggest telephone and media
companies were already gearing up for a new era of unbridled
competition. One of the biggest battles will between the local Bell
telephone companies and long-distance carriers like AT&T, MCI
Communications and Sprint.
Mr. Allen, AT&T's chairman, said his company would offer an
unprecedented new range of local, long-distance and even television
services to its customers in the near future.
Mr. Allen said his company would immediately start striking deals to
lease local telephone capacity from both the Bells and from newer
rivals in the local phone market, and that AT&T would also invest in
local communication networks of its own--possibly using wireless links
as a substitute for phone service carried over copper wires today.
Even though long-distance carriers fought adamantly against provisions
to let the Bell companies offer long-distance service within about two
years, Mr. Allen said the future was bright for his company.
``This legislation is good for America, it's good for the
communications industry and, not incidentally, it's good for AT&T,'' he
said.
James G. Cullen, president of Bell Atlantic, which provides local phone
service in the mid-Atlantic region, said his company would start
offering long-distance service outside its traditional region
immediately and inside its region within a year. He also strongly
suggested today that Bell Atlantic would team up in some fashion--
though probably not an outright merger--with Nynex, which serves New
York and New England. ``We've got to figure out how we can offer long-
distance and local service in competition with the likes of AT&T,'' Mr.
Cullen said as he waited for President Clinton to arrive at the signing
ceremony. Mr. Cullen insisted he could not comment on widespread news
reports about merger talks with Nynex, but offered a broad hint. "In
between where we are today and something that falls short of a full
merger, there are things that make sense," he said.
Cable television executives, who suffered a huge political defeat only
four years ago when Congress voted to regulate cable rates, gleefully
talked about how the new law would sweep away regulatory barriers that
keep them from entering the local phone business and other new markets.
``The beauty of this is that there is enough new business, both
domestically and internationally, that there won't be a war of
attrition'' between telephone and cable companies, said Gerald M.
Levin, the chairman and chief executive of Time Warner Inc.
Even some consumer advocates who had warned that the new law would
raise prices for consumers and lead to a new era of media conglomerates
said the final bill had been moderated by pressure from Mr. Gore and
Senate Democrats and might actually be good for ordinary people.
``This bill went from being a consumer nightmare to being something
that while it still has significant risks is dramatically improved and
offers at least at hope of greater competition and lower prices,'' said
Gene Kimmelman, co-director of Consumers Union.
Yes, Mr. Neel is correct that it is voluntary. That is the
one big mistake we made. Because we assumed, with all of their
talk about competition, competition and deregulation, that they
were going to get into it. After all, they knew the business,
they had the infrastructure, they had the expertise,
experience, and otherwise in the particular field, so they had
every advantage. And we knew--and they are all well-run
companies--that they would just continue and go ahead and move.
The mistake we made is making it voluntary.
We should have required deregulation, namely, made 271
mandatory. They said they wanted to comply. That is how we got
a 95 bipartisan vote in the U.S. Senate. We would have never,
with all of their angling and pressures and representations on
us, as Senators in that vote, we would have never gotten a
bipartisan 95 vote if there was something wrong with the 14
points. They all were going. But, finally, money is money and
business is business. And as long as you can continue to hold
your monopoly and the Federal Communications Commission cannot
change that monopoly to force you into the thing.
I know the long distance. I made the record earlier,
Senator Breaux, that MCI had spent $800 million, and it caused
them to lose British Telecom. They say, you are wasting our
money and everything else, so they cutoff their agreement back
4 years ago. I know that Bob Allen, in AT&T, they spent $3.2
billion trying to get into local. They could not hardly make
it, so they moved Mr. Allen along and got Mr. Armstrong as a
result.
But AT&T, the ex Act numbers, according to Merrill Lynch,
of lines, on local lines, they got 625,000 out of the 161
million. And Sprint, trying to get into local, has got 167,893
lines out of 161 million. And all of the ones, the CLEC's and
all that are testing, all of this competition and thousands of
this and thousands of that, it is 3.4 percent local competitive
share.
Now, if you have still got 96 percent, you have got a
monopoly. And let us assume I was meeting here as the board of
Bell South, I would say, now, colleague, let us keep on going.
We have a
19 percent increase in profit this last quarter, $972 million.
We have got some nibbles. I call them nibblers, these CLEC's,
but they are not really getting anything, with 3 percent, 4
percent. Come on.
What we are doing, we continue to make the money and see if
we cannot buy Qwest, see if we cannot buy Sprint. We have got a
lot of money, so we are not interested in getting into long
distance. We are interested in getting bigger and making more.
That is common sense. That is markets. That is what I would say
if I was chairman of the board of Bell South. It is working.
Unless they change that Act and make 271 mandatory.
And that is why I put in S. 1312. You have had enough time.
You misled us. I do not want to say you lied to us, but I do
not know the difference under this circumstance, because you
definitely misled this particular Committee and this Congress,
because they said competition, competition. We have got their
statements. They have got no intention of doing it.
And they can get into long distance anywhere they want in
the country except where they have got a monopoly. And they
cannot get in there, according to their own regulation that
they wrote, their own goalposts, 271. And they have taken it
all the way to the Supreme Court about moving it. The
Commission has not moved it; they cannot get compliance.
And we hope that our friends at Bell Atlantic get in up
there in that New York area. Because if that breaks it--we have
been looking for some kind of breaks. Maybe if AT&T comes
around and buys up enough local lines through cable, that will
break them. Something has got to break it, because it is a
gravy train. They get 40 percent of every access charge at the
local level for that long distance call. And that is a lot of
good money.
And we should not run around and wonder what is wrong with
the Act, when common sense says continue to make the fortune.
They are not blocked by the local people. Instead of a 12
percent return, they are making almost double that, 24 percent
returns. So they are happy. Everybody is getting along good.
And we are puffing and blowing like we have really got
something about local competition and everything else. Well, we
did today, because Mr. Neel has had to listen to these other
witnesses.
Senator Burns. Senator Breaux.
Senator Breaux. Let me ask the question with regard to, Mr.
Houser, you talked about going up to Bell South and seeing on
the fourth floor a museum. If you were running Bell South, you
would have probably put in some more equipment that perhaps
they could give to someone like you. But their decision was not
to do that. Do you or anybody else think or feel that Section
271 requires that a regional Bell construct facilities in
excess of their need in order to make it available to you?
Mr. Houser. Well, first of all, let me make clear that
there was not a museum there. They said that that was their
plan for that space.
Senator Breaux. OK, but does Section 271 say that you
cannot use it for another purpose, that you have to use it for
making or producing equipment that you can make available to
you?
Mr. Houser. What it does is it says that it has to make
space available, if there is space available, for CLEC's.
Senator Breaux. If there is space available. But suppose
the Bell company says we think that space in that building
should be used for something else. Are you arguing that they
have an affirmative obligation to build equipment to make it
available to you, in excess of their capacity?
Mr. Houser. Well, let us make sure we understand something,
Senator. The space that we are talking about was empty, was not
being used, had not been used for a long time.
Senator Breaux. Is there anything wrong with them leaving
it empty?
Mr. Houser. Well, except that it does not go by the spirit
of the law, as far as I am concerned.
Senator Breaux. Where in the law does it say that the
fourth floor of that building that Bell South may want to leave
empty should not be left empty if that is their decision? Is
there anything in the law that says, spirit or otherwise, that
says they have to construct things that they may not need to
run their company in order that you may come in and claim it?
Mr. Houser. Well, wait a minute. Here is a key point. They
are not constructing anything.
Senator Breaux. That is right. But do they have an
obligation to construct anything?
Mr. Houser. Well, all I am saying is all they had to do is
make that space available. We do the construction. We are the
ones that spend the money. All they do is rent us that floor
space at an exorbitant price. By the way, which there are no
negotiations for. It is whatever price they set.
Senator Breaux. Mr. Neel, can you comment on my question
about any kind of an affirmative obligation that is imposed
upon the regional Bells to construct anything that they would
then have to make available to someone who comes in and
requests it over and above what they need to run their own
business?
Mr. Neel. Senator, I think the implication of the question
is correct: there is no such requirement. And I am not sure
what the spirit would be. I do not think it was envisioned by
this committee or the Congress. It is another example of adding
to a checklist. I mean you are never going to totally please a
competitor.
And back to the point about unmet promises, when Senator
Hollings talks about the Congress perhaps being misled on what
was going to happen, there were promises made on the optimism
that the FCC would implement this Act as the Congress intended.
This is another example here. This industry never believed that
we would have a situation like we have illustrated here on his
chart, where you would have a cable provider offering
telecommunications services totally unregulated, but the local
phone company trying to offer the same services totally
regulated. Now, that is not an even playing field. It is
something totally different. And if anything, the promises are
being unmet by the FCC.
Senator Breaux. Can you elaborate on that? Because
obviously I missed your testimony. What was the point you were
making with the cable operators being able to offer services?
Mr. Neel. Yes, Senator. There is a great deal of attention
paid to data services. Our complaint is that the local
companies are not allowed to be in this business on even terms
with other providers of the services. Local phone companies are
heavily regulated, about 15-16 items here. A competitor
offering ex actly the same service through a cable modem has no
such regulation whatsoever.
Now, this regulation costs a lot of money. It creates
delays and barriers and, in many cases, totally prohibits a
company from offering those services. So this was never
envisioned in the 1996 Act and, in our view, represents a real
backtracking from not only the spirit but the letter of the
law.
Senator Breaux. What kind of companies are doing that?
Mr. Neel. On the cable modem side? Well, the best example
is MediaOne, TCI, which is about to be owned by AT&T, to make
the biggest cable conglomerate this is, that will dominate the
high-speed Internet access market. None of the local companies
will have a market share even close to what that company will
have. And they have no regulation whatsoever.
Now, that is not a level playing field. And that was not
envisioned in the Act. The promises that the Congress made in
this Act that have not been followed by the FCC.
Senator Breaux. The technology continues to change so
rapidly, things that we never considered back in 1996 are now
entering into the picture. And I guess that is one of the prime
examples that tilts the playing field even further.
I appreciate it, Mr. Chairman.
Senator Burns. Senator Hollings.
Senator Hollings. Mr. Chairman, let us go right to the
reality. The reality is that Bell Atlantic has petitioned now
that they have complied with the checklist. And the Justice
Department says, not quite. And they have recommended, I think,
approval subject to the compliance. And the questions by our
distinguished colleague would infer that they are not under the
law required to make any buildings or get into rooms or not put
a museum or whatever. That is not the case.
The case is that before you can get in--and we should have
made it mandatory, but here is what the court and the Justice
Department are saying, reading the act--they have got to have
an interconnection in accordance with Section 251;
nondiscriminatory access to network elements in accordance with
Sections 251 and 252; nondiscriminatory access to the poles.
Do the Bell companies have to give it to them? Yes, they
have got to give them access to their poles, their ducts, their
conduits and rights-of-way, owned or controlled by the Bell
operating companies at just and reasonable rates. So they have
got a chance to look at the rates.
When they look at the rates under that paragraph 3, then
the distinguished lawyer says, oh, no, they are moving the
goalposts for local loop transmission from the central office
to the customer's premises, unbundled from local switching or
other services. That would cost money. Local transport from the
trunk side of a wireline local exchange carrier switch,
unbundled from the switch, they have got to pay money to do
that. And I can go right on down the line. Switching the white
pages directory listing for customers, they have got to pay for
that. Adoption of a telephone numbering administration for new
carriers, yes, they have got to pay for that.
Why was all of this? Because we, the taxpayers of America,
built these monopolies. We made sure they did not have any
competition. We guaranteed them a profit. And it has worked.
The finest telecommunications system in the world. But we are
saying now, wait a minute, you are going to market forces. We
do not want anybody's taxpayer-built monopoly to extend the
monopoly. We do want competition.
And that is why they would agree all of these are going to
be taken care of. And they are expensive. Do not worry about
that before the public service commissions and everything else
of that kind. But the answer is yes, they are supposed to spend
money in order to allow the others to compete, under the
requirements of 251, on resale, on the requirements of getting
into long distance. And I think the record ought to show it. It
was intended. It was agreed upon. And it is very, very
reasonable and understandable.
Senator Burns. Thank you very much.
I have one question. Because what I am trying to do is to,
when you get down to the bottom line, we, as policymakers, we
would like to do the right thing and we would like to keep that
playing field level if we possibly could and have everybody
operate out of the same rule book. I have made this speech 100
times before. That I can go to South Carolina and referee a
football game and I can work one in California and I can work
one in Montana. And the reason we can do it, us poor, old fat
guys with striped shirts have very few problems for the simple
reason there is only one rule book, and it is all across the
country.
Now, pro is a little bit different than college. College is
a little bit different than high school. I worked head linesman
a lot, because I was the only guy on the crew who could count
to four.
[Laughter.]
Senator Burns. Mr. Houser, I would just like to have your
comment on this, and maybe a comment by Mr. Neel. You have got
years and years in your bio of being in the capital venture
business. What advice would you give us so that we can avoid
damaging a competitive local carrier's ability to raise
capital? Because I think that is where, if you are a viable
competitor, you have to have capital. We do not want to get
fiddling around with things and limit any competitor's ability
for capital formation.
Mr. Houser. Mr. Chairman, I think, from someone's
perspective that has both invested a lot of money and had other
people invest a lot of money, if you look at this landscape,
the key thing that I think that we all can do, or that should
be done, is simply to enforce the rules that are in place. We
all spent a lot of time a few years ago working on this 1996
Act. I was involved and almost everybody here was involved. And
there were hundreds of us up here discussing back and forth the
pros and cons.
And guess what? There is a lot of things about the Act that
I do not like. It hurts our company. But, guess what? We agreed
to the rules. That is just what you said. We made a set of
rules. Now let us live with it.
If we can do that, if we will do that, venture capital
companies can live with some risk. And there is obviously risk
in any of us getting into business, competing with a 100-year-
old monopoly. But that is fine. As long as they know what the
rules are and as long as we know what the rules are, we can all
live by them. Now, I think that is the major thing that I would
recommend.
Senator Burns. Does anyone else want to comment, because
that is the last question I have. Do you want to respond, Mr.
Neel?
Mr. Neel. Well, I think I can agree with Mr. Houser that we
all want to know what the rules are, but we do not want them to
keep expanding. The Act is clear. In many respects, it is the
implementation that has been confusing and unclear. And I would
say that if there is something that ought to be done to
stimulate investment and to build this information superhighway
into rural America and everywhere, it is to let the local phone
companies compete by displaying high-speed data services, as
the Act or just about anyone looking at that would have
intended.
This is a perfect example of an uneven playing field in a
market that was not intended to be heavily regulated by the
1996 Act. So that should be the target and the goal--not so
much for creating sanctions, new sanctions, for services or
issues that were entirely voluntary. If you are going to go
back and create sanctions for 271 or make it mandatory, then
you have got to have a commensurate release of those companies
and deregulation of those companies.
They would have gladly accepted an immediate level playing
field in 1996, an immediate level playing field. Let everybody
get in at the same time, and let the FCC oversee that
marketplace. But that is not what happened. We ended up with a
staggered entry, and we are still staggering toward the finish
line on long distance entry.
So a level playing field is what we all would want, clear
rules. And that would get the job done. And an FCC that follows
that law as you and the Congress intended it to be.
Thank you.
Senator Burns. Yes, sir, Mr. Holland.
Mr. Holland. Yes, Mr. Chairman, I did want to make one more
comment. I think that today, certainly Wall Street, the venture
capital industry, there have been tens of billions of dollars
raised since February 1996, when the Telecom Act was signed by
President Clinton, and those dollars are going into putting in
state-of-the-art, world-class facilities.
The thing that would jeopardize that is if there was a
perception that the competitive checklist was never going to be
implemented, that the local markets are not going to be open to
competition as the Act promised. I think it would be very, very
dangerous to do anything that would bypass that obligation to
open up the local market. And certainly letting the Bell
companies into long distance services for data might reduce
their commitment to volunteerism, if that is what it is, to
implement the competitive checklist.
And I would also take issue with the fact that the goal
line is being moved. In reality, the reason the FCC clarified
the checklist was at the request of the RBOC's. In fact, our
ALTS organization wrote a detailed letter to this Committee
recently, explaining in detail a response to US West's
complaint that the checklist was expanded. And if you would
like, I would be pleased to provide that as part of the record
of this hearing.
[The information referred to follows:]
June 23, 1999
The Honorable John McCain
Chairman
Committee on Commerce, Science, and Transportation
United States Senate
Washington, D.C. 20510
The Honorable Ernest F. Hollings
Ranking Democrat
Committee on Commerce, Science, and Transportation
United States Senate
Washington, D.C. 20510
Dear Chairman McCain and Senator Hollings:
The Association for Local Telecommunications Services (ALTS) hereby
provides its response to the letter and analysis submitted to you by US
West on May 10, 1999 and the testimony of US West CEO Sol Trujillo
before the Senate Commerce Committee on April 13 concerning the process
under which the Regional Bell Operating Companies (RBOCs) apply to
enter the long distance market. In his testimony, Mr. Trujillo
expressed concern that the 14-point checklist in section 271 of the
Communications Act had been expanded to 1014 points. In the letter, US
West alleges that, ``[t]hese requirements [of section 271] cannot
change over time. . . as a matter of fact, they should be reduced over
time.''
ALTS believes that US West's testimony and its submission grossly
and unfairly mischaracterizes the Federal Communications Commission's
(FCC's) enforcement of the section 271 process. Furthermore, US West's
letter is internally inconsistent: as it asks for the rules not to
change at the same time that it asks for the requirements to be reduced
and to be enforced differently for rural states. As we demonstrate in
the attached review, the FCC has, in general, taken a consistent,
principled approach to the enforcement of section 271 that is faithful
to both the spirit and the letter of the 1996 Telecom act.
ALTS is the leading trade association representing facilities-based
competitors to the incumbent local telephone companies. ALTS'
membership currently includes over 70 companies with a market
capitalization of over $200 billion. ALTS' membership does not include
the traditional long distance companies (such as AT&T, MCI and Sprint).
Nevertheless, ALTS' members have a significant business interest in
the debate over when the RBOCs are allowed to enter the long distance
market under section 271 for one overriding reason. We view this
provision as the act's only incentive for the RBOCs to open their local
markets. The interconnection and unbundling obligations included in the
14-point competitive checklist in section 271 are the critical building
blocks for local competition. If the RBOCs are allowed into the long
distance market BEFORE satisfying these interconnection and unbundling
requirements, the RBOCs will have no incentive to comply with these
requirements, and competition for local telephone service could be
stopped in its tracks. For this reason, ALTS supports the current
statutory language which requires the RBOCs to open their networks to
competition first and then receive the right to provide long distance
service thereafter.
US West's submission implies that the FCC has expanded the 14-point
competitive checklist into a laundry list of items that are changing
and are impossible to meet. ALTS strongly disagrees with this
interpretation of the FCC's actions. While US West would prefer that
the FCC simply accept US West's self-certification that the checklist
has been met, the FCC has instead asked for ascertainable facts to
prove that the checklist is being implemented. This fact-based
determination is exactly what the statutory language requires (the RBOC
must ``fully implement the competitive checklist'' (section 271
(d)(3)(A)(i)).
Furthermore, the courts have rejected the RBOCs' arguments that the
FCC has departed from the statutory language. The RBOCs have appealed
several FCC decisions denying their applications to enter the long
distance market. In each case, the court has ruled in favor of the FCC
and against the RBOC.
Despite US West's current complaints about the level of detail in
the FCC's orders, the RBOCs asked for this guidance. By setting forth
in detail the types of facts that the FCC will examine to determine
whether the RBOC has implemented the checklist, the FCC attempted to
provide advance notice to the RBOCs of how the FCC will enforce these
requirements. The RBOCs requested exactly this form of guidance on many
occasions, including in testimony before this Committee one year ago.
It is hypocritical for US West and other RBOCs now to complain about
the FCC'S effort to provide the very guidance that the RBOCs requested.
As the Committee considers the RBOCs' arguments for exemptions from
the Act, ALTS encourages you to keep in mind one central fact:
Over three years after passage of the Telecommunications Act of
1996, not a single telephone company has opened its network to
competition in compliance with that Act.
No state has agreed with US West's claim that it has opened its
market to competition. In fact, the members of ALTS continue to
encounter significant and systematic difficulties in obtaining
nondiscriminatory access to the telephone company networks. For
instance, the incumbent telephone companies (including US West) often
fail to provision loops, deny competitors the right to collocate
equipment in telephone company central offices, and fail to provide
directory listings. Each of these obligations is essential to the
growth of local telephone competition, and each obligation is
specifically required by the 14-point competitive checklist in section
271.
Furthermore, the incumbent local exchange companies continue to
discriminate against the competitive local exchange companies (CLECs).
For instance, the incumbent telephone companies frequently cut off
telephone service to customers before the service can be switched to a
competitor, and require CLECs to fax customer change orders (which are
often lost or misread) while they provide electronic change orders to
themselves. As a result, CLECs simply do not yet receive the same
quality of access to the local telephone network that the RBOCs provide
to themselves.
While we are disappointed that the RBOCs and other incumbent local
exchange companies (ILECs) have not yet fully opened their markets, we
believe progress has been made. Our members report that some of the
RBOCs are clearly making good faith efforts to open their networks in
some states. We are working closely with the RBOCs in a number of
states to rectify the technical and other forms of discrimination that
we currently face.
Largely because of the RBOCs' reluctance or difficulties in opening
their local networks to competition, local telephone competition is
growing, but not as quickly as we would have hoped. According to
several investment analysts, CLECs have grown their share of the local
telephone market from .5% in 1996 to only about 3% today. In other
words, the local telephone market is far from competitive. CLECs could
make far greater progress if the 1996 Telecom Act were enforced and
implemented as intended. Therefore, we urge the Congress and FCC to
enforce the Act as is, and refrain from making any changes to the act.
I hope the following review of the US West submission is
informative and responsive. Please feel free to call me if you have any
questions.
Sincerely,
John Windhausen, Jr.
President
______
ALTS Review of the US West Submission of May 10, 1999
Concerning the FCC's Enforcement of Section 271 and the Entry
of the RBOCs into the Long Distance Market.
Below is a detailed response to the US West submission. ALTS
believes that US West's submission grossly and unfairly
mischaracterizes the FCC's enforcement of the section 271 process. As
we demonstrate below, we believe the FCC has, in general, remained
faithful to both the statutory language in section 271 and the spirit
of the 1996 Telecom act.
Before turning to the specific allegations, we offer some general
observations:
First, it is clear that Mr. Sol Trujillo overreached when he stated
at the hearing that the FCC had expanded the 14-point checklist into a
1014 point checklist. (Note that the US West letter of May 10, 1999
does not even mention the ``1014-point checklist'' comment.) To attempt
to justify his rhetoric, Mr. Trujillo asked the law firm of Verner,
Liipfert to conduct a costly study of the FCC's requirements to try to
justify his extreme statement -- a statement that had no basis in the
record before Mr. Trujillo's testimony. Thus, the lawyers who put
together this study for US West had every incentive to come up with as
long a list as possible to make Mr. Trujillo's statement appear to be
based in fact. Even then, Verner, Liipfert could not come up with 1014
points, but only 690, including the statutory requirements themselves.
More important, however, is the fact that the Verner, Liipfert
study improperly exaggerates the FCC's interpretation of the checklist.
Every law requires explication. Just because an opinion explicates a
law, that does not mean that the law, itself, has been expanded. The
FCC, in a few of the documents (specifically the five 271 orders and
the letter to Congress detailing how a BOC can satisfy the competitive
checklist) cited by US West, simply has interpreted and explicated,
often at the request of a RBOC (although never at US West's request),
what is required to satisfy the finite 14-point competitive checklist.
US West would know this if it had participated in the FCC's 271
collaborative process, begun in January, 1998, to foster a dialogue
between the FCC, the RBOCs, the CLECs (including long distance
companies) to provide guidance on the requirements of the competitive
checklist. In March, 1998, as a result of the collaborative process,
the FCC prepared a written summary outlining the requirements for each
checklist item. In October, 1998, the FCC addressed all 14 checklist
items in the BellSouth Louisiana 271 application. US West, however, did
not participate in this collaborative process until just recently.
US West Letter
The following discussion provides a direct response to several
claims raised in the US West letter:
US West claim: ``[W]e firmly believe that we meet the checklist''.
ALTS Response: Just because US West asserts that it meets the
checklist does not make it so. No state regulatory commission
agrees with US West that its market is open. US West's
applications have been rejected, suspended, and ``voluntarily''
withdrawn by US West itself. Most telling, US West has failed
even to submit section 271 applications in a majority of its
states, and has not filed any section 271 applications at the
FCC, which is wholly inconsistent with its claims of readiness
made to Congress.
U S West Application Rejected. Last year U S West filed a
section 271 application with the Nebraska state commission
which ruled against US West in April 1999 (US West has
petitioned to re-open this proceeding).
U S West Voluntarily Withdrew Applications. This year after the
Montana state commission sent a letter to U S West recommending
a New York-style independent third-party OSS test, U S West
withdrew its 271 state application in Montana. Similarly,
unable to achieve success, US West decided to ``voluntarily''
withdraw its section 271 applications in both Wyoming and New
Mexico.
Section 271 Proceedings Suspended for Further Investigation.
After initially filing only a partial 271 application with the
Arizona state commission in April 1998, U S West filed a more
complete application in February 1999. After the Arizona
commission reviewed the application and obtained additional
input from various interested parties, the commission suspended
its schedule in order to investigate further the fundamental
issue of operations support systems (OSS).
U S West Failed to Apply in Most of Region. Notably, in the
remaining states in its region, U S West has failed even to
submit section 271 applications, apparently conceding that it
is not ready in the states of Washington, Oregon, Idaho, Utah,
Colorado, North Dakota, South Dakota, Minnesota, and Iowa.
_______________________________________________________________________
US West claim: ``The problem is that no one knows exactly what it
ultimately will take to convince the FCC that we have met the
checklist.'' ``[t]he checklist requirements keep changing.''
ALTS Response: Last summer, several RBOC representatives asserted to
Congress and elsewhere that the FCC had not provided sufficient detail
concerning the meaning of the competitive checklist in Section 271. For
this reason, the FCC provided a lengthy ``roadmap'' in its decision
denying BellSouth's application to enter the long distance market in
South Carolina in December 1997. Indeed, the same dynamic of RBOC
requests for guidance resulted in the detailed decision in August 1997
denying Ameritech's section 271 application in Michigan, and other
detailed orders denying section 271 applications. Responding to
requests for clarification of section 271, the FCC also provided
Senators McCain and Brownback a detailed document summarizing all of
the requirements of the checklist in May of 1998. In short, the FCC has
provided an enormous amount of information to the RBOCs to explain what
will be necessary to meet the checklist, in response to RBOC and other
inquiries. ALTS suggests that the real problem is that US West does not
agree with the FCC's interpretation of the checklist, not that it is
not ``known''. As we demonstrate below, the FCC's interpretation of the
checklist is consistent with the statutory provisions.
_______________________________________________________________________
US West claim: ``I also believe that the 271 process should take into
consideration the differences between states.'' ``Because the nature of
competition differs from state to state, the requirements of Section
271 should be interpreted in the unique context of each state.''
ALTS Response: US West is partly correct. ALTS agrees that the nature
of competition will differ from state to state. It is appropriate that
the FCC should be flexible to accommodate those differences within the
context of the statutory language. Of course, the more variety and
flexibility the FCC takes into account, the more difficult it can be to
set forth one set of clear nationwide standards for long distance
entry. In other words, US West cannot have it both ways. Does US West
want a fixed, known-in-advance set of obligations? Or does it want the
FCC have a different interpretation of the checklist which is adapted
to fit each state?
In fact, the 1996 Telecom Act and the FCC's enforcement of the Act
reflects the delicate balance between urban and rural states. The Act
calls for the states to provide their views to the FCC as to whether
the RBOC has met the checklist. But it also requires that the FCC, not
the individual state commission, make the final decision so that there
is some uniformity and a consistent national policy. The FCC has
offered its viewpoint of how to meet the checklist in order to let the
RBOCs know in advance what will be expected of them. At the same time,
the FCC has often articulated several ways that an RBOC can meet each
checklist item, in order to provide the RBOCs with the flexibility to
choose different alternatives. In other words, one reason that the FCC
has provided so much detail in its explanation of the checklist is to
accommodate the very flexibility that US West is seeking.
_______________________________________________________________________
US West claim: ``There is no compelling reason to subject data services
to regulation. BOCs such as US West are new entrants into the data
business, and the data services they provide should not be subject to
regulation solely because they are being provided by carriers that are
incumbent voice traffic providers.
ALTS response: US West's broad claim that data services should not be
regulated raises several issues. If US West is concerned about the
regulation of its local data service offerings to consumers, that
concern must be addressed to state regulatory commissions who have
jurisdiction over intrastate services. US West may instead be
expressing concern that the pieces of its network used for data
services should not be provided as unbundled network elements under the
1996 Act. The 1996 Act does not differentiate between data and voice
services; both are treated as ``telecommunications services''--and
rightly so. The basic telephone network has been used to provide data
services for decades, and the local telephone companies used their
network to maintain a monopoly over both voice and data services. For
this reason, the 1996 Telecom Act was intended to promote competition
for both voice and data services. Furthermore, it is simply impossible
to differentiate between voice and data services travelling over the
same network, especially when both services are transmitted in digital
form. Requiring the telephone companies to make network elements
available for voice services but not for data services is simply
unenforceable.
Finally, US West may be expressing the view that it should be allowed
to provide interLATA long distance services for data services
immediately but not voice. Again, it is impossible to separate voice
from data traffic, so this proposal is unenforceable. But even more
important, granting the RBOCs this form of relief could stop local
telephone competition in its tracks. Once the RBOCs are allowed into
the interLATA data market, they will have little incentive to open
their local networks to competition. For this reason, the RBOCs must be
allowed into the interLATA data market only AFTER they open the local
network to competition. The data market already surpasses voice in
terms of traffic and is on the verge of surpassing it in terms of
revenues. The potential revenues from this market for the RBOC is a
significant ``carrot'' that Congress should leave in place to continue
to entice the RBOC into complying with the Act and opening the local
market to competition.
Verner, Liipfert Study
_______________________________________________________________________
The Verner, Liipfert study exaggerates the FCC's interpretation of
the checklist in the following ways:
1. Mr. Trujillo testified that the FCC has expanded the 14-point
checklist into 1014-point checklist. The Verner, Liipfert study,
however, goes well beyond the 14-point checklist, and in fact, covers
all the requirements of section 271 AND section 251. Thus, the list of
690 items is not consistent with Mr. Trujillo's claim that the
checklist itself was expanded.
2. Many of the FCC's rules and policy statements simply restate the
statutory language, causing the same requirement to appear twice in the
list -- once as a statutory requirement and once as an FCC rule. Thus,
many of the items in the list are simply double counted.
3. The study frequently carves up a single requirement into several
pieces so that it appears that the FCC has imposed numerous burdens on
the RBOC, when in fact, several listed items are simply part and parcel
of the same requirement.
4. While complaining about the fact that the FCC has provided detail
explaining section 271 (at the request of the RBOCs, as discussed
above), US West fails to indicate which of the 690 ``requirements'' it
believes should be eliminated as unnecessary or excessive.
5. Perhaps most important, many of the items are not absolute
requirements with which each RBOC must comply. In fact, many of the
FCC's statements provide the RBOC with alternative ways of satisfying
the same checklist item. In such cases, the FCC has attempted to
respond to the RBOCs' desire for flexible enforcement. But now, having
convinced the FCC to articulate several possible means of complying
with one of the 14 checklist items, the RBOCs hold this flexibility
against the FCC by claiming that each and every alternative is an
absolute requirement. Congress should not reward this ``bait-and-
switch'' tactic.
Conclusion
The Telecommunications Act of 1996 is working, and will work even
better once the incumbent telephone companies fully open their market
to competition. Competitive local exchange carriers are leading the
deployment of advanced broadband services to all Americans, largely
because of the Act's market-opening requirements. CLECs could deploy
even more services if the incumbent telephone companies would comply
with the Act, the enactment of which they supported. Indeed,
enforcement of the 1996 Act is the best way to encourage deployment of
high-speed communications to all Americans
ALTS urges you not to reward the RBOCs for their failure to
implement the Act by granting them unwarranted exemptions from the
Act's pro-competition requirements. Instead, we encourage you to
support stronger enforcement of the Telecommunications Act of 1996 so
that American consumers can fully enjoy the full fruits of competition,
including more innovation, better pricing and superior service.
Mr. Holland. The key is to stay the course. Let us get that
checklist implemented. And Bell Atlantic, as the leader in New
York, is setting a fine example for the rest of the country. I
think a lot of these attempts to bypass the Telecom Act become
moot once Bell Atlantic gets in. Because all you have got to do
is do what they did in New York and you are in. And that is not
moving the goalposts.
Senator Burns. Well, we want to thank all of you for coming
today and providing this dialog and this debate at the table.
If there are other Senators that want to direct questions your
way, we will do that. And we will keep the record open for
maybe a week or so. If you will respond to those individual
Senators and to the Committee, I would appreciate that very
much. And I appreciate your cooperation here today. And I thank
the panel members and Senator Hollings on this issue.
This hearing is closed.
Senator Hollings. Thank you, Mr. Chairman.
[Whereupon, at 12:25 p.m., the hearing was adjourned.]
A P P E N D I X
November 15, 1999
The Honorable John McCain
United States Senate
241 Russell Senate Office Building
Washington, DC 20510-0303
Dear Chairman McCain:
MCI WorldCom was pleased to have the opportunity to testify before your
committee on November 8 on the subject of mergers in the
telecommunications industry. I thought we should follow up on your
invitation to help clarify the situation with respect to long distance
pricing.
FCC Chairman Kennard testified that long distance rates had fallen 35%
since 1992. Gene Kimmelman of Consumers Union testified that if a
consumer now makes less than 30 minutes of long distance calls, he or
she would pay three times as much as two years ago. Since these two
statements appear to conflict, I wanted to clarify what has been
occurring in the marketplace for long distance services.
First, there can be no question that the long distance industry is
vibrantly competitive, and consequently, that consumers have many
choices of providers. As a result of the more than 600 carriers
providing long distance service in the United States, long distance
rates are the lowest they have ever been, consumer choice is abundant,
and innovation is rampant.
Today, for example, all MCI WorldCom customers, without the need
for electing the plan, receive a rate of 5 cents per minute all day
Sunday (``MCI 5 cents Sundays''), with no flat fee. Additionally, MCI
WorldCom customers can now sign up for ``MCI 5 cents Everyday
Savings,'' a rate plan that charges 5 cents per minute weekday
evenings, nights, and weekends, and 25 cents per minute week days from
7 a.m. to 6:59 p.m. The monthly flat fee for ``MCI 5 cents Everyday
Savings'' is $1.95, with a $5 minimum per month usage requirement.
However, the $1.95 flat fee is applied to the $5 minimum, reducing the
minimum usage, in effect, to just $3.05 per month. Also, MCI WorldCom
customers can now select ``MCI 5 cents Everyday,'' a rate plan that
charges 5 cents per minute weekday evenings, nights, and weekends, and
only 10 cents per minute weekdays from 7 a.m. to 6:59 p.m. The monthly
flat fee for ``MCI 5 cents Everyday'' is $4.95, with no minimum usage
fee. For both ``MCI 5 cents Everyday Savings'' and ``MCI 5 cents
Everyday,'' customers are required to sign up for the plans because
flat fees do apply.
In addition to the above-mentioned presubscribed or dial-1 calling
plans, MCI WorldCom has led the industry in developing and promoting
dial-around (or 10-10) services, with products such as 10-10321 and 10-
10220. Dial around products, such as 10-10321 and 10-10220, are ideal
for low-volume users. These dial around products allow consumers to buy
one call at a time. They are easy to try, easy to use, can be used as
often, or as little, as desired, and include no additional fees or
charges. With dial around products the consumer is completely in
control of his or her long distance usage. 10-10321 offers customers a
low per minute rate of 8 cents per minute for calls over ten minutes,
and 16 cents per minute for calls under ten minutes. 10-10220 offers
customers up to 20 minutes for 99 cents, an effective rate of less than
5 cents per minute, and 9 cents for every additional minute.
Contrary to Mr. Kimmelman's sweeping assertion that consumers
making less than 30 minutes of long distance calls today pay three
times as much as two years ago, the facts demonstrate that while many
carriers now offer long distance rates significantly lower than two
years ago (for example, the attached table shows carriers offering
rates as low as 3.5 cents per minute, with no minimums), and while many
new products and dialing plans (such as ``dial around'') exist today
that were not available several years ago, whether a customer's long
distance costs have increased, decreased, or remained the same over the
last few years depends largely on that customer's unique calling
patterns, and his or her carrier, plan and product selections. Of
course, with cheaper rates, many people are calling more and staying on
the phone longer.
As background, beginning in January of 1998, observers of long
distance pricing witnessed unique changes in the long distance
industry, reflecting not only actual and anticipated access reductions
and strong competitive forces, but a change in long distance access
charge structure paid by the carriers (i.e., a shift from a per minute
cost structure to a flat-rated and per minute cost structure). Long
distance carriers began offering calling plans with flat fees and per
minute rates to reflect their two part cost structure. While this move
to two part pricing represents rational pricing and more efficient
recovery of local exchange costs collected from long distance carriers,
it also benefits consumers through significantly lower long distance
rates. Wall Street analysts recently have noted that long distance end
users are benefitting from competition and lower access charges:
As costs come down to provision long distance service,
customers are benefitting from lower retail rates.'
David Barden, JP Morgan, 8/10/99
``In the long distance business, revenue per minute has
declined in real terms by 80% in the last 15 years... as access
charges declined, pricing has followed.''
Jack Grubman, Salomon Smith Barney, 8/20/99
``...it is striking how quickly long-distance rates have
fallen. It was just in 1996 that AT&T introduced one of the
first flat-rate pricing plans for 15 cents a minute, 24 hours a
day.''
The Wall Street Journal, 8/9/99
If a customer was presubscribed to MCI two years ago, was not on a
calling plan, and made all long distance calls on weekdays, he or she
would have been billed $5.20 for 20 minutes of long distance usage (20
minutes time 26 cents per minute). If that customer made no changes,
today he or she would be billed $7.14 ($5.20 for per minute long
distance charges, $1.46 for the National Access Fee (NAF) designed to
recover the presubscribed interexchange carrier charge (PICC) local
carriers charge long distance carriers for access, and 48 cents for the
Federal Universal Service Fee (FUSF). But today, that customer has
available many new products, plans, and carriers from which to choose.
If that same customer made 20 minutes of long distance phone calls on
Sunday and was presubscribed to MCI WorldCom, today he or she would be
billed just $4.78 ( 5 cents per minute, plus $2 to reach $3 minimum
usage, plus $1.46 NAF, plus 32 cents FUSF), saving that customer
42 cents or 8% compared to charges incurred two years previously on
basic rates. On the other hand, if that customer prefers not to be
presubscribed to a long distance carrier and instead uses 10-10321 to
make long distance calls, the customer would be billed $1.60 in long
distance charges and $1.04 PICC from the local exchange carrier. In
that case, the customer would now be paying $2.64 for 20 minutes of
long distance calls, saving $2.56 or over 49% compared to the 20 minute
presubscribed call two years previously.
The fundamental point is that long distance savings, and long distance
bills, vary significantly depending on a customer's calling patterns
and whether that customer selects the calling plan which best fits his
or her needs. MCI WorldCom, and many other long distance carriers offer
a range of products to customers based on their diverse needs. There
can be no question that the long distance industry is vibrantly
competitive, and that consumers have many choices of providers. Long
distance providers understand that, in order to maintain and grow their
customer base in this competitive marketplace, they must provide
consumers with information through advertising, marketing and other
educational sources, necessary to make informed decisions. Plans and
products now exist to serve all types of long distance customers. There
can be no question that long distance competition and access reform is
benefitting all Americans, that customer choice for long distance
services has never been greater, and that long distance rates are lower
than ever.
Sincerely,
Catherine R. Sloan