[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
------
THE DIGITAL FUTURE OF THE UNITED STATES
=======================================================================
HEARINGS
BEFORE THE
SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
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MARCH 1, 7, APRIL 19, 24,
MAY 10, OCTOBER 2, 2007
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Serial No. 110-10
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
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COMMITTEE ON ENERGY AND COMMERCE
JOHN D. DINGELL, Michigan, Chairman
HENRY A. WAXMAN, California JOE BARTON, Texas
EDWARD J. MARKEY, Massachusetts Ranking Member
RICK BOUCHER, Virginia RALPH M. HALL, Texas
EDOLPHUS TOWNS, New York J. DENNIS HASTERT, Illinois
FRANK PALLONE, Jr., New Jersey FRED UPTON, Michigan
BART GORDON, Tennessee CLIFF STEARNS, Florida
BOBBY L. RUSH, Illinois NATHAN DEAL, Georgia
ANNA G. ESHOO, California ED WHITFIELD, Kentucky
BART STUPAK, Michigan BARBARA CUBIN, Wyoming
ELIOT L. ENGEL, New York JOHN SHIMKUS, Illinois
ALBERT R. WYNN, Maryland HEATHER WILSON, New Mexico
GENE GREEN, Texas JOHN B. SHADEGG, Arizona
DIANA DeGETTE, Colorado CHARLES W. ``CHIP'' PICKERING,
Vice Chairman Mississippi
LOIS CAPPS, California VITO FOSSELLA, New York
MIKE DOYLE, Pennsylvania STEVE BUYER, Indiana
JANE HARMAN, California GEORGE RADANOVICH, California
TOM ALLEN, Maine JOSEPH R. PITTS, Pennsylvania
JAN SCHAKOWSKY, Illinois MARY BONO, California
HILDA L. SOLIS, California GREG WALDEN, Oregon
CHARLES A. GONZALEZ, Texas LEE TERRY, Nebraska
JAY INSLEE, Washington MIKE FERGUSON, New Jersey
TAMMY BALDWIN, Wisconsin MIKE ROGERS, Michigan
MIKE ROSS, Arkansas SUE WILKINS MYRICK, North Carolina
DARLENE HOOLEY, Oregon JOHN SULLIVAN, Oklahoma
ANTHONY D. WEINER, New York TIM MURPHY, Pennsylvania
JIM MATHESON, Utah MICHAEL C. BURGESS, Texas
G.K. BUTTERFIELD, North Carolina MARSHA BLACKBURN, Tennessee
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
_______
Professional Staff
Dennis B. Fitzgibbons, Chief of Staff
Gregg A. Rothschild, Chief Counsel
Sharon E. Davis, Chief Clerk
Bud Albright, Minority Staff Director
(ii)
Subcommittee on Telecommunications and the Internet
EDWARD J. MARKEY, Massachusetts, Chairman
MIKE DOYLE, Pennsylvania FRED UPTON, Michigan
JANE HARMAN, California Ranking Minority Member
CHARLES A. GONZALEZ, Texas J. DENNIS HASTERT, Illinois
JAY INSLEE, Washington CLIFF STEARNS, Florida
BARON P. HILL, Indiana NATHAN DEAL, Georgia
RICK BOUCHER, Virginia BARBARA CUBIN, Wyoming
EDOLPHUS TOWNS, New York JOHN SHIMKUS, Illinois
FRANK PALLONE, Jr., New Jersey HEATHER WILSON, New Mexico
BART GORDON, Tennessee CHARLES W. ``CHIP'' PICKERING,
BOBBY L. RUSH, Illinois Mississippi
ANNA G. ESHOO, California VITO FOSELLA, New York
BART STUPAK, Michigan GEORGE RADANOVICH, California
ELIOT L. ENGEL, New York MARY BONO, California
GENE GREEN, Texas GREG WALDEN, Oregon
LOIS CAPPS, California LEE TERRY, Nebraska
HILDA L. SOLIS, California MIKE FERGUSON, New Jersey
JOHN D. DINGELL, Michigan (ex JOE BARTON, Texas (ex officio)
officio)
C O N T E N T S
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MARCH 1, 2007--THE FUTURE OF THE WORLD WIDE WEB
Page
Barton, Hon. Joe, a Representative in Congress from the State of
Texas, opening statement....................................... 4
Prepared statement.......................................... 4
Dingell, Hon. John D., a Representative in Congress from the
State of Michigan, opening statement........................... 5
Doyle, Hon. Mike, a Representative in Congress from the
Commonwealth of Pennsylvania, opening statement................ 6
Eshoo, Hon. Anna G., a Representative in Congress from the State
of California, opening statement............................... 3
Green, Hon. Gene, a Representative in Congress from the State of
Texas, opening statement....................................... 8
Harman, Hon. Jane, a Representative in Congress from the State of
California, opening statement.................................. 7
Hill, Hon. Baron P., a Representative in Congress from the State
of Indiana, opening statement.................................. 9
Markey, Hon. Edward J., a Representative in Congress from the
Commonwealth of Massachusetts, opening statement............... 1
Stearns, Hon. Cliff, a Representative in Congress from the State
of Florida, opening statement.................................. 7
Towns, Hon. Edolphus, a Representative in Congress from the State
of New York, prepared statement................................ 9
Upton, Hon. Fred, a Representative in Congress from the State of
Michigan, opening statement.................................... 2
Witness
Berners-Lee, Timothy, Massachusetts Institute of Technology,
Cambridge, MA.................................................. 10
Prepared statement........................................... 33
MARCH 7, 2007--THE FUTURE OF RADIO
Barton, Hon. Joe, a Representative in Congress from the State of
Texas, opening statement....................................... 48
Boucher, Hon. Rick, a Representative in Congress from the
Commonwealth of Virginia, opening statement.................... 59
Deal, Hon. Nathan, a Representative in Congress from the State of
Georgia, opening statement..................................... 58
Dingell, Hon. John D., a Representative in Congress from the
State of Michigan, opening statement........................... 46
Doyle, Hon. Mike, a Representative in Congress from the
Commonwealth of Pennsylvania, opening statement................ 49
Engel, Hon. Eliot L., a Representative in Congress from the State
of New York, opening statement................................. 60
Eshoo, Hon. Anna G., a Representative in Congress from the State
of California, opening statement............................... 52
Ferguson, Hon. Mike, a Representative in Congress from the State
of New Jersey, opening statement............................... 57
Green, Hon. Gene, a Representative in Congress from the State of
Texas, opening statement....................................... 53
Harman, Hon. Jane, a Representative in Congress from the State of
California, opening statement.................................. 50
Markey, Hon. Edward J., a Representative in Congress from the
Commonwealth of Massachusetts, opening statement............... 43
Shimkus, Hon. John, a Representative in Congress from the State
of Illinois, opening statement................................. 50
Stearns, Hon. Cliff, a Representative in Congress from the State
of Florida, opening statement.................................. 55
Stupak, Hon. Bart, a Representative in Congress from the State of
Michigan, opening statement.................................... 55
Terry, Hon. Lee, a Representative in Congress from the State of
Nebraska, opening statement.................................... 53
Towns, Hon. Edolphus, a Representative in Congress from the State
of New York, opening statement................................. 58
Upton, Hon. Fred, a Representative in Congress from the State of
Michigan, opening statement.................................... 44
Walden, Hon. Greg, a Representative in Congress from the State of
Oregon, opening statement...................................... 51
Witnesses
Blackwell, Geoffrey C., director, Strategic Relations and
Minority Business Development, Chickasaw Nation Industries,
Inc., on behalf of Native Public Media and the National
Federation of Community Broadcasters........................... 61
Prepared statement........................................... 93
Karmazin, Mel, chief executive officer, Sirius Satellite Radio
Incorporated, New York, NY..................................... 66
Prepared statement........................................... 127
Kimball, Robert, senior vice president, Legal and Business
Affairs, RealNetworks, Inc. Seattle, WA........................ 65
Prepared statement........................................... 137
Kimmelman, Gene, vice president, Federal and International
Affairs, Consumers Union, Washington, DC....................... 68
Prepared statement........................................... 153
Smyth, Peter H., president and chief executive officer, Greater
Media, Inc., Braintree, MA..................................... 63
Prepared statement........................................... 102
Submitted Material
Taylor, Loris Ann, executive director, Native Public Media,
letter of March 30, 2007 to Mr. Markey......................... 173
APRIL 19, 2007--SPECTRUM OPPORTUNITIES AND THE FUTURE OF WIRELESS
Capps, Hon. Lois Capps, a Representative in Congress from the
State of California, prepared statement........................ 211
Dingell, Hon. John D., a Representative in Congress from the
State of Michigan, opening statement........................... 207
Eshoo, Hon. Anna G., a Representative in Congress from the State
of California, opening statement............................... 204
Green, Hon. Gene, a Representative in Congress from the State of
Texas, opening statement....................................... 209
Harman, Hon. Jane, a Representative in Congress from the State of
California, opening statement.................................. 202
Markey, Hon. Edward J., a Representative in Congress from the
Commonwealth of Massachusetts, opening statement............... 199
Pickering, Hon. Charles W. ``Chip'', a Representative in Congress
from the State of Mississippi, opening statement............... 203
Solis, Hon. Hilda L., a Representative in Congress from the State
of California, opening statement............................... 208
Stearns, Hon. Cliff, a Representative in Congress from the State
of Florida, opening statement.................................. 206
Stupak, Hon. Bart, a Representative in Congress from the State of
Michigan, opening statement.................................... 205
Towns, Hon. Edolphus, a Representative in Congress from the State
of New York, opening statement................................. 211
Upton, Hon. Fred, a Representative in Congress from the State of
Michigan, opening statement.................................... 201
Witnesses
Gallagher, Michael, partner, Perkins Coie, LLP, Washington, DC... 221
Prepared statement........................................... 321
Meena, Victor H., president, CellularSouth, Incorporated,
Jackson, MS.................................................... 216
Prepared statement........................................... 331
Muleta, John, chief executive officer, M2Z Networks, Arlington,
VA............................................................. 212
Prepared statement........................................... 290
Obuchowski, Janice, chairman, Frontline Wireless, LLC,
Washington, DC................................................. 219
Prepared statement........................................... 245
Spencer, Shelley, president, Wirefree Partners, LLC,
Laytonsville, MD............................................... 214
Prepared statement........................................... 264
West, Barry, chief technology officer, Sprint Nextel Corporation,
Herndon, VA.................................................... 218
Prepared statement........................................... 275
APRIL 24, 2007--BROADBAND LESSONS FROM ABROAD
Barton, Hon. Joe, a Representative in Congress from the State of
Texas, opening statement....................................... 348
Capps, Hon. Lois, a Representative in Congress from the State of
California, prepared statement................................. 355
Doyle, Hon. Mike, a Representative in Congress from the
Commonwealth of Pennsylvania, opening statement................ 351
Engel, Hon. Eliot L., a Representative in Congress from the State
of New York, opening statement................................. 356
Eshoo, Hon. Anna G., a Representative in Congress from the State
of California, opening statement............................... 347
Green, Hon. Gene, a Representative in Congress from the State of
Texas, opening statement....................................... 354
Harman, Hon. Jane, a Representative in Congress from the State of
California, opening statement.................................. 346
Markey, Hon. Edward J., a Representative in Congress from the
Commonwealth of Massachusetts, opening statement............... 343
Shimkus, Hon. John, a Representative in Congress from the State
of Illinois, opening statement................................. 352
Solis, Hon. Hilda, a Representative in Congress from the State of
California, opening statement.................................. 349
Stearns, Hon. Cliff, a Representative in Congress from the State
of Florida, opening statement.................................. 353
Terry, Hon. Lee, a Representative in Congress from the State of
Nebraska, opening statement.................................... 350
Upton, Hon. Fred, a Representative in Congress from the State of
Michigan, opening statement.................................... 345
Witnesses
Ford, George, chief economist, Phoenix Center for Advanced Legal
and Economic Public Policy Studies, Washington, DC............. 364
Prepared statement........................................... 387
Hashimoto, Shin, executive vice president, Nippon Telegraph and
Telephone Corporation, Tokyo, Japan............................ 361
Prepared statement........................................... 442
Richards, Ed, chief executive officer, OFCOM, London, United
Kingdom........................................................ 358
Prepared statement........................................... 424
Swain, Hon. Paul, MP, Parliament of New Zealand, Wellington, New
Zealand........................................................ 357
Prepared statement........................................... 434
Wyler, Gregory, director, Rwandatel, S.A., Manchester, MA........ 362
Prepared statement........................................... 418
Submitted Material
McSlarrow, Kyle, National Cable & Telecommunications Association,
letter of April 23, 2007....................................... 449
``U.S. Falling Behind in Broadband Penetration'' by Chloe
Albanesious, PC Magazine, submitted by Ms. Eshoo............... 453
MAY 10, 2007--THE FUTURE OF VIDEO
Barton, Hon. Joe, a Representative in Congress from the State of
Texas, prepared statement...................................... 462
Blackburn, Hon. Marsha, a Representative in Congress from the
State of Tennessee, prepared statement......................... 465
Bono, Hon. Mary, a Representative in Congress from the State of
California, prepared statement................................. 464
Capps, Hon. Lois Capps, a Representative in Congress from the
State of California, prepared statement........................ 461
Cubin, Hon. Barbara, a Representative in Congress from the State
of Wyoming, prepared statement................................. 463
Deal, Hon. Nathan, a Representative in Congress from the State of
Georgia, prepared statement.................................... 463
Dingell, Hon. John D., a Representative in Congress from the
State of Michigan, opening statement........................... 459
Eshoo, Hon. Anna G., a Representative in Congress from the State
of California, opening statement............................... 457
Ferguson, Hon. Mike, a Representative in Congress from the State
of New Jersey, opening statement............................... 459
Green, Hon. Gene, a Representative in Congress from the State of
Texas, opening statement....................................... 460
Hastert, Hon. J. Dennis, a Representative in Congress from the
State of Illinois, prepared statement.......................... 462
Markey, Hon. Edward J., a Representative in Congress from the
Commonwealth of Massachusetts, opening statement............... 455
Shimkus, Hon. John, a Representative in Congress from the State
of Illinois, opening statement................................. 456
Witnesses
Cuban, Mark, chairman and president, HDNET, Dallas, TX........... 466
Prepared statement........................................... 519
Hurley, Chad, chief executive officer, YouTube, San Bruno, CA.... 479
Prepared statement........................................... 507
Answers to submitted questions............................... 568
Krikorian, Blake, chairman and chief executive officer, Sling
Media Incorporated, Foster City, CA............................ 469
Prepared statement........................................... 560
Lombardi, Gina, president, MediaFLO USA, Incorporated, San Diego,
CA............................................................. 473
Prepared statement........................................... 531
Answers to submitted questions............................... 593
Pyne, Benjamin, president, Disney and ESPN Networks, affiliate
sales and marketing, New York, NY.............................. 474
Prepared statement........................................... 523
Rogers, Thomas S., president and chief executive officer, TiVO,
Incorporated, Alviso, CA....................................... 476
Prepared statement........................................... 542
Rosenthal, Philip, Writers Guild of America West and the Screen
Actors Guild, Los Angeles, Ca.................................. 471
Prepared statement........................................... 551
Answers to submitted questions............................... 589
Submitted Material
National Association of Broadcasters, statement.................. 600
OCTOBER 2, 2007--THE FUTURE OF TELECOMMUNICATIONS COMPETITION
Blackburn, Hon. Marsha, a Representative in Congress from the
State of Tennessee, opening statement.......................... 613
Boucher, Hon. Rick, a Representative in Congress from the
Commonwealth of Virginia, opening statement.................... 608
Capps, Hon. Lois, a Representative in Congress from the State of
California, prepared statement................................. 615
Deal, Hon. Nathan, a Representative in Congress from the State of
Georgia, opening statement..................................... 607
Dingell, Hon. John D., a Representative in Congress from the
State of Michigan, prepared statement.......................... 633
Doyle, Hon. Mike, a Representative in Congress from the
Commonwealth of Pennsylvania, opening statement................ 606
Eshoo, Hon. Anna G., a Representative in Congress from the State
of California, opening statement............................... 610
Green, Hon. Gene, a Representative in Congress from the State of
Texas, opening statement....................................... 612
Markey, Hon. Edward J., a Representative in Congress from the
Commonwealth of Massachusetts, opening statement............... 603
Pallone, Hon. Frank Jr., a Representative in Congress from the
State of New Jersey, opening statement......................... 609
Stearns, Hon. Cliff, a Representative in Congress from the State
of Florida, opening statement.................................. 611
Stupak, Hon. Bart, a Representative in Congress from the State of
Michigan, prepared statement................................... 614
Towns, Hon. Edolphus, a Representative in Congress from the State
of New York, opening statement................................. 613
Upton, Hon. Fred, a Representative in Congress from the State of
Michigan, opening statement.................................... 605
Witnesses
Casto, Parley, assistant vice president, AT&T Business Marketing,
AT&T Operations, Hoffman Estates, IL........................... 615
Prepared statement........................................... 659
Cheek, William E., president, Wholesale Markets, Embarq, Overland
Park, KS....................................................... 623
Prepared statement........................................... 710
Evans, Brad, chairman, Cavalier Telephone, Richmond, VA.......... 625
Prepared statement........................................... 719
Forsee, Gary D., chairman, chief executive officer, and
president, Sprint Nextel Corporation, Reston, VA............... 621
Prepared statement........................................... 694
Herda, Larissa, president and chief executive officer, Time
Warner Telecom................................................. 617
Prepared statement........................................... 672
Rosenbalm, Wes, president and chief executive officer, Bristol
Virginia Utilities, Bristol, VA................................ 627
Prepared statement........................................... 734
Tauke, Hon. Tom, executive vice president, Verizon, Washington,
DC............................................................. 619
Prepared statement........................................... 681
Submitted Material
Cohen, Larry, president, Communications Workers of America,
letter of September 26, 2007 to Kevin Martin................... 744
Murray, Chris, senior counsel, Consumers Union, letter of October
1, 2007 to Chairman Dingell.................................... 746
THE DIGITAL FUTURE OF THE UNITED STATES
THE FUTURE OF THE WORLD WIDE WEB
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THURSDAY, MARCH 1, 2007
House of Representatives,
Subcommittee on Telecommunications
and the Internet,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to other business, at 10:41
a.m., in room 2123 of the Rayburn House Office Building, Hon.
Edward J. Markey (chairman) presiding.
Members present: Representatives Doyle, Harman, Hill,
Eshoo, Green, Capps, Dingell, Upton, Hastert, Stearns,
Pickering, Fossella, Bono, Walden, and Barton.
OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF MASSACUSETTS
Mr. Markey. The subcommittee will come to order. I will
give everybody a couple of seconds here to get settled in.
Twelve years ago when my chairmanship of this subcommittee
was rudely interrupted, I think it is important for us to look
at the digital future of the United States. And this series of
oversight hearings focuses on the different segments of the
telecommunications marketplace and public policy. As we
proceed, we will have hearings on voice, video, data markets,
competition, innovation, localism, diversity, and universal
service.
My goal is that this series of educational hearings brings
to the subcommittee the information and insight we will need to
make sound policy judgments in the months ahead. This morning's
hearing focuses upon the future of the World Wide Web. The
World Wide Web has become indispensable to companies large and
small, and regardless of whether their commercial aspirations
are locally oriented or are of global proportions, it has
become a resource that the Government depends upon and that
nurtures communities, both real and virtual, around the planet.
The Web has grown into a communications medium unto itself
where citizens can communicate and entrepreneurs can innovate.
The Web is evolving from its initial publishing model existence
into a more interactive, sophisticated medium, and observers
have begun to talk about Web 2.0 and Web 3.0 applications and
services. The Web is a precious commodity, and today we have a
chance not only to better understand its current nature but to
glimpse into its future. Because of its importance to our
national economic security, to global communications, free
speech, and to myriad applications addressing health care,
educational and cultural and civic themes, I believe it is
vital for us to understand what we can do as policymakers to
safeguard the Web's special role and to foster its further
growth and innovation.
In 1999, Time magazine published a list of the 100 greatest
people of the 20th century. In the category of most influential
scientists and thinkers the list included Einstein, the Wright
brothers, Dr. Jonas Salk, Sigmund Freud, Rachel Carson, Enrico
Fermi, Alexander Fleming, but it included in that rarified list
our guest witness this morning, Sir Timothy Berners-Lee. After
all, who better to inform us about how we should approach the
task of understanding the World Wide Web and its future than
its inventor.
We are delighted that he has agreed to be with us this
morning, and I think that it is a good way of kicking off this
next 2 years of the Telecommunications and Internet
Subcommittee. I would like to now turn to recognize the ranking
member of the subcommittee, a man with whom I have worked for
years in partnership in a bipartisan fashion seeking to frame
these issues in a way that reflects the essential non-partisan
way in which technology issues should be viewed, my good
friend, the gentleman from Michigan, Mr. Upton.
OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Upton. Well, thank you, Mr. Chairman. It is a pleasure
to be here. I appreciate you convening today's hearing. We have
had a unique and wonderful opportunity to have an in-depth,
philosophical discussion on the future of the World Wide Web,
and I would just note as you lament your 12 years in minority,
but in Never Never Land perhaps, it has been a pretty
productive 12 years in terms of advancement in the technology
field, probably not 12 years that we have seen ever in the
history of mankind so we look forward to that continuing and
certainly seriously our very good relationship on a whole host
of issues.
There is no question that the Web with great thanks to Mr.
Berners-Lee has indeed transformed our daily lives.
Technologies that were not even dreamed of several years ago
are now standard, and who knows what the future will hold. And
I look forward to that perspective as we listen to your
testimony and engage in questions. I also look forward to
having a candid discussion on how we can better protect our
citizens, what steps can policymakers and industry folks take
to further protect our identities, what can be done to stifle
the explosion of child Internet sex predators. While the Web
had revolutionized the everyday world it has also opened up a
new world of criminals abound. From petty thieves to
pedophiles, a broad range of criminals now have the ability to
prowl the Internet in a virtual cloak of anonymity.
And with a continuing abundance of cyber criminals, we must
ensure that the World Wide Web continues to stand for exactly
that, not the wild, wild west. We also must ensure that as we
continue to foster an environment of economic growth and
technological advancement, we need to ask the question who
knows what tomorrow's Web will bring, but I am hopeful that
this morning's discussion might be able to shed a little light
on what the future might hold. I appreciate you coming all this
way to share your thoughts and experiences, and I yield back my
time.
Mr. Markey. Thank the gentleman. The gentlelady from
Silicon Valley, Ms. Eshoo.
OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Eshoo. Thank you, Mr. Chairman, and it is wonderful to
see you in the chairman's seat. And welcome, Sir Berners-Lee.
It is really a pleasure and an honor to have you here at our
committee today. The World Wide Web, which you brought to us in
1989, is now such a ubiquitous part of our lives that I think
we take it for granted. Its role in virtually all aspects of
our economy, our politics, our entertainment is
incontrovertible and it continues to grow. One of the obvious
influences the Web has had is in the political spectrum, and it
has had a tremendous impact on the American political system.
During the last presidential election political parties,
candidates, and independent groups utilized the Internet to
organize and to raise money in new and innovative ways, and
these activities were only accelerated in the campaign last
year and it is undeniable that a video posted on YouTube is
responsible for the democratic majority in the United States
Senate, so it has had a huge impact. The Internet has also
completely changed the manner in which political campaigns and
politics in general are covered in the mainstream media. The
impact of blogs and independent Web sites on traditional news
organizations is perhaps the most important phenomenon of the
21st century culture so far.
This nearly limitless diversity of content and views is a
revolutionary change in public discourse. It really is the
voices of many speaking to many. It is impossible to
overestimate the powerful dynamic that technology and the
Internet will have in promoting democracy in our own society
and our institutions and ultimately the world. No longer will
an individual be limited by geography, wealth or disability to
have access to this global repository of literature, science,
information, and entertainment. I am concerned that the
diversity of voices on the Internet is under threat and that
the power to control access to information and content is
becoming increasingly concentrated in a handful of large media
and telecommunications companies.
It is this issue that development of gatekeepers to content
and information on the Internet that really is at the heart of
an issue that has been intensely debated in this subcommittee
and the last Congress called net neutrality. I think the future
of the World Wide Web is in large part dependent on how we
resolve this issue, and I think it is incumbent on Congress to
ensure that the voices of the many can continue to speak to the
many whether or not they have permission from Verizon or AT&T.
So I along with all the members of this important subcommittee
look forward to your testimony and salute you for what you have
accomplished and what you have given to the world. It is
nothing short of remarkable. Thank you, Mr. Chairman.
Mr. Markey. I thank the gentlelady. The gentleman from
Texas, Mr. Barton.
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Thank you, Mr. Chairman. I am one of those ones
that was pleased that your chairmanship was rudely interrupted
12 years ago, but we are always in a personal way glad to see
people get ahead in the world and certainly glad to see you
back in the chair that you think you should be in all the time.
We are looking forward to that. I am going to put my statement
in the record. Let me simply say this. Since we have a friend
from over the ocean our great Nation, the United States, was
founded on the principle and the Declaration of Independence
that all men are created equal and that they are endowed with
their creator with certain inalienable rights, and among these
are life, liberty, and the pursuit of happiness, and from that
we believe that every person makes a difference.
It is very rare that we see one of those people before us
that has made such a difference as you have, sir. Truly, the
world is a different and better place, much better place,
because of your--the story says your noodling when you were at
CERN. My stepchildren, my children, and even my grandchildren
now are old enough to use the Internet and do things and go
places and get information that I could have only imagined when
I was growing up. You are going to get to see one of these odd
things called a congressional subcommittee hearing, and maybe
you can think about that and noodle a little bit and tell us
how to improve this very archaic, imprecise, inefficient
mechanism of democracy.
But we do salute you. You truly have made a difference. It
is an honor to be in the same room with you, and I look forward
to hearing your thoughts about the issue before us today. And
with that, I yield back.
[The prepared statement of Mr. Barton follows:]
Prepared Statement of Hon. Joe Barton, a Representative in Congress
from the State of Texas
We have a tremendous opportunity today. With the World
Wide Web, Tim Berners-Lee created perhaps one of the most
useful and accessible applications on the Internet. The
platform he designed has already enabled many other pioneers to
create countless other innovations. I am excited to discuss
with him what he believes is on the horizon. My hope is that we
use our time wisely. Let us take advantage of this chance to
hear what specific insights Mr. Berners-Lee has on how the Web
can address specific needs and problems in our society.
In particular, I'd like to hear Mr. Berners-Lee's thoughts
on how the Web can help address some of the issues we confront
in this Committee. For example, how can it help reduce health
care costs? How can it help public safety officials communicate
with us and each other in times of disaster? As an engineer by
training, I'm also interested in how the Web can be used to
improve scientific research.
Lastly, I'd like to hear how he would tackle some of the
problems that are popping up on the Web. How can we better
protect our privacy on-line? How can we better protect our kids
from content, and people, we don't think they should be exposed
to?
We have come to hear Mr. Berners-Lee's insights, so I will
end my statement there. I yield back my time.
----------
Mr. Markey. I thank the gentleman. The gentleman from
Pennsylvania, the vice chairman of the Telecommunications
Subcommittee.
Mr. Dingell. Mr. Chairman.
Mr. Markey. I didn't see you. I am sorry, Mr. Dingell.
Mr. Dingell. Don't be troubled. I just snuck in.
Mr. Markey. Let me recognize the gentleman, the chairman of
the full committee, the gentleman from Michigan, Mr. Dingell.
OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Dingell. Mr. Chairman, first of all, thank you for
holding this hearing. I commend you. This is an important
matter. And I want to thank the members of the committee for
their interest in this matter. I thank you for bringing before
us Sir Timothy Berners-Lee, who is the man who invented the
World Wide Web, and who has made what most people call the
Internet not only pervasive but also as important as it is
today. I have seen my share of disruptive technologies over the
years. Indeed, I am someone who vividly recalls the days when
you could deliver a message with the digits of your hand.
Nowadays our thumbs have to type the tiniest keys on the
BlackBerry or some similar device.
Of these disruptive technologies the power of the World
Wide Web to revolutionize our society is like no other. America
is the birthplace of the Internet, and there is serious concern
that our ranking in the global information economy is less than
it should be. Consumers in other countries enjoy broadband
connections that are faster, cheaper, and offered by more
providers. Our committee intends to do its part in a national
broadband strategy deserving of this great Nation. And again I
want to commend you for your leadership in this matter, and I
want you to know that your labors on this matter and this
subcommittee will be very, very important indeed.
We will begin by hearing Sir Berners-Lee's evaluation of
where the Web stands today and where it will be headed in the
future. I am particularly interested in the answers to these
questions. First, what are the key lessons to be learned from
the popularity and growth of the World Wide Web? What
principles can be gleaned from your experience? Second, how do
you see the Web of the future evolving? What steps must be
taken to ensure that the Web continues to meet the desires and
needs of future generations? I understand that the World Wide
Web Consortium is developing what is called the Semantic Web or
the next generation of data integration on the Web. And you
have mobile Web initiative to make access for mobile devices as
simple, easy, and convenient as it is from desktop computers
around the world that we are now compelled to stir up, I think,
unfortunately for hours on end.
Third, we addressed the question of how we ensure that the
digital future of the Internet is a robust one enjoyed by all
people. I support the consortium schools, the true World Wide
Web whose benefits are available to all people regardless of
language, culture, location, network infrastructure, physical
or mental ability. Providing all Americans access to the best
telecommunications network and services has been a driving
principle of the telecommunications policy since enactment of
the Telecommunications Act in 1934. It will remain so, and I
know that you, Mr. Chairman, this committee and this
subcommittee, will be working very hard on that matter to see
to it that those thoughts are realized.
Once again, I thank you, Mr. Chairman, for having this
hearing. We are honored to have this distinguished witness
before us today, and I look forward to his testimony. And I
thank you again.
Mr. Markey. I thank the gentleman. The gentleman from
Oregon, Mr. Walden.
Mr. Walden. Thank you, Mr. Chairman. I am going to waive an
opening statement and just extend greetings to our witness and
look forward to questions.
Mr. Markey. The gentleman from Pennsylvania, Mr. Doyle.
OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA
Mr. Doyle. Thank you, Mr. Chairman. I also am pleased to
have Sir Berners-Lee here today. The Internet and the Web in
particular is the pet cause or scapegoat of practically
everyone who comes before our subcommittee these days. I think
it is a great idea to have our committee go to the father of
the Web and hear what he has to say before we get too much
deeper into these issues. I believe that the Internet has the
potential to give everyone an equal platform to report about
and opine on the goings on around them. An open and free
Internet could be considered the first truly accessible tool to
make the spirit of the first amendment come alive for everyone
in the country, but without an Internet available to all that
guarantees fast speeds to anyone's content that potential is
just a promise.
The reality of the Internet today for most Americans is not
really comparable to its potential. The reality that the FCC
considers 200 kilobits as broadband, a speed so inadequate that
even video optimized for slower connections like that provided
by YouTube requires 500 kilobits, 150 percent faster than 200
kilobits to run in real time. The reality is that broadband
isn't available even at those low speeds to tens of millions of
Americans. The Web is a valuable, perhaps essential tool, for
expanding and enriching public debate in our country. It has
already greatly enhanced the Nation's discourse on public
affairs. But until it is as pervasive as broadcast media and
newspapers, and until new Web sites truly compete with those
traditional media outlets and the Web sites they control the
Web's existence should not be used to justify media
consolidation, nor should it be held up as the gold standard of
openness by the same people who want to restrict information
and act as gatekeepers.
I am interested in what Sir Berners-Lee has to say about
these issues, but I would also appreciate hearing the view on
the Internet and Web policy matters from 30,000 feet up, a
broader view of what we might otherwise drill down to in the
subcommittee. Mr. Chairman, I thank you for holding this
hearing today, and I yield back the balance of my time.
Mr. Markey. I thank the gentleman. The gentleman from
Florida, Mr. Stearns.
OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Stearns. Mr. Chairman, thank you very much. I am
delighted to be here. When you read the Time magazine article
about him and you realize not only was he a great discoverer of
this new technology but he was almost altruistic in his desire
because he wasn't a person that ran out and tried to make a lot
of money, and he worked for a not-for-profit organization and
was behind the scenes, and in many ways represents this
philanthropic way that he wanted to help the world, and he did
so indeed.
According to a December 2006 survey by the Pew Internet in
American Life Project, my colleagues, 70 percent of American
adults use the Internet. That currently represents just under
150 million people. Of those, 91 percent send or read e-mail,
80 percent look for health or medical information, 71 percent
use the Internet to buy a product, 67 percent went online to
get news, and now almost 45 percent use it for online banking.
When you look at the statistics back from the March, 2000 from
the same organization, you see how far we have come.
And I guess the question all of us want to ask him, what
does he see for the future? What does he see for the future in
health care? How could the Internet help us there? Education,
scientific research, public safety, protection of children,
there is probably a host of new areas that he could provide for
us. Like in my State there is online health records. Take the
Mayo Clinic in Jacksonville, Florida. Thanks to online health
records my constituents in Florida can see any of the 310
physicians and benefit from a Mayo wide electronic record. All
providers all have access to the same comprehensive and current
medical history, lab results, pharmacy records and radiology
images.
Errors and wasteful duplication are avoided and quality
obviously is enhanced. Now this is just one example of how the
future of the Internet will improve our lives, and so it is
clear today that this individual can give us remarkable insight
from his perspective for what we can do for health care,
education, as I mentioned, and others. I want to thank you, Mr.
Chairman, for holding this hearing. I think it is a delight for
all of us to see this individual because we have heard so much
about him, so I compliment you for bringing him to start this
session in the 110th Congress, and welcome to our witness.
Mr. Markey. I thank the gentleman very much. The gentlelady
from California, Ms. Harman.
OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Harman. Thank you, Mr. Chairman. Congratulations on
resuming the chairmanship. I am delighted to be a member of
this subcommittee. Fifty years ago a computer filled an entire
room, and processors performed at less than 1/1000ths of the
speed they do today. Our witness, with a twinkle in his
mother's eye or a very little boy, and the information
technology society of the 21st century was not even the subject
of scientists' wildest speculations. We have come an amazingly
long way. But the information technology revolution is not
over. Fifty years from now our world and our society will
likely look radically different.
We have been bad predictors of technological change. In
1899, Charles Doole, the Commissioner of the U.S. Patent
Office, reportedly said everything that can be invented has
been invented. How wrong he was, and I have no doubt that today
in a classroom somewhere in America a young, female IT genius
is discovering the secrets of the computer that will lead to
inconceivable inventions. Our challenge as policymakers is to
try to assure that the innovation that now defines the American
economy is available to as many people as possible world wide,
something that many of the speakers earlier this morning have
addressed, but also that it improves lives and helps us solve
the world's most intractable problems.
One big problem yet to be solved is the need for public
safety and intelligence agencies to benefit from the
information technology advances we enjoy as private citizens.
The 9/11 Commission reported that before the World Trade Center
and Pentagon attacks, the FBI's outdated and outmoded computer
system prevented agents from finding and communicating
information about the hijackers. Today, first responders do not
have voice and data communication systems to coordinate
emergency responses. These are grave technological liabilities
unfitting of our information culture and something that this
subcommittee must help resolve.
But there is also a flip side to this. Not only do we need
to get information to those who would keep us safe, but we also
need to think about how to prevent information from getting to
people who are radicalized by it and who learn to make bombs
and become terrorists from surfing the Web. So it is a very,
very tough problem, one this committee will have to think about
and no witness so far as I know is more imaginative and more
qualified to give us a basis for proceeding than the witness
before us today. So I look forward to the testimony. And,
again, Mr. Chairman, I am very proud to serve under your
leadership. I yield back.
Mr. Markey. I thank the gentlelady very much. It was 20
years ago this month that I became chairman of the subcommittee
for the first time so it is ancient history. The gentlelady
from California, Mrs. Bono.
Mrs. Bono. Thank you, Mr. Chairman. I'm happy to be here
also. I will waive on my opening statement and just welcome our
panelist. Thank you.
Mr. Markey. The gentleman from Texas, Mr. Green.
Mr. Green. Thank you, Mr. Chairman. I would ask that my
full statement be placed in the record.
Mr. Markey. Without objection. The gentleman from Texas.
OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Green. I would like to welcome Sir Berners-Lee because
of the success--I come from an area in Houston, and it is an
underserved area and so my interest has always been more
expansion of the World Wide Web including the eRate program and
limiting the risk of problems on the Internet like spam,
identity theft and fraud. But I have to admit most of my
staffers in my office cannot imagine 10 or 15 years ago doing
what we do today without the Internet and the research
capabilities that we have, congressional research service that
instead of going to the library and pick up a book now it is
all right at the desk, and it is amazing.
Like my colleague from California, I know somebody much
younger than you and I are probably developing something, and
we will be surprised 10, 15, or 20 years from now. So welcome,
and I am glad you are here.
Mr. Markey. The gentleman from Indiana, Mr. Hill.
OPENING STATEMENT OF HON. BARON P. HILL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF INDIANA
Mr. Hill. Thank you, Mr. Chairman. I feel like I am back in
high school again in my German class for the first day. I am a
new member of the committee and anxious to learn all the
intricacies of telecommunications, in particular the World Wide
Web. And, Mr. Chairman, I would echo all the remarks that have
already been afforded to you. It is a privilege and a pleasure
for me to be on this committee and you, as the subcommittee
chairman. Mr. Chairman, I appreciate you scheduling this
hearing. And, Sir Berners-Lee, I appreciate you taking the time
to appear before us today.
Technology has changed all of our lives. In some ways it
has made it easier to stay in touch through cell phones,
wireless calendars and e-mail. In other ways, technology has
made life more difficult through cell phones, wireless
calendars, and e-mail. And, Sir Berners-Lee, you are to blame
for all of it. Conducting research, being able to test drive
music, and most importantly stay in touch with loved ones are
all examples of how our lives have improved through technology.
However, one of the most important aspects of technology is not
what is available but who has access to the latest innovations.
The only way the World Wide Web and all of the innovations that
have stemmed from its invention has been able to succeed is
through consumer access and use.
It is important to remember that we have to concentrate on
serving all consumers including those in rural America, and I
live in rural America in southern Indiana with all these
wonderful services. Thank you, Mr. Chairman, for holding this
hearing, which I know is only the first in a comprehensive
series of hearings that will fully investigate these issues. I
yield back the remainder of my time.
Mr. Markey. I thank the gentleman. I don't see any other
Members at this time so any other statements will be included
in the record at this time.
[The prepared statement of Mr. Towns follows:]
Prepared Statement of Hon. Edolphus Towns, a Representative in Congress
from the State of New York
Thank you, Mr. Chairman. I am very pleased that the
subcommittee is holding this hearing. It is always interesting
to try to understand how science fiction becomes reality. I
would also like to thank you for inviting Sir Berners-Lee. I am
heartened that he has chosen to help us all reap the benefits
of what he creates, and I am interested to see if he can
illuminate some of the pitfalls we can avoid.
I applaud the goals of his new effort, the World Wide Web
Consortium. Their ideas for standards, guidelines, development,
and education will be invaluable as we move on to new and
better technologies and continue to see the Web grow. In
addition, I hope his dedication inspires more of our children
to go into academia.
Finally, I hope he can show us how we can make sure all our
constituents benefit as we move into the digital future. They
want to know that they can still keep some of their information
private, that they can protect their children, that the Web
will be available to everyone, and that their lives will be
easier and more productive than ever. We still have a long way
to go here in the United States and I am grateful that Sir
Berners-Lee has come to help us.
Thank you and I yield back the balance of my time.
----------
Mr. Markey. We will turn to our witness, Sir Timothy
Berners-Lee, who coined the term World Wide Web, wrote the
first World Wide Web server, authored the first version of the
hypertext markup language which evolved into the primary
publishing format for the Web. In 1994, Sir Tim founded the
World Wide Web Consortium, and in 2004 he was made a Knight
Commander of the Order of the British Empire by Queen Elizabeth
II, but in fact he has been a Knight for the world in providing
this incredible ability to communicate. It is an honor to have
you with us today. Please when you feel comfortable begin your
testimony.
STATEMENT OF SIR TIMOTHY BERNERS-LEE, MASSACHUSETTS INSTITUTE
OF TECHNOLOGY
Mr. Berners-Lee. Chairman Markey, Ranking Member Upton,
members of the committee, the honor is truly mine to be here. I
am very honored to be invited, and I will do what I can to
answer some of these questions at least to set the ground work
to put before us what the things are I feel most important
about the Web on which we should base its future. So I am here
as an engineer. Engineers define the protocols by which
computers talk to each other. You are legislators. Legislators
can define laws, protocols, constraints on the way human beings
communicate.
The Web is not just an engineering construction. The Web is
really a web of people. When something happens on the Web like
something new takes off what happens is a very intricate
connection between the little piece of new technology like blog
software and a whole social phenomenon of interacting people.
So really the Web as a whole is humanity connected as connected
by the Internet, and so it is very important that the
constraints imposed by the technology and the constraints
imposed by the legislation work together harmoniously to
provide the very best we can possibly do. So it is in that
spirit that I come here.
I must say that although I have various hats, I wear none
of them. I do not speak for the World Wide Web Consortium or
any of its members or for MIT. Anything I express here is
purely my own personal viewpoint. I would also like to point
out that although I did invent the Web, I had the benefit of
doing that and building on the benefit of the Internet, which
had been invented some 20 years earlier, and in fact the e-
mail, when you get e-mail on your BlackBerry, you have other
people to blame for that.
So what I will attempt to do then is explain what I think
is most important, explain, if you like, what is essential
about the Web which makes it work which gives it the properties
which allow all these exciting things to happen, and which
therefore are those things which we should take away and make
sure that we preserve as we develop the Web. So then I will go
into a few specific directions in which I hope that the Web
will progress. I don't as a rule try to predict the future. I
do, however, express my hopes about the things which I think
will happen. It is amazing how all the creative people out
there will then take hopes and turn them into reality.
I will conclude by going back to some of the basic
principles upon which we must depend as we go on and create new
things like the Web and new things built on top of the Web. So
what is essential about the Web? I built the Web personally out
of frustration. It wasn't my job to build the Web. I had
another job to do but I needed the Web. I was working in a very
large European physics lab, CERN. There were a lot of systems
which contained information, documentation systems. They were
all different. You had to go to different computers. You had to
use different software programs to get different pieces of
information. Often you had to talk to different experts. The
whole thing was very frustrating.
Wouldn't it have been nice if all those pieces of
information were in the same system? Now I had seen a lot of
people decide that and build the big system to end all systems,
and all these attempts, certainly the ones I watched at CERN,
were failures. They failed to include everybody and they failed
to include everybody because they insisted on something. They
insisted sometimes that you would use a particular computer.
Sometimes you would use a particular software by a particular
company or you would store your documents in a particular
format. You would use a Mac or a PC other than a Mac to prepare
your data. Everything you did had to be done in English when in
fact people at the lab came from all over the world and spoke
all kinds of different languages.
So it was clear to me, first of all, that in fact we could
keep all these systems working but surely we could invent some
imaginary system. The Web, if you like, is an imaginary
program. We were imagining that all these things are in one
program but in fact we are keeping them in all different ones.
If you like, the Web is a white sheet that we are holding up
and all these different systems are projected onto it.
What was clear was the sheet had to be perfectly white, not
have any particular structure. The Web itself could not insist
that people organize their data in a particular fashion in a
tree or in a table, it couldn't insist they use particular
technology. It had to work with people using any sort of
computer systems. So the most important principle of the Web is
this universality, the universality of dependence of hardware
and software and dependence of what culture somebody comes from
as well as what language they speak. One of the nice things
that has come out of the Web is one of the technologies really
where people with disabilities have more power than any other
technology because information can be presented in lots of
different ways depending on the abilities of the person who is
perceiving it.
So there is excitement there about that dimension of
universality so it is a universal space. The important thing is
that anything should be able to link to anything. Compared to a
lot of transportation systems, mail systems, telephone systems
where you can telephone across the world all these things make
the world a smaller place, but the hypertext link, the thing
that you click on that takes you from one document to another,
has this very interesting property. Every document, every piece
of information has what we call URI, the thing that starts http
normally. That http, whatever it is, may be long and
complicated and horrible looking but it identifies globally
without any other context precisely a piece of information.
And when I am creating a hypertext document, for example,
if I am writing a Web blog, I can make a link. When I put that
link and I put a URI, and it can be a link to anywhere that you
or I can be to anything. So that allows me to point out a
relationship between two things where no previous relationship
had been anticipated. That is a really important thing to
happen when resolving problems, to spot those relationships and
to be able to represent things, those relationships. Anything
can connect to anything. Anybody can publish a Web page. It is
very, very cheap to do so. When they do so, they obviously are
bound by the laws of the jurisdiction in which they live but
they should not be bound by the technology. The technology
should not force them to write in a particular style, to write
with a particular policy in a particular language, and so on.
So the World Wide Web is universal. It is an enabler. It is not
there to constrain.
So that is the most important part of it is universality.
In practice the reason that it has actually taken off, the
reason that so many things have been developed on top of it the
whole part of that is the fact that the standards, the open
standards on which it is based, the standards which dictate how
computers talk to each other when you click on a link and your
computer goes off to get a piece of information from a Web
server somewhere, those standards which the person who wrote
those parameters to determine how the computers talked to each
other are royalty free. That has been very important. It was a
given and is relevant to the Internet.
The people who came before me and developed things like the
file transfer protocol and the e-mail protocols never dreamt of
trying to patent them and charge fees for them. When the Web
came and this explosion occurred and at the same time change in
acceptable use allowed commercial use of the net. We have seen
from the amount of spam that you probably get in your own
mailboxes there are huge commercial incentives out there. When
there are those huge commercial incentives there is a lot of
money around there is a temptation for people to say let us see
if we can get some money out of the infrastructure. Now the Web
took off in all its glory with all the diversity of things out
there which have happened because there was a royalty free
infrastructure. There was another system called the Gopher from
Minnesota, that came from the University of Minnesota. The
rumor went around that it might not be, might not be royalty
free in the long run. The people that were developing it in
their garage dropped the whole system like a hot potato because
they didn't want to work for the University of Minnesota for
free on the weekends.
People working for large companies were told by their
lawyers not to read a single part of the code or the specs,
don't go near it. At that point people came to me and said what
is the story with the Web so I managed to get a declaration by
CERN that CERN would not ask for royalties for the technology,
and all the companies and individuals that come together on the
World Wide Web Consortium through the World Wide Consortium's
patent policy agree, progressively agree, to put their cards on
the table and to agree that when we have produced the standard
nobody will be charging royalties for it. That is very
important basis, something that is important because the World
Wide Web is not important for itself. It is important for what
is built on top of it.
That brings me to another important principle. That is the
separation of the layers. When I designed the World Wide Web, I
wrote two programs. I wrote a program to be the browser and a
program to be the server, and I distributed them over the
Internet. Now these programs wherever somebody installed them
would just talk to each other across the Internet. The Internet
itself is a communication medium which allows two programs to
talk to each other. It doesn't require anything of what those
programs are about or trying to do. It is as universal itself
as possible so the provision of the Internet service is
sometimes represented as an hourglass. Above the neck of the
hourglass are all the things which use the facility of
communication which is provided by the Internet, and one of
those is the World Wide Web, another is e-mail, and underneath
are all kinds of ways in which technology is supporting the
transfer of information, and these connect to the very simple
interface, just a stream of 1s and zeros, which that is the
service that is provided.
So I have had the luxury of developing the World Wide Web
really without having to worry very much about how those are
sent, and during the time that this has happened I have gone
from using a 300 board connection on one of those telephone
couplers to a 3 million board connection, so that is a 10,000
factor. So the technology underneath this has tremendously
increased in terms of speed and functionality, and the Web
technology had happened on top. So the Web technology is also
designed just to be a foundation. Foundation technology is
something which tries to be very clean, very general purpose.
It tries to get out of the way and allow other people because
what is the most important thing about the future of the Web,
what is the most important application that is going to be
developed on the Web. It is something which has been developed
by somebody, yes, quite likely some woman who is dreaming about
something or frustrated with something, somebody somewhere, and
they will develop this thing as a set of Web sites, as a new
protocol, and they will develop it using the Web
infrastructure, and they won't have to come to me to ask me
whether we can solve the World Wide Web construction mode to
change the Web architecture. They will just be able to use it,
and we will use the Internet architecture, and all these things
will evolve independently.
So the separation of layers really has been a key to the
growth. This growth would not have happened if one laboratory
had been responsible for developing the whole thing top to
bottom. Okay. So the future, which directions are we going? And
there are lots, and I can only mention a few. One of them is
date integration. The documents on a typical computer, you can
think of some of them as data and some of them as documents.
The documents, the messages you can put on the Web and people
can read. The data, the spreadsheets, the calendars, and so on,
you can see perhaps documents representing them on the Web but
you can't get at the data in such a way that you can put it
into a spreadsheet. You can pull out all the information about
the weather, about health care information, and combine it
together and manipulate it. So there is a serious, if you like,
whole half of the Web, of the goal of the Web, was this data.
We succeeded with the documents. We want to do it with
data, and some of the goals that we have include, for example,
all the applications on my desktop I should be able to connect
things together. I should be able to take my photographs and
drop them onto my calendar and see where in time they happened
and do the same thing with my bank statements. Very
importantly, in the enterprise all the applications and the
enterprise tend to be stove piped at the moment and it is a
great impediment to the management of an enterprise that you
don't have a degradation between these different applications.
But more globally applications like disaster management I think
would very much be enabled by this web of data, the thing that
we call the Semantic Web, which will allow what data is
available as it becomes available no matter what sudden
disaster occurs, no matter what new eventuality, what new
disease arrives, what new earthquake or tsunami occurs, what
data we have should be available so that it can be re-used, so
it can be linked together. A lot of people see the Semantic Web
as being a great boon for health care. They see it being a
great boon for drug discovery. The drug discovery business is
very much driven by huge amounts of very complex data, and we
have of course very dire needs to find out things like drugs
for cancer, drugs for AIDS. There is a huge amount of
information. Some of it is genomics, some of it is proteomics,
some of it is clinical trials. All these at the moment are
stove pipes. To be functional as a human race and solving these
problems, we need the Semantic Web technology to allow all
these things to be connected together.
So data integration is one area in which we expect the Web
to explode. Another area which is exploding is the diversity of
devices. You have noticed all these little things. Actually you
might find that it is quite difficult to access the Web on
these little devices, but we have the mobile initiative and
consortium, which is trying to make that much easier to try to
show there are ways of getting the same information in a way
that could be accessed with a huge screen or with a small
device. Also, one of the hopes there is that as these small
devices come in very much cheaper forms, these might be forms
that you have, they are coming out very much cheaper, cell
phones with screens that can be used for browsing the Web so
the hope is that this will increase the penetration of Web
access for things like health care, for example, in poorer
areas and also in the developing world.
As the development of devices continues I am absolutely
certain that everything hasn't been invented. Everything that
could be invented has not been invented. We can imagine very
soon--have you noticed how things are being covered with
pixels, covered with displays. It hasn't happened to this room
yet but if you go to Times Square everything is covered with
digital displays you can place up on the sign. Things will be
covered to a very long extent with this place, if I don't have
a large display on this phone, if my phone can communicate with
a display that I am next to as I walk into my hotel room then I
will be able to continue doing what I was doing on the phone
except with this very large display. That is what we are
calling ubiquitous where it points to a time where really what
we are doing, our address book is a virtual thing, something
which is out there on the Web, and we use different devices to
see it but it isn't something which we think is connected with
a physical device anymore. Just as the information is now in
this space then the Web will be a space which contains the
things which we now associate with physical devices. Does that
indicate that I should stop?
Mr. Markey. Not at all. We go by bells, a system of bells
here, in the Congress and those bells which are ringing right
now are telling us that there is a roll call on the House floor
that we will have to be there in 15 minutes, but you can
continue to proceed. When it rings the second time, it means
that there is more than one roll call on the floor which we
will have to recess at some point.
Mr. Berners-Lee. As it happens, I have reached my
conclusion. One of the amazing things about the Web is that
things happen which we didn't predict. When somebody creates a
new phenomenon like a blog, like Wikipedia, they don't know
absolutely that it will take off and become a world wide
phenomenon. Many, many things don't, of course, and we don't
hear about them. Many Web sites start, fizzle out, and just
don't become popular. Some do. So when people design things,
they design something in a small, those things which are
successful have this large effect. They produce a large
hopefully beneficial effect. How are we going to produce new
Web technology and make sure these are beneficial? There are
two ways. One is I think we actually have to be aware of this
difference between the microscopic rules that govern people and
govern computers, this relationship between the microscopic and
the macroscopic phenomenon, so we are calling it Web science.
This awareness of the fact that the Web is now a huge thing.
There are more Web pages than people. The world is a large
place. It contains many people. The brain is a complicated
thing. It contains many neurons. We study those as complex
things, and they are complex things. They do things which you
couldn't imagine by looking at the individual elements of them.
The Web does things which you can't imagine by just looking
at the individual elements unless you study it as a Web
science. So we are calling that Web science--one of the things
that we do then is we try to get people together across
disciplines because this is not just computers. It is people.
They are governed by laws. They are governed by psychology and
incentives. They are governed by economics. There are a lot of
different ways and different fields which need to look at this,
as well as computer science and network engineering. So that we
call Web science. We are not done. We are just starting. We
really, I think, will not see a slowing down now that we have
succeeded on the Web. We will see a speeding up. I am afraid it
is going to continue. It is not going to get any easier to keep
up.
What is the second way that we make sure that we do things
right? Well, we use these core values, I guess just as you do
creating laws. You base them on core values. You have a rule of
thumb that if we stick to certain core values on a microscopic
scale good things will happen on a macroscopic scale. If we
stick to the Golden Rule everybody should be happy. So what we
have seen some of these principles for the Web are those of
universality, keeping the Web universal independent of
hardware, independent of software, independent of who happens
to be your Internet service provider at the moment, the present
instance in time, independent of language, independent of
culture, independent of disabilities, so the universality is a
very important thing.
We have seen the layering, keeping--the development of the
Internet is a transport of bits, 1s and 0s, independent of
things which are built like the Web, like e-mail, like now some
things like Second Life all built on top of the Internet and
making sure that the Web in turn itself is the blank sheet, the
blank canvas, something which does not constrain the innovation
which is just around the corner which somebody is itching to do
somewhere. And I suppose most importantly we realize that this
thing does not belong to anybody now. It was based on some
ideas that I had. I threw them out and they were taken up by
hundreds, thousands and millions of people.
It started in the United States. The Internet was started
mainly with funding but it spread and it is all over the world.
The Internet and the Web, these two layers are now fundamental
infrastructure for the global society. It is very important as
we develop them we make sure that they don't become controlled
by any one company or for that matter for any one country.
Chairman Markey, Ranking Member Upton, members of the
committee, that is the most important thing I suppose I have to
say. I am very anxious to hear any questions you might have and
to help you in any way in understanding and helping manage
working together to manage this in the future. I am very
grateful for the honor bestowed on me by being invited.
[The prepared statement of Mr. Berners-Lee appears at the
conclusion of the hearing.]
Mr. Markey. Thank you. Let me announce to the Members that
after the 15-minute vote followed by a 5-minute vote, we are
going to come back and continue the hearing for as long as
Members do have questions of this great man. Let me recognize
the gentleman from Michigan right now for any questions you
might have. We can stay here for another 5 minutes or so. So,
Fred, if you would like to ask some questions.
Mr. Upton. Thank you. I enjoyed the testimony, and we all
have our personal experiences of how this has impacted us and
for the most part it has been very, very positive. As we look
back at history for me, for example, I visit a grade school or
a school virtually every week and I can remember 10, 12 years
ago I would ask how many people used the Internet and even
among a second or third grade class and just a few kids maybe.
Now of course every hand is up. And I often follow up with
another question how many of you have seen something that is
probably inappropriate, particularly for these youngsters, and
again every hand including mine goes up as well.
And I guess the question that I have, we have a little bit
of a double-edged sword. There is dangers and there is great
advantages in many, many ways, families being able to
communicate with their sons and daughters serving overseas, all
different things. I have the world's largest appliance
manufacturer headquartered in my district, Whirlpool, and when
I go through their lab and I see their new devices in terms of
tracking food that is in there, recipes, turning on ovens, and
then all these different things that are quite revolutionary
from where we were 5 or 6 years ago, but what are some of the
things that we should be looking at as we look at the future in
terms of privacy, in terms of things that you might want
someone not to be able to connect to in terms of pornography or
other issues? How do we handle some of those issues as we look
to the future?
Mr. Berners-Lee. Well, this is obviously a huge topic, and
we could talk for hours about it, but I suppose fundamentally
the thing to remember is that every powerful tool can be used
for good or evil and it can be used by people who are doing
good things and people who are doing bad things. And to first
order the job of the Web is to be that wide slate, and of
course everybody who does illegal things, fraudulent things,
for example, on the Internet is sitting there in a chair in
some jurisdiction where they are subject to laws and they are
breaking those laws, and those laws apply whether things happen
over the Internet or not.
There are things like child pornography which are illegal,
always have been illegal and will continue to be illegal.
Mr. Upton. And the trouble is that even though we have some
pretty tough laws here in this country and the UK and other
places often these relocate some place else where you don't
have that--they are international and we don't have the same
type of law enforcement or standards, whatever you want to call
it, where they are able to skirt those laws.
Mr. Berners-Lee. Indeed, of course I hope that the
committee will always be aware of the fact that there are other
committees in other parts of the world and in fact the
countries working together in general to solve things such as
spam, for example, is very important. So the Web Consortium is
an international group of people. The Internet task force is an
international group of people. And there is a lot of discussion
between governments about this but clearly when you have a
difference between jurisdictions there are issues.
There are some important things which technology can help
with. I suppose one of the general rules is technology should
help make it easy to do the right thing so, for example, when
looking at copyright legislation, if you find a picture out
there on the Web and you want to do the right thing, you would
like to use it in a report but you are not sure whether you
can, one of the important things that is happening now is data
about whether what the licensing terms are on that picture is
more and more being put into the picture itself or put into the
surrounding documents, automatic tools. Systems like the
creative licenses allowing people to do the right thing so
before trying to create systems which prevent people from doing
bad things, which often is very, very difficult, putting
systems up there which allow people to do the right thing in
large part is very important.
An awareness of privacy, of course, is very important.
There is a huge amount of information out there on the global
Internet. What a lot of people didn't realize early on was
behind firewalls it is very properly guarded. And, in fact, a
lot of the most important data, the most valuable data for
companies or for Government agencies is the stuff which is kept
most secret. Some of the things which I hope to see in the
future include systems which are aware of the policies which
relate to the data and the information so that as the data is
moved around it can be--the machines can be aware of who is
supposed to be looking at getting it and also perhaps who is
supposed to be using it for what purpose. So as you track it,
for example, through a Government agency the system will be
able to keep track of which data came from where.
Mr. Markey. Thank you, Sir Tim. We are now going to take a
break for about I would say 20 minutes when the Members will be
reassembling here. But we will start again in approximately 20
minutes so the committee will take a brief recess.
[Recess.]
Mr. Markey. The committee will reconvene. I would ask Mr.
Berners-Lee if he could come back to the witness table and
welcome to a typical day in the United States Congress. People
say what is a typical day and of course it is a day where you
cannot predict anything which is going to occur, not unlike the
chaotic nature of the World Wide Web itself. Let me turn and
recognize the gentlelady from California, Mrs. Bono.
Mrs. Bono. Thank you, Mr. Chairman. And again I thank the
witness for being here and your testimony was great to hear. I
wish you would have had about 20 minutes longer to continue on.
As my colleague Fred Upton was asking, I think you closed with
basically what was a definition in my mind of DRM. My big
question is of course property rights, intellectual property,
on the Internet and how we protect it. You even cite in your
testimony Steve Jobs talking about DRM and the need to do away
with DRM, how it is a closed platform. We have seen podcasts
increase but the sale of music decrease. I was wondering if you
could elaborate a little bit further on this because in my
mind, I salute you and all you have done and the exchange of
ideas, but when somebody has a copyrighted piece of work
whether it is a song or a movie that translation into the Web
and the future to me is uncharted territory. Could you
elaborate a little bit further on where you see the world going
and how creators of content will be compensated in a world free
of DRM?
Mr. Berners-Lee. Well, first of all, what I said then was
allowing people to do the right thing is important. You can
allow people to do the right thing without DRM. You can write
down what the copyright situation is. You can make software
which will track whether or not you own this. And it won't stop
you but it will let you know that if you are playing music
which you shouldn't listen to or because you backed up somebody
else's machine and so you got access to it it will make it
clear--it will turn pink. If we promote technologies for the
method data for information about information, putting on the
licensing information, putting on the information about who has
got rights to it. If you go back to that Steve Jobs article he
points out a lot of issues with DRM, and I think some people
haven't thought about the problem of what happens when 20 years
on they are using totally different technologies, but I want to
go back and see my old LPs and some of my old LPs are vinyl,
and I can buy myself some sort of laser vinyl record player.
Some of them are CDs, which are completely, of course, DRM
free. So if you want to know what Steve points out the DRM free
world is a world of vinyl LPs or CDs.
Mrs. Bono. But is that not the equivalent of having a speed
limit but no enforcement of the speed limit? You could put
speed warning signs for the people and it is the same thing
with DRM. You can always tell people the right thing to do is
to not download this for free but without the enforcement
mechanism they still will.
Mr. Berners-Lee. What is the enforcement for a speed limit?
The speed limit enforcement mechanism is not that the car
grinds to a halt, right? It is not that you put your foot down
and suddenly your car refuses to move.
Mrs. Bono. It might be a great thing actually for my
teenager right now.
Mr. Berners-Lee. No. The enforcement for speeding is
probably--everybody knows that they are supposed to do. Under
some circumstances people will push the bounds. Other times
people will stay even further within the bounds.
But occasionally the cost of getting caught is
sufficiently great in the long term because the software leads
you to do the right thing and so it is not natural to do the
wrong thing because really the only thing which is going to
seriously affect the economy of people producing music is when
things happen on a large scale, and when things happen on a
large scale they are easy to be caught. Then it might be the
disincentive of punishment is sufficient. That sort of thing I
must say I am inclined to try to make software that allows you
to do the right thing first. I don't know, we haven't tried the
experiment of having something which is like the situation with
CDs and vinyl, which is DRM free, downloadable music. We don't
know how the public has reacted. We haven't seen what the
software looks like. We haven't seen what the user interface
looks like. We haven't seen what the record company profits
would look like, and so I think this is the sort of thing which
needs a lot of--I don't have myself a firm opinion as to
whether in fact we will be able to do it completely without
some form of DRM or not but I think we should try to make a
system which avoids, for example, encrypting things in ways
that they won't be able to be read in a few years time.
Mrs. Bono. I agree. That cross platform problem is a huge
problem for all of us. You have an iPod and now you can only
use iTunes and you can't move it over to your other devices is
a problem for me too. But my biggest fear too is in this new
business model what we are going to change is the content
creator now has to become a commercial agent that in order to
be paid for your song or your movie your song is now a ditty.
It is promoting a commercial product. And movies as we are
seeing anymore anyway are already doing that. So that is my
concern in the new world is how do we prevent that from
happening.
And Steve, with great respect to Steve Jobs, he is trying
to sell hardware first and foremost and not the content, and I
wonder if he would feel the same way about his patents being on
the Internet free of patent protection so that is my huge
concern. And I really appreciate what you have done and your
thoughts here and look forward to this beautiful future of the
World Wide Web, and I know it is going to be a great place for
content providers as well as hardware device makers in the
world, so thank you very much for being here.
Mr. Markey. The gentlelady's time has expired. The
gentlelady from California, Ms. Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman, again for having this
hearing, and thank you for your magnificent testimony. I hope
what I ask hasn't already been asked. One of the myths that the
big telecom firms like to perpetuate is that the Internet has
always been free from regulation and that net neutrality
legislation would be unprecedented regulation of the Internet.
It has really taken the whole issue of neutrality and kind of
twisted it into a pretzel. It is very curious to me. Now no one
knows better than you that from the inception of the Internet
until very recently the Internet was protected under FCC non-
discrimination rules which require telecommunication carriers
to take a hands-off approach to the Internet.
So my question is would you describe for us how these rules
impacted the evolution of the Web? I think that you more than
touched on it in your opening statement and how an absence of
non-discrimination rules going forward would impact the
development of the Web. That is my first question. And my
second question is that I am fascinated by your Semantic Web
that you spoke about in your testimony, and all of the
descriptions and where we need to arrive and what we don't have
now and the blending of information. My question is how will an
automated Semantic Web be able to distinguish between
legitimate and fraudulent or inaccurate and accurate content
and sources? So those are my two questions.
Mr. Berners-Lee. Both good questions. The first one, I can
only answer to a limited extent because I am not a legislator.
I haven't studied all the various possible types of
legislation, and so I can't talk about those in detail. I can
say that I feel that non-discriminatory Internet provision is
very important for society based on the World Wide Web. I think
that is very important. I think that the communication medium
is so important to society that we have to give it a special
treatment. We have in lots of other ways.
When I was growing up, I learned to understand that
interfering with Her Majesty's mail was an extremely serious
offense. Why? Because, well, the mails are what actually allows
the country to function as a country, it allows the state to
function as a state. And here there is protection of the fourth
estate--there is the protection of the freedom of speech.
Because we are only a society inasmuch as we are human beings
communicating, communication has always been held with a
special respect, and I think that is very important as the
Internet starts to becoming a dominating medium. So if there
were a choice, if there were a possibility that maybe a
compromise of these principles would maybe deliver a world in
which perhaps the markets, open markets, would still function
and perhaps open democracy would still function but it wasn't
absolutely clear, I would always be in favor of erring on the
side of keeping the medium to be the blank sheet of allowing me
to connect if I connect to the Internet to connect to whoever I
want, so I think that is very, very important. That was the
first question.
The Semantic Web, it is a good question how would you
decide what data on the Semantic Web to trust. How do you
decide what information on the Web to trust as it is? The
answer is in practice that you use other people as judges. When
you read a blog, you read one person's blog because you got
appointed from another person's blog. And every morning if you
log on and you have a set of blogs that you read that is a set
which you carefully nurture. You carefully nurture your
bookmarks because they are things which you trust and which
take you to places that you trust. The links provide this
function.
On the Semantic Web it is the same even though there is
data published by many places. All Semantic Web agents out
there, all the semantic programs that help people, all the
Semantic Web programs which try to look for disasters and alarm
situations will be taking data. Some of them will be taking
data only from fixed places. They will only be monitoring the
tsunami early warning indicators or they will only be looking
at the NASDAQ. They will be hooked up to specific feeds. Others
will roam around looking for data in general, then they will
come to tentative conclusions, and then they will present those
conclusions with as an appendix, by the way, this is where it
came from. So we are doing a lot of research on that. And the
lab at MIT is trying to make systems more sophisticated, trying
to show how transparent can you make a system, to what extent
can you make it policy aware. This, if you like, is an
extension of the solution that generally we found for things
like pornography on the Web. We found in general the solution
to this sort of thing is to allow people to label things, to
allow people to method data, information about information.
You asked about something taking data from the Semantic
Web. Well, somebody that has a child sitting at a terminal and
wants to protect that child can install software which will
filter the information coming to that child. There are all
kinds of commercial systems that you have a choice of them, you
have a choice of different white lists and black lists, so it
is demonstrated that information about information is very
powerful, allows us to provide where we need it a quality
stream of information, information with known quality
properties. And I think very parallel things will happen with
the Semantic Web but probably more sophisticated.
Ms. Eshoo. Thank you. Thank you, Mr. Chairman.
Mr. Markey. Thank you. The gentlelady's time has expired.
On net neutrality, the gentlelady has asked a question
about net neutrality, and we very much appreciate your views on
the subject. Just so that everyone on the committee can know
before the end of the year we are going to hear from all sides
on that issue so that everyone's perspective is heard and the
committee before it deliberates will have had access to it. Let
me now turn and recognize the gentleman from Florida, Mr.
Stearns.
Mr. Stearns. Thank you, Mr. Chairman. In your opening
statement, I was intrigued by some of the things you talked
about the future and you mentioned that digital displays will
be on the present, ubiquitous, I think is the word you used.
And I think what you are saying when you looked around this
room you said there will probably be some day----
Mr. Berners-Lee. I didn't say anything about this room.
Mr. Stearns. OK. I had the feeling that you would say that
in a home or in a work environment you would have, are you
talking about digitized high definition videos or are you
talking--give me your idea in the future what these digital
displays, you said they will cover large display areas and so
maybe you might just expand on that future concept.
Mr. Berners-Lee. I am sure the committee might have noticed
as I said in Times Square, when you go to Times Square it is no
longer covered in just neon signs. Neon signs are in a
minority. It is covered with digital displays like that,
different technologies, but these are getting cheaper, and so I
am a little concerned that perhaps there should be a protection
of neon signs for Times Square. But seriously there will be the
ability to put displays so that all of the taxi cab instead of
just the top becomes a moving digital display. So the question
I would send back perhaps just supposing that when you walk
into your office the walls are all capable of displaying
information and the desktop is all capable of displaying
information because it is not very expensive to do that.
Mr. Stearns. The entire desk.
Mr. Berners-Lee. Suppose the entire desk could turn into a
virtual----
Mr. Stearns. And you would just touch your desk and----
Mr. Berners-Lee. Then what would you find most powerful?
What would you really want to be able to do? How could you use
that? How would the desk know what to display? How would the
wall know what to display? Your phone happens to be in the
middle, for example, of going through a rather tedious exercise
of trying to book a return flight from Washington, DC, and the
phone, for example, imagine that the phone, it connects with
radio technology such as Blue Tooth to the desk and suppose it
determines that it is your desk, determines that it can trust
it with information and you are in a position that you can see
it, and instead of having to communicate on that little screen
it then will communicate by putting a map of the flight that it
is proposing, some pictures of the restaurants where it is
suggesting you are going to eat, and other related information
about your travel in a much larger format on the desk, on the
wall.
To do that, for that to happen, the flight that you are
booking has to break out of the phone device. It has to really
be in the abstract medium just as things are on the Web. It has
to be able to have--to the user it has to be able to have
independent existence. Lots of problems have to be solved in
between because you don't want the phone to put details of your
private condo up on the subway.
Mr. Stearns. So the machine would have to think in this
case and determine whether I have access or not.
Mr. Berners-Lee. Well, it turns out, yes, the machine has
to be aware of policies for information, what information could
be used.
Mr. Stearns. Now you sort of indicated that these devices
like this, there is a diversity of devices coming too.
Mr. Berners-Lee. Pretty much, yes.
Mr. Stearns. And what in your mind is diverse? I mean like
in this Treo I can get the Web, I can get my mail, I can get
telephone calls, I can get games, I can do all kinds of things.
Diversity of devices beyond this, is there something that you
imagine beyond this in terms of diverse devices?
Mr. Berners-Lee. Well, there are devices which, for
example, which are all screen and any interaction is gestural
and the future may be with cameras you will be able to simply
gesture without even touching.
Mr. Stearns. OK. So either voice activated or gesture or
your facial contact.
Mr. Berners-Lee. Maybe there will be wrist watch size
screens, maybe there will be--I like to have a 17-inch screen
in my backpack because I like to be able to really read stuff
when I sit down to read. People have different personal tastes
for what they want to carry around and how they want to use it.
You can see tablets of various sizes coming out so I think
there will be large diversity of devices of this sort of genre,
and also there will be new genres of devices that we haven't
thought of yet. Perhaps something you wear on your tie which
will project onto the person's seat in front of you in the
plane whether or not their aircraft was provided with a screen,
just hang up your handkerchief and project onto it from your
tie. I am just speculating.
Mr. Stearns. One thing you also mentioned the manipulation
of data in the future to take data from a software program and
throw it into an Excel sheet and things like that. I mean under
the Macintosh G4 you can take any photographs and put them on
greeting cards, you can put them on calendars, you can do all
kind of things. Is that the type of thing you were talking
about in terms of manipulation from software to software? Is
that what you meant? I wasn't clear on that.
Mr. Berners-Lee. The Semantic Web is about----
Mr. Stearns. How do you spell semantic?
Mr. Berners-Lee. S-e-m-a-n-t-i-c. I am sorry about the name
for it. It is not a very well-chosen word. I think World Wide
Web seemed to work but Semantic Web really hasn't, but that is
what we are calling it.
Mr. Stearns. OK.
Mr. Berners-Lee. It is about being able to connect through
from one application to another so for example, imagine that
there I am doing my taxes and I am looking at a bank statement,
and I do not know why I spent a few hundred dollars for that
point, is this an allowable expense. Now the bank statement
software only provides me with a traditional financial
analysis. However, there is a date there. The date actually
would fit on my calendar. If I take that data and try to drop
it on my calendar it just doesn't work. Suppose it did. Suppose
I would drop it on the calendar and so now the bank statements
are all up here in some form on my calendar. I still don't know
what I was doing on the 26th of March. So I take my roll of
film for my photos and I drop that and now I see $400 and then
I have all the pictures of these kids going around on the----
Mr. Stearns. Disney World.
Mr. Berners-Lee. Disney World, right.
Mr. Stearns. So you know.
Mr. Berners-Lee. And now, OK, that is not an allowable
expense.
Mr. Stearns. I see. OK.
Mr. Berners-Lee. So what I have done is I have gone from
the world of the financial world through the time dimension
into personal world of photographs in order to answer a
question, not to mention a scientist trying to figure out where
a new virus has come from.
Mr. Stearns. And, Mr. Chairman, a machine could probably do
that in the future, analyze, and said this is what you spent on
this day at this time because you throw all that information
together into that one application and it will tell you, and
that is what he is talking about in the future. Thank you.
Mr. Markey. The gentleman's time is expired. The gentleman
from Indiana, Mr. Hill.
Mr. Hill. Thank you, Mr. Chairman. In the last campaign
that we all had, and especially in my district, the issue of
health care came up every single day. I could tell you a
thousand stories about the problems people were having with the
cost of their health care. The one story I will recite is from
a jewelry store owner in Salem, Indiana. He is paying $1,000 a
month for his health insurance, he said, ``Baron, you know, if
it goes up any more, I have to drop my coverage.'' And I said,
``I get those kind of comments every single day of the
campaign.''
I don't know if you can answer this question or not but do
you see any World Wide Web supporting applications for health
care? We are grappling with this problem in Congress, and we
are trying to come up with solutions. And you are the inventor
of the World Wide Web. Is there some relief here that we can
provide customers or tell them about that you can creatively
come up with in your mind?
Mr. Berners-Lee. I would like to hope so but I think the
health care problem, I agree, is really important and very
difficult as well. I was discussing with people last week so
you ask whether there could be contribution from the Web to
this. Well, I must say to a certain extent there has been one
of the more gratifying stories from the early days of the Web
was from an ex-colleague from Europe took me out to lunch
because his son had been suffering from a very difficult to
diagnose condition. He had been given all kinds of treatments
by all kinds of doctors and different drugs which really
worsened this, and he ended up dropping out of school. And then
somebody had mentioned, oh, maybe he has hypoglycemia and so he
had gone to the Web and he found a Web page which says
hypoglycemia, the disease that doctors tend not to diagnose.
And he read all about it and he gave his son a test
personally, and he cured him by changing his diet within three
days. So in that case--so a lot of people are going to the Web
for health care information. This brings up of course the
question of whether how you know what information to trust, how
the public knows how to do that. I know there is a lot of use
of the Web for that. There are also a lot more ways in which I
think Web technology could be used. The patient care record is
very important. That has been outstanding in computing for
years. Colleagues of mine at MIT have been working on the idea
of the patient health care record for years since before the
Web. The complexity of it is of course it involves a lot of
policies, very important policies to who gets to see what
information under what circumstances, carrying information
around in a standard format which is what the Semantic Web
provides so that anybody can potentially read it not being
impeded by the fact that they have got their own software.
Meanwhile, if you take down the barriers from the different
types of software which exist currently with patient records so
that if you have something, if you are wearing something which
contains your patient record and you have an accident in some
part of the country, some strange part of the country that any
EMT can then pick up that information and find out your blood
type and so on. As you break down those barriers then you have
to erect artificial careful barriers of privacy,
confidentiality, of course. And so doing that is very important
work. I think it is work we have to do. I think it is possible
so I think it is possible to make the patient care system more
sophisticated.
I think the problem of dividing up a doctor's time between
patients is something which personal one on one time with
doctors is not something which the Web will necessarily solve
so to use the technology where the technology is appropriate to
use it for the mechanical things to make sure the computer can
do the things which it can do and people like doctors and
nurses are doing the things that only doctors and nurses can
do.
Mr. Hill. You don't see any applications that might be
available to people to try to acquire some kind of health care.
I understand that there is all kinds of technologies in place
on the Web that people can refer to for treatment, but this
whole issue of the cost of health care is becoming a problem.
Do you see any applications that the World Wide Web would be
able to offer to give people some relief?
Mr. Berners-Lee. Well, to cut down on the cost of health
care, for example, technology has been used for remote presence
and generally when a remote expert, a consultant is called in,
obviously it cuts down the cost if the doctor doesn't have to
travel. It cuts down on the doctor's time if the doctor can be
presented with all the information about the patient including
perhaps videos of previous consultants videos and pictures from
operations, and so on. So giving the doctor access to all the
data which they legally have about the patient and all the
relevant data also from the sum of medical knowledge about some
other cases giving the doctor that quickly and easily and
intuitively is obviously something which is going to make
health care much more efficient. We have to make it more
efficient if we are going to make it affordable for people and
also pay doctors a living wage.
Mr. Markey. The gentleman's time has expired. The gentleman
from Oregon, Mr. Walden.
Mr. Walden. Thank you, Mr. Chairman. Sir, I really enjoyed
your testimony this morning and have been looking forward to
asking a few questions. This issue of the Semantic Web is
intriguing to me and what potential is out there for it. We
were just talking here briefly that we sort of do that with
dogs now. You plant a chip in an ISO standard at least for
identification purposes, and it seems to me that it wouldn't be
that hard if we can do that for our dogs and our pets to figure
out how we could not necessarily implant a chip but certainly
carry those data with us as we go around and yet have privacy
so I am intrigued by that.
I want to ask you a question. I know this will come across
probably as weird but do you see a potential being an MIT
engineer and a great thinker and visionary where you can ever
move not just data but matter?
Mr. Berners-Lee. No. That is for somebody else to see. I
don't know how to do that.
Mr. Walden. I just wondered. You know, these things we
chuckle about now, I bet 50 years ago if somebody had said you
will carry a phone in your pocket and everything will be
connected and we would have said never.
Mr. Markey. Actually Dick Tracy had that two way wrist
radio.
Mr. Walden. He did, and we laughed about it. Well, I was
too young. Of course you would have laughed about it. What are
you working on now?
Mr. Berners-Lee. In the consortium two hats. The consortium
is working on the mobile Web, making the Web so that it can
work on mobile devices and as part of that hopefully cheaper
devices which can be used in developing countries and poor
areas. The Semantic Web clearly. We are also still working on
HTML. HTML still needs work. There are things that need to be
in there that our Web site developers feel that there are a few
things that need to be done there, and every now and again we
look at even http. So there are new graphic formats and so on.
There are other languages for user interface, which are always
interesting.
So the Web Consortium is in some cases pushing for the
bounds, the Web surfaces technology, for example, which allows
enterprise distributor systems to be built and companies to
communicate with each other and export services, information
services. We are active in lots of different sorts of areas in
some cases really leading, having a vision, seeing that it
could be different and pushing and then leading--getting the
standards out there, put out there by a few other people who
see the vision and get the twinkle in their eye and are
prepared to invest up front because they realize what it could
be like when everybody does it.
Other times there is a market need for something like the
privacy technology which allows--to allow people to set their
browser up to test the privacy policy of a Web site just
because, if you like, a hygiene issue because people want to go
shopping. They don't want to have to worry about privacy and so
on. That is really developed in a very different spirit. We
have lots of different activities in the consortium. MIT then
looking particularly at the Semantic Web, looking at user
interfaces at the Semantic Web. If there is all this data out
there and you have somebody whether it is a scientist or a
government agent or a person at home, how do you give them the
best access to all this. What is the equivalent of a
spreadsheet or whatever it is that you need to browse through
all this data and analyze it and connect things which you never
connected before.
And as I mentioned before, the policy aware Web building
systems which are aware of the policy around data and software
which is responsible, software which allows people to be
responsible.
Mr. Walden. That leads to an issue we have dealt with a lot
in this subcommittee and in the full committee, things like
spyware and popup ads and those sorts of things, and how as a
consumer I can have more control over what comes into my
computer, and it seems like every time we build a firewall or
do something to get at that the smarter people figure out how
to get around whatever was created to stop it. Do you look at
those issues as well or are those just sort of left to the
private sector to figure out?
Mr. Berners-Lee. Well, I have to admit that the World Wide
Web Consortium felt for a long time that most of that was e-
mail and where http were not--SMTP is the mail protocol. Other
people, the Internet engineering task force does that, the e-
mail. But then when you look at the way a lot of the fishing
attacks occurs because the e-mail which is an HTML mail and
what the e-mail does is it pretends to be a link to one place
when the user hovers over it. Now they don't hover long enough
to realize that actually it is not to the bank, it is linked to
bank of dot--something in Nigeria, so the fact that it is HTML
and the fact that it has a link is part of the security problem
there. So now the Web Consortium has an activity for
specifically looking at security of browsers.
I have always felt this should be a tactical problem. It
may be when we send e-mail we won't be so anonymous but the e-
mail system was put together, it was designed originally for an
environment where everybody was friends talking to each other,
very academic environment in which messages were forwarded from
one machine to another for the public good without worrying
really about who was going to pay for it because the costs were
so small compared with the benefit. So it was designed--it
wasn't designed for the current situation. That doesn't mean it
is impossible. It is fairly straightforward to add things. It
is such a very large system so there are various technologies
which I think can be rated against spam.
I know personally at the World Wide Web Consortium we have
a lot of mailing lists and so we put the best technologies we
can find to work on those, and I know that our engineers are
talking with other people at other sites about implementing
those. So I think that in the long term it may be more
difficult for you to send me an e-mail. You may have to show
that you are related to an institution like this but it will be
easy for you to do that, and there will be software which helps
you to do that.
Mr. Walden. What do you see as the top one or two policy
issues that we should address and what are the top one or two
threats to the World Wide Web that we should be aware of? What
should we be thinking about especially long term?
Mr. Berners-Lee. I think--well, I hope the net neutrality
thing is a short-term thing. I think in most of the world
people regard neutrality as such an obvious requirement that I
hope it will be short term. An interesting long-term question
is the patent one. Both in the States and Europe opinions are
changing about how and when it is appropriate to take patents,
and I think we are moving to a situation where large companies
which you think as being the big companies which used to just
make money from the patent pool have now had an understanding
at the senior level that when there is an open foundation
technology like the Internet, like the Web, like the foundation
technologies to come that those standards have to be royalty
free, and that understanding is necessary to protect all the
new markets which come in the future.
So I think that understanding has come to American industry
in the majority over the last few years but yet we have to find
out where that settles down and also across all the
jurisdictions.
Mr. Walden. My time has expired. Thank you, Mr. Chairman.
Thank you for what you have done for the world and thank you
for coming today to share your thoughts with us.
Mr. Markey. The gentleman's time has expired. The
gentlelady from California, Mrs. Capps.
Mrs. Capps. Thank you, Chairman Markey. It is a distinct
pleasure to be serving on this subcommittee with you and with
Ranking Member Upton and the other distinguished members. Sir
Tim, thank you for taking the time today to speak with us about
the future of the World Wide Web and the Internet. I think it
is entirely fitting that the creator of the Web is here to talk
about the direction the Web may be going in the future. And I
particularly appreciated in your opening statement your listing
of some core values. The phrases I wrote down were
universality, independence, blank canvas, no ownership, global
society, and I am going to remember those.
One of the things that you have written that has caught my
attention, Sir Tim, is that some countries have done a better
job than others, including the United States, in making sure
that the Internet continues to be a neutral communications
medium. That is a quote, your words. On the other hand, China,
for example, has sharply restricted its citizens' access for
the Web. My question is to direct you to perhaps talk about
some of the policies that these countries have adopted, the
ones we could be learning from and what are the lessons that we
as U.S. policymakers could be taking away from their
experiences.
Mr. Berners-Lee. Well, of course chronologically and
historically the U.S. was the place where the Internet was
forged and the protocols were produced and it spread across--
the Internet spread across the world, and in fact I was lucky
that when I was developing the Web more or less I was at the
point where I was at the leading edge of that explosion. It was
just becoming politically acceptable in Europe to talk about
using the Internet instead of using the previously preferred
ISO standard protocols. So in many ways the U.S. has led. My
impression is that in other countries that net neutrality is
very much the assumption as opposed to something which is
questioned.
Mrs. Capps. So it is assumed in other countries?
Mr. Berners-Lee. Yes. When I, in fact, give a talk in other
countries, I tend not to mention it. If I do mention it, people
tend to ask what it is. It isn't an issue, and I hope that
continues to be the same. Now you asked about China. Some
countries have restricted policies, some countries try to
restrain what people can read, what people can publish. I feel
very at home in the United States as appreciating free speech
and the openness of communication. We talk at some of these
debates about policy and very much about the commercial aspects
but remember that communication is not just for commercial
reasons. Commercial bias is not the only bias. Political bias,
of course, is if anything a more fundamental one but without a
good political forum in which can be open debate and
accountability then one cannot really set up the commercial
economy, the market economy, which needs the commercial
openness and fairness.
I think it is a pity that there are places where the open
Internet connection isn't allowed. I can see those countries
making a change from a very restricted free Internet society to
a more open society is not something which is easy so I
wouldn't expect----
Mrs. Capps. So if you go down a certain road then it is
harder to get back again than to stay open----
Mr. Berners-Lee. I am an optimist. I feel that the
Internet, that it is very difficult actually to engineer, give
great censorship in the Internet, and that in general the truth
will win out and information will flow, and those countries
will have to move with time one way or another. It is just a
question of how they transition.
Mrs. Capps. Let me see if I can follow up. As you know, and
you mentioned the business aspect, many of the most successful
Internet businesses have been based in the United States. What
might be the implications for some of these businesses and
consumers if we don't take some of the steps that you have
mentioned, for example, to enshrine that neutrality into law,
could the U.S. lose its international competitiveness in this
area?
Mr. Berners-Lee. If we had a situation in which the U.S.
did not have serious flaws in net neutrality, but, for example,
Europe did have net neutrality. I must say if I was going to
start a company, then I would be very tempted to move, yes.
Mrs. Capps. Good answer. Thank you. Thank you very much.
Mr. Markey. I thank the gentlelady. I have not asked my
questions so I think I will take this opportunity at this time,
but if anyone else has any question which they would like to
pose to Sir Tim, I think we can accommodate that. You state in
your testimony that when you invented the Web and launched it,
you didn't need to ask anyone's permission first and you talked
about the universality of the Web. Tell us what that means in
terms of future innovation for the next Sir Tim.
Mr. Berners-Lee. This is the separation of the layers, I
suppose. It is the fact that one layer of the technology and
the social conventions which go around which complete that
technology form or blank slate. The Internet technology would
allow me to write a program which would communicate with
another program. One program signs up for a port number. They
agree on a port number. Then that port number distinguishes the
traffic between those two programs from traffic between other
programs, and the Internet passes that information across.
Now it is true that when we start to go to the extreme
bandwidth requirements of video that is not just simply the
passage of data but it is the passage of data with a certain
quality of service which is important. And there has always, of
course, been quality of service issues that some people would
have slow connections and some would have fast connections.
Early Web browsers came in at various places that you could get
Web browsers which were better or better configured for running
over slow connections. But the essential thing is that the
Internet technology was designed so that anybody could go out
and invent whatever they could imagine to run on top of it just
as the computer for my parents----
Mr. Markey. So you don't need anyone's permission and as a
result entrepreneurial activity can flourish.
Mr. Berners-Lee. Yes. I would like to be able to download--
I have on this phone a Web browser which didn't come with it. I
downloaded it from the Internet. I ran it on the phone. So when
anything is an open platform then that means it is open to
innovation. The Web is an example of innovation built on the
Internet. We have seen a huge number of examples of innovation
built on the Web, eBay, Flickr, the list is well known.
Mr. Markey. So you travel the world. You see broadband
speeds all around the globe. How would the United States
compare in terms of deployment and affordability? What is your
impression as to how the United States is doing in terms of
speed that we are providing to the American people?
Mr. Berners-Lee. I shouldn't attempt to give you a good
answer there because there are people who analyze this and I am
sure that there must be analysts who have tabulated these
things. My impression is that in Europe, for example, that
Europe is very competitive and some Internet service providers
offer very high bandwidth with a very inclusive international
phone service for very competitive rates so one point maybe a
year or two ago I remember there was a claim that the French
situation was the French were actually beating the Americans
when it came to the downward price curve, but I think really
the same spirits of making a faster and cheaper connection is
fairly pervasive, but I can't give you accurate figures.
Mr. Markey. Thank you. Now you say that the World Wide Web
Consortium will only standardize new protocols and technologies
if they can be implemented on a royalty-free basis. Could you
elaborate on that?
Mr. Berners-Lee. The things which have been built up on the
Web have been built because there was not--were enabled largely
because there was no fee payable. There are lots of systems
which have been less successful. In fact, when you look on the
Internet even when you look at streaming video you find that
you have to download different players to play the information
from different places. There are competing standards which are
not royalty-free. You find it is unlikely that you can get an
open source copy of these. There are only a very limited number
of the players for these things. There is a continual
frustration to users and information providers alike that they
have to make a choice as to which players that they will use.
And as an example of what can happen when there is a----
Mr. Markey. You could have made a lot of money if you
charged for all the work that you did and do and that the World
Wide Consortium----
Mr. Berners-Lee. Chairman Markey, let me assure you that if
I had charged from the word go, per click, the World Wide Web
would not have taken off at all, and we would not be here
talking about it and you would not be getting all that
information from the Web browser on your BlackBerry.
Mr. Markey. I think it is important for the committee to
hear that sentence uttered.
Mr. Berners-Lee. Had there been a fee, there would have
been no investment. The investment people made on the Web was
made by volunteers in their garages late at night. It was made
by people, system managers, who when their work day was done
decided that they needed to install something like a Web
browser. And when it was done by companies allowing me--I,
myself, was allowed by my boss to do it in spare time. People
did it in their 10 percent time. If there had been any form of
fee, they wouldn't have gone anywhere near it.
Mr. Markey. Let me ask you a final question, which is that
I would like you to talk about the international nature of the
World Wide Web Consortium and the importance of building
consensus across continents on standards, protocols,
guidelines, recommendations, everything that is necessary to
maintain this incredible invention.
Mr. Berners-Lee. Well, from the word go when I put out the
specs for the first browser and server on the Net, the
contributions came in from across the planet, from Hawaii, from
India, from Israel, so the Web development community has always
been international. So from very early days
internationalization of the technology has been very important.
And when we meet together, we try to make sure that we are very
fair about different cultures and different languages and that
we use the best--input the best volunteer resources that we can
get from across the globe, and I think that this makes the
standards very much higher quality.
Mr. Markey. Let me ask you one final question. Give us the
one message you would like us to remember as we deliberate over
the next couple of years on all of the issues that could impact
on the World Wide Web. Could you give us just one kind of
summary message view that you want us to keep with us as we
move forward?
Mr. Berners-Lee. I suppose the fact that communication
between people is what makes us a society, what makes the human
race the human race, instead of disconnected people behind
politics, and commerce, and education, and romance, and
personal diaries, and all the things that makes our society our
society, and some of those things are very crucial to us. So we
have learned over the generations that protecting the means of
communication is really important. For the World Wide Web there
are certain values which we must maintain such as particularly
its universality, and separation of the layers.
If there is one thing that you should take away is that the
World Wide Web is together technology and society. It is
computers and people. It is really a big Web of people. So
while I will do my bit as an engineer it is very, very
important that you as members of the committee should do your
bit as legislators.
Mr. Markey. Thank you, sir. Any of the other members have
any questions for Sir Tim? Yes.
Mrs. Bono. I am sorry because that was such a beautiful end
to this hearing, but I do have one thing I would love for you
to clarify. And that is in your testimony and what you just
said to the chairman in the testimony you write the lesson from
the proliferation of new applications and services on top of
the Web infrastructure is that innovation will happen provided
it has a platform of open technical standards, flexible,
scaleable architecture, and access to these standards under
royalty-free terms. You have said that repeatedly. But can you
please just differentiate that you do not mean royalty-free
content, because I think some people will confuse the two,
royalty-free platform, the architecture of the World Wide Web,
and it would help, I think, if you could clarify that you do
not mean royalty-free content.
Mr. Berners-Lee. No, I do not mean, no--when I talk about
the infrastructure this is like the roadway. It is not the
goods carried in the trucks. So, yes, we are talking about
being able to use the Web technology itself without having to
pay a fee for the underlying infrastructure, nothing to do with
the royalties which we quite properly pay on music and so on.
Mrs. Bono. Thank you very much. Thank you, Mr. Chairman.
Mr. Markey. Thank you for asking that question. I think
that was very helpful to us. Sir Tim, you don't know what an
honor it was for the subcommittee to have you testify before
us. I can promise you that but for all those roll calls this
morning that you would have had full attendance the whole time.
People are commenting, as Congresswoman Bono did, that they
wished that you could have just gone on at much greater length,
and all of the members have made that comment to me. So we
thank you, and if possible we would like to be able to continue
to consult with you over the years to get your advice as to
which is the wisest course in any one of these areas that our
country and the world should pursue. Thank you. This hearing is
adjourned.
[Whereupon, at 12:56 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
THE DIGITAL FUTURE OF THE UNITED STATES
THE FUTURE OF RADIO
----------
WEDNESDAY, MARCH 7, 2007
House of Representatives,
Subcommittee on Telecommunications
and the Internet,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 2:35 p.m., in
room 2123 of the Rayburn House Office Building, Hon. Edward J.
Markey (chairman of the subcommittee) presiding.
Members present: Representatives Doyle, Harman, Inslee,
Boucher, Towns, Eshoo, Stupak, Engel, Green, Dingell, Upton,
Hastert, Stearns, Deal, Shimkus, Pickering, Radanovich, Walden,
Terry, Ferguson, and Barton.
OPENING STATEMENT OF HON. ED MARKEY, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEATLH OF MASSASCHUSETTS
Mr. Markey. Good afternoon, ladies and gentlemen. This is
the second in a series of oversight hearings on the digital
future of the United States that began with testimony last week
from the inventor of the World Wide Web, Sir Timothy Berners-
Lee. Today we examine the radio industry and assess its power
and its promise. And we have a diverse panel of witnesses
before us to illuminate many of the issues in the radio field.
Radio has a long history of democratizing access to
information. It is a medium that reaches virtually every area
of the country, and radio stations are powerful communications,
assets for the communities that they serve.
Noncommercial low-power and full-power radio in particular
help reach underserved areas, air niche programming formats,
and provide local information of value to diverse community
segments. I hope that we can continue to protect and enhance
the role of noncommercial voices through low-power radio.
Moreover, as the FCC prepares to open an application window
for new full-power noncommercial stations, it is vital to
ensure that adequate notice is given to the public about
opportunities to obtain licenses to ensure that aspirants for
such licenses may broadly represent the great diversity and
richness of the country. In the area of commercial, over-the-
air radio, more than 1,000 radio stations are already
broadcasting digital content. Digital technologies allow free
over-the-air radio broadcasters to provide upgraded audio
quality, as well as the ability to multicast their signal into
multiple feeds. These multiple audio feeds may permit, for
example, a radio broadcaster to air news, sports, weather,
traffic, and talk on one feed while two others simultaneously
broadcast music from distinct musical genres.
As we move towards the digital era, we must also assess the
public interest obligations of broadcasters and the effects of
marketplace consolidation. The commission is in the midst of
reviewing its media ownership rules, and this review will
analyze the effect of this consolidation on competition,
localism, and diversity of viewpoints among many issues.
In addition, I am concerned about the abysmal lack of
broadcast licenses that are held by minority-owned and women-
owned businesses. While many licenses were obviously given out
to original licensees decades ago, it is important to remember
that half the country is women and approximately 35 percent is
minorities. Yet women and minorities today reportedly hold less
than 4 percent of FCC broadcast licenses. This is something
that this Congress and the FCC should find creative ways to
remedy, and the commission can take an important first step by
developing accurate data on current minority and women-
ownership levels, which today is not readily available
information to the public.
I also want to note the recent decision by the Copyright
Royalty Board to hike royalty rates. Previously small Internet
radio providers were able to pay a percentage of revenues to
cover royalty payments. The decision by the Copyright Royalty
Board, which now sets rates on a per-song, per-listener basis
effective retroactively to 2006. This represents a body blow to
many nascent Internet radio broadcasters and further
exacerbates the marketplace imbalance between what different
industries pay. It makes little sense to me for the smallest
players to pay proportionately the largest royalty fee. This
decision runs the risk of hurting not only fledging
entrepreneurs, but also the online radio services of public
broadcasters and smaller commercial stations.
And finally, I want to briefly address the satellite radio
industry. Obviously XM and Sirius Radio have stated their
desire to merge. This merger raises several public interest
issues that this hearing will help to illuminate. Among these
issues are the merger's potential effect on consumer prices and
consumer equipment, its effect on content and content
providers, its effect on localism and the ability of listeners
to both pay and free radio services to obtain information that
is local in nature, and its impact on competition broadly. The
merger may also impact telecommunications policy goals related
to spectrum efficiency and the prospects for new competitive
entry and innovation.
I want to thank all of our witnesses on this star-studded
panel today for their willingness to testify. Let me now turn
and recognize the gentleman from Michigan, the ranking member
of the subcommittee, Mr. Upton.
OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Upton. Well, thank you, Mr. Chairman, for holding
today's hearing. We all know that radio does play a very
important role in our lives, and I commend all those dedicated
folks in the industry for enriching those lives. The numbers of
radio stations in America has roughly doubled since 1970, with
approximately 13,500 stations in operation today. And satellite
radio now serves nearly 15 million customers nationwide.
When we discuss the future of radio, we must also have a
concurrent discussion regarding the future of broadcast radio
ownership rules. And while there has been tremendous growth and
advances that have been made in the world of radio, not to
mention the overall media world over the years, the unfortunate
reality is that our nation's media ownership laws do not
reflect or even acknowledge such great advancement. Current
ownership laws are especially destructive to the ability of
broadcasters to compete because they freeze growth. They stifle
experimentation and innovation and perversely diminish
diversity of viewpoints. Common sense tells us that the recent
explosion of media sources should eliminate any concern over a
lack of diversity of views in the marketplace and competition,
which have been the principle justifications for the rule. This
growth remains unabated and more than makes the case for
regulatory relief in the broadcast sector.
Let us take a closer look at the local broadcast radio
ownership rules. In a market of 45 stations, the most that a
single company can own is eight. In a market with 145 stations,
a single company can own also only eight stations. Where is the
logic? Even setting aside for just a moment the competition
from other media, especially satellite radio, there is
absolutely no public good enough to justify the same local
radio ownership cap for Cincinnati as it is for New York,
Chicago, or Los Angeles.
And let us remember that ownership diversity is only a
proxy for viewpoint diversity. The largest markets in the
country tend to have more diverse populations, and thus they
demand more diverse program formats. Yet the maximum number of
formats any one owner can deliver is eight because that cap
ownership is maintained by the FCC. Increasing the number of
stations that any one entity could own would translate into an
increase in the number of formats that can be broadcast into
that market.
The result would be to increase the quality of free
terrestrial radio services to consumers and increase the
availability of foreign-language programming to them. Moreover,
the economies of scale that are obtained when commonly owned
stations are clustered in a market make it possible to take
risks on new formats that would not otherwise be feasible. The
result will be that owners will experiment with new and
different formats, and consumers will be the beneficiaries. The
public will likewise benefit from a healthy radio industry.
While the FCC's current regulations recognize that AM and
FM stations compete against each other, they fail to recognize
the other competitors in today's marketplace, foremost among
them obviously is satellite radio. For the time being, the two
satellite radio licenses can reach approximately 150 channels
in every market in the country, compared to the current limit
of only eight stations that restrict the terrestrial radio
industry. Moreover, licensed radio stations obviously compete
against new devices, whether they be iPods, Internet radio,
which will soon be broadcast to cars, using the YBas networks.
The upshot is that terrestrial radio is engaged in an
extremely competitive marketplace and one that is becoming more
competitive virtually every day. Against that type of
competition, I believe that it is worthwhile to lighten the
regulatory restrictions on ownership that limit the ability of
free terrestrial radio to grow in the largest markets in the
country. I continue to firmly believe that in markets with 60
or more radio outlets, a modest increase in the number of
stations that one entity can own or control will confer
significant public interest benefits. Modest increase would not
result in undue concentration. It would allow a single entity
to control 10 stations, would mean that no one entity would be
able to control more than 17 percent of that market.
So I look forward to our testimony today from our
witnesses, looking at a number of different issues, and I
appreciate the chairman's hearing this afternoon.
Mr. Markey. Thank you. I thank the gentleman. The Chair
recognizes the Chairman of the full committee, gentleman from
Michigan, Mr. Dingell.
OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Dingell. Mr. Chairman, thank you. I commend you for
holding this hearing today. I also thank our witnesses for
appearing before the subcommittee. I want to especially welcome
Mr. Peter Smyth of Greater Media, whose company owns three
Detroit radio stations and which does an outstanding job of
serving our community. Welcome.
This is the second hearing in the committee's examination
of the Nation's digital future, and it is in an important one.
Decisions may soon be made that will affect this structure of
the broadcast marketplace and the level and quality of
discourse in our democratic society. Since the formation of
commercial broadcasting, Congress has acted deliberately to
preserve localism, promote diversity, and ensure competition in
the broadcast media. Rather than establish a national broadcast
system, the Congress oversaw the creation of thousands of local
stations throughout the Nation that are required to respond to
the needs of their local communities.
So then what is the state of radio today? Many claim that
the consolidation of the radio industry over the past decade
has adversely affected diversity on the public airwaves and the
service broadcasters provide to their local communities. I must
observe that there is reason to believe that there is truth in
these statements. These concerns then must be taken seriously.
Yet we now find that Clear Channel, the largest group owner, is
spinning off several hundred radio stations. This offers a ray
of hope that the trend of declining media ownership can be
reversed. The last count on this matter shows that minorities
own a dismal 4 percent of radio stations nationwide. And there
is reason to believe that this may be in a downward trend.
I would note that it has been the Congress's policy for a
long time, longer than I have served in the Congress, that we
should have full representation of minority broadcasting and
that the Federal law should and the Federal regulatory agencies
should encourage that situation to go forward. The FCC now then
must speed up its efforts to spread licenses among entities
that better reflect the diversity of people across our Nation.
The transition to local digital provides an opportunity to
reinvigorate local broadcasting. With near CD-quality sound and
multicasting capability, digital radio allows broadcasters to
improve service and to remain a vibrant and important part of
the local media landscape. With any luck, we might even see a
resurgence of classical music on the dial, something which
would bring me great personal pleasure. Broadcasters are also
joining a variety of entities using the Internet to serve a
worldwide audience. Listeners now have a broad range of radio
entertainment options, including satellite radio, Internet
radio, mobile phone services, and recording devices such as
iPods.
Earlier this week, the Copyright Royalty Review Board set a
new music royalty rate for commercial and noncommercial
Webcasters. I think this committee should look carefully at the
implementation and the implications of that decision, which I
think at this time are not properly understood. The average
music consumers are embracing podcasts and interactive modes of
delivering your information. I have found that my own podcasts
enable me to better communicate with my constituents.
Now, what can consumers expect to hear in the future? Will
the new operations and the new opportunities translate into
more local and more compelling and more diverse content? Even
in this new world, radio remains an important fabric of our
local communities. We must remember the deliberate vision of a
free and local system of commercial and noncommercial
broadcasting spread among the urban and rural communities that
make up our Nation. We must continue to promote new uses of the
spectrum, such as low-power radio, while protecting existing
licenses from interference. Even today, a healthy free
broadcasting service remains an important and vital source of
local news, culture, and most importantly, emergency
information. Our national policies must continue to promote
localism, diversity, and competition in the media marketplace.
Those with the privilege of using public airwaves, whether
local or national, should provide a public service. That is the
law. That was the intention of the Congress when we passed the
Radio Act in 1927 and has remained so to this day. The FCC has
been far too laggard in overseeing public interest
responsibilities of digital and satellite radio providers. We
must never forget that industries that distribute information
have a greater responsibility to our society, and consolidation
among them poses a far more serious concern than, for example,
those who distribute toothbrushes or toasters. Today's hearing
begins with an exploration of the merger of XM and Sirius. I
look forward to learning more about this matter as the FCC and
others begin what I expect will be a thorough, objective,
competent, and fully transparent review of the transaction and
its effect on consumers and the public interest. Mr. Chairman,
I thank you for your courtesy. I give back the balance of my
time.
Mr. Markey. I thank the gentleman. Chair recognizes the
ranking member of the Energy and Commerce Committee, the
gentleman from Texas, Mr. Barton.
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Thank you, Mr. Chairman. I think this is an
important hearing, and I appreciate you calling it today. This
is the second hearing in your series on the digital future of
the United States telecommunications market. I think it is good
to investigate the opportunity about whether changes in the
radio marketplace require us to rethink our approach to
regulating audio services in this country. Radio has not been
immune to the same revolution that is making the voice, video,
and data markets so competitive. We can get music, baseball,
talk, the news, and even other types of entertainment now over
these satellites. We can get what we want not only over the air
from radio stations, but from the satellite, from the Internet
streamers, yes, Podcasters and even cell phones.
The broadcasters themselves are going through a mini-
transformation. There is more than 1,000 stations have already
embraced digital transmissions. This shift should enable
broadcasters to improve their sound quality and increase the
number of channels that each station can provide. Thankfully,
the broadcasters have not needed additional spectrum to do so,
making their transition to high definition radio considerably
simpler than it is for digital television.
Changes in the voice, video, and data markets have led us
to question legacy regulations, some of which were written when
people were sitting around living rooms listening to Little
Orphan Annie over the radio. This hearing presents the
opportunity to investigate whether changes in the audio market
suggest that radio regulation also needs reforming. To see the
importance of matching regulations reality, we need to look no
further than the FCC's inability to justify either of its last
two rounds of media ownership restrictions to the satisfaction
of the courts.
Judges have decided that strict regulations wouldn't do,
and neither would loose ones because no one could show how
either set of rules actually promoted content diversity and
localism in the real world. At some point, we need to figure
out who is on first, us or the innovators. I wonder if
technology and competition won't do a better job of serving
radio listeners than politicians tinkering with outmoded
regulations in a constant game of catch-up.
Indeed, one issue we will address today, the proposed
merger between XM and Sirius, suggests that technological
advances make even defining the relevant market a complex task.
This is an important hearing because it impacts the future, the
digital revolution in radio. And I am looking forward to
hearing our witnesses and in hearing of the questions too that
shows where this committee tends to move its legislation.
With that, Mr. Chairman, thank you again for holding this
hearing.
Mr. Markey. The Chair recognizes the gentleman from
Pennsylvania, Mr. Doyle.
OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA
Mr. Doyle. Thank you, Mr. Chairman, and welcome to our
witnesses. Mr. Chairman, I want to tell you a little story of a
local guy done good. His name is Greg Gillis, and by day, he is
a biomedical engineer in Pittsburgh. At night, he deejays under
the name Girl Talk. His latest mash-up record made the top
albums of 2006 list from Rolling Stone, Pitchfork, and Spin
Magazine amongst others. His shtick, as the Chicago Tribune
wrote about him, is ``based on the notion that some sampling of
copyrighted material, especially when manipulated and
recontextualized into a new art form, is legit and deserves to
be heard.''
In one example, Mr. Chairman, he blended Elton John,
Notorious BIG, and Destiny's Child all in the span of 30
seconds. And while the legal indy music download site,
Emusic.com, took his stuff down for possible copyright
violations, he's now flying all over the world to open concerts
and remix for artists like Beck.
The same cannot be said, however, for Atlanta-based hip-hop
mix tape king DJ Drama. Mix tapes, actually made on CDs, are
sold at Best Buy and local record shops across the country. And
they are seen as crucial to make or break new acts in hip-hop.
But even though artists on major labels are paying DJ Drama and
others to get their next mix tape, the major record labels are
leading raids and sending people like him to jail.
I hope that everyone involved will take a step back and ask
themselves if mashups and mix tapes are really different, or if
it is the same as Paul McCartney admitting that he nicked a
Chuck Berry base riff and used it on the Beatles' hit ``I Saw
Her Standing There.'' Maybe it is, and maybe Drama violated
some clear, bright lines. Or maybe mix tapes are a powerful
promotional tool, and maybe mashups are transformative new art
that expands the listener's experience and doesn't compete with
artists as made available on iTunes or at a CD store. And I
don't think Sir Paul asked permission to borrow that baseline,
but every time I listen to that song, I am a little better off
for him having done so.
Until our questions about the future of music get answered,
we first have to look at the future of radio. I want to look at
whether Webcasters saddled with new royalty fees, whether just
one satellite radio company, whether low-power FM radio
stations can really help artists break through the clutter and
be heard by enough people to be successful.
And I want to look at how consumers experience music and
how radio shapes that. I look forward to the witnesses talking
about these issues and more. And, Mr. Chairman, with that, I
yield back my time.
Mr. Markey. I thank the gentleman very much. The Chair now
recognizes former Speaker of the House of Representatives,
Dennis Hastert.
Mr. Hastert. Mr. Chairman, I yield back.
Mr. Markey. The Chair recognizes the gentleman from
Illinois, Mr. Shimkus.
OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Shimkus. Thank you, Mr. Chairman. I was just trying to
figure out half the words that Mike Doyle just mentioned. I am
clueless, but I think you will help me later on. I will be
brief. I am all about multiple pipes for competition. The more
pipes, the better. And that helps consumer choose, and it stirs
innovation. But it is very schizophrenic in this new era as
things change. There is a local service requirement for local
broadcasters that I think is very, very important that we
preserve for safety. However, then you talk about a Katrina
event, when towers go down, satellite may be able to provide a
venue by which public safety information can get delivered.
So the world doesn't stay the same. It changes, and that is
why I appreciate the chairman calling this. I love industries
that modernize and technology advance quicker than we can
regulate. That is what I like because then it continues to
inspire new services, and we may be there in this industry. In
some sectors right now, there are schizophrenic tendencies,
based upon the ability of the local service requirements, based
upon new technologies, it is appropriate that we address them.
And I am glad to be here. Mr. Chairman, I yield back.
Mr. Markey. The gentleman's time has expired. The
gentlelady from California, Ms. Harman.
OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Harman. Thank you, Mr. Chairman. I would observe that
it took one person to educate us about the World Wide Web, and
clearly it takes at least five to help us with radio, which has
been around a much longer time. From FDR to NPR, a radio has
remained a primary source of information for millions of
Americans, but obviously changes in radio today parallel the
great strides in Internet, television, and other
telecommunication services which we are learning about in our
digital future series of hearings. Maybe, Mr. Chairman, we
should have a digital future series of hearings about Congress
some day too. Digital future, if any, series of hearings.
At any rate, radio is a source of entertainment too.
Digital, high-quality entertainment. In fact, today high
definition radio stations broadcast CD quality sound over free
airwaves. Wal-Mart is now selling high definition audio
receivers. And in a short time, free digital quality music will
be the standard in every city and town in America.
But digital radio, whether satellite, Internet, or over the
air, is an example of technology outpacing legal protections
for intellectual property. I know that the Judiciary Committee
will take a long look at this issue. But, as you have said, it
is an important one for this committee too.
Competition in the radio market depends on a level playing
field for radio outlets and on fair treatment for musicians,
songwriters, and record labels whose work they broadcast every
day. I hope our look at competition and fairness in the
marketplace won't overlook the people who make free music in
our cars, homes, and office possible. Many of them, I would
observe, come from Los Angeles where my congressional district
is located. I think, Mr. Chairman, this hearing is timely, and
our careful focus is needed. And I confess it is impressive to
learn that Chairman Dingell knows about Podcasts and that my
friend and colleague Mike Doyle is so hip. I yield back.
Mr. Markey. Gentleman from Oregon, Mr. Walden.
OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. Walden. Thank you very much, Mr. Chairman. Of course, I
am very interested in this hearing. I think, I believe, I am
the only licensee on the committee and in the Congress that
actually owns and operates radio stations, at least for a few
more months. We are in the process of selling them after nearly
21 years in the business. So I first always disclaim that so
nobody accuses me of a conflict of interest that I haven't at
least acknowledged. But I have a great passion and interest in
radio. My father was in it for 38 years. I grew up obviously
around the tower and the transmitter. Based on my receding
hairline, you can tell that. And so I am interested in these
issues.
And, Mr. Chairman, I would point out that of your
statistics on 4 percent of the licenses are owned by women or
minorities, my wife and I actually share the stock in our
company. So it is 50/50, so we represent, in terms of
licensees, probably at least half of one of those 4 percent in
ownership because we have run it and owned it together. And I
have great passion for the industry.
I have great concern about its future. I think in many
markets, consolidation has been very healthy and helpful to
enhancing program content, especially in smaller markets were
many stations were on the border of going broke. In our own
situation, we started with two, acquired two others that
weren't in the best of shape and put another one on the air. So
we have actually brought new programming to the marketplace,
and one of our stations actually won a Marconi, an AM station.
And so there is a lot of really good local programming
going on in America in radio, and we hear this talk of the
effect of consolidation. And yet I think Clear Channel is the
largest owner of radio stations, owns less than 10 percent of
the total number of stations out there and is selling 400 of
those 1,200, just to pick a number out of the air.
This Congress has also, with the FCC, authorized low-power
FM broadcasters to fill a need in the communities for great
diversity, and virtually anyone who is not in the commercial
radio business can go out and get a LPFM license. And there are
hundreds and hundreds of them on the air, including in the
markets that we are in. And so I think there is enormous
diversity. At the end of the day though, broadcasters are there
when there is an emergency.
In our own situation, we have gone commercial-free and
programming cancelled in cases of emergency to provide full-
time information. I am not alone in that effort. Many of my
colleagues have done that. And as you mentioned, in Katrina, in
other crises around the country, that is just what we do. And
we are there. We are there when the snow piles up on the road
and the school buses can't run. It is not other forms that are
telling you that. It is your local broadcasters, and so sure we
can always do better, but I think we got a great record, and I
look forward to the panel today and hearing from them and where
we go with the future on over the air free broadcasting as well
as mergers and consolidations and alternatives for America's
listeners. Thank you.
Mr. Markey. The gentlelady from California, Ms. Eshoo.
OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Eshoo. Thank you, Mr. Chairman, for holding this
hearing, and I expect it is going to be another enlightening
one. Just as the Internet and digitization of content has
revolutionized commerce, digital audio has transformed the way
we listen to music, to news, to sports, and other sources of
information and entertainment today. I think that is
indisputable. It has changed. It has changed rapidly. It is
exciting. A lot of people are enjoying it, and it really, I
think, is a mark of the 21st century.
Now, whether delivered by satellite, wi-fi, wireless phone,
cable modem, DSL, digital audio has greatly enhanced choices
for consumers, for innovators, and for the competition that
exists in our country. Until very recently, when I think of it,
the only music that I could listen to was from my local radio
station from my home or my car stereo, and really not all that
long ago, from my Walkman when I was on the treadmill. And that
seems really almost humorous to think that that was not all
that long ago. It seems as if it is really in the distant past.
Now, our choices are no longer limited by our local
broadcast radio stations or by our personal CD collection. In
fact, the choices are almost limitless. Satellite radio
delivers hundreds of channels to cars or portable devices.
IPods carry thousands of songs in the palms of our hands, and
the Internet delivers really any song we have ever heard of or
a radio signal from across the globe to any connected device.
But unlike other Internet content, these innovations are
threatened by dominant broadband providers who have the ability
and the incentive to limit consumers' access to the content of
their choice. I think it is essential that access to Internet
radio and content distribution services remain unimpeded and
outside the control of broadband gatekeepers. Without net
neutrality, it is possible, I think it is likely that the broad
consolidation in terrestrial and satellite radio ownership and
limited consumer choice will be duplicated in the online
environment as broadband providers steer users to their own
services or their partners' offerings.
Net neutrality is critical to ensure that Internet radio
and other emerging online music and information distribution
services have a chance to compete with incumbent providers.
So welcome to the witnesses. I think that you are also
eager to discuss the potential merger of two of America's
satellite radio providers, and I look forward to you answering
my questions. Thank you, Mr. Chairman.
Mr. Markey. The gentleman from Nebraska, Mr. Terry.
OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEBRASKA
Mr. Terry. Thank you, Mr. Chairman, for having this
important hearing. Of course, we had the digital television
hearing and the Internet hearing, and now the radio or aural,
not O but AU, part of the digital transition. And for
consumers, what an exciting time. You look at all the consumer
products where we can get our music or talk radio or
podcasting. I just wonder what it is going to be like as we
have the digital breakthroughs that are occurring right now,
what it is going to look like 10 or 20 years from now.
I am probably an example of the consumer that we are going
to talk about or should be the focal point of today's hearing,
of how best to empower the consumer in this changing
environment so that they have access to whatever mechanisms
necessary so they can get the programming that they want.
I have my video iPod. All my kids have their iPods. Even
the 6-year-old has to have his own. My wife's Christmas present
was Sirius for the car and in the house; although; I will have
to admit we had a discussion about whether to get Sirius
because of one of their programs, Howard Stern, on there. And
my wife and I said well, they will probably break Sirius at
some point anyway. True discussion.
Maybe we will get the answer to that or not, but certainly
having Mr. Karmazin here today prompts the discussion of
whether to ask a decency question about satellite. I think I
will pass on the decency question, but I think we will have a
healthy discussion about whether a merger or creating within
the satellite environment a monopoly is appropriate from the
consumer's standpoint.
The question that I want to ask our panelists today is how
would we define the market today? Certainly if I bought my
music from a record store some time ago, we would not have
defined that as competition; although, I guess in a way it is.
But yes, while there is free over the air, we now have for-pay
satellite. We have all these other mechanisms. Do we throw
anything that makes noise into the world of competition so that
we don't define this merger as a monopoly?
I think that is one of the questions that should be
answered today. I am certainly skeptical of these two companies
coming together as one. I think on the surface that is anti-
consumer. We will ferret that out today. I want to thank all of
our panelists for being here to aid us in our policy decisions,
and I yield back.
Mr. Markey. Next to the gentleman from Texas, Mr. Green.
OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Green. Thank you, Mr. Chairman, for holding the hearing
on the future of radio. The future of radio is quickly
transforming with many recent changes in the way consumers can
assess programming. The emergence of HD radio, which has become
more affordable and accessible is providing new and additional
programming to consumers.
On the other hand, the proposed Sirius and XM merger raises
serious questions the implications would have on localism and
consumers even if safeguards are put in place remains unclear
at best. Next week, we will hear from the FCC commissioners in
front of this panel. I am sure they will be a prominent topic
in both testimony and questioning after today's New York Times
article about Chairman Martin's concerns over the merger. It is
hard to see how prices for satellite radio will come down when
a big part of the reason for the merger is to make it
profitable.
A related issue, which greatly concerns me, is the attempt
by satellite radio to offer local radio programming. I have
worked with Mr. Pickering to introduce legislation on this
issue, and it sounds a bit strange. But the FCC intended
satellite radio to be a national service in order to protect
local service.
But the remarks we will hear today from Mr. Karmazin,
remarks that call for restrictions on local content were
ironic, but I respectfully respond that maybe it is backwards.
What is ironic is if national radio, satellite radio, offered
local content, it would actually decrease localism and local
news coverage and local emergency coverage.
Under its national license, satellite radio is not
obligated to provide public interest services, such as Amber
Alerts, coverage and debate of local issues, important
emergency broadcasts during natural disasters, civil
disturbances, or terrorist attacks. More importantly, under
their infrastructure, satellite radio cannot generate local
content. They can only aggregate it and retransmit it. There
are no boots on the ground, so to speak, to generate their own
local news, community fairs, or emergency coverage.
As evidence, satellite radio only intends to offer and can
only offer the low-cost profitable local service like traffic,
weather, and local ads. And while they are offering local
traffic and weather on national channels for a handful of large
cities, they do not hire local meteorologists for local weather
coverage or put traffic reporters in helicopters for traffic
coverage.
In contrast, local broadcasters spend huge sums of money to
generate that unique local content, as opposed to just
retransmitting basic local information gathered from somewhere
else. If satellite radio is allowed to cherry pick cheap local
content and sell local ad revenue, local broadcasters would be
forced to reduce their expensive local content like news and
public affairs.
The threat is more serious for local news stations, which
are a major source of local traffic and weather information. If
satellite radio is allowed to pull listeners from these
stations, we will see fewer local news radio stations in this
country. In fact, I have that problem in my Houston area. Our
local news station is now mostly a talk station, and coming
from our side of the aisle, the folks they have on the talk is
not one of my favorite people.
Making matters worse when you reduce the investments that
local broadcasters make in the local day-to-day traffic,
weather, news coverage, you reduce the assets available for
broadcasters to use during local emergencies. The result could
be catastrophic in tragedy, since local broadcasters are the
only ones that have again their boots on the ground during
emergencies like hurricanes and terrorist attacks.
The legislation Mr. Pickering and I have introduced, H.R.
983, the Local Emergency Radio Protection Act, clarifies
satellite radio is not allowed to use their repeater network or
their receivers to selectively offer low-cost, local
programming and to cut localism.
Mr. Chairman, I want to thank you for holding the hearing,
and I look forward to today's hearing and next week and also
our consideration of Mr. Pickering and my bill.
Mr. Markey. I thank the gentleman. The gentleman from
Florida, Mr. Stearns.
OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Stearns. Thank you, Mr. Chairman, and let me also say
that this is an important, timely hearing. We are glad to have
these distinguished, competent individuals who pay taxes before
us.
When I was looking at this, I am not sure that Congress
really has a distinct role in whether these two radio stations
should be merged or not. Perhaps our responsibility is more
into looking at whether this merger will provide greater
localism and diversity on a combined service or not, and
whether this local differentiated programming undermines free,
over the air radio.
I think all of us ought to agree though that the merger of
these two is not going to create a monopoly of any sense
because there is a lot of competition out there with the
broadcast and the Internet and the wireless and iPod, as others
have mentioned. So in the end, I think that we just have to see
whether competition is going to be there and whether this
merger is going to upset what I feel is the larger issue, which
is diversity and provide localism.
I notice that Chairman Martin of the FCC had a question
about the increased cost for this, and Mr. Karmazin indicated
that he thought the price would not go up. I think he said that
in recent congressional testimony, that subscribers would pay
the same monthly rate and receive significantly more
programming. But then, I think, Mr. Martin went on to say well,
I think it's going to go above the $12.95. And then in
response, Mr. Karmazin then said that he meant two things.
Subscribers wanting to keep their existing service would not
face a price increase, and listeners who wanted the best of
both services would pay less than the combined rate of $25.90.
But the long-term outlook on this is that whether they
merge or don't merge, the price of this will be decided by
competition. So even if they do merge, they are going to have
to compete pretty strongly in the marketplace. They have to
offer a better product, a better price. They must prosper, and
the free market will decide in the end what is going to happen
here and perhaps not so much as this congressional hearing. And
I thank you, Mr. Chairman.
Mr. Markey. Gentleman's time has expired. The gentleman
from Michigan, Mr. Stupak.
OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Stupak. Thank you, Mr. Chairman, and thank you for
holding today's hearing on the future of radio in the digital
age. I want the record to reflect that my good friend,
Congressman Mike Doyle, gave up alcohol for Lent. But after his
opening statement, I believe it would be better if he would go
back on it. I am sorry he is not here for the comment.
But the witnesses will provide a snapshot of the radio
market today and instruct us as to what the market will look
like in the future. I think we will find that the market is not
easy to define. Does the real market only consist of AM and FM?
How much of a competitor is satellite radio to AM and FM? In
what way is my iPod a competitor to AM and FM? And in what ways
will my iPod or even my BlackBerry be a competitor to AM and FM
radio tomorrow?
Understanding the market is key to Congress legislating and
the Federal Government regulating in this area. For example,
how the Department of Justice defines a radio market will
largely affect whether the Department of Justice approves the
proposed merger between XM and Sirius Satellite Radio. I am
pleased we have Mr. Karmazin of Sirius Radio with us here today
to speak about the proposed merger and his view of the radio
market. I would also like to welcome the other witnesses
testifying.
While I hope we discuss other issues such as access to
content, royalties, new platforms, and technologies, I think it
is important that the committee look closely at the proposed
satellite radio merger. I look at this proposed merger through
the eyes, or should I say the ears, of my rural constituents.
Rural Americans depend on local, terrestrial programming
for crop updates, storm warnings, local news, and sports.
Whether I am out hunting, boating, or driving hundreds of miles
meeting my constituents, radio is my lifeline to the world. I
always have access to the radio. I don't always have access
through my cell phone. Local radio warns me of when another
winter storm is rolling in, and it provides me with play-by-
play action of the current Delpino High School hockey playoff
run. I am not sure what my constituents would say is the more
important service.
Satellite radio has also taken off in rural America. My
constituents have embraced this new option for content they may
not otherwise have access to. The success of satellite radio in
rural America is similar to the success of satellite
television. I believe it is beneficial for my constituents to
have a choice of providers of both satellite television and
satellite radio markets. Just as DirectTV and EchoStar's Dish
Network competing head to head benefits my consumers, so does
head-to-head competition between XM and Sirius Radio. In both
markets, competition has kept prices down, increased
innovation, and strengthened consumer service. Ultimately, I
believe a competing satellite provider may be a better check
than a local broadcaster.
In that vein, I'm concerned approving this merger could
start us down a slippery slope of approving mergers between
EchoStar and DirectTV and other providers. That is not
something my constituents want. When EchoStar stopped providing
distant signals last year, I heard from many of my constituents
upset that they were effectively left with only one option for
satellite television.
I urge the Department of Justice and the Federal
Communications Commission to look at this merger with a
critical eye and protect the best interest of the public
airwaves, not corporations.
And with that, I yield back, Mr. Chairman.
Mr. Markey. OK. The gentleman's time has expired. The
gentleman from New Jersey, Mr. Ferguson.
OPENING STATEMENT OF HON. MIKE FERGUSON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Ferguson. Thank you, Mr. Chairman and Mr. Upton for
holding this hearing. This subcommittee can play a key role not
only in highlighting the promise of digital technology and
content for the American consumer, but also highlighting some
potential problems.
Perhaps more important than that is determining whether a
true problem exists at all. There are more options available in
the marketplace than ever before. Apple's iPod is a stunning
success story. Digital audio can now be heard across multiple
platforms from Internet radio, Web casts, and wireless, to HD
and satellite radio. In just a few short years, there are more
options available to our constituents than ever before. I think
it is safe to say that members of this panel want to ensure
that the digital marketplace remains robust and competitive.
In turn, it is important that there remains a maximum
choice for consumers and that the marketplace is a welcome
place that encourages innovation. These are indeed exciting
times for American consumers, particularly with regard to the
audio industries. And that is one of the reasons why at this
point, I am inclined to be supportive of this proposed merger
of XM and Sirius. However, my support is primarily contingent
on there being a satisfactory resolution of the issue of
adequate protection for content creators.
Last Congress, I introduced the Audio Broadcast Flag
Licensing Act. It urged that both satellite companies and
broadcasters come to the table with content creators to work
out fair royalties in the private marketplace. The goal of my
legislation was not only to ensure that intellectual property
rights are respected and that content creators are treated
fairly, but that consumers continue to have access to new
content.
I have long said that my preference is to see the issue of
digital content protection resolved between the respective
parties in the private sector. Sirius, under Mr. Karmizan's
stewardship, set a standard by negotiating with record labels
and illustrating that the marketplace can work. XM followed a
different route, choosing to litigate the issue in the courts.
I am eager to learn today how a newly merged company might
address this particular issue.
Thank you, Mr. Chairman, again for holding this hearing.
Radio in the digital age not only holds an exciting array of
products for our constituents, it also raises many questions
for this panel to consider. And as we strive to ensure that
those options not only remain but continue to grow. And I look
forward to hearing from our witnesses. I welcome all of you
here today. Thank you, Mr. Chairman. I yield back.
Mr. Markey. Thank you, gentleman. The gentleman from New
York, Mr. Towns.
OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK
Mr. Towns. Thank you very much, Mr. Chairman, for holding
this hearing today. Let me welcome the chief executive officer,
Mr. Karmazin from Sirius, a great New Yorker. Thank you for
coming and also the other panelists. Good to see you because we
are looking forward to learning a lot from you.
We need to understand how to maintain a competitive
marketplace that gives choices and low prices to consumers and
created value for shareholders. I also look forward to learning
how more minorities and women can get into this booming
business and how these companies plan to operate responsibly
and in the public interest, using the new options offered to
them by digital technologies.
I agree with some comments coming from my colleagues that
we must first view this satellite radio merger from the
perspective of the consumer and whether or not the combination
of these two companies will benefit our Nation's audio users
both in terms of price and content.
It is clear that the audio market has changed drastically
between 1997 and today, when the FCC greenlighted the emergence
of XM and Sirius. And now 10 years ago, when there weren't
nearly as many audio options as there are today, pitting these
two companies against each other was more logical in terms of
diversified consumer choice. Now, however, with iPods in every
gym and Internet radio on every computer, the audio landscape
is a bountiful place.
Therefore we must ask ourselves if this merger will
continue to provide consumers with great content, a wide array
of choices, and low prices. And I emphasize low prices. I am
eager to hear from our witnesses on these crucial
considerations, and I thank them for taking the time to appear
before us today so we can learn as much as we can and move
forward.
Thank you very much, Mr. Chairman, and on that note, I
yield back.
Mr. Markey. I thank the gentleman. The gentleman from
Georgia, Mr. Deal.
OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF GEORGIA
Mr. Deal. Thank you, Mr. Chairman. Thanks for the hearing
and thanks to the witnesses for being here. I think it is
certainly an appropriate time, in light of the proposed merger
of the satellite radio stations. I am interested to learn more
about both the positives and the negatives and how the merger,
if it is completed, will affect rural districts such as mine
and not only the constituency but also existing radio station
operators.
I understand there are a number of ways, of course, for
customers to access programming: iPods, HD radio, over the air
broadcast radio. However, I also know that there are many of my
constituents who are concerned about what is going to happen if
there is only one satellite radio provider in the marketplace.
One question that I would like to see answered is how we
can be assured that this merger will not result in rising
prices to consumers. Will there continue to be an active and
competitive radio marketplace? What will happen to exclusivity
deals and their effects on consumers? Will there continue to be
innovation and ingenuity? These are very real concerns for
millions of Americans.
I would like to end with one final observation. As I have
listened to the various parties commenting on this merger, I
have been struck by one particular aspect of the debate. Behind
the reality of whether there is competition and parity among
the various industries involved, I am struck by this one bit of
irony. The broadcasters, when talking about their television
programming, seem to have a different message than the one I am
hearing from their radio interests. When it comes to television
programming, they have been very vocal in asserting their right
to negotiate compensation for their product and have asserted
their power to withhold their product from anyone not willing
to meet their conditions for payment.
However, when it comes to broadcasting artists' music, the
NAB is lobbying Congress that they should not be asked to
negotiate or pay for another content owner's product, even
though satellite radio companies and Webcasters do negotiate
payment. I find this a highly contradictory position. When they
control the content, they demand payment. When they use someone
else's content, they don't want to provide payment.
Mr. Chairman, as we consider the merger before us today and
debate whether there is parity among the various services, I
would suggest that we should also consider whether there is
parity across the telecommunications sector on how we treat
content owners and whether it is fair and reasonable. Thank
you.
Mr. Markey. The Chair recognizes the gentleman from
Virginia, Mr. Boucher.
OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF VIRGINIA
Mr. Boucher. Well, thank you very much, Mr. Chairman. I
just have a few thoughts about the XM/Sirius proposed merger
that I will share with members and others this afternoon. I
think there are pro-consumer benefits, which suggest that the
merger is in the public interest. Both companies maintain
separate entertainment offerings at the present time. The
merger would extend to consumers larger choices from among
program offerings, including the possibility of a la carte
availability to select the channels from a larger total
inventory that each consumer would desire.
The extra bandwidth which the elimination of duplication
would produce could also result in the offering of a broader
array of public interest programming than either company is
offering at the present time. And there appears to be, in my
view, no valid reason to disapprove this merger. It is clear to
me that the relevant market for competition purposes is the
entire marketplace for audio entertainment. That market
includes all of terrestrial radio as evidenced by the repeated
statements of some of the major terrestrial broadcasting
companies that they are in competition with satellite radio. I
think the opposition of the National Association of
Broadcasters to the merger lends credence to the fact that
terrestrial and satellite radio are indeed in competition.
The relevant market also includes Internet radio and both
Internet-based streams and downloads to computers and to
portable devices. And in that large, highly competitive market,
satellite radio is really a small player. Arbitron's recent
survey that was released last week shows that satellite radio
listening accounts for only 3.4 percent of all radio listening.
That same survey shows that satellite radio listeners are
also avid listeners to terrestrial radio. In fact, satellite
radio listeners are listening to XM or Sirius for 10 hours, 45
minutes per week. But those satellite subscribers are mostly
listening to terrestrial radio for an average of 14 hours
weekly. They listen to Internet radio 8 hours, 15 minutes
weekly. These figures clearly show that satellite radio is in
competition with terrestrial radio and Internet radio and that
satellite radio listeners are listening to the combination of
terrestrial and Internet radio more than twice as much as they
are listening either to XM or to Sirius.
There are public benefits to be derived from the merger and
in the market where satellite radio competes. The companies do
not have market power. In fact, combined, they represent a mere
3.4 percent of that market. So, Mr. Chairman, in my view, the
public interest requires approval of this merger. Thank you,
and I yield back.
Mr. Markey. The gentleman from California, Mr. Radanovich.
Mr. Radanovich. Thank you, Mr. Chairman. I will pass on an
opening statement.
Mr. Markey. The gentleman from Mississippi, Mr. Pickering.
Mr. Pickering. Mr. Chairman, thank you. I too shall pass.
Mr. Markey. We are going for the triple. The gentleman from
Washington State, Mr. Inslee.
Mr. Inslee. I'll pass.
Mr. Markey. There you go. Going to Yankee Stadium here and
Mr. Engel. Let's see if we can go for the cycle here.
Mr. Engel. Well, I am afraid I am going to have to ruin it,
Mr. Chairman. And I will tell you what I will do for you. I
won't read my speech. I am just going to speak from the heart a
little bit, and I will try to not take the full time.
OPENING STATEMENT OF HON. ELIOT L. ENGEL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK
Mr. Engel. I want to say, and I have listened to a number
of my colleagues, that I certainly have an open mind about
this. I don't think that we should automatically assume that
the merger is a bad thing or a bad idea. Like all of us, we
represent constituents, and the bottom line is what is best for
the constituents. I think we know that. I think there are
differences of opinion about that. I think we should listen to
all sides and come to a conclusion.
I do know one thing. I do know that my kids run around with
iPods and all kinds of things I don't have time for. And I know
that when we look at the total issue, we cannot, I believe,
just look at the issue of radio standing by itself. I think we
have to look at the totality of the kinds of entertainment
people are looking for.
So I would say that the onus is on these gentlemen to
explain why this would be good to consumers. I think we should
give them the chance. They should deserve the chance to plead
their case, and there is a thing that I have learned in the 10
or so years I have been on this committee.
Things are rapidly changing in telecommunications, and the
genie is really out of the bottle. I am not sure that
government can or should attempt to put the genie back in the
bottle. I think sometimes we might be better off letting the
marketplace decide that as well.
But again I have an open mind, and I am going to listen to
the testimony, and I think that this committee has a lot of
discussion. And I welcome the people who are here to testify,
and I thank you, Mr. Chairman, for your indulgence.
Mr. Markey. I thank the gentleman. All time for opening
statements by members of the subcommittee has expired.
I would like to inform our witnesses that you have just
been an eyewitness to history. This is the largest number of
members of any subcommittee that has ever showed up at 3 p.m to
make opening statements on any subject at any time in my 30
years in Congress.
I know that you probably are wondering what has been going
on, and history has been made this afternoon. So we welcome
you. We thank you for your patience, and you are the main event
obviously. And we are looking forward to your testimony.
We will begin by hearing from Geoffrey Blackwell, who is
testifying on behalf of the Native Public Media, and the
National Federation of Community Broadcasters. Mr. Blackwell is
currently the director of Strategic Relations and Minority
Business Development of the Chickasaw Nation Industries. He is
a member of the Native Public Media Board of the Tribal
Advisors, and he is also the chairperson of the National
Congress of American Indian Telecommunications Subcommittee.
Mr. Blackwell, you have 5 minutes, as does have each one of the
other witnesses, at which point we will go to questions from
the subcommittee members of the witnesses. Please begin, Mr.
Blackwell.
STATEMENT OF GEOFFREY BLACKWELL, DIRECTOR, STRATEGIC RELATIONS
AND MINORITY BUSINESS DEVELOPMENT OF THE CHICKASAW NATION
INDUSTRIES
Mr. Blackwell. Mr. Chairman and members of the committee,
my name is Geoffrey Blackwell, and I am honored to represent
Native Public Media and the National Federation of Community
Broadcasters at today's important hearing on the future of
radio. Native Public Media represents 33 Native Public radio
stations in the United States. Native Public Media's primary
focus is strengthening existing American Indian and Alaska
Native stations and promoting ownership for more native
communities by serving as an advocate, national coordinator and
resource center.
These stations serve as critical platforms for education
and language preservation, public affairs, and cultural dialog.
They meaningfully inform the understanding of localism. Their
abiding commitment is to serve the diversity in their
communities. For example, on the Hopi reservations, remote
mesas in northeastern Arizona, KUYI broadcasts a children's
program called Shooting Stars every morning during the bus ride
to school. Produced at the request of the students, the program
engages community members and elders to read stories in both
the Hopi and English languages.
The Tohono Od'ham Nation, which is responsible for almost
100 miles of our critical international border with Mexico
relies on KOHN to keep its citizens informed of the local news,
national threat levels, and Homeland Security activities. With
these experiences, we have recommendations for Congress and the
relevant agencies to improve the status of non-commercial
radio, particularly Native radio.
The first priority must be to increase Federal funding and
explore other avenues for supporting Native public radio
stations, including full support for the Corporation for Public
Broadcasting and the Public Telecommunications Facilities
program and additional funding for community stations on needs-
based criteria. In this regard, KILI, the Lakota radio station,
went dark last year after being struck by lightning. Native
Public Media provided KILI with proposal writing expertise that
helped the station secure emergency funding from the PTFP
program and CPB to repair and resume operations. We learned
that even small grants can make a big difference.
Second, support Native Public Media's Blueprint Initiative,
which envisions a complete inventory of how Native communities
access and relate to media, both traditional and new advanced
telecommunication services. The Blueprint Initiative will find
the critical information on which new solutions can be
premised.
Third, ensure that there is adequate public notice in
advance of the FCC's upcoming application window for full-
power, noncommercial, educational licenses.
Fourth, pass legislation to lift the prohibition on the
FCC's issuance of certain low-power FM licenses.
Fifth, protect the basic ability to stream content or post
podcasts at affordable rates without receiving prior consent
from major telecom providers. In addition, access should be
increased for Native programming on satellite radio services.
The FCC should hold an official hearing on media ownership
issues related to Indian country as they continue in their
review of the existing rules. We need an in-depth examination
of these issues.
And finally, Congress should provide customized tools to
the FCC in the form of new, legal authorities and directions
based on basic recognition of Federal Indian law and policy to
work directly with Native nations, open new proceedings, and
create new rules to address barriers to entry and streamline
regulatory processes. The vast majority of Native Americans
have no access or only limited access to media that represents
their voices and interests. Native-owned radio stations account
for less than 0.3 percent of the over 13,000 radio stations in
the United States. There are more than 562 federally recognized
tribes, yet we only have those 33 licenses for Native public
radio stations. For Native people across the country, it is not
about having access to big media. It is about having access to
any media.
Profound changes are taking place in the way Americans use
media, and Native Public Media is focused on helping Native
communities leverage new digital and wireless platforms that
will help make it possible to close the existing media divide.
Critical to our efforts is ensuring the policymakers understand
the impact of their actions on Native communities.
In closing, Native nations face several challenges in
deploying critical emerging information in telecommunications
technologies while they work to develop sustainable economies.
As you address the appropriate legal framework in a world of
technological convergence, Native nations and organizations
remain ready to consult with you.
Mr. Chairman, members of the committee, on behalf of Native
Public Media, thank you again for the opportunity to testify
today. I look forward to answering any questions you may have.
[The prepared statement of Mr. Blackwell appears at the
conclusion of the hearing.]
Mr. Markey. Thank you very much, Mr. Blackwell. Our next
witness is Peter Smyth, who is the president and chief
executive officer of Greater Media Incorporated. He is here
today representing the National Association of Broadcasters.
Since March 2002, he has been the president and CEO of Greater
Media, the parent company of 19 AM and FM radio stations in
Boston, Detroit, Philadelphia, and New Jersey. We welcome you,
Mr. Smyth. We thank you for your willingness to testify today.
Whenever you are ready, please begin.
PETER SMYTH, PRESIDENT AND CEO, GREATER MEDIA, INC.
Mr. Smyth. Thank you. Good afternoon, Chairman Markey,
Ranking Member Upton, and subcommittee members. My name is
Peter Smyth. I am the president and CEO of Greater Media, which
owns and operates 20 local AM and FM stations in Boston,
Detroit, Philadelphia, and New Jersey and 13 community
newspapers in central New Jersey. I am testifying today on
behalf of Greater Media and the National Associations of
Broadcasters. I am here to voice NAB's opposition to the
proposed merger of the country's only two satellite radio
companies, XM and Sirius.
But first, I want to make several important points about
the future of terrestrial radio. As the CEO of Greater Media, a
company that just celebrated its 50th anniversary in radio, I
am optimistic about radio's future. I have learned from working
for a family-owned company that a radio license is not a right,
but a great privilege.
And we need to treat that accordingly, respecting listeners
and delivering quality content to serve their needs. As part of
this obligation, we are transitioning to the digital
technology, HD radio, to provide the quality sound and
additional data that digital service offers. We are also
focusing on compelling local content that creates the emotional
bond between listeners and their communities.
My colleagues understand that localism is our franchise and
ours alone and that we must retain that unique connection to
listeners that no other medium can provide, which brings me to
the satellite radio and the proposed XM/Sirius merger. As I see
it, there are a multitude of reasons for the Government to
reject this monopoly.
First, satellite radio is a national service that provides
very similar programming to each listener across the country.
There are only two such services, and they compete ferociously
against each other in the marketplace. The undeniable fact is
that Mr. Parsons and Mr. Karmazin want government permission to
take two highly competitive companies and turn them into one.
Second, XM and Sirius are two companies with a track record
of misrepresenting their intentions and not following through
on the rules that have been established and failing to correct
those past transgressions. For example, XM and Sirius for years
have operated terrestrial repeaters in blatant violation of FCC
rules. XM operated more than 142 repeaters at unauthorized
locations. And not to be outdone, Sirius constructed at least
11 repeaters at locations different from the city they told the
FCC, including one in Michigan built 67 miles from the
authorized location. 67 miles.
Moreover, both XM and Sirius promised the FCC nearly a
decade ago that they would have a receiver that receives both
XM and Sirius. That receiver does not exist today. And now,
many local radio companies have complained to the FCC that
explicit X-rated programming from satellite radio bleeds
through to their local stations without warning. Viewed against
this pattern of behavior, why would the Government trust these
two companies to form a monopoly?
Third, if the Government-sanctioned monopoly is approved,
consumers will be the loser. Subscription prices will rise
because there will be no competition to restrain a monopoly.
Jobs will be eliminated. Innovation will suffer at a crucial
time in our evolution. Neither listener nor advertiser will
benefit. Put simply, private, corporate interests will benefit.
The public will suffer.
Fourth, XM and Sirius, by their own admission, are not
failing companies. Their current highly leveraged position is
due to extraordinary fees paid for marketing on-air talent, $83
million in stock that Sirius awarded to Howard Stern, and on
top of the $220 million bonus. But even with these costs, XM
and Sirius have made clear they can succeed without a merger.
Let us remember that when the FCC allocated spectrum to Sirius
and XM in 1997, it specifically ruled against a single monopoly
provider.
I have heard these companies claim the monopoly should be
granted because local radio competes with XM and Sirius. Let me
be very clear here. Local radio does not compete against
satellite radio in their national market. Local broadcasters'
signals are not nationwide and are not subscription-based. We
are not a substitute for satellite radio.
Five years ago, the only two nationwide DBS satellite
licenses, EchoStar and DirectTV, tried to blaze a remarkable
similar trail when they proposed to merge. It failed. Indeed,
the FCC decided unanimously the merger was not in the public
interest. For these reasons and others, I respectfully ask that
this Government-sanctioned monopoly be rejected.
I thank you, and I look forward to your questions.
[The prepared statement of Mr. Smyth appears at the
conclusion of the hearing.]
Mr. Markey. I thank you, Mr. Smyth, very much. Our next
witness is Robert Kimball who is the senior vice president for
RealNetworks Incorporated. He serves also as general counsel.
We welcome you here today, sir.
ROBERT KIMBALL, SENIOR VICE PRESIDENT, REALNETWORKS, INC.
Mr. Kimball. Thank you, Chairman Markey, Ranking Member
Upton, and members of the subcommittee. Thank you for having me
today to talk about Internet radio. RealNetworks, the company I
work for, invented streaming media back in 1995, and last year
we used that technology to deliver over 1 billion song plays to
our customers, and we did pay royalties to the musicians for
the use of that music.
I am here on behalf of both RealNetworks and the Digital
Media Association, a group of leading Internet media companies,
including Apple, Microsoft, AOL, Yahoo, and several small
Webcasters.
I have good news and bad about the future of Internet
radio. First, the good news. Internet radio provides a rich and
diverse music experience that listeners love, and as a result,
they buy more music. This is great for us and for the music
industry.
Now, the bad news. Internet radio suffers from serious
statutory bias that undermines our competitive opportunity
because we are forced to pay higher copyright royalties than
our competitors, and our innovation opportunities are severely
restricted. This anti-Internet bias is bad for consumers and
competition, and it reduces our industry's ability to address
your media consolidation concerns. Today, Internet competes, at
least in part, with terrestrial and satellite radio. Speaking
for RealNetworks, we believe that the XM/Sirius merger should
be put on hold until Congress creates a level playing field to
enable us to fairly compete with the larger consolidated
company. Without fair competition, further consolidation in a
favored industry is just bad policy. Internet radio is simply
radio programming transmitted over the Internet. Several
thousand Web-based radio services offer literally hundreds of
thousands of Internet radio channels to satisfy every
conceivable musical taste.
Our unlimited supply of diverse channels and features
ensures that every artist can find a fan, and every fan can
find a station. Internet radio enables consumers to choose a
station by more than its call letters or number on the dial.
With Internet radio, listeners can identify genres, time
periods, artists, and moods, and the service can provide them a
relevant station.
Internet radio enables independent musicians, who never get
airplay on big radio, to find an audience. We enable the small
town listener to have access to music and information that
local radio simply cannot provide. And while listening to our
stations, our audience can read music reviews, learn more about
the artists and buy concert tickets. We are good for local
musicians and local economies. We also provide simple ``buy
now'' buttons to sell the music on the spot if you like the
song you are listening to. Every one of these features benefits
recording artists, especially those who get no airplay on big
radio or even on satellite radio. So with all this opportunity,
what is stopping us from competing fairly against satellite and
broadcast radio?
First, the Copyright Act establishes a tiered royalty
structure that requires Internet radio to pay the highest
royalties by far while exempting broadcast radio from any sound
recording royalties. Just last Friday, the copyright royalty
board imposed a new minimum of $500 per channel, a charge that
is likely to kill the very diversity that makes Internet radio
so compelling. If this fee is not overturned, one can easily
imagine Web radio looking more and more homogenized, like
homogenized mass market radio.
Second, the Copyright Act does not regulate broadcast radio
programming. It only lightly regulates satellite programming,
but it greatly inhibits the programming flexibility for
Internet radio companies.
Third, the Copyright Act allows satellite radio and
terrestrial radio companies to offer recording devices and
portable radio services and allows them to encourage recording
of their radio stations. Meanwhile, the Copyright Act
punitively regulates personalized Internet radio, which
essentially eliminates our most compelling features.
And finally, while broadcast radio has no copyright
litigation exposure, Internet and satellite radio have massive
exposure that is a powerful deterrent to innovation. If we
guess wrong about a Copyright Act provision, the penalty is
$150,000 for every song performed. I have personally had to
kill several innovative projects due to legal uncertainty and
the potential financial catastrophe that could result from
statutory damages.
As Tim Berners-Lee testified in this subcommittee just last
week, the Internet has become a more mobile and wireless
environment. In the next several years, WiMax and other
technologies will strengthen mobile broadband capability, and
the Web and Internet radio will always be on. And it will
always be portable.
In the future, a mobile phone, just like this one, is going
to have three radio services available: broadcast, satellite,
and Internet. We will compete even more directly against one
another, especially in a world where terrestrial radio is
moving to digital HD broadcasts. Why should we pay three
different royalties and have three different sets of
programming regulations for radio delivered to the exact same
device?
The current state of Internet radio is dominated by two
facts. We pay higher royalties than our competition, and we are
subject to more restrictions on our ability to innovate. The
future of Internet radio and perhaps all digital radio
competition may largely be dictated by whether there is a level
playing field. Thank you.
[The prepared statement of Mr. Kimball appears at the
conclusion of the hearing.]
Mr. Markey. I thank the gentleman very much. Our next
witness, Mel Karmazin, is the CEO of Sirius Satellite Radio.
Mr. Karmazin has had several top jobs in the broadcasting
industry. He founded Infinity Broadcasting, one of the largest
owners and operators of radio stations in the United States.
Working his way up, he eventually became the president and
chief operating officer of Viacom. Mr. Karmazin joined Sirius
in November 2004 as chief executive officer. We welcome you,
Mr. Karmazin. You may begin your testimony.
MEL KARMAZIN, CEO, SIRIUS SATELLITE RADIO
Mr. Karmazin. Thank you very much, Chairman Markey,
Congressman Upton, Congressman Barton, Congressman Dingell. I
really appreciate the opportunity to be here today.
I assumed that when Chairman Markey invited me to attend
this hearing, it was because he wanted to take advantage of my
40 years in radio on this important subject. But in judging by
the comments that have been made by the members, I think that
rather than getting into talking about the health of the radio
business, that I spend some time talking about the Sirius/XM
merger, since it seems to be on everyone's mind.
So let me begin by saying that before we decided to attempt
to do this merger, both Sirius and XM obviously consulted its
boards and had advisors in. We talked about whether or not we
believed that this merger could be approved. There would
certainly be no advantage to either company of announcing a
merger if, in fact, it wouldn't be approved. And what the
advisors told us and what we have been operating under from the
time we have announced it is that there are two standards that
we really need to do.
One standard is that we need to make sure that this merger
is not anti-competitive, and the Department of Justice and the
FCC will take a look at whether or not this is anti-competitive
or not. I think that you all have heard from all of these
people talking about the competition that exists in satellite
radio, and we are absolutely convinced that this is not about
two companies becoming one or a duopoly becoming monopoly. It
is absolutely ludicrous for anybody to think that we are not
competing with all of these technologies that have been talked
about.
I also heard that the NAB has a new point, which apparently
is very different than its members, about whether satellite
radio competes with them, because if, in fact, the CEOs of all
of these publicly traded radio companies from Clear Channel to
CBS to Entercom to Cox, in their SEC filing that the CEOs have
all signed off on, they all said that they compete with
satellite radio so it seems a little bit disingenuous to talk
about the fact that satellite radio is not competing with them.
So, No. 1, we have to make sure it is not anti-competitive.
No. 2, we have to make sure that this merger would be in the
public's best interest. And that is what we are prepared to
say. And when we go through the process at DOJ and the FCC, if
in fact it is in the public's best interest, it will get
approved. And if in fact it is not in the public interest, it
won't get approved, and we will move on.
There is some confusion here about what we have said about
pricing, so I welcome the opportunity to talk a little bit
about that to clarify it if there is any confusion. So the
first thing that we said is that because we compete with free,
that the marketplace dictates it. But we can talk a little bit
about how you can hold us accountable for everything that we
are saying. And that is that this deal with not result in
higher prices. Test us, and you can come up with a way of
holding our feet to the fire. We will also provide more
choices.
So in the specifics, if you are a Sirius Satellite Radio
subscriber, you pay $12.95. You will not pay more than $12.95
for that service after the merger. As a matter of fact, we will
give you an opportunity to pay a lower price, because today the
cheapest price you could pay is $12.95. But if you don't want
all the choices we give you, we will give you an opportunity to
have less. So that will be the first time, and the same thing
is true with XM.
And, by the way, Sirius started at $12.95, and 5 years
later, we are still at $12.95. We have also said that if in
fact you like the idea of having some content from Sirius and
some content from XM, where today what you have to do is buy
two radios, pay $12.95 each, that comes to $25.90, that we will
make an offering available for less price. So if consumer
choice and lower prices equal public interest, we think that we
pass the test.
We have also heard some things that are just also not
relevant. From a point of view of serving the rural markets, we
are proud of our track record on how we serve rural markets.
And we think that we are really an asset when you compare us
with the choices that we offer to people in smaller markets
that they don't have a choice.
There was also a point about how we received our licenses
and we paid for that license, to use our spectrum, 10 years
ago. And what we also think is very strange is that if in fact
you would use 1997 policy to deal with what is going on in a
2007 marketplace, but again we will let the FCC decide on that.
So I know my time is up. I don't want to go over, but I
really, really hope you ask me a lot of questions.
[The prepared statement of Mr. Karmazin appears at the
conclusion of the hearing.]
Mr. Markey. Yes, I think you won't be disappointed, Mr.
Karmazin. Mr. Gene Kimmelman is vice president of Federal and
International Affairs for the Consumers Union. He is an expert
on telecommunications policy. He has appeared before this
committee many times in the past. We welcome you today.
GENE KIMMELMAN, VICE PRESIDENT, CONSUMERS UNION
Mr. Kimmelman. Thank you, Mr. Chairman, Mr. Upton, members
of the subcommittee. On behalf of the Consumers Union, the
print and online publisher of ``Consumer Reports Magazine'' we
appreciate the opportunity to testify this afternoon. The new
technologies that have created this explosion of digital
opportunities in radio, in content, create enormous greater
potential for consumers to have all kinds of services.
And it is an exciting time, and for the Congress, we
appreciate you looking into this because, as you look at this
burgeoning marketplace of audio availability, there are a
number of clouds hanging out there that we hope you will begin
to address immediately. First off, you heard talk of low-power
FM and recent findings that there is not the interference that
people had worried about before. We totally endorse Mr.
Blackwell's idea that there ought to be more availability of
low-power FM across the country.
There are many, many groups. You have a submission from the
Prometheus Radio Project for this hearing today, indicating
those who want to offer the service. Consumers want to receive
it. We hope that you will help open this market to new
diversity and opportunities.
The other major cloud you heard about earlier is in this
enormous marketplace, the few minority, the few women owners of
media properties from radio across broadcast and on. Why is
that the case? There clearly is marketplace impediments that
are limiting diverse ownership. We hope the committee will move
immediately to address those issues. Diversity of owners is
very different than programming that is targeted to audiences
but is controlled by few entrepreneurs who do not reflect the
attitudes, the backgrounds of those diverse audiences.
This is an important issue to address, and as you look to
what the marketplace could do, we believe the greatest danger
to consumers are many of the proposals to allow broad
consolidation of media properties that concentrate power in the
hands of a few owners. The great technologies will not serve
the public interest if too few people control these
technologies.
So this afternoon, I'd like to just address the immediate
proposed merger before you to evaluate from a consumer
perspective what this means, the Sirius/XM proposed merger.
Many things have already been said about market definition. Mr.
Terry, I certainly hope that this is not the marketplace of
noise. But looking carefully at what consumers need and what
they use, there is a very distinct difference here between a
mobile, audio, digital service that local broadcasters do not
offer and cannot offer, that for immediate sports programming,
NFL, NBA, Major League Baseball, you can't get on your iPod or
other devices. There are some very unique elements to the
services that XM and Sirius are offering.
And so you can say that a bike and a plane and a train and
a car all compete on some level, but for the importance of
defining a relevant market for competition that keeps prices
down for consumers and options open, that wouldn't make sense.
And we believe in this case this merger suffers from very
severe anti-competitive limitations. And unless Mr. Karmazin,
who is extremely gifted, can show us how there are other facts
not available right now, we don't believe it is in the best
interest of consumers to allow this merger to go through,
either from the limitations of the licenses of the FCC or
antitrust review.
I will just speak for a moment about the price promise. I
very much appreciate Mr. Karmazin clarifying what we could get
for $12.95 and the fact that there will be dual offerings for
less than $25. And he indicates there will be more choices from
this, but I would like you to step back as policymakers, not to
review the merger, but as policymakers to think about if there
were one satellite radio offering, what would you want to do to
lock in that, if that is the appropriate deal that you would be
getting? Do you just trust it in the marketplace that there is
no other mobile satellite radio provider? Or what conditions,
what regulations would you need? And let me ask you this: Do
you think you need two licenses in the hands of one company to
offer that service?
Is it possible that what we are really hearing is if there
are benefits of combining these, we could free up some of the
spectrum from satellite radio for mobile digital television,
for more broadband possibilities? Is there a policy option here
that is really being presented to you that would create more
opportunities for consumers?
We urge you to look at those issues in the context of what
is being proposed in the marketplace. And please help us in
driving more innovation and diversity, and please be skeptical
about consolidation. Thank you.
[The prepared statement of Mr. Kimmelman appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Kimmelman, very much.
Mr. Karmazin, will you permit consumers to buy channels a
la carte?
Mr. Karmazin. No, at this point, we don't have the set-top
box such as what exists in your home. What we will do is offer
more choices, and we might be able to get to a la carte-like
services. But the idea of having somebody pay for two channels,
if they only want two channels, is not something that is a
financially viable alternative in satellite radio.
Mr. Markey. So will prices for consumers stay the same,
increase, and how will anything that you say be binding upon
your company?
Mr. Karmazin. Sir, we are certainly willing to have
discussions with this committee or with the FCC or any
appropriate agency on crafting a timeframe. But I will make it
very clear in answering that question. No, prices will not go
up. Again, if you are a subscriber to one service, it is
$12.95, it will not go up. The only increase in pricing would
be if you were taking content from both companies. And there,
the price comparison is $25.95, and the prices will drop
significantly from that.
Mr. Markey. What is significant? So that if one of them has
the NFL, the other one has Major League Baseball. Now, if
someone wants to get what the company that they now subscribe
to doesn't provide, will they have to pay the full $12.95 in
order to get it, or will there be a discount for that person as
they are now subscribing to the other channel? And how big is a
significant discount? Is that $10 off or only $2 off?
Mr. Karmazin. There will be a significant discount. Without
getting into any specifics, Congressman, because we are not
prepared to come up with a specific number. But I will tell you
that it looks closer to $10 than to $2.
Mr. Markey. Now, on the issue of local content, such as
news, weather, sports, et cetera, not just national content,
there is some concern by the local broadcasters that this
merger will make it more possible for you to provide more local
content which will cut into the local radio stations' revenue.
Could you answer that question in terms of the threat to the
local broadcasting?
Mr. Karmazin. Sure, Mr. Chairman. Our business model does
not provide for us to really do local advertising and local
content. I have heard from different people in the course of
the last 2 weeks where some people would like to see us do more
local programming. And others are looking for assurance that we
are going to do less or no local programming. So we are happy
to work with our regulators. We are happy to work with this
committee in getting a sense as to what it is we are being
asked for. Sometimes we are being asked to do more in the way
of local services, and some people have advanced that. And
other people have advanced doing less. So we don't currently
plan on getting into the local advertising----
Mr. Markey. Do you believe that you are a threat to local
broadcasters?
Mr. Karmazin. Yes, I believe there is a fact that when we
compete with local broadcast, there is no question--and if what
you mean by threat, are they going to be out of business?
Absolutely not. There is an AM/FM button right next door to
every satellite radio subscriber. We are not replacing local
radio. So I don't know what you mean by threat. Do we compete
with them? Absolutely. They compete with us? Absolutely.
Mr. Markey. All right, let us go to Mr. Smyth then. Mr.
Smyth, how do you respond to Mr. Karmazin?
Mr. Smyth. My response to Mr. Karmazin is first of all, I
am a local business. He is a national business. I do not
compete with him on a national business because my signals in
Boston, MA cannot be heard in Lansing, MI or Detroit, MI. If
this merger is put together, he can bring 288 signals into
Boston, MA, where I currently have five radio stations. CBS
would have five. Entercom would have four. I think that there
is a disadvantage in that. Do I compete with him in a national
arena? No, I don't. No. 2, my question is with this terrestrial
repeater, when you start to get into exclusive programming,
there are some concerns there that you can start to see them
come into the local markets. Mr. Karmazin just said that it has
been going both ways. Some people want him in. Some people do
not want him in. From my colleagues, they do not want him in
the local markets. I have never heard anybody say we want you
to come in.
Mr. Markey. Let me get a quick comment from Mr. Kimmelman.
Then my time is expired.
Mr. Kimmelman. Mr. Chairman, I think it is quite clear that
this is a national service that does something unique. It
combines national programming, all Major League Baseball, all
NFL, all NBA, with the potential for local programming. Mr.
Karmazin says he is not really in that business, but he can
offer it. He would offer it on some level. So I can understand
why local broadcasters would fear that this could cherry pick
some of what they offer.
Mr. Markey. And what are the consequences of that, Mr.
Kimmelman, quite quickly?
Mr. Kimmelman. Well, I think that this is something local
broadcasters are going to have to address, whether there is a
merger or not. It is just a greater problem if there is a
merger to them.
Mr. Markey. OK, my time has expired. I recognize the
gentleman from Michigan, Mr. Upton.
Mr. Upton. Thank you, Mr. Chairman. I have got a number of
questions as it relates to the merger request as well. And I
just want to thank publicly both the NAB and Mr. Karmazin for
actually spending a little time with us in addition to the 5
minutes that we are allotted today and down the road too.
Mr. Karmazin, are you able to succeed as Sirius or XM,
either one able to succeed if the merger does not come through?
Mr. Karmazin. Yes, I believe so.
Mr. Upton. And let me go into one of Mr. Markey's questions
to clarify. One of the things that you indicated was that you
would perhaps look at lowering prices if you looked at perhaps
a smaller service field or a smaller number of stations, not
exactly a la carte, as we would like to imagine, but perhaps a
couple of fewer stations. And the question that I have as we
relate is one has NFL, the other one has baseball. I don't know
what the subscription time period is. When someone signs up for
the service, are they billed monthly? Are they billed yearly?
Do you have a choice?
Mr. Karmazin. Yes, sir. As a matter of fact, you can sign
up for a lifetime subscription for $495. It is done, and you
don't have to pay any increase ever.
Mr. Upton. The question I was going to ask though, can you
do a 6 month/6 month so in essence you could sign up for NFL in
the winter and then maybe in March, with the change of Daylight
Savings Time, be able to move to the spring games and get
baseball through September, October?
Mr. Karmazin. Currently, you need a separate radio. So in
the case today of both services, you have to buy a separate
radio. But there is no minimum required. I would say the vast
majority of our subscribers do an annual plan or more, but you
can subscribe on a monthly basis. And if you wanted to, to pay
for a month, disconnect, and go to another service, you can do
that.
Mr. Upton. Now, I am co-chair of the auto caucus with Mr.
Kilby, an important venture in Michigan for sure. So if I buy a
new Ford, and I signed up with--is that Sirius or XM?
Mr. Karmazin. That is Sirius.
Mr. Upton. What happens if I buy this new Ford, and all of
a sudden, I decide that I want the NFL and MLB to be part of
that? What do I do as that relates to the receiver that I have
in my vehicle?
Mr. Karmazin. If the merger goes through,what we would hope
to offer you, as a Ford customer, is the ability to get both
services on your same radio.
Mr. Upton. You will be able to do that without changing the
receiver or the device that I would have or not?
Mr. Karmazin. That is correct, and that is where we made
the analogy of saying that today you would have to buy the
second receiver to attach to it and pay a second subscription,
$25.90. And going forward, there would be a substantial
reduction, and you will be able to get it both on the same
receiver.
Mr. Upton. Mr. Smyth, you are shaking your head.
Mr. Smyth. If I understand the question properly, sir, you
asked if you had a Sirius radio in a Mustang, and the merger
came together today, you would have to have another radio in
that car. You could not receive both XM and Sirius on a Ford
radio today. It is inoperable. It would cost the consumer more
to do that, and Mr. Karmazin was saying that. I mean he is far
wiser than I, but I was somewhat of a doubting Thomas to see
how did that----
Mr. Upton. My question is who is going to pay for this
receiver that I am going to get?
Mr. Smyth. The consumer.
Mr. Upton. And what is the cost going to be?
Mr. Karmazin. Congressman, what we are saying is that every
single receiver that exists today is not going to be obsolete.
And in order for the consumer who has that Ford vehicle today,
if the companies merge, you don't need a second receiver. That
we will be able to provide you with content to your existing
receiver without a new receiver and at a lower price than you
currently have the choice today.
Mr. Smyth. You are saying that the same chip will receive
the same two signals from XM and Sirius?
Mr. Karmazin. Is that a question you want me to answer?
Mr. Upton. Yes.
Mr. Karmazin. We didn't say it is the same chip. What we
said is that we would feed that content via the satellite into
that respective service. So we would take XM's contents. It is
not very complicated. You have been in the broadcast business a
long time. We would take the baseball content, if we got
permission, and feed that on the Sirius system into the Ford
vehicle.
Mr. Upton. My time has expired. Thank you.
Mr. Markey. We are going to have a series of roll calls on
the House floor that will require all of the Members to leave
here in approximately 5 minutes. We will then recess for about
15 minutes and come back and reconvene for perhaps only 15
minutes then, at which point, there will be another couple of
votes on the House floor, after which we will have to make a
game time decision as to what we do. But at this point, I will
recognize----
Ms. Eshoo. Mr. Chairman.
Mr. Markey. Yes?
Ms. Eshoo. Mr. Chairman, can I have a unanimous consent
request that members be able to put questions in writing to the
witnesses?
Mr. Markey. Without objection.
Ms. Eshoo. Thank you.
Mr. Markey. I thank the gentlelady. Let me say this, with
the indulgence of the witnesses, I would like to keep the
subcommittee hearing going even after the second set of roll
calls. There are bathrooms easily accessible to everyone here
that perhaps during the break we can take advantage of. I turn
now to recognize the vice chairman of the Telecommunications
Subcommittee, the gentleman from Pennsylvania, Mr. Doyle, and
ask him at the conclusion of his questions to just gavel the
committee into recess.
Mr. Doyle. Thank you, Mr. Chairman. Mr. Chairman, I want to
set the record straight. My colleague and friend Mr. Stupak had
said I had given up alcohol for Lent, and I want you to know
that is not true. I gave up brussels sprouts.
Mr. Markey. You are Irish, after all.
Mr. Doyle. I want that on record, yes.
Mr. Karmazin, you have acknowledged that both XM and Sirius
have limited channel capacity. So if you have to cut XM
stations to make space for popular Sirius content like Howard
Stern and NFL, for those who want to pay extra to get that,
aren't the people who just want XM and want to pay $12.95,
aren't they going to end up paying the same price for fewer
stations than they get right now?
Mr. Karmazin. Congressman, there has been tremendous
technology advancements including where you are able to squeeze
more channels into the same bandwidth. Compression technologies
that enable you to use the same bandwidth that you have but to
be able to make more choices. We compete with free radio, and
if we don't satisfy these subscribers for $12.95, we don't have
a very good business model. So to your point about whether or
not we are going to be able to accommodate a number of
additional channels on top of the core channels that we have
today, we believe that we will technically do it with no
disadvantage to the Sirius or XM subscriber.
Mr. Doyle. Excellent. So for that XM subscriber that says I
like what I have, I just want to pay $12.95, he is going to get
what he asks?
Mr. Karmazin. He is going to get pretty much. I can't tell
you exactly what because we constantly make changes. So as an
example right now, we are not using all of our channel capacity
today. So we have the ability today to put more channels into
our existing service than we are using right now.
Mr. Doyle. Mr. Kimmelman, when Dish Network tried to
purchase DirectTV in 2002, a merger that would have combined
the only two satellite TV providers, you told the Senate
Judiciary Committee, and I quote ``that the merger could offer
consumers some significant benefits.'' So what is different
about the satellite radio market that instead of seeking
conditions, you seem to outright oppose the merger?
Mr. Kimmelman. With cable rates going up three times the
rate of inflation, we were looking to satellite to try to do
something to bring down prices for consumers. The last time I
looked, free over the air radio is not going up in price. So
there is a huge difference here into who the adjacent market
is.
Second, the merger of DirectTV and EchoStar that was
proposed included a significant offer of spectrum divestiture,
at that point, to Cablevision systems which sought to offer a
new competing video service. If something like that were on the
table today, that would be a very interesting addition to the
other kind of promises Mr. Karmazin has made.
Mr. Doyle. Mr. Karmazin, in response to that last comment
by Mr. Kimmelman, what is the possibility of that?
Mr. Karmazin. Yes, if you take a look at the way people get
free over the air television, well over 90 percent of the
people get it from a pay service. So when you take a look at
the market, you are looking at a cable and two satellite
companies. So therefore, I think that merger didn't happen
because there were three companies becoming two. When we talk
about today, the vast majority of all the people are getting
satellite radio in addition to their free radio. 216 million
cars have free radio. So the market is very different between
satellite radio and the situation with DirectTV and EchoStar.
So we really don't see it as analogous at all. We see that they
didn't have free as something to hold their pricing back. And
it is just economics. I don't know if there is anybody who sort
of follows it a little bit. But when you are trying to get
subscribers and you are charging $12.95, you are more apt to
get a subscriber than if you are going to charge $14.95. So if
the option is free, why on Earth would there be higher prices?
But we said, you know what? Forget whether you buy into that
argument, OK. If you don't believe the economics, then we
believe that we should be held accountable to everything we are
saying. And we are prepared to be accountable for everything
that we are saying.
Mr. Doyle. Thank you. I want to ask Mr. Kimball my final
question. Mr. Kimball, I have gotten a lot of calls from
constituents about the Copyright Board's recent decision to
increase the royalty fees, which I personally think is
outrageous that Webcasters pay for music right now. If the
Webcasters die off because they can't afford the new fees,
doesn't that cut into the argument that they are going to be
able to compete with satellite radio?
Mr. Kimball. I think that is exactly right. I think the
problem we have today is that the entire Internet radio system
is at a disadvantage with satellite radio. We pay a higher
royalty than the satellite system pays, and we are under a
different standard to set that royalty than satellite pays. And
I think until we have a level playing field, the Internet will
not be able to compete fairly with satellite. And that is why I
think that this merger should certainly be reviewed very
carefully and, I think, put on hold until we have a legislative
framework that is fair. The Internet should not be
disadvantaged.
Mr. Doyle. Thank you. This hearing is now adjourned until
after the next vote. Thank you. In recess, not adjourned. In
recess. Stay put.
[Recess.]
Mr. Markey. Mr. Kimball, what is your reaction to the
Copyright Royalty Board's decision on Internet radio royalty
rates, which rejected all of the arguments made by Webcasters
and instead adopted a per-play rate proposal and made this
proposal retroactive through 2006?
Mr. Kimball. Well, to say we are disappointed would be, I
think, a bit of an understatement. I think we are very
concerned that the Copyright Royalty Board procedure is still
lacking a fundamental understanding of how the Internet works,
what the economics are on the Internet, how small Webcasters
will be affected by this kind of a ruling, which for companies
like RealNetworks that are in the subscription business is not
as significant as for the small Webcasters, some of whom are
going to have to pay multiples of their total revenue in back
royalties. And how they handle that is really a complete
mystery to them. Companies that are small mom and pop
organizations that could have $100,000-plus back royalty
obligations is absolutely disastrous. And what is more is the
$500 per channel minimum really has a significant impact on the
diversity of programming offered on the Internet. That is truly
one of the best things about Internet radio, that we can
provide so many different channels to satisfy so many different
interests. And with a $500 per channel minimum, companies like
Live through 65 and Pandora and RealNetworks that provide tens
of thousands of channels of content, that of every possible
conceivable genre and configuration, whether you like classical
music and rockabilly, we can put those two together, if that is
what you happen to like. That is all going away with a $500 per
channel minimum.
Mr. Markey. OK, thank you, Mr. Kimball. Mr. Blackwell, do
you think the FCC should separately allocate non-commercial
radio licenses for tribal lands or other rural areas where
spectrum is abundant, rather than allocating all non-commercial
licenses simultaneously? Tell us how important low-power radio
is to your people in your community.
Mr. Blackwell. Well, Chairman Markey, I suspect that you
asked me that question perhaps because I am the only man at
this table that wasn't afraid to wear a necklace to this
hearing. Perhaps I am here because localism and diversity are
one of the most important elements of this dialog of this
inquiry. In Indian country, oh that we had the ability to
compete with some of the entities that are sitting at this
table. We are among the most underserved areas in the United
States. We would welcome a particularized inquiry by the
Federal Communications Commission as to new services in Indian
country, specific to Indian country.
Mr. Markey. OK, great. Mr. Kimmelman, can you address that
issue briefly?
Mr. Kimmelman. I think it would be a tremendous service to
the unique local community needs to separately allocate
spectrum to ensure that we really take care of the needs of the
tribes. And it would in no way harm any of the other
competitive concerns about spectrum allocation the FCC needs to
address.
Mr. Markey. Mr. Karmazin, Mr. Kimmelman noted earlier that
the FCC only had 25 megahertz of spectrum to auction for
satellite radio services. It subsequently allocated all of the
available spectrum, 12.5 megahertz each, to Sirius and to XM.
You noted that compression technology allows greater
efficiency. So given the efficiencies generated by the merger,
can Sirius and XM operate together on a single allocation of
12.5 megahertz?
Mr. Karmazin. Mr. Chairman, what we want to do is make sure
that this is not in any way, shape, or form disruptive to the
American public. So if you have a Ford vehicle, as was talked
about earlier, for at least the next 10, 15 years, we are going
to have to provide service into that Ford vehicle. And the only
way we can provide that service into the Ford vehicle is
through our network. And the same thing would be true for XM.
So we are going to put up three more satellites over the next 3
to 5 years, each one costing about $300 million, and each one
having a life term of about 10 to 12 years. So the first time
that we would be able to consider something like that would be
somewhere in the 2017, 2018 where we would be able to have the
ability to use one platform. And again, if in fact, there was
some interest in that area in that timeframe, of course, like
anything else, we would be open to it. We are not spectrum
hogs. We bought our spectrum. We paid for it, and if, in fact,
at any time that we have excess spectrum, we would certainly be
open to hear any suggestions in that regard.
Mr. Markey. OK, so, Mr. Kimmelman, could you comment on
that?
Mr. Kimmelman. Well, I am just curious, Mr. Chairman, that
if we can compress a lot more and get the same current base in
a lot less capacity, at least consider as a matter of policy, I
don't know if it makes sense in the merger context, but
certainly as a matter of policy, what could the Government get
for 12.5 megahertz through an auction? And as we have done with
the digital television transformation and progression, consider
holding consumers harmless, making sure that monies are used to
take care of the person with the Ford, the person with embedded
base radio equipment that would need a new receiver. I would
just be curious to know whether there is a way to actually get
more of a benefit by having the spectrum made available for
other purposes, broadband, mobile, digital, holding consumers
harmless. And if it is believed that it would be better to have
one satellite radio company rather than two, cover all these
bases.
Mr. Markey. So let me understand, Mr. Karmazin. When you
swap out the equipment for one half of your subscribers and
then would you continue to operate both systems simultaneously?
Mr. Karmazin. No.
Mr. Markey. And for how long, if that is your choice, would
you operate both systems?
Mr. Karmazin. Mr. Chairman, what we have said is that we do
not want the consumers to be disadvantaged because of this
merger and we don't want their existing receivers to be made
obsolete and that we are going to continue to have to operate
on these two networks for----
Mr. Markey. For how long?
Mr. Karmazin. I think I mentioned to you somewhere in the
2016, 2017 area because there will still be consumers out there
who will have a General Motors vehicle that would only be able
to take content from the XM satellite so the Sirius--in other
words, we can do some compression technology and shoehorn a few
more channels into our 12.5 megahertz. But we can't feed their
satellites into our vehicles. And that is why when we are asked
a question about the Ford and getting both content, what we
would do is take the content and put it into our network and
vice versa. What we would need to do if the time came that the
technology was such that we wouldn't need it, we would
certainly be open to it. But that is not for the foreseeable
future.
Mr. Markey. OK, so that's 2016?
Mr. Karmazin. I am making up a year.
Mr. Markey. I understand.
Mr. Karmazin. But it is somewhere in that area.
Mr. Markey. About 2016; and 10 years ago, the FCC had a
rule for interoperable receivers. And I know that because
obviously I was a part here of a big discussion at that time.
And we are only beginning to see them now, 10 years later.
Mr.Karmazin. But, Mr. Chairman, both companies have spent
$25 million on developing an interoperable receiver and we have
developed an interoperable receiver. And if there was any
equipment manufacturer who wanted to make it, we would
absolutely give them our intellectual property so they could
make it. The issue on it is, sir, is that we will not subsidize
it today, and the reason we will not subsidize it today because
it is possible that Sirius would subsidize an interoperable
radio, which would result in XM getting a subscription. It
doesn't make any sense for us to subsidize a radio where we
don't get a subscription. Post-merger we are prepared to
subsidize that radio. We have developed it. We have lived up to
our license. There is not a question. Nobody is going to find
something in that license that said anything other than that we
would develop it. There was never a requirement that said that
we would subsidize it and bring it to the market. We are
prepared to do that in a post merger.
Mr. Markey. Yes, let me go to you, Mr. Smyth. Any comments
in that area?
Mr. Smyth. I would have two comments on that. I think that
if you said 10 years ago that you were going to build an
interoperability capability, then don't say what you can't
deliver. What concerns me today, when you put two companies
together, what happens is innovation is taken out of the
equation. No. 2, I think there is something that I had
mentioned to Mr. Karmazin, and he is far wiser about this than
I. That if you have the Ford car that we used earlier and the
Ford car is the one receiving Sirius programming and you want
to shoehorn in additional channels and their content, that is
going to come in at a lower bit rate. And that audio quality is
going to be depreciated, and therefore if the consumer is going
to be paying more money eventually for that, they are going to
be getting a lower quality at a higher price.
So my question would be if you are waiting until 2016--and
I know that that is a hypothetical date, that is not a fixed
date, but still those are questions that would go through my
mind. Again, the whole digital revolution is about quality of
sound and the ability to use this at its best rates. And I just
think that when you start to get into cutting these bit rates,
there is only so much you can cut them.
Mr. Markey. So, Mr. Smyth, let me ask you this. The threat
that is posed by satellite theoretically to terrestrial
broadcasting is that it lowers the value as well of terrestrial
AM/FM radio stations.
Can you just give me a little bit of a sense of what is
happening in the radio market? As I said, in terms of resale
value of radio stations, what has been the impact of the first
14 or 15 million people subscribing to XM and Sirius in terms
of the values of local radio broadcast stations?
Mr. Smyth. I think in the major markets, the values for
radio stations held a bouquet. I think there is a lot of
different issues. There has been no growth in the overall radio
advertising market over the past 4 to 5 years. I think zero to
negative growth, and I think that that has definitely hurt the
economic viability of it. The issue about satellite really
comes down to when you look at--not on a national basis, I
don't compete with Mr. Karmazin on a national basis, not at
all, I compete with him on the local basis that he would have--
if you combined these companies, you would have 288 signals to
my five. And under current regulations, I am allowed to have
five FMs and two AMs, and that's it.
Mr. Markey. All right, so I got that. Let me go back to Mr.
Karmazin. How do you respond to that?
Mr. Karmazin. I will do anything you want me to, Mr.
Chairman, if this is a debate. So first of all, if HD radio has
the ability of having an improved sound or multiplexing a whole
bunch more channels in it, they clearly are using that spectrum
to shoehorn more stations in there. Second, there is clearly
on, I believe, Greater Media Stations, though I don't follow
them a great deal--they are carrying programs like Sean Hannity
and Rush Limbaugh, which, I guess, aren't local programs. I am
saying it is fine. I don't object to anything that they are
doing. If they want to carry national programming in their
local market, certainly we have no objection to it. I think I
can give you a good answer on how terrestrial radio is doing,
14 million subscribers with satellite radio, is Clear Channel
is about to do an LBO, which is one of the largest LBOs in this
history of business, so I don't see any signs where they have
poverty. If you take the $21.5 billion of revenue that is
represented by what terrestrial radio is doing, our local
advertising, so they do $21.5 billion of advertising revenue.
Our combined companies do $60 million of advertising, $60
million of $21 billion.
Mr. Markey. I'll give Mr. Smyth the final word on this
round.
Mr. Smyth. Thank you, Mr. Chairman. First of all, I am a
local broadcaster, the most successful radio--I ran Magic in
Boston for many years. The reason Magic was successful was
because it was grounded in the community and it is local.
Greater Media does not carry Sean Hannity and the other
individual that he mentioned. I believe that if you look at
national syndication for radio personalities, there is probably
two or three who have ever made it, and that is it. So
successful radio in America is local.
Mr. Markey. Should there be additional public interest
obligations placed upon the radio industry, given that they
will have this new digital service capability?
Mr. Kimmelman. Well, Mr. Chairman, we have had a hard time
having the radio industry and the broadcast television industry
live up to the previous public interest obligations that they
have had.
Mr. Markey. What new ones would you impose? What makes
sense to you as we get into this?
Mr. Kimmelman. I believe Congress ought to look at a
different model for how we approach public interest
obligations. As you do the compression and the multiplexing
that Mr. Karmazin is talking about in the digital era, there is
an enormous capacity for radio and for broadcast television. I
believe they should be asked to share that with the public,
make it available to the public and not try to regulate the
content on those stations but share what has been given to them
for free. And in that way, I think we can have more public
access available on all of these platforms that will be
generated by the community and by consumers rather than by
broadcasters.
Mr. Markey. This is what I would like to continue the
conversation looking at. Back when we did the Cable Act in 1992
and we were looking at what the new public interest standards
should be for the direct broadcast era, for the satellite era,
this committee determined that 4 to 7 percent of the
transponder capacity should be for non-commercial educational
programming from alternative sources. Just briefly, Mr. Smyth,
does that make any sense to you? What do you think about
additional public interest obligations for the local?
Mr. Smyth. Well, I can speak for my own company. I mean we
just introduced a program in Boston where we had the new
Governor, Deval Patrick, has a show every first Thursday of
every month.
Mr. Markey. No, I don't mean program, but I mean a generic
set of rules that are on the books in terms of the public
interest responsibilities.
Mr. Smyth. I think that the broadcaster has the
responsibility to be reflective of what is going on in his
community.
Mr. Markey. So should we put that in the rules as we move
into the digital era, more specifically that is?
Mr. Smyth. I think we have to have more time to discuss
because I think it is very hard to make a generic rule because
each market has different issues and things that need to be
addressed. I think that country radio, in general, has done an
incredible job in helping St. Jude's.
Mr. Markey. No, I understand that. Now, Mr. Karmazin, very
briefly, would you support a 4 to 7 percent set aside?
Mr. Karmazin. Yes, I don't have a horse in that race, and I
will leave it to the terrestrial broadcasters to decide what is
in the public interest.
Mr. Markey. How about in your service?
Mr. Karmazin. Yes, in our service, if, in fact, that is
something that you are asking us to consider what we have said
is that we would be open to considering things in connection
with the merger.
Mr. Markey. I appreciate that. I have to again recess the
committee for about another 10 minutes, and then the committee
members will be coming back. Thank you.
[Recess.]
Mr. Markey. With apologies again to the witnesses, I think
that our attention is now focused exclusively upon you. The
roll calls on the House floor, I think, are pretty much over
for the rest of the evening. So let me turn now and recognize
the gentleman from New Jersey, Mr. Ferguson.
Mr. Ferguson. Thank you, Mr. Chairman. Mr. Karmazin, I
mentioned in my opening statement, of which we had many, last
year I introduced legislation, which I did so because I was
concerned about new, portable devices turning satellite radio
or performance services into distribution services. The new
devices have enabled consumers to cherry pick songs or create
an unlicensed music library without necessarily paying artists
that, frankly, help make radio so compelling.
I am concerned about the same thing happening when HD radio
rolls out. Your company, as I mentioned before, had reached an
accommodation that compensates artists and their record labels
for distributions that are made possible by the S50 and the
stiletto devices. Last week, Congressman Berman mentioned as he
commended your leadership for taking this action, and you had
mentioned that you tend not to like to use the courts to
achieve your goals but to use the marketplace. I said in my
statement that I obviously agree with you on that and I commend
you for that.
But I want to ask about this proposed new company, a merged
company. What is going to be your policy going forward on this
particular issue? And are you going to essentially adhere to
this perspective with the new merged company?
Mr. Karmazin. Congressman, thank you. I think you know what
my viewpoint is because we are implementing my viewpoint at
Sirius to where we have obviously made an accommodation with
the various labels to compensate them for this service. So that
will give you a sense as to what I believe should be done.
After the merger, I will be the CEO of the combined company,
and all I can say is that you know my viewpoint on the subject.
But there is obviously a court action that is taking place as
we speak. I have no idea if, in fact, before the merger is
approved hopefully that there will be a result of that either
through a negotiation or what. My hope is that we can continue
to have a terrific partnership with the music industry because
their content is very valuable to us. And we are paying for it.
Mr. Ferguson. I want to pick up also on something that Mr.
Boucher had referenced earlier, this recent Arbritron survey,
showing that satellite radio currently, I guess, accounts for
3.5 percent of all radio listening in the fall of 2006. The
survey also found that satellite subscribers actually spend
more time listening to traditional radio than to satellite
radio, which I think is interesting, at the very least. Given
these findings, can you reply, I guess, or address NAB's
concerns or the suggestions that this is going to create a
monopoly? Is that an accurate characterization of the market
right now?
Mr. Karmazin. Congressman, first of all, my comment on that
3.4 percent is that I am sad about it because I certainly would
like it to be higher.
I think that it is really very disingenuous. We play
music. Terrestrial radio plays music. We play sports.
Terrestrial radio has sports. We have talk. They have talk. It
is hard to see how they are not, in fact, competing in fact and
we are competing with them. I just don't even begin to see it,
and I have to believe that the fact that they are here today
must be for some reason. They are not at the global warming
conferences that took place today. They are at the satellite
merger today. So they must have a greater interest in satellite
radio, and if they don't compete with it, I don't know how they
should be worried about that. They should be worried about
global warming, and they weren't at that hearing.
Mr. Markey. I was at both hearings.
Mr. Ferguson. We were trying to keep things light here, but
now we have gotten very--you piqued the chairman. I appreciate
that. Mr. Chairman, that is all the questions I have right now.
Mr. Markey. The gentleman from Texas, Mr. Green.
Mr. Green. Thank you, Mr. Chairman, and I wasn't at the
global warming conference. I surely wouldn't want Congressman
Markey not to think I am really concerned about global warming.
Mr. Karmazin, you know my concern. You heard my opening
statement about satellite radio cherry picking a low cost, and
I think they do compete. I think satellite radio and my
terrestrial radio, my over the air competes. And my concern is
about picking low-cost radio services without the high-cost
services. You are doing your job as a salesman today in being
real flexible about whatever conditions. But if DOJ and the FCC
determines the merger is in the public interest, I would expect
numerous conditions to be applied to protect localism and
consumers. My concern is with the past history though of
satellite operators over the years about repeaters, receivers,
and the attempts to evade the commitment of the national
service, can you give us some assurance of our fear of that?
Mr. Karmazin. Sure, Congressman. I don't think it is proper
for any company to violate any FCC rules. I have been a
licensee of the FCC for the better part of 40 years, and you
should play by the rules. And the FM modulator issue and the
repeater issue are things that should not have happened. So
that is clear. But those things don't challenge the character
of us as a licensee or our ability to do this merger. And just
as an example, this week a very large number of broadcasters
were fined for payola rules. And a number of companies have
paid fines dealing with political advertising and indecency,
and we are not suggesting that Clear Channel shouldn't be
allowed to do their multi, multi-billion dollar transaction
because they have violated various rules in the 30 or so years
that they have done it. So, yes, we believe in following the
rules. I apologize even though I wasn't here at the time, but
it took place in our company, and we should be playing by the
rules. And I assure you that we will continue to play by the
rules, and if we make a mistake, then there should be a
penalty, just like there was on payola, or just like there was
where Univision just paid a $24 million fine for violating
children's programming rules on television. I don't see those
two related, other than that we should be a good corporate
citizen, and I believe we are.
Mr. Green. Well, I don't know about comparing Univision
with decency because I know there has been some discussion
about requiring satellite radio to also match the decency
requirements that, for example, Univision or some of our over
the air radio has to compete with.
Mr. Karmazin. And I think the answer on that, sir, is the
fact that one of the great interests on indecency was
protecting children, and there was no mechanism at the time,
and I still believe today, to where you can have a radio that
gets the Boston radio stations and you can block out that
station from coming through that clock radio or that car radio.
We are a subscription service. You need to pay $12.95 in order
to get that service. If you don't want any of our content, we
have the ability to block it from that receiver. You have the
ability to block it. We broadcast the Catholic Church channel.
There are some people in our subscription service that don't
want that channel. You can block it, and it never comes into
your home, and you have paid for it. So therefore, we think
that it is a very different model than the free over the air
model where children have access to all of these radios. So I
think it is different.
Mr. Green. Well, I also understand because I was waiting
for Congressman Upton or Congressman Dingell because I bought a
Chevy Tahoe, and I have, what, 90 days of satellite radio. And
there are things, I was hoping to have the Astros, because up
here in DC, even the Washington Post doesn't cover them. But
there are things that I could see how you would compete. And
again, the concern I have is that the things that I listen to,
that Amber Alert. Congress was involved a few years ago to make
sure that my local TV and radio stations would have Amber
Alerts and things like that.
Mr. Karmazin. And we would like to do it, Congressman. In
other words, we are hearing sort of little conflicting things.
So in some ways, people are saying we don't want to give the
consumer that much choice by allowing satellite radio to do
some of this content. And what we are saying is: do you want us
to do Amber Alerts? Because we are. But if you are saying we
shouldn't do local things like Amber Alerts, then someone needs
to tell us. We are hearing again conflicting things.
Mr. Green. No, I am not saying you should do it. If you are
going to compete with over the air terrestrial radio, then you
ought to have the same hoops they jump through, which would
include decency requirements, even though you have a
subscription service. And that is the concern because again I
can see why people would both want a subscription but also with
taking away local ad revenue, we could end up with many, many
fewer stations. If Congressman Walden is trying to sell his, I
am sure the value of them would go down very quickly.
Mr. Karmazin. Yes, I know there are differences. Again we
paid for our spectrum, and terrestrial radio broadcasters have
not paid for their spectrum. We pay royalties to performers,
and terrestrial radios don't. So I think that there are a
number of areas where we are different and again coexist. In
other words, we are not trying to say that terrestrial radio is
not doing a good job.
Mr. Green. I think that shows I have run out of my time.
Mr. Markey. The gentleman's time has expired. The gentleman
from Illinois, Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. And just to follow
up, Mr. Karmazin, that is kind of the schizophrenia that I was
mentioning in the opening statement because I really do support
my local broadcasters because of local interest. But the
reality is, in the post-Katrina world, there may be some
benefits in the digital carriage, and we just can't dismiss
that. But if we say do it on the one hand and don't do it on
another. So it is good public policy concern, and I don't have
any answers. But I readily admit the schizophrenia that you
observed is what we are observing also.
Mr. Kimball, Internet radio clearly reaches across states,
not to mention countries. But can Internet radio promote
localism?
Mr. Kimball. Absolutely. One of the great things about
Internet radio is that it is very simple and very inexpensive
for anybody to set up a channel from anywhere. So it doesn't
require that you have the kind of capital to put up a satellite
for $300 million or buy a radio tower. You can get free, open-
source software in your own media room connected to the
Internet and be broadcasting your own Internet radio channel
with local information. I have that in my small hometown. We
have local guys who love the weather and put up all the
information about the weather. It is the same thing for radio.
You could put together a channel that is about local bands, the
local music scene, local concerts, local information and put
that up on the Web. And it would be extremely inexpensive to do
that, but for the CRB minimums and some of the royalties that
you would have to pay, which frankly the broadcasters don't
have to pay at all, and which the satellite companies pay less,
we would just like a level playing field for those small, local
broadcasters to flourish.
Mr. Shimkus. Thank you. Mr. Blackwell, you indicate in your
testimony that the Internet streaming and satellite
transmission of radio is helping Native American audiences. Can
you elaborate on that?
Mr. Blackwell. Thank you very much for that question. I do
believe that every platform that is represented at this table
is utilized to one level or another in Indian country. And one
of the challenges, however, is for Internet service. We like
broadband service in Indian country. While telephone service
nationwide is about 95 percent, telephone service in Indian
country is somewhere just south of 70 percent. There is no
reliable data for broadband development, for the deployment of
broadband services. One hears rumors that it is 5 percent or 8
percent. Those are just rumors. What we need are better metrics
to be able to answer that question accurately. But it does
certainly have great possibility, as each of these services
does in Indian country.
Mr. Shimkus. Thank you. Mr. Smyth, can you talk about the
transition to digital, and how is it going, and what benefits
do you see from that?
Mr. Smyth. I would be glad to, Congressman. Thank you for
asking. I think it is a gradual evolution. Today we have about
1,100 stations that are broadcasting in HD quality on their
primary channel. I can tell you that in Detroit, for example,
we own a station, WRIF, and RIF-2 has become a station that is
really targeted towards kids between the ages of 12 and
probably 18. It has given access to local bands in the
community. It is programmed by a programmer who is probably 21
years of age. It has got the buzz of Detroit, MI today, and
what it does is it gives them great access and affordability
where normally they wouldn't find those in other venues.
So I also think that the HD-2 channels will have a
multitude of different effects as we move forward. I think in
terms of the community, that they will be able to offer
literacy channels. I think they will be able to work on Head
Start. I think they will be able to do a lot of other different
things that people really haven't thought about today, and I
think that those will have community and economic benefits to
the people that own those. I know, and as I said earlier, you
know, we are doing an Irish channel in Boston, kind of obvious.
But I do think that the limitations are only in the creative
people's minds, and I think that what you have to do when you
move into the digital world is try to take back as many of
these barriers to success as possible and open the floodgates
to creative license.
So I feel pretty good with what we are doing, but we have
got a long road to go. I think Congresswoman Harman said it
earlier. Wal-Mart has just racked the product, and we are
starting to get some good retail distribution. And I think we
will just get some good distribution in Detroit very shortly.
Mr. Shimkus. Well, since the chairman found that chair, I
am going to move the previous question. No.
Mr. Green [presiding]. Whatever you would like, sir.
Mr. Shimkus. That is right. No, I will end by saying Mr.
Karmazin, I was in another hearing this morning on global
warming, and I talked about being the Neanderthal because I am
a Creationist. And that is probably not politically correct,
but I do have concerns on the decency issue, and I have been on
that side of saying it is going over the airwaves. We should
have standards. So I just want to put that on public record and
hope that we can help clean up the airwaves a little bit. And
with that, I yield to Mr. Green, yield back my time.
Mr. Green. Do you believe Eddie Markey gave me the gavel?
Mr. Shimkus. Take a chair. That is what I would do.
Mr. Green. The Chair recognizes Congressman Walden.
Mr. Walden. Hey, Mr. Chairman, did you want to get into
global warming now? Well, you have the gavel.
Mr. Green. I am just glad my colleague from Illinois didn't
call me a Neanderthal on global warming.
Mr. Walden. Again, I appreciate having this hearing today,
and you have heard a lot about indecency and all. I think, Mr.
Karmazin, you were here when we had the discussion on the
wardrobe failure, I think, during the Viacom era and CBS, and
so you have been here before us. And we have dealt with those
issues. Now, I want to ask a couple of questions. Mr. Karmazin,
you have said repeatedly, and so have your counterparts at XM,
you bought your spectrum, in a sense, from the FCC. You paid
for your spectrum, right, your license?
Mr. Karmazin. Yes, that is factually correct.
Mr. Walden. And was that in an auction?
Mr. Karmazin. I was not there at the time.
Mr. Walden. Sirius, though.
Mr. Karmazin. Yes, Sirius paid $80 some odd million, and XM
paid $80 some odd million for that spectrum.
Mr. Walden. Right.
Mr. Karmazin. I assume that there was an auction. I assume
it had other people bidding for that spectrum.
Mr. Walden. So, Mr. Smyth, don't broadcasters occasionally
show up bidding in an auction for spectrum today?
Mr. Smyth. I would say that----
Mr. Walden. The answer is yes.
Mr. Smyth. Yes, they do.
Mr. Walden. Let me assure you the answer is yes.
Mr. Smyth. Yes, they do.
Mr. Walden. If going to an auction and getting the
allocation of the frequency, why is that different between him
and you then in terms of how you are managed? It is different
because of the legacy rules that are in place, right?
Mr. Smyth. Correct.
Mr. Walden. Now, I think Mr. Karmazin made an interesting
reference to the fact that the rules under which you all
operate date back to 1997.
Mr. Smyth. We were granted the license in 1997, and I think
what I responded to was a question where a statement was made
about the two companies owning it. That's correct.
Mr. Walden. The monopoly issue.
Mr. Smyth. Yes.
Mr. Walden. And the rules at that time, as I understand
it--I have not gone back and read them--said two companies
won't be merged. Two separate, so we have a competing
environment out there in this particular product line of
delivering national satellite audio.
Mr. Smyth. Yes.
Mr. Walden. That was the theory.
Mr. Smyth. Yes, I know I am in the minority by not being a
lawyer.
Mr. Walden. That will be two of us.
Mr. Smyth. I do not believe it is a law. I mean it is not
as a rule. I don't believe it is a rule. I think it was a
policy statement that was made at the time the license was
given, but I don't believe that if you were to go into the
rulebook of the FCC there is such a rule.
Mr. Walden. I try to avoid that book if possible.
Mr. Smyth. It doesn't mean that that is still not the
belief, but that is just the fact.
Mr. Walden. Because I was going to say that we operate, as
broadcasters, under the 1927 rules, the 1934 rules, the 1996
Act. And so I think that we see this industry evolving. The
thing that is troubling to me, whether or not the merger makes
sense, and then that will get argued out somewhere else, it is
the issue of this hearing, which is the future of radio. And as
I see it, the over the air free broadcasters in the communities
are providing a service at no charge. So anybody in America
basically can turn on a radio. They get the entertainment or
information. They can push a button if they don't like a
channel. Somebody is indecent, they can turn it off or they
can't do exactly what you do. And they can't do subscription
service. All they can do is advertising, and the only thing
that drives advertising rates is audience. And so I know you
would like to get your Arbitron ratings up, and I understand if
I were in your shoes, I would too. But for this committee and
for public policy for the country, you say what happens to
those who can't afford $12.95 or whatever your combined fee
might be a month? What happens to them down the road if
commercial broadcasters, who are not only licensed by the
Federal Government, but required to do public interest
obligations, public commentary? What happens to that service
down the road if you and a combined effort become a market
force and take a huge chunk of the audience away?
Mr. Karmazin. Sir, I have been a broadcaster for an awful
long time and I could tell you that the first radio station
went on the air in 1926, KBKA in Pittsburgh. It was a
Westinghouse station. It is still one of the top two radio
stations.
Mr. Walden. How old is satellite?
Mr. Karmazin. Five years. From the point at which we got
our first subscriber. I can assure you that local radio is very
important to the consumer. Free radio will always coexist with
satellite radio, no matter how successful satellite radio is.
And I can give you an analogy, sir. If you take a look at cable
and the local broadcasters, so that the local TV stations,
local ABC and NBC and CBS affiliates, absolutely are vital
today but so is HBO and so is ESPN.
Mr. Walden. Do your local translators, the repeaters, are
they mechanically electronically set up so that you could
insert local programming?
Mr. Karmazin. Yes, I can't tell you whether or not they are
rigged that way, but I can assure you that we have no interest
in using the local repeaters for local advertising or local
programming. That is not our business model. Whether or not
they are rigged that way or they aren't rigged that way is
academic because we have no plans to use them that way. And
again remember what I said earlier, I am sure everything I said
you could figure out a way to hold me accountable.
Mr. Walden. Thank you.
Mr. Doyle [presiding]. Mr. Pickering from Mississippi.
Mr. Pickering. Thank you, Mr. Chairman. I just have a few
questions and again having not taken any position on the merger
but wanting to understand how we can make sure from a policy
point of view that whatever happens is pro-competitive. And so
I just have a few questions, and I know that you have had a
discussion with the chairman, Mr. Markey, as it relates to the
policy at the time your licenses were granted, and there is a
requirement of the policy that there should be two. If the
merger goes forward, my question relates to the spectrum, the
combined spectrum of both companies. Would there be any gained
efficiencies between the merger of the two in such a way that
there could be, as part of the merger condition, divestment of
some of that spectrum so that if there were in the future a new
entrant or a possibility of a new entrant, are you going to use
that spectrum so that you could maintain the policy as you
strengthen the financial standing of your two companies? Do you
understand my question?
Mr. Karmazin. I do, sir, and it is possible that that kind
of technology could be worked out so that the consumer is not
deprived of the service on their receivers today, but it would
probably be somewhere in the 10-year timeframe. And I know, as
you look at things, that may not be that long, because of when
these spectrum things. But we don't see how before 2016, 2017
that that could be done. But it is possible that it could be
done with our next generation of satellites that we can do to
make the receivers, and the way it would work is that we would
design the satellites and the repeater network so that they
could feed either of the radios that currently exist today as a
way of not making those radios obsolete. So it is a possibility
down the road.
Mr. Pickering. What would have to be done to make that?
Mr. Karmazin. I think what would need to be done is that
you would need to get the new satellite configuration to be
able to feed both companies' receivers and terrestrial repeater
networks.
Mr. Pickering. And is there a way to accelerate that
timetable?
Mr. Karmazin. Well, we are going to be launching our next
generation, we mentioned earlier, Congressman, that we have two
more satellites, each one for $300 million that we are going to
be launching over the next 3 or 4 years. Those things have been
committed to. Those things will not be able to handle this, and
we haven't gotten the merger approved. And we are going to be
launching one in 2008. So the idea would be that it would have
to be the next generation of satellites after this generation.
Mr. Pickering. Well, let me ask a hypothetical question.
If, as part of the merger approval by the FCC, they required an
acceleration of that timetable, an upgrading of your
investment, so that it could be possible to give back or divest
some of the spectrum in a more rapid time period so that you
could have a pro-competitive possibility within your market
segment, is that something that would make the merger
impossible, unattractive?
Mr. Karmazin. Yes, I don't think it is possible for us to
be able to do it, but again, I am not an expert on satellites.
If I am going to give you an answer, I just need to make sure
that my answer is right. So without being an expert on
satellites, I don't believe it would be possible for us to
accelerate that timeframe without spending hundreds of millions
of dollars for satellites. And the reason we are fighting so
hard for this merger is that we feel it is justified, but there
is also about $300 million or so that the analysts have said
that are available in synergy. If in fact, we have said, on
pricing, we are going to give the consumer some of that
advantage on synergy, and if, in fact, we are going to use all
of the other synergy for the ability of spending more money on
an infrastructure that we don't really feel serves any purpose,
then it really defeats any of the purpose of the merger. And it
just may not make sense to do the merger.
Mr. Pickering. Mr. Smyth, do you have any comments?
Mr. Smyth. Yes, I do. Thank you, Congressman. First of all,
some of the statements that Mr. Karmazin made earlier about all
the bills in radio, I would remind him that he did run CBS
Radio also. So I wouldn't forget that. And No. 2, I think
important to note here is--that the question that keeps running
through my mind as you were talking, Congressman, is if these
two companies, these individuals have said they could run their
two companies by themselves, they would survive, and Mel just
basically said that if you can reach some of these different
terms you talked about. Why would we put these two companies
together, form one company, and lose all that innovation? Why
would we take that innovation out of the marketplace when the
digital era is just starting to come into its own? And we are
going to take these two companies together, and we are going to
stop that. And again it is about 288 signals going into your
market, your market, your market, where the local broadcaster
in your market can own a maximum of seven signals or eight. And
you are going to have 288 signals. Why? If these companies are
doing well, what you are doing is stopping innovation.
Mr. Pickering. Mr. Karmazin.
Mr. Karmazin. So, first of all, you have that today. I
don't really know what he is talking about. I mean we are
talking about the fact that XM has these channels and Sirius
does today. So that is not new information that there are these
channels in the market. No. 2, the innovation would not be
hampered, and the reason that you would, if the merger is
approved, is because you believe that it is in the consumer's
best interest because they get lower prices and more choice. At
the end of the day, the reason for the merger would be that. If
you don't believe you are going to get more innovation, more
choice, and lower price, then you wouldn't approve it.
Mr. Pickering. But this is my concern. We are going from
two companies to one, and it is a little bit counterintuitive
to say that is more choice. Having said that, I do see some
legitimacy in your argument that there are multiple platforms,
Internet, iPod, radio, traditional as well as satellite. And
your financial health and condition does not appear to be very
strong at this point. So is it a matter of surviving as one or
losing both?
Mr. Karmazin. No, I don't think so. I mean I know it is an
easy argument to make that we have lost $3.8 billion so far
since we have started. We have not made a dime. Probably a low-
power radio station has made more money than we have made to
date. Also the idea is that this last 12 months, we have lost a
billion dollars. We believe that we have a high fixed-cost
business. We have launched the satellites, and when we get more
subscribers, our profitability will improve. So we are not
making a failing company argument. We believe both companies,
if in fact it is decided that this merger is not allowed to go
forward, that XM and Sirius--I believe both will be OK, but I
can speak for Sirius--will be a very healthy company. So this
is not about survival. This is only about whether you believe
the consumer is better off or not.
Mr. Pickering. I appreciate your comments and your answers.
I am concerned that if you draw up the drawbridge and there is
the impossibility of a new entrant, as you go from two to one,
is that pro-competitive or not? And so I just want to see if
over time we can have additional investment, additional entry,
and the innovation that will come from that, the competition
that comes from that, and the choice that comes from that. And
so, Mr. Chairman, I yield back my time.
Mr. Engel [presiding]. Thank you. The gentleman's time has
expired. I yield myself 5 minutes.
Mr. Kimball, in your testimony before, you were talking a
great deal about Internet radio, and I took some notes before
on how Internet radio is the same and is different from over
the air radio, and you were talking about it. Don't you approve
of Mr. Karmazin's point that when we are talking about choices,
we cannot just look at radio, paid-for radio in a box, but that
people can have many choices? They can turn on their AM/FM
radio, or they can go to the Internet or use an iPod. Aren't
you actually making that case?
Mr. Kimball. I actually think the market definition
questions that Mel is going to have to deal with, as part of
getting this merger approved, are fantastically complicated,
and I won't begin to pretend I am an economist who can solve
how you slice that market. It is complex. I do believe that
there are areas in which we compete with satellite radio,
particularly when somebody is in their office or somewhere
where they have an existing broadband connection in their home.
We don't currently compete with satellite radio somewhere like
the car, and how an economist is going to slice that market and
make a decision about where you get market power is very
difficult to say. But I will say that if satellite had a 10-
year running start to build all the radios in all the cars over
10 years, it would be very difficult for a new market entrant
to step in there and win back that car business. And I think
the car is a pivotal place for the use of music.
Mr. Engel. Mr. Karmazin, I again made notes, and you will
excuse me. I don't remember who said it, but it wasn't you,
said that the merger should not go forward, and they compared
it to the EchoStar and DirectTV merger. I would suspect that
you would disagree with that, that you would say that it is not
a parallel. I would like you to explain why it wouldn't be a
parallel.
Mr. Karmazin. While you were out of the room at a vote, I
mentioned it, but if you will allow me to repeat myself. That
in the case of EchoStar and DirectTV, virtually every consumer
gets their television through a cable or satellite. There are
very few people who are getting it with the rabbit ears. There
is probably about 10 percent of the population on a national
level that gets it with the rabbit ears. So in the case of
EchoStar and DirectTV, there were three companies: a cable
company and two satellite television companies, all pay
services that were competing. That was going down to two. In
our scenario--and I have had conversations with this
gentleman's boss about Internet radio and getting into the car
and things that they have planned to do with WiMAX and things
like that, not only are we competing with free, which is very
different than EchoStar and DirectTV, but we are also competing
with Internet radio. We are competing with jacks that are now
inserted into vehicles so you could plug your iPod into it. We
also are competing with cell phones that have content because
802.11 and BlueTooth, you are able to put your cell phone in
your vehicle and be able to get through your speaker system,
through your radio, so you are able to get whatever content
that you have on your cell phone. And there is an awful lot of
talk content. There is a lot of sports content. There is a lot
of music that is on the cell phone. So, unlike EchoStar and
DirectTV, we are competing with all of these options, and
therefore that is what will encourage competition. And that is
why this one is not eliminating a competitor.
Mr. Engel. I have read a lot of the editorials, both pro
and con, and the editorials that say the merger should continue
basically what Mr. Karmazin said and what I had said in my
opening remarks. That when we look at people's entertainment,
we have to look at the whole situation. Mr. Kimmelman, why is
that not the case? Can we really go back to the way things were
10 years ago and pretend that we can put everything in neat
little packages?
Mr. Kimmelman. Absolutely not, Mr. Engel. But the point
here is what segment of consumers is desiring what form of
radio entertainment. You have it at home. You have it in the
office, but there is a unique segment in the car. And it is not
just any car. It is people who drive maybe more than 25 miles
can't get over the air broadcast signals to keep going across
that distance. People who want to hear National League baseball
games from outside their own community or the NFL or the NBA.
There is a unique product that has been developed. I
congratulate Mr. Karmazin's company for doing it well and XM.
More than 14 million people buy it. About 50 percent increase
in subscribership last year, almost 60 percent increase in
revenue last year from subscribers. Yes, I hear all the crying
about the red ink, but they are growing like gangbusters
because a lot of people want this. But that is different from
what you maybe want to do at home, different from the people
who don't drive more than 25 miles. So I would suggest for
competition policy, that is a unique segment of the public that
wants choice, wants competition. And I believe that is a
somewhat unique service. Just like cars and airplanes and
trains are all forms of transportation, on many levels they
don't really compete for people, and I would suggest that that
is the same here. It is not going back 10 years. It is just
realizing the reality. Maybe Internet radio will become that.
Maybe cell phones ultimately will have some of this, but today
they don't compete for that segment of the public.
Mr. Engel. But if I buy a car, and I am locked into XM or
Sirius, and I cannot get the things that I might want to listen
to, why am I not better served if I can get a car and can get
the best of both? Why is that somehow hurting me as a consumer?
It would seem to me that if I have to choose between the NFL or
Major League Baseball, and I get a car and maybe it is already
in and I can only get Major League Baseball, am I not better
served by being able to get both?
Mr. Kimmelman. Well, I think it would be wonderful to get
both, and I wish that we had the interoperable radio so that
people could choose between the one or the other, and it was
promised many years ago. It is now like the consumer, as you
are describing, is held hostage. That we don't have the
interoperable radio so is the only solution to merge? I would
suggest there are other ways in order to get the maximum
choices for consumers at the lowest prices. And if the merger
is not the best way, Mr. Karmazin is offering some concessions.
I think if you get to the point of looking at that, you should
look carefully as to whether you can really oversee those kind
of concessions and still get the maximum consumer benefits.
Mr. Engel. Mr. Karmazin, I would like to give you the
chance to rebut, and then I see our chairman has come.
Mr. Karmazin. I think what we have asked for is that we get
a fair opportunity to present our case, and it is amazing how
people have formulated these opinions without any facts. So we
have yet to file our Hart-Scott-Rodino filing, which we will do
next week. We have yet to make our public interest argument
with the FCC, which we will do shortly after it. But I think
that everyone has already, without the facts, formulated an
opinion. And all we have asked for is that we be allowed to go
through the process. And that if, in fact, our merger is deemed
to be in the public interest, it be approved. And if it is not,
we understand. But to have experts making comments without
knowing what the facts are is a little bit troubling for me.
Mr. Engel. OK, thank you. I am way over my time. I see our
chairman has arrived, so I will vacate the seat.
Mr. Markey[presiding]. I thank the gentleman from New York
for chairing, and that completes the time for questions from
the members. What I am going to ask is each one of you to give
us a 1-minute summation of what it is that you want the
committee members to remember as we are going forward in terms
of all the issues that we were discussing today. What is the
core, one-minute message you want to give to us? We will begin
with you, Mr. Blackwell.
Mr. Blackwell. The first priority would have to be
increased Federal funding, and Federal funding that works in
Indian country, in economically distressed communities. Second,
we need better metrics in Indian country. The Blueprint
Initiative is aimed at getting the information that you can act
on appropriately. Indian country can measure itself well in
this regard. And finally, you should provide customized tools
for the FCC to open up new regulations, to create new
procedures that deal with the challenges, particular challenges
in Indian country.
Mr. Markey. Thank you, Mr. Blackwell. Mr. Smyth.
Mr. Smyth. Thank you, Mr. Chairman, for having us here
today. I applaud your efforts in what you are doing. I think if
I had to leave one impression on this committee, I think that I
would say that we are in the midst of a great digital
revolution, and I think that we should do everything to
encourage that. No. 2, I think that we should recognize that
what we are looking at here today are two companies that can
sustain themselves on their own efforts. Putting them together
for what reason, I don't understand. I think it inhibits
innovation, and I think it causes too much consolidation in the
national radio market. I think that you have to look at this is
that I am a local broadcaster. I compete with Mel in Boston,
MA. I do not compete with him on a national basis. For him to
have 288 signals in Boston, MA and Paducah, KY with a repeater
network sitting out there, I think is something that everybody
should reflect upon. And they should also make sure that the
most successful thing radio has today is its commitment to
public service in the communities that it operates in. And I
hope that we will in that vein. Thank you for inviting me here
today.
Mr. Markey. Thank you, Mr. Smyth, very much. Mr. Kimball.
Mr. Kimball. Thank you, Mr. Chairman. We completely agree
that there is a digital revolution underway, and we ask that
the Internet be allowed to participate in that revolution
without one hand tied behind our backs. There is a clear
statutory bias against the Internet in this space. It should
not matter what method of transmission you use to send your
radio station to this device. In the future, it simply should
not matter, and I think that Congress should do something to
level the playing field before it allows consolidation.
Mr. Markey. Thank you, Mr. Kimball. Mr. Karmazin.
Mr. Karmazin. In my one minute, I would like to say that I
believe that we ought to be thinking in terms of what is in the
consumer best interest and whether or not a combination of
these two companies are going to give the consumer better
pricing and more choice. And if that is the case, there is a
public interest standard in doing it, and there clearly is a
public interest standard from a regulatory point of view that
this merger is not anti-competitive because you have heard all
of these people talking about how we compete with each other.
So I think we would like to have a fair hearing. We would like
to go through the process, and we will deal with what the
regulations think should happen.
Mr. Markey. Thank you, and, Mr. Kimmelman.
Mr. Kimmelman. Thank you, Mr. Chairman. I think we all know
that technology has great promise, but it really means nothing
for us. It cannot deliver us competition. It cannot promote our
democracy unless we have diverse owners of the media, the means
of using that technology to deliver diversity of entertainment,
news, information from radio across all media. And we hope that
Congress will continue to ensure that consumers get those
benefits as the technology progresses.
Mr. Markey. Thank you. We apologize to the witnesses for
the inconveniences of this afternoon. You have greatly
enlightened our committee. We thank you. We wish, if possible,
to work with you over the next several weeks and months as we
are developing policies in these areas. And without objection,
Members will be permitted to ask post-hearing questions of the
witnesses. And the witnesses may also, if they wish, supplement
any comments which they have made or answers to the questions
which they have given here today. Without objection, that will
be so ordered. And with that and the thanks of the committee,
this hearing is adjourned.
[Whereupon, at 6:15 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
DIGITAL FUTURE OF THE UNITED STATES
SPECTRUM OPPORTUNITIES AND THE FUTURE OF WIRELESS
----------
THURSDAY, APRIL 19, 2007
House of Representatives,
Subcommittee on Telecommunications
and the Internet,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:00 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Edward J.
Markey (chairman of the subcommittee) presiding.
Members present: Representatives Doyle, Harman, Gonzalez,
Inslee, Hill, Towns, Eshoo, Stupak, Green, Capps, Solis,
Dingell, Upton, Hastert, Stearns, Shimkus, Pickering, Fossella,
Radanovich, Bono, Terry, Barton.
Also present: Representative Blackburn.
Staff present: Johanna Shelton, Colin Crowell, Mark
Seifert, Tim Powderly, David Vogel, and Jesse Levine.
OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS
Mr. Markey. Good morning. Today we have another in the
series of hearings that we began with Sir Timothy Berners-Lee
on the future of the World Wide Web.
We have sought oversight hearings on the FCC, the NTIA,
digital television, public safety interoperability, and the
radio industry. Today, we look at wireless services.
As television broadcasters move out of TV channels 52 to 69
as part of the digital TV transition, a significant and
valuable amount of spectrum will become available for other
purposes in 2009. Congress stipulated that 24 megahertz of this
spectrum, the area today occupied by TV channels 63, 64, 68,
and 69, should be allocated for public safety use. And last
year's budget bill required the auction of another 60 megahertz
of this spectrum, an option which must begin by January 28,
2008. This upcoming auction presents a huge opportunity to
achieve important public policy objectives, including
addressing public safety needs.
So what should guide the development of the FCC's auction
rules and the band plan for those frequencies over the next few
weeks? The answer is the policy objectives Congress mandated
the Commission to promote in the underlying auction. In
general, the law specifies that the Commission should seek to
achieve the following:
No. 1, the development and rapid deployment of new
technologies, products, and services for the benefit of the
public, including those residing in rural areas, without
administrative or judicial delays.
No. 2, promoting economic opportunity and competition and
ensuring that new and innovative technologies are readily
accessible to the American people by avoiding excessive
concentration of licenses and by disseminating licenses among a
wide variety of applicants, including small businesses, rural
telephone companies, and businesses owned by members of
minority groups and women.
No. 3, using auctions as a way to obtain, for the public, a
portion of the value of the frequencies made available while
avoiding unjust enrichment when using such options.
No. 4, the efficient and intensive use of the spectrum.
No. 5, ensuring that, in the scheduling of any auction,
that interested parties have sufficient time to develop
business plans, assess market conditions, and evaluate the
availability of equipment for the relevant service.
These objectives underscore that Congress knew that simply
throwing more spectrum into the marketplace by selling it to
the highest bidder does not, in itself, create the greatest
value for consumers. Moreover, absent sufficient competition,
the sale of more licenses for additional spectrum does not, in
itself, mean innovative new services and gadgets will
necessarily arrive for all consumers in all neighborhoods or
arrive in a timely fashion.
While it is alluring to budget policy types to raise
billions of dollars, literally, out of thin air,
telecommunications policymakers know that the taxpayers are
also consumers, and the consuming public will get more in the
form of lower prices, innovative new services, increased
service quality, and job creation if the auctions are done the
way Congress intended than any benefit a short-term injection
of cash provides to the Treasury from this, or any, auction.
For this reason, the subcommittee will be watching the FCC's
implementation of the auction law, with respect to these
auctions, very closely over the next several weeks.
Today's panel will also allow us to look at issues beyond
the upcoming auction, including how to get service to rural
markets, how smaller companies can participate, the level of
competition and the policies needed to ensure wireless
competition in the future, how business plans that encompass a
wholesale or open-access model might reach the market, and how
we can best advance public safety interests. Today's panel will
also allow the subcommittee to analyze how the Commission
addresses, in an efficient and equitable manner, requests to
utilize spectrum that is otherwise not being used. With a
market segment as broad as the wireless industry, it is obvious
we could have several hearings. And we may well return to the
wireless area to look at some other important issues in the
coming weeks, such as the so-called wireless policy, use of
unlicensed spectrum, or white spaces, consumer protection
issues, State preemption, public interest obligations,
municipal wireless issues, and others.
I want to thank the witnesses for their willingness to
participate in today's very important hearing.
Let me now turn and recognize the ranking member of the
subcommittee, the gentleman from Michigan, Mr. Upton.
OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Upton. Thank you, Mr. Chairman. Good morning.
I want to also thank the witnesses for testifying today on
this very important issue, and I commend you for holding this
important hearing.
The topic of our hearing today is spectrum opportunities
and the future of wireless, and I think that we would all agree
that the explosion of wireless services and devices is nothing
short of amazing, and the wireless industry has revolutionized
the way that we communicate. I also believe that Congress has
taken some critically-important strides in spectrum policy,
which will help fuel the continued explosion, not to mention
greatly advance the cause of public safety communications.
As a Member coming from a diverse district, I understand
the incredible opportunity that the 700-megahertz auction
presents. The technical properties of the 700-megahertz
spectrum makes it particularly valuable when it comes to
serving rural areas. Carriers can use this technology to cover
large geographic areas in a more economic way, enabling them to
serve regions like southwest Michigan, where customers may be
spread out over a large geographic area.
Between those benefits and the benefits that will come from
the 24 megahertz and $1 billion for public safety, we cannot
allow other factors to delay or sideline that auction or
transition.
The horrible tragedy that occurred just earlier this week
at Virginia Tech further demonstrates the important role that
wireless technology can play in times of crisis. Heartbreaking
tragedy has given us yet another reason and another example for
why we must make this spectrum auction a success.
There are lessons to be learned from the tragedy this week,
and some of them speak directly to our hearing today. I would
like our witnesses to address in their testimony, and I will
ask, how they think we can better use wireless services to
directly, and swiftly, notify students or other large
populations about threats to their safety. Technology currently
exists for as little as $2 per year per student for a text
message-based emergency warning system.
During a disaster, there are many important lifelines of
communications, all of which are instrumental in relaying
important information and, hopefully, saving lives. One
lifeline comes from the communication between first responders.
Another lifeline comes from our local broadcasters delivering
important public safety messages over the radio or TV. And the
third lifeline comes from direct communications, often by cell
phone, e-mail, text messages, between the people on the scene
and their friends, family, and loved ones. And it is so
important. And in a disaster, all three of those lifelines can
be used simultaneously as redundant layers.
I am aware that proposals have been made to combine the
first responders network with the commercial broadband network.
And while I remain open-minded and look forward to hearing this
testimony, I am highly skeptical of proposals to rig the
auction for particular parties. The proposals are very complex,
and the odds that the Government finds the right balance in
advance in such a tight timeframe is not necessarily good.
After 10 years of legislation, plannings, hearings,
roundtables, negotiations, which culminated in the passage of
the DTV Act, I am very concerned about the 11th-hour calls for
700-megahertz rules that may significantly lower the value of
the spectrum in the eyes of potential bidders, thereby
depressing interest in the bidding and jeopardizing auction
proceeds for the billion-dollar Public Safety Interoperability
Grant Program, and the $1.5-billion set-top box program.
While the proposals may have the best intentions and
promise to give first responders preferred access in times of
need, the better course may be to let public safety negotiate
with the winners of the auction, or any other spectrum holder,
for construction of a public safety network in exchange for
sharing of the public safety program. It is not clear why the
Government should be hard-wiring, particularly, business models
into the auction rules at the onset.
Again, I thank you all for being here this morning, and I
yield back the balance of my time.
Mr. Markey. The gentleman's time has expired.
The Chair recognizes the gentlelady from California, Ms.
Harman.
OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Harman. I thank the chairman for yielding and welcome
our witnesses.
Though we are here to discuss the long-term future of
wireless services, we cannot ignore its short-term future,
which is specifically the 700-megahertz spectrum to be
auctioned in coming months.
I listened to the last speaker's comments, and I think I
disagree, to some extent, and here is why. It seems to me that
we are in the process of building out a lot of operable
emergency networks throughout our country. And we are going to
share $1 billion, and maybe $4 billion if money is added in the
conference report on the 9/11 bill. But I am not for a national
collection of operable networks. What I am for is a national
interoperable network. That is the only way that we will keep
our communities safe in the future if we have another terrorist
attack or another natural disaster on the scale of Katrina.
So I do think, in this case, and I may disagree with Mr.
Upton, that the FCC is right to try to chart a course here that
will give clear direction to the auction that we have set up
for much of this spectrum. And I am watching carefully to see
both what the FCC rule, which will come out shortly, says and
what our witnesses have to say about the best way to get this
done. We, obviously, have talented people here. We have an
enormously innovative private sector, and I think through
innovation, like the M2Z idea and some of the other ideas we
are going to hear, will come the right answer, which is to have
this innovation create a space for emergency communications,
which will then pull all these operable networks into true
interoperability. I do not think it will happen if we leave law
enforcement alone. I think we will waste a lot of money and
actually move backwards. I think it will only happen if we
couple law enforcement with our innovative private sector.
And I think that the FCC is the key to do this and clear
and focused oversight by this subcommittee to keep everybody on
course.
Thank you, Mr. Chairman. I yield back.
Mr. Markey. The gentlelady's time has expired.
The gentleman from Illinois, Mr. Shimkus, is recognized.
Mr. Shimkus. Thank you, Mr. Chairman. I will waive.
Mr. Markey. The gentleman from Mississippi, Mr. Pickering,
is recognized.
OPENING STATEMENT OF HON. CHARLES W. ``CHIP'' PICKERING, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSISSIPPI
Mr. Pickering. Mr. Chairman, thank you for having this
hearing. It is of critical importance that we get this right.
The 700 megahertz is the best, and I believe the last,
opportunity for us to have the broadband services in rural
areas across the country. The specific, distinct and unique
characteristics of 700 megahertz for its propagation in rural
areas, being able to cover large geographic territory very
efficiently and with broadband capability is why, for my State
and many States like mine, getting this right with the market
sizes, with the build-out requirements, and for the public
safety, I think, is vitally important.
So I am glad to have this hearing. I look forward to the
witnesses today.
As it relates to public safety, the proposal by a number of
different advocates is worthy of our consideration. I happen to
think that it is more dangerous not to have an interoperable
network than it is to worry about the complexities of the
particular auction proposal.
As we have learned from 9/11 and from Katrina and the
tragedy at Virginia Tech, it is time that we have not only an
interoperable system that is compatible with devices, but it is
critically important that we have a network that serves the
entire Nation, the public safety community and can advance and
advocate very important, pro-competitive principles.
And so I am looking forward to the testimony on that.
I do want to share some concerns of the purported
recommendations or proposal on the 700 megahertz. Even though
this is uniquely and distinctly suited for rural areas, I am
afraid the current proposals are more suited for urban areas,
high density populated areas, and for the larger companies. It
is not as balanced as I would like to see as far as small
markets, mid-sized markets, and having the geographic build-
outs that I think can be effective in keeping the very valuable
spectrum from being squatted, squandered, or speculated in a
way that does not bring us service into rural areas.
And so, I am looking forward to the hearing today and
seeing if we can find the right balance. I believe the AWS
model, the most recently concluded auction, was extremely
successful, and it is a model that we should look to and build
upon as we go forward in this auction, because it did look at
the balance between small, medium, and large, and it is a
balance that I think we should replicate in the upcoming
auction.
Mr. Chairman, thank you for this hearing. I look forward to
the testimony from the panel.
Mr. Markey. I thank the gentleman. The gentlelady from
California, Ms. Eshoo.
OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Eshoo. Thank you for recognizing me, Mr. Chairman, and
welcome to all of our witnesses.
I would particularly like to welcome John Muleta, whose
company, M2Z Networks, is based in my congressional district,
and he has made a very exciting new company, one of the most
exciting, I think, in recent decades. And M2Z is emerging from
Sand Hill Road in Menlo Park, an address that many people from
outside my district recognize.
When we embarked on this series of hearings last month, the
chairman of our committee began the series with one of the most
distinguished individuals in the world, Sir Tim Berners-Lee,
inventor of the World Wide Web. And he told us that wireless
connectivity and mobile broadband services will likely be the
most important development in our digital future. That is quite
a statement that he laid down. So it is important that we
examine the wireless industry and our Nation's spectrum policy
very, very carefully and thoroughly.
It is particularly crucial that we conduct oversight
related to the distribution of the valuable 108 megahertz of
the communication spectrum that will be relinquished by
television broadcasters as part of the digital TV transition.
This spectrum and the 700-megahertz band is considered, I call
it ``beachfront property'' by telecommunications carriers,
because wireless signals, at this frequency range, pass easily
through buildings, trees, and other interference, so it's
highly, highly valuable. You can tell by how many people are in
the room today, I think.
I believe the DTV spectrum offers a historic opportunity to
provide the equivalent of a third wire into the home, an
alternative to telephone or cable broadband access, and that is
why I have supported the efforts in this committee to ensure a
swift completion of the DTV transition. I am very pleased that
we were able to enact a hard date of February 17, 2009 and that
the DTV spectrum auctions are scheduled to occur by January of
next year. I have been waiting for a long time, in fact, since
I came onto this committee in January 1995.
I am encouraged that the FCC is steadily moving forward
with the auction process, but I am concerned that there hasn't
been sufficient attention paid to the auction rules and the
policies that underlie the distribution of spectrum. Without
incentives for new entrants and innovative services to
participate in these auctions, this, what I call ``beachfront''
spectrum property, could become, what I call, the ``new wing of
the mega hotels'' that already dominate the shoreline.
So if the bulk of the spectrum that becomes available is
purchased by incumbent wireless carriers, many of whom are not
utilizing all of their current capacity, I think we will have
lost a once-in-a-lifetime opportunity to create new competition
and incentives for new entrants, innovation, and broader
service offerings. The committee's DTV legislation included an
amendment I offered which describes the opportunities of this
spectrum and the FCC's responsibility to promote the deployment
of new technologies, economic opportunity, and competition.
So it is critical for the FCC and Congress to establish a
spectrum policy for these new options that encourages new
entrants and competitive services, and I look forward to
working with my colleagues on the committee and the Commission
to ensure that we don't miss this historic opportunity.
Thank you, Mr. Chairman.
Mr. Markey. The gentleman from Nebraska, Mr. Terry.
Mr. Terry. I will waive.
Mr. Markey. The gentleman from Michigan, Mr. Stupak.
OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Stupak. Thank you, Mr. Chairman, and thanks for holding
today's important hearing.
The digital future of the United States hearings have been
very informative and helpful.
In my district today, we have several wireless hotspots and
entire wireless communities, including Gladstone and Mackinaw
Island. Wireless Internet is fully taking hold in my district.
In fact, just about every day, another marina is deploying
wireless communications, because the people who vacation in my
district expect to have Internet access from their boats when
they dock.
Now is the time to move beyond ``hot spots'' to efforts to
cover entire regions. The 700-megahertz spectrum is the
``beachfront spectrum'' and especially well suited to do the
job. Its propagation properties allow for fewer towers to be
built, making wireless an efficient alternative for rural
America.
But the promise of this spectrum to rural America will only
be realized if networks are built there. That is why it is
critical that the 700-megahertz auction is done right. I have
long advocated for the auction to be conducted in a way that
allows small- and medium-sized carriers and new entrants to
compete. I am encouraged about what the FCC has said in the
past, and I urge the FCC to construct the auction rules in a
way that will maximize both competition and build-out in rural
America.
Of course, public safety is my key constituency who would
benefit from this spectrum. By statute, public safety receives
an additional 24 megahertz. The FCC has several different
proposals before it to determine how public safety can utilize
this 24 megahertz and additional spectrum.
It is important for policymakers and the FCC to carefully
consider public safety's views on the broadband proposals. We
must structure our spectrum policy in a way that allows public
safety to participate in the wireless broadband revolution.
We must also have a spectrum policy that encourages
interoperability, not discourages it. As co-chair of the
Northern Border Caucus and the Law Enforcement Caucus, and as a
representative of a border community, I hear often from law
enforcement, Border Patrol, and Canadian officials about
communications interoperability between the two borders. The
spectrum must be divided in a way that protects the ability of
border law enforcement to communicate with their colleagues
along our borders with Mexico and Canada. Any plans that hinder
law enforcement to communicate should not be tolerated by
Congress.
I yield back the balance of my time, Mr. Chairman.
Mr. Markey. The Chair recognizes the gentleman from
Florida, Mr. Stearns.
OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Stearns. Thank you, Mr. Chairman. And again, I
compliment you on having this hearing.
The wireless industry is, perhaps, one of the fastest-
growing and most competitive sectors in the United States
economy. Congress has, more or less, let the industry alone and
let consumers decide. Obviously, a lot of us think the
consumers are the best judge of this industry. Congress laid
the groundwork, however, in 1993 to create a competitive
wireless industry.
During that time, the number of wireless subscribers has
leaped from about 16 million to more than 233 million today. In
addition, the wireless penetration is now more than 76 percent
of total in the U.S. population.
I think, like many of the members here, we have a
BlackBerry. I have a Treo. And on the Treo, you can stream
video, download video clips, take pictures, and as well as get
your e-mail, and obviously use the phone. So this new
technology is available at our fingertips. And what is so
exciting is that with the continuation of wireless, there will
be even more opportunities for high definition as well as
broadband.
The content is outstanding. For example, when one thinks of
large-content providers, they obviously think of Disney in
Orlando and others and Amazon, Google, and even Yahoo. All of
these folks come to mind. But it is not just these companies.
The sports industry has a tremendous amount of deliverable
content that they would like to provide. Major League Baseball
and college basketball games can be streamed over the Internet
to a compatible device so that rabid fans, I represent the
University of Florida, recent with its championship in both
basketball and football, these rabid sports fans would love to
be able to look at that game with the Buckeyes again, and
again, and again. And they could do it in their spare moments
while they're waiting for the train or the bus. And so we want
to help them out. So this is a simply outstanding technology
that we want to continue.
Now, I imagine that these newer 4-G technologies are going
to require much more bandwidth going forward, so I look forward
to hearing from our witnesses Mr. Chairman, how do they plan to
manage all this required bandwidth, and what are they going to
do to ensure that the users do not experience too much
congestion or other service delay as this amount of data
increases. Do these technologies require the dedicated circuits
for wireless companies to transport voice and data from the
cell towers? If so, who supplies these circuits, and how does
this process work?
I imagine many wireless providers, with the exception of a
couple, do not have a sufficient wireline network to handle
this amount of traffic. The electronics industry is converging
rapidly, and each segment of the telecommunications industry is
reliant upon another to deliver its services. How this process
works and whether or not it is competitive should be a clear
focus of this committee.
And I thank you, Mr. Chairman, and I look forward to this
hearing.
Mr. Markey. The Chair recognizes the chairman of the full
committee, the gentleman from Michigan, Mr. Dingell.
OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Dingell. Mr. Chairman, thank you. I commend you for
this hearing today. And today, we will hear about the future of
wireless communications. We will be focusing on the upcoming
spectrum auction. I expect further opportunities to hear from a
broader range of interests on what American consumers can
expect in the mobile environment of the future.
The Nation's airwaves are a scarce natural resource, and
the Congress is entrusted with the high duty to manage them on
the public's behalf. This committee has worked diligently to
promote competition in the wireless industry, and we have also
worked to see to it that the allocation of spectrum was done
fairly and in the broad public interest. These efforts will,
and should, continue today. It is critical and crucial that
this committee pay close attention to the upcoming 700-
megahertz auction. This auction holds great promise to bring
more competition in the delivery of voice, video, and data
services to consumers. The propagation characteristics make
this spectrum particularly well suited to a third pipe in the
home.
Next week, the Federal Communications Commission is
expected to release a preliminary set of service rules and to
seek further comment on particulars of the band plan.
Unfortunately, the FCC must resolve important questions. These
include the size of available spectrum blocks; the geographic
scope of the licenses; build-out obligations, a matter of
particular concern to me; the structure of small business
credits; the rights of minorities; and whether the band plan
will advance the utilization of public safety spectrum. I am
also concerned that the end result be fair and in the interest
of all and that no special preferences, beyond that required by
the public interest, be afforded here.
I expect the FCC to proceed with a transparent and a sound
auction structure based on the congressional objectives set
forth in the statute, and the committee will monitor these
matters carefully to assure that that is so.
The threshold question here is whether the auction
structure will produce greater competition in the broadband
marketplace. This auction presents an opportunity for new
entrants to emerge as a national broadband competitor. The FCC
should adopt rules that maximize the opportunity for new
entrants to obtain sufficient spectrum.
Next, the FCC must adopt robust build-out requirements to
help speed the deployment of wireless broadband to people's
homes, particularly in rural areas. The auction structure
should provide for licenses of different geographic sizes.
Sufficient blocks of spectrum auctioned in smaller geographic
areas, combined with robust build-out requirements should
produce meaningful deployment in rural and underserved areas.
The auction structure should promote a variety of business
models such that both large and smaller entities have a
realistic chance to obtain spectrum licenses.
Diversity in wireless communications is no less important
than diversity in other communications and media industries.
I expect the FCC to provide smaller companies with a
workable program and sufficient time to prepare for this
auction. I also expect the allocation of spectrum will be done
in the best overall fashion with regard to seeing to it that
everybody gets what is needed, but not more than what is
required for any particular special interest.
Finally, the band plan must promote efficient overall use
of the spectrum. Public safety has a strong need for a
nationwide, interoperable broadband network. Small carriers
seek a nationwide, wholesale provider. Proposals, such as
Frontline, appear to provide a technologically-efficient way to
achieve worthwhile policy objectives while preserving an open
auction format. Installed accountability measures will be
required to assure that the public receives the benefit of such
proposals, as the proposals produce the intended result.
Mr. Chairman, I thank you for your courtesy. I yield back
the balance of my time.
Mr. Markey. The Chair recognizes the gentleman from
California, Mr. Radanovich.
Mr. Radanovich. I thank you, Mr. Chairman. I waive for
questions.
Mr. Markey. All right. The Chair recognizes the gentlewoman
from California, Ms. Solis.
OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Solis. Thank you, Mr. Chairman and Ranking Member
Upton, for holding this very important hearing today.
I want to thank our witnesses for being here and for your
expertise that you are going to lend our committee.
As an advocate for diversity in media, I am pleased that
today's hearing will give us an opportunity to discuss the role
of small businesses in spectrum auctions. And as we all know,
but sometimes need to be reminded of, spectrum is a public
resource. It is not sold; it is licensed. License holders have
a responsibility to act in the public interest, in addition to
the services they provide using spectrum.
As we approach the 700-megahertz auction, we must continue
to examine whether the rules that will govern this auction are
serving the public interest. The auction is one of the most
important opportunities in the near future to encourage
diversity among spectrum license holders. The auction could
also help foster innovative solutions to close the digital
divide and accelerate broadband deployment throughout the
country.
We need to find a balance that protects the public interest
and levels the playing field for spectrum auctions, and I look
forward to hearing from our witnesses today on that topic.
And I am looking forward to learning more about proposals
to expand wireless broadband Internet throughout the country.
As we weigh in on broadband deployment strategies, we must
ensure that minority and low-income communities are not left
behind. Approximately half of the Latino community, about 56
percent, goes online as opposed to 71 percent of whites who use
the Internet.
Proposals such as M2Z Networks' to efficiently use spectrum
to provide free wireless Internet across the country could be
an important part of the broader discussion of how to close the
digital divide. I look forward to hearing more about this
proposal. We must increase access to high-speed Internet and
other communication services for all consumers and eliminate
these disparities that currently exist in minority communities.
Thank you, again, to our witnesses, and I look forward to
hearing from you.
I yield back the balance of my time.
Mr. Markey. The Chair recognizes the gentleman from Texas,
Mr. Gonzalez.
Mr. Gonzalez. I will waive.
Mr. Markey. The gentleman waives.
The Chair recognizes the gentleman from Indiana, Mr. Hill.
Mr. Hill. I will waive an opening statement.
Mr. Markey. The gentleman waives.
The Chair recognizes the gentleman from Texas, Mr. Green.
OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Green. Thank you, Mr. Chairman. I was just checking to
make sure I didn't step in front of you, and I have concern, we
are from Texas, of getting in front of our California members.
Mr. Chairman, I have a full statement I would like to place
into the record. And I am just saying, after yesterday's
interruption to BlackBerry service, even some of those who are
not technologically proficient realized that we can't function
now without the technology we have. And when we see a rollout
of the faster mobile broadband service technologies, such as
WiMAX, I look forward to hearing from Mr. West on his company's
use of WiMAX. WiMAX will offer the wireless convenience of Wi-
Fi, but with greater mobility, and the deployment of this
technology will increase competition and benefit consumers by
offering what is a third broadband pipe. By increasing
competition, companies will be forced to provide consumers the
information and service they want at speeds they want, or these
consumers will find another service that can.
We also have an opportunity today to look at the plan for
public safety and use of the spectrum we will set aside during
the digital transition. There are several proposals for
addressing public safety broadband needs, and I am not
convinced the proposals put forward to this point are the best
to the public safety and the consumers, but I believe a public/
private partnership of some kind to address the public safety
broadband needs deserves attention. And while the recent
proposals from Cyren Call and Frontline Wireless, who are here
today, have generated a great deal of controversy among
wireless carriers and policymakers, even Verizon Wireless
recently made some proposals at the recent Southern Governors
Meeting, which are interesting. And I encourage all our
panelists today, along with others involved in public safety
communications, consider innovative solutions involving
commercial wireless providers and the public safety. To make
more efficient use of our valuable spectrum that will be set
aside for public safety, a public/private partnership would be
more economical for creating a public safety broadband network.
And maybe compromise is not possible, but since we have a short
window of opportunity, all parties should engage in good faith
negotiations about their options.
Given that timeframe, the FCC will likely be the source of
any plans to involve public safety in the upcoming 700-
megahertz auction, but Congress has an important role.
Mr. Chairman, before I close, I would like to also note my
concern with the upcoming public safety grant distribution by
NTIA and DHS. Apparently, these funds it has now been decided
will be divided into 50 blocks and according to formulas for
the States to distribute. I am very concerned that this
approach will not produce tangible benefits and
interoperability in our major metropolitan areas of the
country, which are the primary terrorist targets of our
country. Hopefully, our subcommittee will continue our strong
oversight on the public safety grant distribution to see what
benefits we will actually see from that $1 billion that now
will be divided into 50 parts. And again, we will see what
happens in our States, if they actually get to the higher-risk
areas instead of what we have seen happen with our other
funding in Congress.
So, I yield back my time.
Mr. Markey. The gentleman's time has expired.
The gentlelady from California, Ms. Capps, is recognized.
Ms. Capps. Thank you, Mr. Chairman, for holding this
hearing and to our witnesses for appearing and your testimony,
and I will submit my opening statement for the record.
Mr. Markey. The gentlelady will reserve her time.
The gentleman from Washington State, Mr. Inslee, is
recognized.
Mr. Inslee. I waive, Mr. Chairman.
Mr. Markey. The gentleman from Washington State reserves
his time.
The gentleman from New York, Mr. Towns.
Mr. Towns. Thank you very much, Mr. Chairman.
OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK
Let me begin by thanking you and Ranking Member Upton for
holding this hearing.
It is important that we understand what the future holds
for our constituents in the wireless arena. It is our
responsibility to oversee how the public airwaves are used,
with special attention to public service requirements, build-
out requirements, mitigation efforts, equipment, compatibility
and public safety requirements.
The upcoming 700-megahertz auction will bring a new
generation of products and services to our consumers and
improve the way our public safety professionals communicate. I
look forward to working with my colleagues to ensure that the
benefits of this spectrum are maximized in a positive way for
the public.
Let me say this. The wireless industry has been a huge
success for consumers and the economy. Wireless customers are
pleased with their choices. The use of these services has led
to tremendous productivity, gains for businesses and families,
and has contributed billions in taxes and fees to our
Government and has spurred innovation and competition all over
the world. Just look around here, on any given day, and you
will see everybody checking their cell phone.
I look forward to hearing from the witnesses today on how
best to manage this spectrum. Each of them has an important
perspective to contribute. There have been a few hiccups in
spectrum management in the past, and we must admit that.
It is my hope that the testimony today will help us
determine the best way to move forward. Our constituents want
us to make sure that none of the spectrum goes unused.
I am a primary sponsor of the Telecommunications
Development Fund, which uses auction's deposit interest to give
small telecom startup access to capital. And I am particularly
interested in assuring that it receives maximum funding from
the auction. This will require that the spectrum be auctioned
under the most competitive process without conditions that
reduce its value. I also want to make sure that the designated
entity program works so that small and minority businesses can
participate and win.
On that note, Mr. Chairman, I yield back, and I look
forward to hearing from the witnesses.
Mr. Markey. All right. That completes all opening
statements by members of the subcommittee. Other statements for
the record will be accepted at this time.
[The prepared statement of Mrs. Capps follows:]
Prepared Statement of Hon. Lois Capps, a Representative in Congress
from the State of California
Thank you Chairman Markey for holding another important
hearing on our country's digital future.
At the earlier hearings this subcommittee has held, I have
called on the FCC and NTIA to do a better job measuring and
encouraging broadband deployment in the United States.
Study after study has shown that the United States is no
longer the leader in broadband deployment and access, and this
could have dire effects for our economy in the future.
Most Americans have just one or two choices for broadband
access today--cable or DSL, and some don't even have those
choices.
We need to do more to promote a third and fourth pipe into
homes, and I'm pleased that we will be hearing from companies
like Sprint, Frontline, and M2Z that have innovative ideas to
provide Americans with wireless broadband access.
The upcoming 700 MHz auction could be a great opportunity
to increase quality, choice, and competition in the wireless
and broadband markets.
It's important that we keep the DTV transition on track so
that we can get the spectrum into commercial use quickly and
also to provide the 24MHz of spectrum to improve
interoperability for our brave first responders.
I want the FCC to ensure that the auction rules allow small
businesses to compete for this valuable spectrum.
----------
Mr. Markey.We will now turn to our very distinguished
panel, which consists of Mr. John Muleta, who is the chief
executive officer of M2Z Networks. Mr. Muleta also served as
the wireless bureau chief at the Federal Communications
Commission and as a vice president of PSINet.
Ms. Shelley Spencer is the president of Wirefree Partners,
a small wireless company. Ms. Spencer has been actively
involved in managing and forming wireless companies for over 15
years. Mr. Victor ``Hu'' Meena, Mr. Meena is the president of
CellularSouth, a rural cell phone company. CellularSouth is the
largest privately-owned wireless carrier in the United States.
Mr. Barry West is the chief technology officer and
president of mobile broadband at Sprint Nextel Corporation.
Prior to joining Sprint, Mr. West spent 35 years at British
Telecom. Ms. Janice Obuchowski is chairman of Frontline
Wireless. She is also a former head of the National
Telecommunications and Information Administration. And Mr.
Michael Gallagher is a partner at the law firm of Perkins Coie.
He also served as the head of NTIA for the Bush administration,
and more importantly, as a chief of staff for a member of this
committee, Rick White.
So, we welcome each of you to our committee today. You will
each have 5 minutes to make your opening statement.
Mr. Muleta, when you are ready, please begin.
STATEMENT OF JOHN B. MULETA, CEO, M2Z NETWORKS
Mr. Muleta. Mr. Chairman and Ranking Member Upton and
members of the committee, my name is John Muleta, and I am the
co-founder and CEO of M2Z Networks, and I thank you for the
honor of inviting me to testify on spectrum and our country's
digital future.
As an initial matter, I would like to request that my
testimony and supporting documents are incorporated into the
record of this hearing.
Mr. Markey. Without objection, that will be included in the
record.
[Editor's note: Because of its size, Mr. Muleta's
supporting documents are on file with the committee.]
Mr. Muleta. Thank you.
Let me start by quickly telling you about M2Z.
My business partner, Milo Medin, and I founded the company
in 2005 with the support of three leading Silicon Valley
venture capital firms. Our goal was to use spectrum and
wireless technologies to solve two of the more pressing
problems in the communications industry today. these challenges
are: first, how to provide for affordable, universally-
available and accessible broadband to the over 100 million
Americans today, and their children, who continue to be
stranded on the wrong side of the digital divide, to our
country's ultimate disadvantage; second, how to make better use
of underutilized fallow spectrum, one of the country's most
precious natural resources, with innovative technologies so
that it benefits American consumers of all types and all means,
just as Congress intends spectrum to be used.
In light of these challenges, the key to equitable and
effective use of spectrum is a transparent and timely
assignment process that is driven by well-defined public
interest objectives, such as solving the broadband divide.
There is bipartisan support for this idea, led by the President
and the Speaker of the House, that the public interest today is
best served by a renewed and aggressive commitment to solve the
broadband divide. It is also manifestly clear, despite what you
might hear otherwise, that auctions are not the shorthand for
determining such public interests. In its license application,
M2Z has transparently demonstrated that it is the best and
highest use of the 20 megahertz of unpaired and fallow
spectrum, found at 2155 to 2175 megahertz band.
M2Z is committed to building a family-friendly, nationwide
broadband network that provides the public the following
immediate and direct benefits: access to an always-on, free
broadband connectivity at least six times faster than dial-up;
the filtering of pornography and other indecent material from
the free network so it is safe and accessible to our children;
a free secondary, interoperable broadband data network for
public safety officials and first responders; and payments to
the Federal Treasury of 5 percent of our gross annual revenues
from premium subscription services.
Most importantly, M2Z is using private sector funding to
build this competitive, nationwide third pipe that will reach a
minimum of 95 percent of the U.S. population, all without
taking any monies from the Universal Service's funds.
Today, perhaps the greatest impediment to our Nation's
digital future is the sad fact that the U.S. broadband market
is a duopoly that limits consumer choice and discourages price
competition. This is not a statement that I am making of my own
accord. In fact, both the GAO and the Congressional Research
Service reported this very same fact to Congress last year.
Likewise, the FCC's annual status report on broadband Internet
access shows that incumbent phone and cable operators have a 95
percent market share in the broadband market.
Without a doubt, U.S. broadband consumers are starving for
services and prices like those that M2Z will bring to the
marketplace. As you know, spectrum is a critical, if not the
only, means for new, nationwide, broadband players, like M2Z,
to enter the market and create the vibrant competition that is
needed to close the broadband divide today. M2Z wants to
recognize and thank Congress for having the wisdom and the
vision to mandate transparent and timely procedures that invite
innovative entrepreneurs like us to remedy this problem.
Congress has done so by empowering the FCC with numerous
statutory tools that facilitate the goal of providing universal
and affordable broadband access to the American public.
The FCC can use its statutory tools for authority found in
section 7, section 10, section 309, and section 706 to
immediately act on M2Z's license application. The FCC has
already acted wisely by establishing a full and complete record
on the merits of the M2Z license application. The FCC record
contains uncontested economic analysis as well as the support
of thousands of citizens and Government officials from nearly
every part of America who are in overwhelming support of M2Z's
use of the spectrum. That support is based on M2Zs transparent
and vigorous public interest commitments and I am proud to say
the character of its principles. Nevertheless, but for
Congress's vision, M2Z would not have the means or the
incentive to forward its innovative plans to the FCC, and, most
importantly, to the American public.
In closing, the M2Z team has the technology, has the
capital, has the energy, and the overwhelming public support to
make Congress's call for a broadband future for all Americans a
reality. M2Z has made explicit and enforceable commitments that
will significantly advance the public interest. There is no
reason to wait any longer in granting M2Z's license to provide
a free, fast, and family-friendly broadband network to all
Americans.
So I thank you very much for asking me to speak here today,
and I look forward to answering your questions.
[The prepared statement of Mr. Muleta appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Muleta.
Ms. Spencer.
STATEMENT OF SHELLEY SPENCER, PRESIDENT, WIREFREE PARTMERS, LLC
Ms. Spencer. Thank you, Chairman Markey, Ranking Member
Upton, and members of the committee.
I am pleased to participate today and reflect the
perspective of a small business that has participated over 10
years in spectrum auctions.
[Slide shown]
As you can see from this panel, innovation often comes from
the small, new entrants that are seeking to create new jobs,
create opportunity, and use spectrum in a wise way.
Small businesses like mine are at the forefront of bringing
innovation and new services.
Based on our decades of experience in participating in
spectrum auctions as a small business, we have three
recommendations for spectrum policy that are important to keep
in mind for the 700-megahertz auction.
First, bidding credits have proven critical for small
business participation. Bidding credits allow small businesses
to accommodate for their difficulty in accessing capital and
compete against large incumbents who also come to the auction.
Second, less Government regulation versus more once we
acquire the spectrum and start to run our businesses are
important. Innovation takes different forms at different stages
of a company's life, and without the ability to have a flexible
business plan and adapt to the changing market conditions,
small businesses will not be successful in the use of their
spectrum.
Third, we need adequate and sufficient advanced notice of
auction rules. We are close to May, and this auction, as has
been pointed out today, is supposed to start in January. Small
businesses typically need 6 to 12 months to begin to raise
capital, which we have raised from Sand Hill Road, as well, and
we are closely becoming very close to the close of that window
to have an adequate chance to participate.
As has been pointed out this morning, small businesses were
concerned when the FCC was granted auction authority.
Specifically, Congress recognized that the FCC must design
auction rules so that small businesses and businesses owned by
women, such as myself, and minorities, have an adequate
opportunity to provide spectrum-based services.
To implement this mandate, the FCC established the
Designated Entity Program, which has been used over the past 10
years in many different forms. My company's experience in
bidding on spectrum provides an interesting reflection on how
that program has worked.
In each auction we have participated in, we have taken a
disciplined, business approach. And the first large PCS auction
in 1996 for small businesses, we left that auction, and we sent
our $20 million back to Sand Hill Road, others did the same,
because we didn't want to bid outrageous prices and experience
business failure.
In subsequent auctions, where we did purchase spectrum, we
always honored our commitment to pay in full for those
licenses.
In the late 1990s, we created a company that built a
network in the southeastern United States from the ground up,
creating over 200 new jobs, bringing new competition to the
market, and creating a financing standard that allowed other
companies to follow behind us. Significantly, those companies
were also start-up companies.
Most recently, we raised over $150 million of our own
equity and debt to fund the purchase of 16 licenses. We are
currently rolling out a network on half of that spectrum that
we need for our business, and the other half we are leasing to
Sprint Nextel.
Significantly, despite our success, the last auction of AWS
spectrum shows that small businesses are not faring well under
the current auction rules. The auction results also show that
small businesses are not acquiring spectrum at the same degree
that they participate in the U.S. economy.
According to the last auction results, small businesses by
revenue, value, or designated entities won only 4 percent of
the licenses auctioned in that auction. We hope that will not
be repeated in the auction to start in January.
According to SBA, small businesses fuel economic growth in
our country. Small businesses generate 60 to 80 percent of all
the new jobs in the United States. We are responsible for 45
percent of the private payroll. Small businesses receive 13 to
14 percent or more patents than large patenting firms, showing
we are leaders in innovation. And women, such as myself, own
6.5 million businesses in the United States, generating over
$940 billion in revenues and employing 7.1 million workers.
In wireless, it takes a lot of money to be a small
business. The AWS auction raised $13 billion. T-Mobile spent
over $4 billion. The 10 MHz license in Boston sold for $30
million. Pittsburgh was $10 million. And Detroit cost $50
million for a single, 10-MHz license. Not surprisingly, none of
these licenses were won by small businesses.
Our experience in starting a wireless company leads us to
our second recommendation: less Government regulation of
ongoing business operations versus more is better for small
business success.
While we applaud FCC efforts to ensure that ownership and
control truly rest with small business entrepreneurs,
regulations beyond these standards stifle innovation and the
ability to raise capital. Streamlined regulation is also
consistent with section 257 of the Act, where Congress asked
the FCC to report on any regulations that could eliminate
market entry barriers.
Finally, we need adequate notice of auction and service
rules.
The statute expressly requires that adequate notice be
given to bidders so they have time to develop a business plan.
I regret to inform you that that opportunity is quickly
slipping away.
Thank you.
[The prepared statement of Ms. Spencer appears at the
conclusion of the hearing.]
Mr. Markey. I thank the gentlelady very much.
And now we turn to Mr. Meena. Welcome.
STATEMENT OF VICTOR ``HU'' MEENA, JR., PRESIDENT,
CELLULARSOUTH, INC., JACKSON, MS
Mr. Meena. Thank you for providing this opportunity to let
me testify.
CellularSouth serves all of Mississippi and portions of
four other southeastern States. Most of the areas we serve are
rural areas, and it is critically important that the future of
wireless services include rural customers.
In many ways, this hearing could not come at a more crucial
time. The FCC is preparing to auction the last block of
spectrum suitable for providing wireless services to rural
areas. And it is considering dramatic changes to the Universal
Service Fund. It is important to note that these two topics are
not separate, and the issues are closely linked. Decisions
regarding the 700-MHz auction and USF will determine the future
of broadband services in rural America.
Because of its physical characteristics, 700 MHz offers the
last realistic chance to provide broadband to rural areas.
Lower-frequency spectrum, such as 700 MHz, travels farther than
the higher frequency spectrum, making it ideal for serving
rural areas. By contrast, spectrum in the higher frequency
ranges is abundant and well-suited for serving urban areas.
Today, there is a digital divide in our country. This is
particularly true in rural America. The United States ranks
15th in the world in broadband penetration, due, in part, to
the large rural areas in the United States that don't have
broadband access. Wireline networks have not filled this need,
and broadband access via satellite remains prohibitively
expensive.
The upcoming 700-MHz auction promises wireless carriers a
method of delivering broadband to unserved areas, while USF
support offers the means to provide the service. The Universal
Service system is already in place to aid in providing services
to rural and high-cost areas, and rulemakings should allow, or
even require, carriers to use these funds to deliver these
services to rural America.
In the upcoming 700-MHz auction, carriers should be
committed to serving all customers with the spectrum they
acquire. FCC Chairman Kevin Martin recognized the importance of
700 MHz to rural America in his testimony before this
subcommittee earlier this year when he stated that the FCC
``should consider policies to make sure that people are
actually building out and utilizing the spectrum they are
purchasing in geographic areas.'' We agree with the chairman.
Because CellularSouth is serious about, and firmly committed
to, continuing to deliver advanced services to rural areas, we
support strong geographic build-out rules. This can and should
be done, and it is the only way that rural America will be
built out with 700 MHz.
In the 2006 AWS spectrum auction, the FCC used a well-
balanced mix of small-, medium-, and large-sized licenses,
which allowed numerous carriers to participate. The success of
that auction was due to the significant opportunities available
to small- and mid-sized carriers.
Recent reports are that the proposed 700-MHz band plan is
not even close to the band plan utilized for the AWS auction
where over half the spectrum was licensed on either a CMA or EA
basis.
In order to provide small- and mid-sized carriers an
opportunity to acquire 700 MHz, there must be at least three
blocks of spectrum designated as small CMA licenses or medium-
sized EA licenses. And each of these blocks must contain at
least 10 MHz of paired spectrum. If the FCC does not have
multiple small and medium blocks, all regional carriers will be
forced to compete against each other in one or two blocks of
spectrum, while the large carriers and others will have the
very large spectrum blocks to themselves.
We support Frontline's proposal, because it addresses
crucial public safety needs and also provides opportunities for
regional carriers, like CellularSouth, to provide nationwide
broadband services to our customers when they leave our
network. The FCC currently has no rule in place that requires
wireless carriers to cooperate with one another through roaming
agreements to provide customers with automatic access to
advanced wireless services when they travel outside the area
served by their home wireless carriers. The Frontline proposal
addresses this important issue.
As you can see, this is an important time for the wireless
industry and for the future of telecommunications. Decisions
made over the coming weeks may determine whether we succeed in
connecting our entire country through a comprehensive broadband
wireless network.
Thank you, again, for the opportunity to be here today.
[The prepared statement Mr. Meena appears at the conclusion
of the hearing.]
Mr. Markey. We thank you, Mr. Meena, very much.
At 11 o'clock today, there is a Holocaust remembrance
event, and I think it would be appropriate for this
subcommittee to pause at this point for a minute to reflect
upon the Holocaust, but also to remember in our prayers the
families and the victims from Virginia Tech. So let us just
pause here for a moment.
[Moment of silence observed.]
Let us now turn to you, Mr. West. We welcome you. Please
begin your testimony.
STATEMENT OF BARRY WEST, CHIEF TECHNOLOGY OFFICER, SPRINT
NEXTEL CORPORATION
Mr. West. Good morning, Chairman Markey, Ranking Member
Upton, and members of the subcommittee.
I recently became a U.S. citizen, a country that I am very
passionate about, and I am honored to testify before you today
on a topic that I am also passionate about: the future of
wireless technology.
I head a division at Sprint that has a task no less than
launching a service to revolutionize communications. Our vision
coincides with the increasing prevalence of two powerful
forces: the Internet and mobility. We plan to mobilize the
Internet.
Sprint Nextel is using its 2.5-gigahertz spectrum to build
a 4G nationwide broadband mobile network. This transformational
technology is designed to offer consumers and business
customers faster speeds, lower costs, greater convenience, and
enhanced multimedia quality using WiMAX-enabled devices.
With our new network and its speeds of 2 to 4 megabits per
second, four times faster than today's best wireless networks,
you will be able to send photos wirelessly from your digital
camera to a printer, share content you have created wherever
there is Internet access, enjoy high-quality videoconferencing
from your laptop, and do business anywhere.
With our new service, you will be able to have a more
rewarding conversation with full motion video. With my
grandchildren in the UK, I have four wonderful grandchildren, I
look forward to the day when my daughter can take a video
camera with her and a laptop PC and granddad can ``be there''
when my granddaughter takes her first ballet lessons. That can
be a reality.
We are bringing this vision to life. By the end of next
year, we expect to reach 100 million Americans with our new
network. Once in place, our service will enable customers to
obtain business information and personal entertainment easily
and inexpensively in ways in which one day we will wonder how
we lived without, just as we do mobile voice today.
But our mobility broadband services and the broadband
services of others face a significant impediment in the United
States. That impediment is the market failure of last-mile
special access connection.
Sprint Nextel, like other providers, is heavily dependent
on Verizon and the new AT&T to provide last-mile special access
services. At 99 percent of our cell sites in their territories,
we find that either Verizon or the new AT&T is the only choice
to connect our sites back to our network. Sprint Nextel would
very much prefer to have the option to obtain these dedicated
special access circuits from someone other than the parents of
our largest competitors. Indeed, the GAO recently concluded
that there are significant barriers to competition for the
BOC's special access.
In an industry with an FCC-authorized rate of return of
11.25 percent, Verizon reported a 51-percent rate of return,
and AT&T reported 100-percent rate of return on special access
for 2006. These returns were not a 1-year aberration. Special
access rates of return have grown steadily.
Special access will become even more critical as the
capacity needs explode to support the broadband services that
this subcommittee is committed to encouraging.
Congress needs to mandate the FCC impose a price discipline
that the marketplace has failed to provide. Failure to reduce
special access rates will impede broadband development and
competition in the United States.
The FCC also has before it a number of complex policy
decisions in the 700-MHz spectrum band. It is critical for
public safety communications that the FCC not cobble together a
hasty hash of rules for this spectrum. Also, if the FCC is
interested in allowing commercial and public safety entities to
use spectrum jointly, it should consider joint use in other
spectrum outside of 700.
America has the opportunity to foster a revolutionary
change in telecommunications with the marriage of the Internet
and mobility in wireless broadband. Sprint Nextel is building
the most advanced wireless network ever, and we are doing it
now. We have the technology and the know-how, and you can help
bring broadband to America faster by fixing this critical
marketplace failure.
Thank you.
[The prepared statement of Mr. West appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. West, very much.
And now we turn to you, Mrs. Obuchowski. Welcome back to
the committee.
STATEMENT OF JANICE OBUCHOWSKI, CHAIRMAN, FRONTLINE WIRELESS,
WASHINGTON, DC
Mrs. Obuchowski. After 18 years, still talking about
spectrum.
Mr. Markey. Welcome back.
Mrs. Obuchowski. Thank you.
Mr. Chairman, Ranking Member Upton, members of the
committee, thank you for welcoming me back and welcoming
Frontline.
Due to your hard work and your vision, the hard work of
this Congress, and ultimately, the consent of the President of
the United States, our country is about to embark on something
virtually unprecedented, a mandatory, mandated, technology
transition.
As a result, we are asking many of our citizens, often
among the poorer, and some of whom are quite old, to part with
their old television sets, to buy a subsidized converter box,
and to free the radio waves for a higher and better purpose.
This is a good decision, but it causes all of us to reflect
that these airwaves are a public good. Going digital in the
United States should answer many of the problems of public
safety. Going digital in the United States wireless industry
should open access for greater innovation and leadership moving
forward.
Failure is not an option. We must ensure that the radio
spectrum adequately serves those first responders, who, in
turn, serve all of us. This is why this real estate, the
product of this seismic technology shift affecting many, not be
predestined to control by an entrenched few.
OBRA '93, the legislative vehicle that launched this
program, to which you eluded, Mr. Chairman, envisioned this
result when it directed the FCC to rely on spectrum auctions to
promote competition in licensing new spectrum-based services.
Frontline has put forward a proposal that would achieve
common ground, we hope. We build upon the sound work in the
FCC's 9th NPRM to bring a public/private partnership approach
to solve this chronic problem of public safety
interoperability.
By leveraging private-sector investment to yield public
safety benefits, Frontline's proposal is a bipartisan effort to
put these beliefs into action. Frontline was formed by former
FCC Chairman Reed Hundt; Haynes Griffin of Pioneer Cellular;
Jim Barksdale, a high-tech pioneer and a leader of the Gulf
Coast renewal post-Katrina; and Ron Shriram and John Doerr, two
legendary Silicon Valley entrepreneurs and investors, together
with myself.
We propose that 10 MHz of the airwaves be designated to
meet public safety's needs and to promote competition and
innovation after the auction. Public safety will get a free
nationwide build-out of its spectrum, as well as increased
spectrum access. This plan delivers nationwide
interoperability, a goal which public safety has not otherwise
been given the resources to achieve on its own.
The unique propagation characteristics of 700 MHz makes
this the most important auction ever held. The FCC has a once-
in-a-generation opportunity to write rules of the road for the
use and auction of these airwaves that provides advanced tools
for first responders and also innovative choices for consumers.
We believe that robust auctions should promote competition.
We do not believe that these auctions ultimately are destined
for warehousing of spectrum or increased dominance and stifling
of competition and innovation. Frontline's proposal would open
the spectrum to a cross-section of competitors, from technology
innovators to rural entrepreneurs and optimize Government
revenues. To maximize competition for the spectrum for diverse
bidders, the small business credit should be available for this
slice of spectrum, as it is for other spectrum.
An urgent problem we face is a rapidly-consolidating
wireless market. In its most recent competition report, the FCC
found that the wireless market was heavily concentrated. The
wireless market's concentration index stands at roughly 2,700.
The Department of Justice considers an index over 1,800 to be
highly concentrated. This index is growing higher, having
increased by 250 points over the past year.
Finally, Frontline's plan would promote innovation by
proposing open-access requirements on this limited slice of
spectrum, which would be open to any choice of equipment
selected by public safety agencies, individual device users,
and different retail service providers.
That is why the stakes are so high. We need to ensure that
the next market shift in technology advance to emerge from the
backyard of a curious child, comes from an American child, in
an American garage, and can find its way directly into the
American market.
The stakes are so high because we need to make sure that
the public radio spectrum adequately serves those who respond
first to local, regional, or national trauma. To those people
who cynically call this a ``spectrum game,'' let them look at
the people of the Gulf area after Katrina or New York City
after 9/11, and you will realize that this is no game. The
Commission is at a crossroads in spectrum auctions, and this
committee should give it guidance. It can use the spectrum
auctions to provide public safety and open access.
Thank you very much.
[The prepared statement of Mrs. Obuchowski appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mrs. Obuchowski, very much.
And now, our final witness, Mr. Gallagher. Please begin
when you feel ready.
STATEMENT OF MICHAEL D. GALLAGHER, PARTNER, PERKINS COIE
Mr. Gallagher. Thank you, Chairman Markey, Ranking Member
Upton, and the other members of this great committee.
It is an honor to be testifying before the committee where
I started my policy career 12 years ago working on wireless,
Internet, and technology issues for Congressman White.
I also had the privilege of working closely with this
committee during my 4 years at NTIA, where we collaborated on a
number of spectrum policy successes, including the
authorization of ultra wideband technology; finding the
spectrum for 3G that was recently auctioned at the AWS auction;
passing the Commercial Spectrum Enhancement Act, which is the
foundation for the relocation of a billion dollars of Federal
systems; and the successful auction that was just concluded,
doubling the amount of spectrum for Wi-Fi at 5 gigahertz,
opening up the 70, 80, and 90 gigahertz bands for commercial
use, and standing firm on behalf of innovation and private-
sector leadership as the guidepost for the future of the
Internet, rather than turning it over to an international
bureaucracy.
Today, I am pleased to share my views on the importance of
spectrum policy and wireless technologies in our economy today
and the fabulous devices and services that lie ahead.
Spectrum is, indeed, the ``rocket fuel'' of the next wave
of technological innovation. The rapidly-declining cost of
computing power and computing memory, coupled with worldwide
economies of scope and scale and the provision of network
equipment, fused with the availability of capital and limited
regulation, have delivered us to a communications renaissance.
Our Nation's broadband networks are many, growing,
competitive, and an integral part of our economy and the fabric
of our daily lives. We enjoy investments in cable, DSL, fiber,
licensed and unlicensed platforms, and the services offered on
those platforms are developed, launched, and consumed at
breathtaking speed. Things like Google, Slingbox, TiVo, iPods,
YouTube, high-definition DVRs, and now iPhones, Twitter, and
Second Life are now launched in a period of months and receive
vast consumer acceptance in a matter of days. And spectrum is
the resource that gives untethered life to all of them and
those applications that lie ahead.
Convergence is truly at hand, whether it is on the high-
definition plasma screens in this room, on the VoIP phone on
your desk, on your video iPod, and in the broadband-enabled MP3
player camera television in your hand that we curiously still
call the ``cell phone.''
In 1993, this committee gave the FCC auction authority for
the first time. Those PCS auctions gave rise to much of the
success of the industry today. The auction rules were clear,
market-based, and easily understood, and the market responded
to the benefit of the American consumer and the U.S. Treasury.
Since that time, the industry has flourished and delivered
outstanding value to American families and businesses. In 1993,
the industry had 16 million customers. Today, it enjoys over
230 million. It employed 30,000 Americans. Today, it employs
nearly 200,000. Minutes of use in 1993 were measured in the
tens of millions, and today stand at 2 trillion. The average
bill, interestingly, in 1993, was $61.50. It has declined now
to $50.
The committee built on that success with the recently-
concluded AWS auction. That auction delivered $14 billion to
the U.S. Treasury and is paying for $1 billion in new radio
systems for key Federal Government missions. In addition, that
market-based auction has given rise to yet another potential
competitor, the cable companies, who purchased licenses
reaching virtually the entire United States.
Of course, the committee should keep a watchful eye on the
Government's process in clearing that spectrum and delivering
the full use of it to the spectrum winners as soon as possible.
What lies ahead is also exciting. We have four nationwide,
well-resourced, well-capitalized competitors. Plus, WiMAX and
new competitors, like Clearwire, are on the horizon.
Technology evolution paths are also clear, economical, and
robust. HSPA to LTE, CDMA Rev A to Rev C, and enhanced WiMAX,
all promise the potential of 100 megabits per second to your
hand. What is needed is the availability of spectrum.
Unfortunately, our policy record is not perfect. The FCC
strayed from clear, transparent, and market-based principles
where the entity who valued the spectrum the most paid for it,
and those detours cost the American public greatly. The C block
and NextWave experience should not be repeated.
The issue before the committee today is the leadership to
provide in the upcoming 700-MHz auction. I believe the country
will be best served if we move forward with the auction as soon
as possible, we follow the successful precedent of the PCS and
AWS auctions, and deliver the historic endowment of 24 MHz for
public safety, but only for truly modern communications
systems. My colleague and former Assistant Secretary, Larry
Irving, and I published a roadmap for accomplishing just that.
So we should complete the DTV transition. We are committed
to it, as a country. Let us reap the benefits.
And again, I thank you and look forward to your questions.
[The prepared statement of Mr. Gallagher appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Gallagher, very much. And thank
you for mentioning Larry Irving's name so we can have a
seamless transition. The first Bush administration all the way
through the last one at NTIA.
Now, let us turn to the subcommittee members for questions.
The Chair will recognize himself and turn to you, Mr. West,
first.
I am very enthusiastic about your fourth-generation
wireless strategy. What impact has wireline consolidation had
on your plan and your ability to be able to deploy? How has the
consolidation of the wireline industry affected your ability,
as a wireless company, to be able to, in an affordable and
pragmatic way, deploy your technology?
Mr. West. Thank you for the question you have, Mr.
Chairman.
The wireline is an important part of any wireless business,
because the radio signals go from your handheld device to a
tower. But from there, to get to the switching centers and the
points of presence for the Internet, they have to generally
travel over fixed-line services. So the recent combination of
some of the larger Bell Operating Companies into the new AT&T,
the FCC did actually provide a standstill on special access
pricing. But really, it has done nothing to improve the prices
of those services. And the net effect of that is that monies
that would have gone into more aggressively rolling out the
radio technology is now going to be spent with our competitors
in providing those services.
Mr. Markey. OK. Thank you.
Mrs. Obuchowski, Mr. Muleta, you each have intriguing
proposals as to how the new spectrum should be used. You are
proposing a free broadband service that you would provide, Mr.
Muleta. You, Mrs. Obuchowski, are promising a build-out of a
national public safety network. You each, however, are using an
open access wholesale strategy as part of your plan as well.
Could you talk about that model and what you think, that is
what that open access wholesale model offers as a new
competitive strategy in the wireless marketplace?
Mr. Muleta. I will defer to Mrs. Obuchowski.
Mrs. Obuchowski. Well, thank you very much.
We appreciate that wireless is increasingly a nationwide
gain. When I got going in cellular, you could have a regional
carrier, and you would know that if you were leaving that
region, you might not have full coverage, but that was OK,
because you had a discounted plan. But increasingly, it is a
nationwide gain.
So, it is important to new entrants, be they new device
manufacturers, access manufacturers. And it is also important
for rural America that they have access on fair and even-handed
conditions to a nationwide network. So, we see our network
limited, indeed, in terms of spectrum capacity, because it
would be 10 MHz, or whoever wins this spectrum----
Mr. Markey. What happens if your strategy doesn't pan out,
commercially? What happens to the spectrum then? What do you
envision happening?
Mrs. Obuchowski. I want to allude to a red herring from Mr.
Gallagher. There is no aspect of not panning out, financially.
There is no longer incentive payments or delayed payment. So in
terms of the financial commitments, those will be made right up
front.
But, second, in terms of the vision, we believe, because
this is the last and best spectrum coming online, that it is
critical that the FCC require aggressive build-out criteria.
And those criteria would be applicable to us, or anyone else,
and the FCC has the same enforcement authority over any carrier
that----
Mr. Markey. OK. So, your argument is now it is cash up
front, not at the back end.
Mrs. Obuchowski. Absolutely.
Mr. Markey. You have paid for it. If it doesn't pan out,
you have assumed a risk.
Let us go to you, Mr. Muleta. Could you go through your
wholesale strategy?
Mr. Muleta. Our wholesale strategy is really focused on the
fact that in 2005, the FCC made a seminal decision about
deregulating broadband services, that is fiber, DSL, and cable
broadband and not requiring unbundled access. That has created
a tremendous amount of demand in the marketplace for people
that already have existing subscriber relationships to partner
with somebody who can deliver the heart of the broadband
bundle. And so we believe that our model, which is a pure IP-
platform that is very focused on delivering data services, that
would be a component of bundles for rural carriers, for
potentially satellite and other carriers. So, the fundamental
thing that we are focused on is making sure that our partners
have a way of integrating our services to deliver a total
bundle of services into the marketplace. So, that is how our
model works. It is focused on pricing of the services and on
the technical details that allow integration of this.
Mr. Markey. OK. Thank you. My time has expired.
Let me turn and recognize the gentleman from Michigan, Mr.
Upton.
Mr. Upton. Well, thank you, Mr. Chairman.
I want to come back to this Frontline proposal. And Mr.
Gallagher, welcome back, first of all. I am glad that you cited
your friend, our friend, Larry Irving, as well; the two of you
have written on some public safety spectrum issues, and I
understand, though I have not read them, I am told, that they
are quite good, and I look forward to taking it with me on my
next Northwest flight back to Michigan.
I have a question. Can't public safety negotiate with the
winner of the auction? Is there anything to prevent that from
happening, or with any spectrum holder, for the build-out of a
public safety network in exchange for the shared use of the
public safety spectrum? I mean, isn't that one of the
conditions that we would expect?
Mr. Gallagher. Thank you, Mr. Upton, and you should be able
to read the entire thing before the plane takes off. Larry and
I both have a short attention span, so we were very concise on
how we wrote the paper.
My way to respond to the question is that is the best way
for public safety to get what it wants as opposed to what
others might dictate to it. We can go forward. We can have this
auction. Auctions are proven to work. The track record with the
PCS auctions, with the most recent AWS auction, show that that
is the best mechanism to transfer the spectrum to where it is
going to be used immediately. These other things that we do
that hamper, hinder, or otherwise make the spectrum less
attractive, are risky. Public safety, then, is in a position to
say, ``We have our own resources,'' this 24 MHz that is from
Congress. And they are in the position to come together and
then to negotiate with whoever might want to provide them
capacity on an overflow basis or a pre-empted basis.
Mr. Upton. Because if we somehow rig the auction and it
goes wrong, who is to say that the public safety folks would be
able to negotiate with someone or be in support of what is
ultimately there. Is that not right?
Mr. Gallagher. Well, you raise a very good point, because
there are at least two impacts if something goes wrong. One is
certainly the impact to public safety. Encumbering their
resource in this way and then not delivering on the promise
would be a failure of a national level that we cannot afford.
And so, allowing a risky venture to take this and experiment to
go forward is not the right path, as has been proposed, and in
addition, you would be encumbering the other 10 MHz of the
commercial spectrum that then would be tied up in the same
problem or set of issues. And as we know, it takes us a long
time, as a country, to unwind those.
Mr. Upton. Now, how is Frontline's proposal consistent with
section 337 of the statute?
Mr. Gallagher. I think that there are questions that you
can raise. It is a legality under 337. And the concern that
that raises in my mind is that could lead to a delay in the
auction or a delay in receipt of the spectrum in the
marketplace that could sidetrack our march forward and the
conversion to digital television.
Mr. Upton. That has been one of my points as I have sat
down with the FCC folks, and it is very important that this
timeline stay consistent with what we ask, because, in fact, it
would delay the transition to digital, delay the receipts,
delay the NTIA being able to process the applications for first
responders for the billion-dollar fund and also impact the
converter box, something I know all of us here are very
concerned about, particularly with the hearing that we had a
couple weeks ago.
I asked, in my opening statement, for you all to think
about, in light of the Virginia Tech tragedy earlier this week,
how we might be able to use the wireless technology more
efficiently to communicate with large groups of folks, whether
they be students or employees, whatever the situation might be.
And in talking to a couple of our former House staff people,
Billy Pitts, who I think many of you know, and some of the
different proposals that are out there, it seems as though we
are capable of having a system that, in fact, could warn
students or large groups of folks of the pending disaster and
take some caution. And I know many of us who have college
students. It is kids and others, we hear this news, and we just
wonder how we could prevent it from ever happening again. And I
just wonder if any of you want to comment on something like
that, Mr. Muleta, and maybe go down.
Mr. Muleta. Congressman Upton, I think that is a very
important question. And I think I harken back to, actually,
Katrina, where we learned the lesson of having vast communities
that are dislocated from the communications systems, and not
just students, but other folks, who can't afford to get that.
And when you asked the question originally, you mentioned that
we had three models of how we can communicate: free over the
air television and radio, the cellular system, and the
traditional public telephone switched system. And I think one
of the things that when the M2Z team got together, one of our
goals has been, actually, to make sure that there are lots of
affordable devices and free services available, similar to
television, but on two-way interactive so you can send a
message and get the message back and by making cheap devices,
IP platforms available, and having a free nonrecurring service.
You mentioned that there would be a $2 message per user.
Mr. Upton. Per year as well.
Mr. Muleta. Per year. And I think, based on my experience,
that is actually a very important point, and those services are
overlay services on top. But what we have to remember is that
even if you assume the great success of wireless, there are
still about 70 million people today that are not connected to
the cellular system that would not benefit from that.
Mr. Upton. And I know my time is expiring, but just to get
to Mr. West and Mr. Meena, a response.
Mr. Markey. That is all right.
Mr. Upton. It was the BlackBerries that we were able to get
after 9/11, because we could not communicate with our old-
fashioned beepers.
Mr. Meena. One technology that should not be overlooked is
text messaging. Text messaging is a low-bandwidth product that
allows us to communicate with multiple users in a matter of
seconds. We are already in talks at the University of
Mississippi and Mississippi State University about such a
warning system. And we feel like that is a great technology for
those types of applications.
Mr. Markey. OK. The gentleman's time has expired.
The Chair recognizes the gentlelady from California, Ms.
Eshoo.
Ms. Eshoo. OK. Thank you, Mr. Chairman.
First off, I want to compliment you and the work that you
did with the minority to put this panel together. This has
really been, I think, one of the most effective panels of
witnesses since I have been on this subcommittee. I mean, and
the way you presented your testimony, I think, has been helpful
to all of us, so thank you, Mr. Chairman, and thank you to all
the witnesses.
I would like to start out with Ms. Spencer and Mr. Meena
first. I pointed out in my opening statement that I was able to
add an amendment to the committee bill that reiterated the
FCC's responsibility to promote spectrum policies that
encourage the deployment of new technologies, economic
opportunity, and competition. And I think that it was mentioned
during the course of the testimony this morning that recent
auctions have been less than successful in this regard. The
recent AWS auction resulted in only 4 percent of the licenses
being awarded to small businesses. This is troubling to me. I
don't have anything against the big guys. I am glad that they
have grown and have been successful. But they didn't start out
big. They started out small. Somehow there were the
atmospherics that were there so that they could compete and
grow. And we have to keep assuring that.
So my broad question to the two of you is how can we
actually ensure that the results of the 700-MHz auction produce
better results and really fulfill the Commission's statutory
mandate? And if you could be succinct in the recommendations
that you make to us. If you were going to list the top three
things or four things or two things, what would they be?
Mr. West. OK. One thing, to speak to the AWS auction, one
of the reasons that they may not have had as great a success is
that that particular spectrum is an upper-band frequency that
works better in metropolitan areas.
Ms. Eshoo. I see.
Mr. Meena Most smaller companies, and we have actually
grown from a tier three company to a tier two, so we're a
small- to mid-sized company, but most companies that focus on
rural areas are highly interested in and have utilized spectrum
in the lower band to deliver services to rural areas. That is
what is so important about the 700-MHz auction is that that is
the perfect spectrum for us to deliver advanced services to
wireless areas, so----
Ms. Eshoo. Thank you. Can we go to Ms. Spencer, because I
have a limited amount of time, and I have three questions.
Ms. Spencer. Thank you. I think I have a less optimistic
view of that auction. And I think what happened is we had rule
changes very shortly before that auction that specifically
restricted a lot of the business plans you hear here. Small
businesses are no longer allowed to be wholesale providers.
Ms. Eshoo. And you spoke to that about the lead-time that
you need.
Ms. Spencer. Yes, you can't be a wholesale provider and
qualify as a small business today, so the companies on this
panel would not be eligible for that program and their new
entrants. So, I think we saw real changes before that auction.
They weren't good for small businesses, and they were too late,
so people couldn't raise the money.
Ms. Eshoo. To Mr. Muleta, and again, Ms. Spencer and Mr.
Meena, but we will start with John.
I am just going to go to the question without giving much
of the background, because I think that you understand the
background better than most. Do you think it is time to
reconsider the imposition of a cap on total spectrum holdings
so that we do end up with diversity and competition and the
dissemination of spectrum licenses? Because really, what we are
talking about here is what belongs to the public. If you buy
spectrum and hold it and not use it, I mean, it could be argued
that if you buy it, I mean, you paid for it. On the other hand,
is that in the public's interest?
Mr. Muleta. I think that is a very spot-on question. I
think most people don't remember that between 1993 and 2003,
there was actually a spectrum cap in place that prevented. For
example, the PCS auction was 120 MHz of spectrum of which two-
thirds of that was actually designated. In each market, however
you want to size up the market, two-thirds of that was for a
new entrant. So what happened between 1993 to 2003 was you
basically had two incumbents and then four new entrants. The
market is consolidated. There are good reasons for that and
good benefits that are coming from it, but it is very important
for new entrants. So the choice, I think, policymakers have is
do you want to apply rules on mergers and conditions or do you
want to just force the market by allowing new entrants, like
ourselves and other folks at the table, to come into the market
and sort of jazz it up.
Ms. Eshoo. How long has your application been before the
FCC?
Mr. Muleta. Our application has been with the FCC for 11
months and a number of days. Almost a year.
Ms. Eshoo. There you go.
Thank you, Mr. Chairman.
Mr. Doyle [presiding]. Thank you.
The Chair now recognizes the gentleman from Illinois, Mr.
Shimkus, for 8 minutes.
Mr. Shimkus. Thank you, Mr. Chairman.
First question. Is the 24-MHz allocated for public safety
enough for them to do the job of interoperable communication to
address the concern highlighted on September 11 and Katrina?
And as close to a yes or no response. Maybe you want to add a
little bit, but if you would start, Mr. Muleta.
Mr. Muleta. Unfortunately, I am going to have to say maybe.
It really depends on a set of parameters that have to develop
on what the real specific demands are for public safety and
that----
Mr. Shimkus. And who will do that?
Mr. Muleta. I think there are 40,000 public safety
agencies, and there are a number of groups that represent them,
but it also requires input from the Federal resources of DHS,
so it is hard to say how we can come to one set of
requirements.
Mr. Shimkus. OK. Let me go to Ms. Spencer.
Ms. Spencer. Public safety is a very unique issue, and I
don't think, unfortunately, we are in the position to comment
on it, because it does vary, as John points out from----
Mr. Shimkus. OK. Mr. Meena, that is fine.
Mr. Meena. Yes. Yes, public safety could most certainly
benefit from 24 MHz of spectrum. That is an ample amount, but
the right rules have to be in place so that the spectrum can be
used properly to address the interoperability issues.
Mr. Shimkus. OK. Thank you.
Mr. West.
Mr. West. I believe 24 MHz is sufficient, but the real
issue is the public safety networks are built for a steady-
state demand. What happened at 9/11 and the other instances, a
very heavy load comes on those networks, and so solutions have
to be built that allow for those high demands. So a public/
private partnership has some merit.
Mr. Shimkus. Public/private as in needing to add to the 24
MHz in time of national need. Is that what you are referring
to? Or public/private in ensuring that the technology within
the 24 MHz is sufficient and effectively used?
Mr. West. Well, much more the form of it. It is almost
impossible to build for that kind of demand, and so having
access to a public network in those times can provide for----
Mr. Shimkus. Some of these proposals here, and I agree with
my colleague, Anna Eshoo. I have been listening. I have been
reading, because we do numerous things. I think it has been a
very good hearing, but the basic premise, I think, is 24 is
enough. There are proposals out there saying it is 24-plus, so
then people want special conditions at the auction, because
they are willing to give up some, and I think there are going
to be some different views as I go down, but that is kind of
what I am getting from this hearing.
Mr. West. Congressman, to my point and my submission, these
are very complex things, and they really need to be thought
through before a decision is made. We have heard over and over
this is a unique opportunity. I really believe that, and it is
a time where we can actually do something very positive.
Mr. Shimkus. Mrs. Obuchowski?
Mrs. Obuchowski. The answer to your question is no, in a
crisis situation; yes, in all others. And to the further point
you raised about interoperability, that is also addressed by
several of these proposals. It is 5 years after September 11,
and we are still talking about individual groups, statewide
grants programs. That is part of the proposal Verizon put
forward to the National Governors Association. That is not
working. And that is why the public safety community has turned
to these public/private partnerships. It is interesting. You
have got a group of experts here, all with corporate
approaches. But the public safety community has concluded that
going through an individualized grants program isn't going to
get us the interoperable solution that we need. And it is they
who are now leading the charge. It can be Cyren Call. It can be
Frontline. It is probably somebody entirely different who wins
at the auction, because we are proposing an auction, but
overflow capacity and a set of rules that promote
interoperability is key. I mean, I repeat, we are clearing this
spectrum nationwide, forcing people to a dislocation. And if we
are so shy about putting some kind of condition on 10 MHz of
this to ensure interoperability, we have failed those people.
Mr. Shimkus. It is interesting in your proposal, because
you pull out 10 that you are willing to release in a major
public crisis. But I would think that that would mean, as a
consumer, that I would get a discounted price, because it is
not 100-percent coverage 100 percent of the time. So I would
assume there is a discount, because they are agreeing not to
really have full access if you, then, through the national
emergency, say, free it up. So I mean, again, that is kind of
the question. And I would like to go to Mr. Gallagher and have
him respond, and then I have got a follow-up one for you.
Mr. Gallagher. Very good. Yes, I will give you an answer in
20 seconds or less. Yes, 24 MHz is a huge amount of spectrum
with today's technologies. Today's technologies, especially
when you look at the forward path for HSPA and for CDMA Rev-A
through Rev-C, very robust amount of spectrum that can handle a
huge amount of communications capacity.
And the final point is, remember, we view adequacy of this
amount in the context of the spectrum that public safety
already has. They are not giving that up. They get to keep that
as well. When you look at it all together, it should be enough
to accomplish their mission.
Mr. Shimkus. And the NTIA is not here, but the couple years
I have sat in that position, you are the stewards of that, is
that correct? I mean, in your former position, the NTIA is a
steward of that MHz spectrum.
Mr. Gallagher. Technically, it is the FCC that is in charge
of the public safety spectrum.
Mr. Shimkus. So they will set the standards on how people
are actually going to communicate. I keep thinking of the Fire
Act. It is one of the greatest programs that we have done, and
it has helped our rural firefighters, volunteer fire
departments, I have tons, to upgrade equipment and its turnout
gear, its air packs, its radios, primarily. Great program. I
keep thinking about the fire chief on vacation from Illinois, a
volunteer fire department, and he has got his radio with him.
Something goes down bad in San Francisco, and that is where he
is at. And he is going to volunteer. He is a volunteer. He is a
great American Midwesterner, who is going to run to the call.
Will his radio work?
Mr. Gallagher. More than likely not.
Mr. Shimkus. I mean now. Will it work later?
Mr. Gallagher. Well, in the future, that is the expectation
is that we would have----
Mr. Shimkus. Well, I know now it doesn't.
Mr. Gallagher. In the future, and hopefully it is a near
future, you have a ubiquitous system where it is more like
laptop PCs work on----
Mr. Shimkus. And that is the 24-MHz question.
Mrs. Obuchowski. Well, and that is precisely why we cannot
walk away from this decision now, because when this spectrum is
gone, you will certainly hear the carriers telling you, ``We
cannot impose these requirements retroactively. We will take
you to court, because we have bought and paid for this
spectrum.''
Mr. Shimkus. OK. I want to make two quick points, and I
appreciate it, and I am sorry to cut you off. I have 20 seconds
left. One is I just wanted to talk to Mr. Muleta and just the
appealing aspect of his proposal is a free access that has
decency standards. A lot of us are involved with that, and that
is free over the air. And I wanted to throw that on the table.
And Mr. West, if you could give us some information on some
of this, and you don't have to do it now, but there are two FCC
outstanding dockets on special access. If you could follow up
with our office, from your perspective, how that is going, I
would like to get that information.
Thank you, Mr. Chairman. I yield back.
Mr. Doyle. Thank you.
The Chair now recognizes my friend from Michigan, Mr.
Stupak, for 5 minutes.
Mr. Stupak. Thank you, Mr. Chairman.
Mr. Chairman, respectfully, but forcefully, I would like to
say to my colleagues, I have heard a lot of heartfelt
statements over Virginia Tech today, and I think we all agree
on that. But please, in light of the lack of action by this
committee and this Congress, for the past several years, I
think some of the statements ring hollow.
As smart as Members of Congress think we are, we do not
know when the next senseless act of violence will occur or a
natural disaster, or, heaven forbid, another terrorist attack
on our country. We have done very little over the last 12 years
to address this issue. I will wait and see from all of the
reports on Virginia Tech what happened there, but did first
responders, law enforcement, really have interoperability
available to them to talk to each other to try to isolate the
shooter? We all watched them running on TV clips with their
guns out, but could they communicate? Were they interoperable?
Wireless communications did save a lot of lives up in Virginia,
because cell phones of the wounded students could call people
who then called the hospital so they were prepared. But could
every law enforcement officer who responded from many different
jurisdictions talk to each other on their wireless cell phone?
Maybe their jurisdiction, or maybe their partners and
departments, but no one else.
So I hope we would sort of cut the rhetoric and do the
right thing. Mrs. Obuchowski said in her statement, right at
the end, the best case scenario is that patches of public
safety broadband networks without uniform interoperability
might be constructed in communities with the resources and the
political will to do so. So I would challenge Members of
Congress that is us who must have the leadership, not the
speeches. It is up to Congress to provide the resources and
permanent funding source, and not a billion dollars, when
experts tell us it will take at least $18 billion. We beat this
so much over the last 10 years I have been on the committee. I
would hope we take some action.
So with that, Mr. Gallagher, if I may ask this question. As
former head of NTIA and someone who studied this issue, we talk
about the billion dollars we have set aside. I am encouraging
NTIA to think outside the box. I also plan on reintroducing our
legislation to make the grant program permanent and fund it
through the proceeds of this auction. I would like to hear your
thoughts on what should be done with the money now and in the
future.
Mr. Gallagher. Thank you, Mr. Stupak.
And with respect to the billion dollars that NTIA has
today, it is a significant challenge that NTIA has. It is a
policy organization that has now been called upon to distribute
at least $2 billion of the proceeds between those funds as well
as the converter box program. And the intent, I am sure, I am
not running NTIA right now, and I am sure that John, who is the
Assistant Secretary, is working closely with the Secretary to
make sure that they are using their resources adequately, they
are leveraging DHS capabilities that are in place to be the
arms and legs on the grant program. It is critical that this
billion dollars be a catalyst for the 21st century
communications systems that public safety should be using and
not simply enabling----
Mr. Stupak. Where are the rest of the resources going to
come from? That is a billion-dollar catalyst. How do we get the
other $17 billion that we need?
Mr. Gallagher. Yes, looking to the future. I believe, once
Congress and the States, who, by the way, spend a lot more
money on this than Congress does, it, up until recently, was a
completely State responsibility. Now, we Federalized the
mission somewhat. The funding sources are going to have to be
Federalized as well. But Congress will be more willing to fund
those activities when they see they work, when there is actual
demonstrations.
Mr. Stupak. Why not make the proceeds from this spectrum
auction, which will more than cover the cost of
interoperability, if we are really serious about it?
Mr. Gallagher. Larry Irving and I have had good discussions
about funding ideas, and we will be submitting those shortly.
Mr. Stupak. Because interoperability, we can't leave to the
whims of congressional appropriation, with all due respect to
appropriators. It shouldn't be left to the whims of it. We have
to do this. I mean, 9/11, Hurricane Rita, Katrina, now this.
So Mrs. Obuchowski is raising her hand to go ahead.
Mrs. Obuchowski. I was just going to comment that, again, 5
years into this process, we can't be hoping for further
appropriations, hoping. Even Verizon and its proposal to the
Governors Association, was giving the numbers for purely the
local part of the deployment at $13 to $19 billion, total
deployment costs of $35 billion to $61 billion and suggesting,
if public safety used its infrastructure, that might be
somewhat discounted. That was that approach. But those are the
appropriated funds, if it is going to be subject to
appropriations. That is a hope that I don't really believe is
realistic in the relevant timeframe.
Mr. Stupak. Well, let me cut you off.
Mrs. Obuchowski. And that is why public safety has turned
to these partnerships.
Mr. Stupak. Mr. Muleta, in your plan, you mentioned 95
percent of the country will be covered. I am the 5 percent that
never gets covered, plus I am a border community, I mentioned
in my opening statement. How do we do the 5 percent, and when
will you do the last 5 percent?
Mr. Muleta. We believe the 5 percent, as Mr. West
explained, problem comes from the fact that the telephone
network only reaches 94.6 percent of the population, and so the
minimum threshold for us is to reach 95 percent. We plan to be
there by working with rural carriers who need a data-roaming
partner nationwide. So one of the appeals of our plan to rural
carriers is the fact that they have, as Congressman Shimkus
noted, when you go to San Francisco from a rural town, you
still need connectivity and you need a national partner. So we
hope, by working with them and getting the telephone
infrastructure going out there, that is another important
reason why we don't want to take from the Universal Service
Fund, because those monies could be used to build to that last
5 percent. That is really what Congress wants to happen.
Mr. Doyle. The gentleman's time has expired.
Mr. Stupak. Thank you, Mr. Chairman.
Mr. Doyle. The Chair now recognizes the gentleman from
Mississippi, Mr. Pickering, for 5 minutes.
Mr. Pickering. Thank you, Mr. Chairman.
And I also want to join Chairman Markey in welcoming Hu
Meena here on behalf of CellularSouth. They provide great
service to my home State of Mississippi, building out advanced
networks, serving rural areas. In Katrina, they provided heroic
action to resume communication during that critical time. And
so we welcome you to the committee and your insight.
Real quickly, I am glad that Mr. Gallagher and Mr. Meena
both agreed that the AWS auction is the successful model. And
the reason that it was successful, it had small, medium, and
large blocks of spectrum in which there was full competition in
each of those blocks.
My concern is that, in the reported proposed auction blocks
and rules that the FCC is currently considering, it is going
away from that model, and it will be heavily weighted to large
blocks and one small block but no medium blocks. And that
would, I think, devalue the spectrum if we do it in that way
without full competition in each of the blocks. And for those
of us on our side, who want to avoid regulation or inclusion
into the market, the best place to do that is through the new
entrants. And the best way to do that, to have a healthy
market, is to have wholesale. Not only retail, but wholesale.
And so I am encouraged by Mr. Muleta and Mrs. Obuchowski's
proposals to give innovative new entrants a chance in the
marketplace and bring health into a market that could evolve
into something with too high of a concentration.
Mr. Meena, in that context, tell me, what would be the
recommendations that you would have based on the current draft
recommendations or proposals on the 700 MHz? How can we make
sure that it is balanced and maximizes the benefit to rural and
urban areas in the 700 MHz? What would you propose on the size
of the blocks of the spectrum?
Mr. Meena. Thank you, Congressman Pickering, for those kind
words. We appreciate what you do for our State and also for the
communications industry, in general, and your understanding of
that.
We see that the threat, as has been purported in the recent
proposal, is that too many licenses are being potentially
auctioned on a REAG basis. REAG basis includes multiple-stage
regions of States. We would like to see more blocks include
CMAs, which there are 734 CMAs within the United States, or
EAs, which is a number that is a medium-sized block. EAs or
CMAs give more people the opportunity to bid for this very
valuable spectrum. And as you said, the AWS auction was a good
model where you had more than half of the markets were
auctioned on a CMA basis or the EA basis. So we would like to
see that occur not only in the lower band of the 700-MHz
auction but also the upper band.
Mr. Pickering. You also, in your testimony, raised
questions on the buildout, making sure that we have got the
build-out language right. Currently, the proposal is to do it
based on population. Tell me what the flaws are as that relates
to rural build-out areas, and what would you propose to rectify
that?
Mr. Meena. Well, we have seen it in the PCS A and B block,
for example, that when you do that, the carriers who are
awarded those licenses only build the population centers. Well,
that precludes those who are serving the rural areas from
providing advanced wireless services, because the spectrum goes
unused. The 700-MHz spectrum is too valuable to not be used, so
therefore, we are calling for geographic build-out requirements
where those who win in these auctions are required to build X
amount of geography. And we have specific proposals that I will
be glad to provide to the subcommittee, and it is based on a 3-
, 5-, and 8-year period, but the geographic areas must be built
out for 700, because 700 is the beachfront property that allows
rural carriers the opportunity to provide advanced wireless
services to their constituents.
Mr. Pickering. And Mr. Meena, there are some that have
raised questions that they will be in western States, in States
like Alaska or States where you have large tracts of public
lands, there might be a problem with geographic buildouts.
Could you and your language address those concerns so that
there could be a nice balance between areas where geographic
buildout makes sense and exemptions where it may not make
sense?
Mr. Meena. We could see rulemaking that might have one set
of rules for States east of the Mississippi and another set of
rules, or maybe some options, for those States west of the
Mississippi.
Mr. Pickering. Mr. Chairman, if I could, just one last
question to Mr. West.
A second ago, you mentioned, as you buildout your 4G, the
impediments that you face. Could you quantify how much you
invest in your networks and how much you pay in special access?
Mr. West. Yes, sir. This year, we will invest over $7
billion in our network, $7.2 billion, of which $800 million is
in our new WiMAX network. We spend, on special access, over a
billion dollars a year, nearly $2 billion, actually. And at
those rates, that is taking money from where we would like to
invest it to pay our competitors.
Mr. Pickering. Thank you, Mr. Chairman.
Mr. Doyle. The gentleman's time is expired.
The Chair now recognizes the gentleman from Texas, Mr.
Gonzalez, for 8 minutes.
Mr. Gonzalez. Thank you very much, Mr. Chairman.
First of all, we have entitled today's hearing spectrum
opportunities and the future of wireless. And I am going to
agree with Mrs. Obuchowski that the future is now. Whatever we
establish, however we go through with this auction, and the
parameters and any conditions pretty well sets the pattern and
the parameters, of course, of what we are going to be able to
do within the context of that sale. So it is very important.
This committee has been primarily concerned with, of
course, the Internet, its expansion in a global marketplace,
and the fact that we aren't where we are supposed to be when it
comes to broadband. Wireless is the alternative to cable and
DSL, when all is said and done. And that is what we are talking
about here.
The beauty of wireless, if you start looking at Wi-Fi,
WiMAX, are all the players that are involved in this
technology. I was looking over it, and just a few of the
articles I was recently reading, we have got Sprint, Intel,
AT&T, Google, QUALCOMM, Samsung, EarthLink. You don't know you
are an ISP anymore or a network or a content provider. And that
is the beauty of the marketplace. And I think, first and
foremost, that should be our guiding star.
Now, if it is not a level playing field, if it doesn't
promote the public interest, then we do move then. And I think
Congress, then, should act. At this point, we are having that
discussion. We are having a dialogue, and we are having that
debate.
The first question I have really will go to Mr. West,
because I am very interested in some of your remarks that were
kind of separate more than anybody else's testimony and really
centered on special access fees. And I think that is the
legitimate concern. Your WiMAX partners, it is my
understanding, are Intel, Motorola, and Samsung, right?
Mr. West. And Nokia, sir.
Mr. Gonzalez. OK. Those are business relationships. And you
can appreciate business relationships, right?
Mr. West. Yes, sir.
Mr. Gonzalez. I would assume that you are going to be
utilizing their technology. But you also will be promoting
products and services that your partners have out there in the
marketplace. That is the first observation I want to make.
Second, utilization of assets by any business, and I know
this is going to be a real simplification, but I really do want
to make it, and full disclosure, AT&T is in my district, all
right. But it is always one direction. I understand that last
mile and the utilization of assets by, let us say, someone like
AT&T, Verizon, and so on. I would like to take it the other
direction. If we have a network, if we have an AT&T or Verizon
that would like to access Sprint's wireless network by going
back the other direction, I think some people might have some
real concerns about that, and they would say, ``I am not sure
if that is fair. Let us make sure that there is going to be an
access fee and such.'' And we try to promote something of that
nature. The next thing is the advantages of ownership and the
considerations of ownership. I am going to read from a story
back in August when you were announcing WiMAX. ``The economics
of Wi-Fi were unattractive to large carriers, because the
service relies on unlicensed radio spectrum, allowing even tiny
Internet service providers that own no radio spectrum to
compete. A service using spectrum owned by the providers would
be more exclusive.'' I think what they meant there are business
advantages and benefits if you are the owner of the spectrum.
My understanding is that WiMAX does utilize spectrum that
is owned by the provider. And there is nothing wrong with that.
I am just saying that if we start looking at business models
and such, the point I am leading up to is simply a question
that there has to be some addressing your concern, which may be
legitimate and may not be. However, it is looking, as far as
the source of the answer to your concerns, is it possible that
your access needs could be addressed through the wireless
wholesale providers?
Mr. West. That is a lump question, and if I may----
Mr. Gonzalez. I will tell you right now, can your access
needs be addressed through wireless wholesale providers?
Mr. West. Certain parts of it can. It is not possible to
reach all of our cell sites by alternative access technologies.
We are looking very aggressively at using those technologies,
but we are, for a significant part of that field, dependent on
the local exchange carriers.
And, sir, if I may answer the licensed versus unlicensed.
Wi-Fi, for me, is a great technology. It has been very
successful, and we don't mind the competition. Actually, we are
very big supporters of competition. The issue around unlicensed
becomes an interference model. As more and more people use it,
you cannot manage that. It is also unsecure, whereas the WiMAX
technology offers a managed service that is secure.
Mr. Gonzalez. No, and I understand, Mr. West, and I am
going to have to cut you short, because I have got 2 minutes,
and I have one question that I wanted to pose, I guess, to Ms.
Spencer and Mr. Meena. This is from today's Communication
Daily, April 19: ``The Martin band plan would have no cellular
marketing areas, CMAs,'' and I am not sure if Mr. Pickering
covered it, I excused myself at that moment, ``in the upper
700-MHz bands and only one 12-MHz, two 6-MHz paired slice of
CMA block in the lower band.'' Your comments regarding that
particular proposal, which I think will be voted on, more or
less, on April 25, and its impact, as you see it?
Ms. Spencer. Well, certainly, for small businesses, we have
found that smaller markets are better, because if you have to
buy the REAGs that Mr. Meena talked about, it is in the
hundreds of millions of dollars, but they need to be sizeable
enough so you could start the business from scratch if you
don't have a rural telephone company. So we would actually
advocate, like, the economic theory is a little larger than the
CMAs, so you can get enough of an aggregation of spectrum
geographically.
Mr. Gonzalez. Mr. Meena.
Mr. Meena. And we do have concerns, because in the report
that has been circulated, there is only one block that has been
divided up into smaller CMAs, and we think that is not what is
going to best serve those who want to provide services to those
throughout our country, especially in rural areas. We need more
smaller blocks, more medium-sized blocks.
Mr. Gonzalez. And lastly, another, just, observation, and I
am not saying these things clash or whatever when we go into
the auction, but Mrs. Obuchowski, I think, in your testimony,
you said, finally, although maximizing auction revenues is not
a relevant consideration of the Communications Act, we have
already put a price tag. We put a bottom price tag on this
thing a long time ago, and I think when we voted on the budget
reduction act, whatever we called it back then, when the
Republicans were in the majority, I think we got a floor, and
it is so tempting to maximize that. Yet, I understand that
maybe that may be inconsistent with maybe the best efforts that
we should be making.
Mrs. Obuchowski. Well, let me redirect. We can accommodate
that floor and put the limited conditions that we are
suggesting into the regulations. It is not necessarily revenue-
maximizing to do what the gains theorists have recommended, for
example Verizon, very large chunks of spectrum going on the
block. It is the equivalent of saying, ``The revenue-maximizing
market is all $6 million homes.'' No. You are not bringing into
the auction people such as Mr. Meena who have plenty of money
to spend to cover geographic areas that they really think they
can cover.
Mr. Gonzalez. Thank you very much.
Mr. Markey [presiding]. The gentleman's time has expired.
There are two roll calls on the floor. And so what we will
do right now is recognize the gentleman from Texas, Mr. Barton,
for 5 minutes.
Mr. Barton. Mr. Chairman, thank you.
Since we have got a vote on, and I just arrived, I will
submit my questions for the record.
Mr. Markey. I don't think that is necessary at all. I think
there is plenty of time for you to ask your questions, Mr.
Barton.
Mr. Barton. OK. I just was trying to expedite the process,
but that is fine.
My basic question is to the entire panel, and it goes to
the proposal by Frontline to basically buildout a public safety
network in return for getting some of the spectrum that would
have been given to the public safety providers. Is that,
generically, a good idea or a bad idea? Anybody that wants to
take a pop at it, except the gentlelady who is actually in
favor of it, because it is her idea.
Mr. Muleta. Well, if I could address the question, all of
these proposals are actually trying to solve a major problem,
so I think they are all good. I think if you look at the M2Z
plan, what we have committed to do is to build a consumer-scale
network on fallow spectrum that will provide actual, day-to-
day, free network access on a secondary basis to public safety.
So we believe that giving public safety more networks of
networks, more options to use networks with very low-cost
devices and no recurring cost, actually addresses a significant
amount of their needs. Now, without going into specific
proposals, which would be best covered by Mrs. Obuchowski, I
think what we are actually looking for is a network of
networks, all kinds of networks, to actually be purposed for
public safety.
Mr. Barton. But I am not enunciating the question as
clearly as I should. My generic question is, as it is currently
configured, we are going to give 24 MHz of spectrum to public
safety and that is going to be allocated by the FCC, and there
is no auction, as I understand it. But then we are auctioning
off this other spectrum, and whoever wins the auction can use
it for whatever they want to. So you have a public purpose use
that is not auctioned, and you have an auctioned use that can
be used for any viable commercial opportunity that meets the
general standards of the FCC and the Federal statutes. And as I
understand the Frontline proposal, it is trying to have a
little bit of both, but it is sweetening it by putting a carrot
out: ``If you let me have this, I will do that for free.'' And
that is my question. Is it a good idea to blur the line between
non-auctioned public spectrum that has been set aside for
public safety uses and auctioning spectrum that is for
commercial opportunities, whatever they may be?
Ms. Spencer. It has been our experience that auctions
should be objective and not pick particular business plans, and
I think the business plan decision is made with your investors
and shouldn't be made in the auction context.
Mr. Meena. And we think the Frontline proposal addresses
two critical issues: one, the public safety needs and the
interoperability related to that, as well as providing regional
carriers opportunity to have access to a broadband, national
network, which will be wholesaling to carriers like ourselves.
Mr. Barton. You think it is a good idea?
Mr. Meena. Yes, sir.
Mr. Barton. She didn't think it was a good idea. I am not
sure what the first one told me, because I didn't ask him. I
think you said it was sort of a good idea.
Mr. Muleta. To be specific, as Chief of the Wireless Bureau
at the FCC, the complexity of the public safety problem as such
it is really a federalism question, because the threats that we
face today are significantly different than traditionally what
we faced in the United States. So whether it is Katrina or 9/11
or even something like what happened at Virginia Tech, the
problem is that at any one point in time, the solutions that we
can envision don't really envision the problems that might be
coming up, and so my answer is to actually give more options of
different kinds of networks for public safety, whether it is
our network or it is the network that is being contemplated by
any of the folks that are sitting at the table, or other
networks. So what we have to find is can we get it to the price
point where public safety officials, the chief information
officer can actually say, ``This is actually a good solution
that I can integrate and provide the kind of interoperability
that we need for some future threat that we can't predict
today.''
So it sounds a bit complex, and I apologize for that.
Mr. Barton. That is a great answer. I am not sure it is to
my question, but it is a great answer.
Mr. West. Public safety has had spectrum for a long time,
but we still don't have the interoperability or the capacity in
an event like 9/11 to deal with it, and again, this is a very
complex subject, and it is a one-time opportunity. I do believe
that we should take the time to examine all the potential
proposals to make sure we have a holistic solution to this
problem. Our first responders are terrific people, and they do
a great job. We must make sure they have the means and the
ability to do that job at the least risk to themselves. So a
little time, I think, is more than merited on looking at these
different solutions.
Mr. Barton. I know you think it is a good idea.
Mrs. Obuchowski. Could I say something?
Mr. Barton. It is your idea.
Mrs. Obuchowski. Mr. Barton, you said recently something
wonderful, that it is too late for further excuses.
We have a few months, even, to get this auction off on time
and give people, legitimately, the time they need to build
capital to get this right. We build upon what the FCC has
proposed. Indeed, they have proposed a public/private
partnership to address this broadband in the public safety
space. And one thing we are very directive of, and I want to
clarify this, is we will never hold that license over that 12
MHz. That is public safety's held in trust. The commitment of
whoever wins the commercial/public safety license is to
buildout a network capable of accommodating them, capable of
solving public safety's needs. But they will govern that
license and can govern access to it.
Thank you.
Mr. Inslee. And I thank you, ma'am.
Speaking of time, we need to adjourn for votes. We will
recess until 12:30. Thank you.
[Recess.]
Mr. Markey. The subcommittee will reconvene.
And the Chair will recognize the gentlelady from
California, Mrs. Capps. The early bird gets the recognition of
the Chair.
Mrs. Capps. I was kind of hoping that it might turn out
this way.
We have a wonderful panel of witnesses with very
interesting stories to tell. I only have 5 minutes, so I have
selected two of you----
Mr. Markey. The gentlelady actually has 8 minutes, because
she waived her statement.
Mrs. Capps. Oh, that is even better.
But there is still not enough time to get into all that I
would like to ask about, so I have chosen to ask a couple of
you a set of questions, brief ones, and I will start with you,
Mrs. Obuchowski.
I appreciate your testimony and your long record of service
here, and I find Frontline's proposal to be very interesting
and encouraging, for me, to hear of a plan that could buildout
a nationwide interoperable network for public safety. I am a
public health nurse, so I am very interested in that aspect of
it. Your proposal suggests an open-access model for the
network, meaning that customers could connect devices of their
own choosing to that network. And this seems to be different
from the way most wireless networks currently in use operate.
But are there some technical issues, just briefly, that you
could mention to this type of open-access network? That is the
first of three questions I will ask you.
Mrs. Obuchowski. Sure. Well, clearly, when you are
proposing a nationwide interoperable broadband network, there
are technical issues, but they are soluble and issues that have
been solved.
Mrs. Capps. OK.
Mrs. Obuchowski. FourG technology is now making its way
into both the commercial and the public safety space, clearly,
because you have got the wonders of the Internet associated and
the ability of the underlying technology to make devices
compatible, and also to develop hierarchies to say what traffic
is higher priority or lower. You can solve a great number of
these problems. That is why, I would say, some people say our
company is high-tech needs public safety. We have two wonderful
California investors, John Doerr and Ron Shriram, investing in
us as angels, and I think that is in part because they see the
same problem and opportunity of taking this 4G technology and
putting it to work in a different way.
Mrs. Capps. So whatever technical problems there might be
can be----
Mrs. Obuchowski. Yes. I would assume that all the
panelists----
Mrs. Capps. Just because some of us aren't very
sophisticated about this maybe even also for the record, are
there some advantages to consumers in an open-access network?
Spell that out, just a little bit, as to how that would be of
benefit.
Mrs. Obuchowski. We can debate the numbers. Is this a
fully-competitive market? Is this a market that is competitive
but is becoming more concentrated? But in any event, you see a
great deal of concern associated with two or three points, one
being the ability of folks to roam, to access a network on fair
and equal conditions, not to be essentially seeking to roam and
compete with their own competitor. So that is one issue where
open access is desirable, particularly to rural companies.
A second issue is the issue of open access to devices.
There is a proposal out there put in by Skype that seeks open
access across the board. We would not support that, in that it
is retroactively applied, but when you look at the future and
you say now if you have a device and you are seeking to bring
it to market, you need, typically, to negotiate with one of the
large carriers. And it really depends on their business model
whether they are accepting of that or not.
Mrs. Capps. I see.
Mrs. Obuchowski. I would say there are absolute innovation
advantages, and again, that is why I think we have a great deal
of support, particularly from the people that are concerned
about innovation.
Mrs. Capps. All right. A final question for you in a
different tack.
One of the most common arguments against Frontline, that I
have heard, has been that it isn't really a true auction,
because under your plan, several conditions are placed on the
spectrum, including network neutrality, open access,
wholesaling, and roaming, as you have mentioned. Do you agree
with this assessment that is a little bit more negative and/or
do you believe auctions are the best way for a government to
allocate spectrum?
Mrs. Obuchowski. Yes, I absolutely believe that auctions,
and we absolutely believe that auctions are the best way to
allocate. I think that is, again, an utter red herring going
all the way back to over 1993. This committee and then the
Congress and then the President decided that spectrum auctions
are a good way to assign spectrum. They don't define all the
rules of the road. That is flatly not the case. And I need to
make one more point, which is that I would not assume this
auction is going to be competitive. I mean, one of the Holy
Grails has been why isn't Silicon Valley involved in spectrum
auctions. And I think you see, both with Mr. Muleta's proposal
and ours and others, that increasingly, people from other
sectors, not the cable and the telephones, which are great, are
looking. They understand that cellular and wireless undergirds
vastly more than that, and they have become interested. I think
they will be in this auction, and I don't see that they will be
stepping away, because some public safety conditions are----
Mrs. Capps. All right. Thank you.
Now I just have 2 minutes, Mr. Muleta, but I appreciated
hearing about your company's creativity as well in developing a
proposal to roll out free wireless broadband access to most of
America. It sounds like a good idea. Your company wants the FCC
to grant you spectrum without an auction.
So I will pose the same question to you. Do you believe
that auctions are the best way, and why aren't you choosing
that model?
Mr. Muleta. It really, fundamentally, comes down to the
spectrum that we would like to use. The spectrum has been in
the marketplace for 7 years, has had zero demand for its use,
until we came around. Now there are some claim-jumpers that
have stepped into the frame. But the bottom line is the FCC has
been given a panoply of tools to assign spectrum in the public
interest. What we believe is that we would like to get it to
the marketplace as quickly as possible. We would like to make
sure that the rules of the road for an auction are not
encumbered in such a way that it prevents new entrants from
coming in and will be done and be very transparent and explicit
about what the direct consumer benefits are. I just ask you,
when you go back to California and you land on the plane, when
the plane lands, today, you can take out your cell phone, and
you can connect. But if you take out your laptop, you hope
maybe there is broadband connectivity. And I think that is
really our vision is to have the kind of model, free, over the
air type of television model with very low-cost equipment to
get it out in the marketplace.
The issue about auctions really has to do with is this
spectrum fallow, and will other people have an incentive to
prevent entry? How can it be designed in that way?
Mrs. Capps. Thank you. I see there is time for one more
quick question.
If the 700-MHz band is beachfront property in terms of its
quality and desirability, what is the area you are looking at?
Is it going to be technically feasible to build a nationwide
broadband network, including high-speed, in the 2.15-GHz band?
Mr. Muleta. Yes, it is. Absolutely. The reason that the
demand for the spectrum has been so low in the marketplace, and
again, 7 years of lying fallow, has been because it is unpaired
spectrum, which means if you want to try and develop voice
types of services that are voice that maybe do data, it is very
unattractive for a lot of the existing players. And so what we
have focused on is providing an IP-only, a data-only service,
and we think, at that level, the 2155 to 2175 spectrum can be
very much used to deploy that. The other thing is, when you are
thinking about computing services, our company's investors are
Charles River Ventures, Red Point Ventures, who has backed TiVo
and MySpace, as well as a client of Perkins when Mr. Doerr was
on our board, have also invested in a lot of these interesting
applications. What they need are data applications, a data open
platform to provide these services.
Mrs. Capps. Thank you, Mr. Chairman.
Mr. Markey. The gentlelady's time has expired.
You can take this beachfront property analogy too far
because in the same way there is climate change affecting
beachfront properties all across the planet, well, we have
learned that there can be economic climate changes, too, that
affect this beachfront property. We learned that with a lot of
wireless licenses in the 1990s.
The Chair recognizes the gentleman from Texas, Mr. Green.
Mr. Green. Thank you, Mr. Chairman.
Mr. West, in most areas, consumers have only two choices
for broadband, the telephone company, the DSL, or the cable
company. Several wireless carriers are now offering wireless
broadband service over their cell networks as well. Sprint is
notable in that, unlike Verizon Wireless and Cingular, it is
not affiliated with a DSL provider. Would you say that Sprint
is offering a third source of broadband, which many of us are
seeking for many years in becoming closer to a fully
competitive market in broadband?
Mr. West. Thank you for the question, sir. Yes, I do. I
think that the move to mobile broadband increases competition.
But more importantly, like with mobile voice, it creates a
larger market, and that larger market leads to economic growth,
and that is what I think is the big prize here: great economic
growth.
Mr. Green. Well, the third choice for consumers in
broadband on issues like speed, price, and access or
restrictions on content, what is the impact of a third choice
for both the speed, the price, and the access or restrictions
on content?
Mr. West. Well, in terms of speed, it is not possible for a
wireless network, economically, to match the speeds of a
wireline-based network, particularly a fiber optic-based
network. But then again, I like to use the example, I have a
service from one of the cable operators that has 400 video
channels, 200 audio channels. I have five TVs, and there is
Julie and me. So there are only two of us that can consume it
at any one time, and I do believe that wireless broadband can
actually serve the public.
Mr. Green. I think Congressman Markey might want us to have
those TV stations on all those TVs that we all have in our
home, we might turn them off more often.
On the WiMAX service, is that WiMAX service going to
improve the current offering, more over more traditional
cellular networks?
Mr. West. Yes, sir, because the tonnage, the amount of
megabytes that will be consumed in this wireless broadband
market, it is very difficult to support that from an economic
viewpoint and reach the price points that the public expects.
The price points are really set by DSL and cable access. And to
deliver that kind of connectivity with current technology,
because of the nature of the narrow band, is very difficult.
Mr. Green. And are you planning to not only market it to
business consumers but also individuals?
Mr. West. Yes, sir. I mean, it is a completely new model.
It is an open model. People will buy devices with WiMAX chips
and those will automatically connect to the WiMAX network, so
this is not the closed models that we have seen so far in the
cellular world necessary to support the subsidies. This is a
world with no subsidy.
Mr. Green. And our goal, obviously, from the 1996 Act, was
to have competition in services, and I would hope that
customers would know that there is a third way or another way
that you can have a service provider.
So Mrs. Obuchowski, is Frontline's proposal a final
proposal, or is your group interested in considering other
options to provide a public safety broadband network?
Mrs. Obuchowski. Well, it is certainly our best proposal.
We are committed to it. I am hesitating a bit, because I am not
sure what that means, ``Is it your final proposal?'' We have
submitted our business case and our regulatory proposal, and we
think this is the best approach to bring interoperability to
the country.
Mr. Green. But again, we know also negotiations take place
to make sure it can work. There will probably be lots of other
folks, I think, that will probably contact you. What are the
obstacles to getting public safety broadband access into the
traditional wireless networks, especially providers bidding in
that upcoming auction? What are your obstacles to getting
public safety broadband access?
Mrs. Obuchowski. Well, clearly, No. 1 is, in terms of
spectrum policy, to make sure that there is adequate spectrum,
not just for the regular load, but for the emergency load. And
that is where, I think, public safety has been supportive of
approaches such as our, not solely ours but such as ours.
Second, obviously, it is an issue of interoperability and
funding. And while this Congress has been very generous giving
resources, talking about a billion dollars for one fund and
$1.5 billion for another, to build a nationwide, interoperable,
broadband network is just a matter of $20 billion, $30 billion,
$40 billion, and not just that, but it is the constant renewal.
It is the renewal that happens in commercial networks. You know
better than I how the appropriations cycle doesn't really
support that type of approach.
We have seen public/private partnerships developing
networks for the military. The Government uses it for its own
internal needs. And it is, frankly, almost mind-boggling that
we are in 2007 and there are questions raised about whether
commercial entities could now serve this purpose. People use
the word risk associated with our business case. I would say,
as with any business case, it has risks, but a far riskier
approach would be to hope that, at some point, 50 States will
come together with a proposal and that will be funded.
Mr. Green. Mr. Chairman, could I just see if Mr. West had a
response to that on public/private partnerships, because----
Mr. West. Well, I do believe that the capacity issues are
best addressed through public/private solutions. It is almost
impossible to design a cellular network that can handle the
sorts of loads that we saw at 9/11 or like at the Virginia Tech
incident. So the more you can share the capacity, the better.
Mr. Green. And we experienced that on 9/11, too, here in
Washington.
Mr. West. Yes.
Mr. Green. Thank you, Mr. Chairman.
Mr. Markey. The gentleman's time has expired.
I am just going to ask a couple of questions and then wrap
up the hearing, at the committee's approval.
Mr. Gallagher, could you tell us, who paid for the report
that you were referring to here, that you completed?
Mr. Gallagher. Yes, well, Larry Irving and I co-wrote the
document, so I can't speak for Larry, but my law firm
represents a wide range of communications clients, hardware/
software companies, networks, wired and wireless----
Mr. Markey. They paid for it?
Mr. Gallagher. They didn't directly write a check for the
report, no.
Mr. Markey. OK. Can you give us a couple of the companies'
names?
Mr. Gallagher. You bet, yes. On the wired side, the firm
represents Verizon and Qwest. On the wireless side, we
represent all of the major wireless providers for different
things.
Mr. Markey. I just think, for the record, it is important
to have that out here for the permanent record.
Quickly, I mean very, very, very briefly, Mr. Muleta, what
happens if you don't get this spectrum that you are looking
for? What will happen with that spectrum?
Mr. Muleta. We don't know. There are no plans for the
spectrum. There is no assignment process, and it will remain
fallow. What we are hoping for is that this sorry state of
affairs is not extended. There are two economic studies that we
submitted into the record today that show that consumers would
benefit, over the license period of 15 years, $18 to $32.4
billion of net consumer benefits. And that has not been
contested, so we hope that there is swift action on our
proposal.
Mr. Markey. Thank you.
Mrs. Obuchowski, who will build the public safety network
if you don't build it? Can you give us your view of that?
Mrs. Obuchowski. I don't think that this public safety
network will be built in an interoperable fashion in the
relevant timetable if you do not go to a commercial public/
private partnership. It is not going to happen. I mean, it
hasn't happened. The funding isn't there, despite your best
efforts, and that is exactly why you see public safety having,
over the last year or so, really very much changing their
mindset about a public/private approach. They want to hold the
license. They will hold that license. They want to control the
negotiation. But in terms of a public/private partnership, I
think that mindset has completely changed.
Mr. Markey. OK. Well, we thank you.
And we thank you, Ms. Spencer, for bringing the woman
entrepreneurial perspective to this committee. It is very, very
important.
And you, Mr. Meena, for focusing upon the rural aspect of
this issue. It has to be an indispensable part of the formula.
You, Mr. West, for pointing out how important it is for
reasonable interconnection to be available along with this
wireline network is the indispensable part of our ability to
provide real competition on an affordable basis.
And to you, Mr. Gallagher, for bringing your expertise
along with Mrs. Obuchowski and Mr. Muleta.
I really wanted to go off on a whole Carterphone issue
here, and for those who are watching us, that just means that
when you buy your device and you want to move to another
service, is it going to cost you another fortune to buy the
device? And we kind of established back in 1968 that you
wouldn't have to do that if it was your phone back at home. But
if I had one complaint, I have had 1,000 complaints of people
just coming up to me who were very upset about that issue, and
it is just something that we have to focus on in another
hearing at another time, but it is moving up there as a big
consumer complaint.
With that, we thank all the witnesses. This hearing is
adjourned. Thank you.
[Whereupon, at 12:55 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
THE DIGITAL FUTURE OF THE UNITED STATES
BROADBAND LESSONS FROM ABROAD
----------
TUESDAY, APRIL 24, 2007
House of Representatives,
Subcommittee on Telecommunications
and the Internet,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:05 a.m., in
room 2322 of the Rayburn House Office Building, Hon. Edward J.
Markey (chairman of the subcommittee) presiding.
Members present: Representatives Doyle, Harman, Gonzalez,
Inslee, Hill, Boucher, Eshoo, Green, Capps, Solis, Upton,
Hastert, Stearns, Shimkus, Pickering, Walden, Terry and Barton.
Staff present: Johanna Shelton, Tim Powderly, Mark Seifert,
Colin Crowell, David Vogel, Neil Fried, and Courtney Reinhard.
OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS
Mr. Markey. Good morning. We welcome you. Today's hearing
adds to the series of educational oversight hearings which
began with the inventor of the World Wide Web, Sir Timothy
Berners-Lee, and which is designed to illuminate
telecommunications policy issues for the subcommittee this
year.
This morning we have several distinguished witnesses to
assist us in learning about international broadband deployment,
competition and consumer adoption. I want to particularly thank
the witnesses this morning who have traveled great distances
from New Zealand, the United Kingdom and Japan to testify.
It is clearly time for us to look beyond our borders in
developing our Nation's broadband strategy. While U.S.
broadband adoption is certainly increasing and deployment
continues, in international broadband rankings, a nation must
essentially run in order to stand still. Relative to other
countries, however, it appears as if America's broadband
penetration is stalling at dial-up speeds while other nations
have developed national plans and are moving ahead.
When the Organization for Economic Cooperation and
Development first ranked its 30 member nations on broadband
penetration in 2000, just 4 years after initial implementation
of the Telecommunications Act of 1996, the United States was
ranked fourth. By 2004, the United States had dropped to 12th,
and as of yesterday, newly released data show the United States
has dropped three more places to the No. 15 spot on the list,
down to 15th out of 30. Thank goodness, there are only 30
members of the OECD so that we can never drop below No. 30.
Now, some will argue that rankings on broadband penetration
don't tell the whole story. That is true. Because merely
looking at broadband penetration does not highlight that
broadband elsewhere also tends to be both significantly faster
and far cheaper. Others may say that our panelists' experiences
cannot be replicated here in the United States based on
differences in factors such as geography, population density
and telecommunications infrastructure. Certainly no two
countries are exactly alike. Yet despite the fact that most of
the American population lives in urban or suburban areas, which
are less costly to serve, we still don't enjoy the same
broadband speeds or prices or the sheer number of consumer
choices for broadband that are found in Japan or the U.K. In
other words, our dilemma is that it is not simply that fast,
affordable broadband is not available in Wyoming, it is also
not available in Boston, where a 30-megabit-per-second fiber
connection from Verizon costs about $180 per month, assuming
you can even get one. In contrast, in Japan a consumer can get
even faster service, 50-megabit service, for the equivalent of
$30 a month.
Advanced high-speed broadband service is the indispensable
infrastructure of the 21st century. It will be the vehicle
through which countless other economic, civic and cultural
activities occur. As we assess where we stand today, I think
the way to achieve greater progress is not from more oratory
rhetoric or excuses for poor rankings. The United States needs
a plan. In my view, the United States started out on the right
path. The 1996 Telecommunications Act mandated a robust
unbundling and interconnection regime designed to jumpstart
competition both between and among technology platforms. The
idea was that competition would reduce prices, improve service
and spur innovation including the deployment of broadband by
incumbents and competitors. Gradually, however, we lost our way
as regulators became convinced that competition within a
platform actually hindered overall broadband and as a result we
now have a residential broadband duopoly marked by relatively
slow speeds and high prices.
Many other nations took one look at our broadband
situation, learned from our experience and took the opposite
approach. In Japan and the U.K., for instance, they implemented
policies such as local loop unbundling and broadband resale
that facilitate competition using the incumbent's plant
regardless of technology. As a result, Japan and the U.K. today
have faster broadband, cheaper broadband and more broadband
choices.
I believe this hearing on Broadband: Lessons from Abroad
will assist the subcommittee greatly in assessing what we
consider for a broadband plan here at home.
Again, I thank our witnesses. I look forward to their
testimony.
I turn and recognize the ranking member, the gentleman from
Michigan, Mr. Upton, for his opening statement.
OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Upton. Thank you, Mr. Chairman, for this important
hearing.
Today one of the focal points for our review of this issue
is the benchmark that many cite as the measure of broadband
deployment in countries throughout the world, the Organization
for Economic Cooperation and Development, OECD, broadband
statistics. December 2006 data released yesterday ranks the
United States as 15th, as you indicated, in broadband
penetration based on percentage of population. I believe,
however, that it is important to understand two things: first,
the methodology that the OECD uses to produce these relative
rankings and how it understates the actual level of broadband
connections in the United States, and second, that this ranking
reflects the fact that we are just now overcoming the anti-
infrastructure, anti-investment, anti-broadband decisions made
by the FCC in its implementation of the 1996 Act during the
1996 to 2002 time frame.
As to the OECD rankings, I have come to learn that the
methodology used by OECD to measure the extent of broadband
connections is this. It adds up the business and residential
broadband connections, then divides the number by the
population of that particular country. The business broadband
connections in the United States that are affected by the use
of special access services are not counted for some unknown
reason and only those that use DSL, cable modem or other
technologies such as satellite and wireless are. That has the
effect of greatly understating our broadband penetration as
compared to that of Europe, which primarily relies on DSL. Part
of the problem too is that the FCC until relatively recently
was making decisions under the guise of implementing the 1996
Act that were in fact decidedly anti-investment by their very
nature. What this committee came to realize back in 2001 and
2002 during the consideration of the Tauzin-Dingell bill was
that the pace of deployment for broadband services and
facilities was, as the committee indicated, ``inextricably
linked with the manner in which such services are regulated.''
Consequently, the legislation recognized that the unnecessary
application of title II common carrier legacy regulation would
stifle the deployment of broadband services and facilities.
When the House passed Tauzin-Dingell in February 2002 by a
vote of 273 to 157, DSL was fully regulated as
telecommunications services under title II. We didn't know
whether cable modem was a telecommunications service or an
information service, and broadband facilities were subject to
unbundling requirements. After years of reversals, court
decisions and revised FCC decisions, these matters now have
been rectified, answered and decided, and we are catching up
for lost time. Even though Tauzin-Dingell was never enacted,
its underlying principles of promoting broadband investment and
deregulatory parity have been the influential guideposts for
subsequent FCC decisions and some of those decisions have
established the broadband policy that we have been lacking.
Consider this: March 14, 2002, less than 3 weeks after House
passage of Tauzin-Dingell, the FCC determined cable modem
service to be an information service not subject to title II
regulations, and that was affirmed by the Supreme Court. In
February 2003, the FCC determined not to require the unbundling
of broadband facilities such as fiber to the home, and that
decision also was affirmed by the Court of Appeals in March of
2004. In August 2005 the FCC determined that wireline broadband
access service, in other words, DSL, was an information service
not subject to title II, and then in November 2006 the FCC
determined that the broadband over power line was an
information service not subject to title II regulation,
heretofore dismissed by anyone as a viable broadband
alternative. One should note the fact that the OECD report that
lists Denmark as the leader in broadband penetration observes
further that Danish power companies are rolling out fiber to
consumers as they work to bury overhead power lines. In
December 2006, the FCC adopted its video franchising report
order, accelerating the process for new entrants. Video will
be, as we know, a major driver for broadband deployment. In
March 2007, just last month, the FCC determined that wireless
broadband was an information service not subject to title II
regulation. As a result of these FCC and judicial actions, we
at long last have the semblance of a national broadband policy
that promotes competition, is pro-investment, not anti-
investment, and that imposes minimal Government regulations
upon broadband services and facilities. I know that these long-
sought-upon broadband policy decisions will greatly accelerate
broadband. They are now only taking hold as a regulatory
uncertainty that has hung over broadband was, as we thought in
2002, an investment-stifling factor.
We heard last week at the wireless hearing about the
spectrum resulting from the DTV transition that will permit
wireless providers to provide significant broadband services,
so rather than look for new regulatory solutions, we must
continue to promote competition, promote new technologies,
promote and foster broadband network investment and rely on
competition and deregulatory, not Government regulations.
I yield back. Thank you.
Mr. Markey. The Chair recognizes the gentlelady from
California, Ms. Harman.
OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Harman. Thank you, Mr. Chairman. I am glad to see you
are fully recovered. We were all quite worried a few weeks ago.
Mr. Chairman, your statement and that of Ranking Member
Upton are very depressing. America is clearly lagging in
broadband development despite clear legislative intent by the
U.S. Congress. I remember 1996, but we all had hoped that we
would have a robust broadband build-out by now.
To summarize what you said, broadband deployment in the
United States is slower, more expensive and less extensive than
in many other countries, and I say shame on us. The advantages
of broadband for the e-economy are obvious and so are the
disadvantages of leaving 200 million Americans in the Stone
Age. I come from a part of the country where movies and music
pay salaries and mortgages, CD sales are declining, media
outlets are consolidating and piracy is rampant. Expanding
broadband will bring new markets to the entertainment industry
and other industries, and I think that those markets will
benefit, not just my constituents but constituents of members
of this committee around the country.
There is still some dispute about how we stack up against
other nations, but I think there is no dispute that the news is
basically bad, and I am glad we are having this hearing to see
if we can chart a way forward.
Thank you, Mr. Chairman.
Mr. Markey. The gentlelady's time has expired.
Speaker Hastert, the gentleman from Illinois.
Mr. Hastert. I will pass.
Mr. Markey. The Chair recognizes the gentleman from Texas,
Mr. Gonzalez.
Mr. Gonzalez. I will waive.
Mr. Markey. The gentleman's time will be reserved.
The gentleman from Virginia, Mr. Boucher.
Mr. Boucher. I will waive.
Mr. Markey. The gentleman from southwestern Virginia waives
his time.
The gentlelady from California, Ms. Eshoo.
OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Eshoo. Thank you, Mr. Chairman, and thank you for now
the eighth telecom hearing of this year. I think that there
were eight held in the entirety of last year, so we are on a
move here, and we need to be.
I want to welcome the witnesses to our country, to the
Congress and to the House of Representatives to this hearing.
It is an important one.
What brings us here today is reflected is one simple
statistic. The United States now ranks 12th in broadband
penetration, I think it is 15th as of yesterday, among all
industrialized countries according to the OECD. The
International Telecommunications Union has us rated even lower
at 15th. Whatever No. 1 goes by, and whoever's ranking one
chooses, one thing is absolutely clear: we are a long way from
first, and we are not doing the things we need to do to get
there. Yesterday, Mr. Chairman, PC Magazine came out with an
article that is not complimentary of the United States and
where we are, and I would like to, with unanimous consent,
place it in the record because I think it should be part of
this hearing.
Mr. Markey. Without objection.
Ms. Eshoo. Later this morning I am going to join the
Speaker and several of my House colleagues including Chairman
Markey to announce the Innovation Agenda, a legislative package
to promote American competitiveness and ensure that we continue
to lead the world in critical innovation and technology.
Central to this agenda is a commitment to provide universal
broadband access for all Americans within 5 years. I think it
can be done in a shorter period of time but certainly within
that time. Universal broadband isn't just something we should
do; it is something we must do if we are to remain competitive
in the 21st century. Unfortunately, our country, and our
Government have not been committed to this difficult task, and
in the last several years we have lost significant ground to
the rest of the world. No longer is the country that created
the Internet and the most connected nation in a leadership
position, and Americans shouldn't settle for 12th or 15th or
20th. That is not who and what we are. We need to rethink our
broadband policies and look at what has worked in other
countries, and that is why this hearing is such an important
one and the witnesses that are here to be instructive to us.
We also have to provide what has been most lacking in this
area, and simply put, it is leadership or the lack thereof.
Broadband access has not been the focal point in our country
because no one has made it a priority. Chairman Markey has made
it clear that he intends to make this a priority, commencing
his chairmanship with a series of hearings on the digital
future of our country and certainly the Speaker has made this
her commitment as well. I look forward to working with everyone
on the committee. We have a lot of work to do, and I look
forward to getting it done.
Thank you, Mr. Chairman, for your leadership, and I yield
back the balance of my time, if there is any.
Mr. Markey. The gentlelady's time has expired.
The Chair recognizes the ranking member of the full
committee, the gentleman from Texas, Mr. Barton.
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Thank you, Mr. Chairman.
I would like to clarify a few misconceptions about
broadband deployment in this country that are giving us an
inferiority complex. While it is true that the current rankings
in the OECD list Denmark as No. 1 and United States as No. 15
in overall broadband penetration, it is a little bit
misleading. For example, the OECD doesn't count the special
access lines that any U.S. businesses use for broadband. As a
result, the OECD rankings greatly underrepresent U.S.
businesses as compared to those in other countries which use
DSL.
Focusing on penetration can also be misleading sometimes.
Other OECD data rank the United States first with the most
subscribers--we had over 58 million as of December 2006. In
fact, of all the broadband connections in all of the OECD's 30
members, nearly a third are in the United States by itself. The
OECD rankings do not account for the widely varying geographies
and population densities. As Chairman Markey has pointed out,
comparisons are questionable when most people in Iceland live
in one community, Reykjavik, and most people in South Korea
live in Seoul, the capital.
If we break U.S. residential broadband penetration down by
State based on a May 2006 Pew study, the size comparisons
become more realistic. Doing so, we find that the top three
States have higher penetration than Denmark's 49 percent: New
Jersey has 53 percent, California has 53, Connecticut has 51.
In fact, the United States takes eight of the top 10 spots in
terms of residential broadband penetration if ranked with the
European Union countries. Even the bottom three states would be
above the EU average of 23 percent. Vermont, for example, has
31 percent, Mississippi has 29 percent and West Virginia has 27
percent.
U.S. broadband penetration is also continuing to grow
rapidly, thanks to our deregulatory policies. Recent FCC data
show that since DSL was classified as an information service,
the number of DSL lines has increased by 38 percent and the
total number of high-speed lines has increased by 52 percent.
Even better numbers are expected this year.
The United States also benefits from robust competition
between cable and phone companies that other countries lack. In
the United States, 51 percent of broadband penetration is
attributable to cable modem, 42 percent coming from DSL and 7
percent from other sources, according to an HSBC report. By
comparison, about 79 percent of the market in Europe is DSL. It
is this lack of platform alternatives that has led the EU to
rely on regulatory approaches, such as unbundling.
Their lack of platform alternatives and their reliance on
network sharing is also the reason why the EU countries will
soon be slowed by the speed and capacity limitations presented
by technology. Companies in Europe generally are not deploying
cable or fiber-optic facilities to the same extent as we are in
the United States, and it is those types of facilities that
will be necessary for the next generation of services.
We also have a flourishing wireless industry that is adding
yet another broadband alternative. If we get the rules right
for the upcoming 700 MHz auction made possible by our DTV
legislation, we will have even more spectrum available that is
ideal for next generation broadband services.
Mr. Chairman, I appreciate you doing this hearing, and I
yield back my time.
Mr. Markey. The gentleman's time has expired.
The gentlelady from California, Ms. Solis.
OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Solis. Thank you, Mr. Chairman, and thank you, Ranking
Member Upton, and also welcome to our visitors from abroad who
are here to testify.
Today, as you know, we have an opportunity to examine the
best practices of other nations around the world in deploying
high-speed communication technology. We know that this is going
to require a significant investment to upgrade our
infrastructure. Some of the questions I have are: what we will
do here in the United States as we currently rank 15 among 30
industrialized nations as members of the Organization for
Economic Cooperation and Development. I represent a very
diverse district in Los Angeles. In fact, in some portions of
the district we are known as Little Taiwan. We have a very
large Asian Pacific Islander community, about 22 percent and
growing, and I notice on this chart that we will probably be
reviewing that China and Taiwan are not listed on our chart.
So we need to increase our communication and obviously
deploy this very valuable tool, but more importantly, there are
also some socioeconomic factors that need to be addressed, and
that is the other part of the community I represent, which is
East Los Angeles, heavily Latino, a lot of socioeconomic
challenges there, and the digital divide exists in our
classrooms and in many of our homes. So I am looking forward to
hearing how we can lower the cost, spread broadband out in
communities that are currently underserved, and also figure out
how we can do a better job of reaching out to our
underrepresented communities both economically and culturally.
Thank you.
Mr. Markey. The gentlelady's time has expired.
The gentleman from Nebraska, Mr. Terry.
OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEBRASKA
Mr. Terry. Thank you, Mr. Chairman. I appreciate this
hearing in particular as I think one of the issues that we need
to work through to better shape this argument, broadband
deployment, is really to look at how deep the deployment is.
There is no doubt in my mind from my experience on this
committee that we have been saddled with the baggage of the
past, legacy-type technologies and the regulatory schemes that
are equally as ancient. While other countries may not have had
that type of issue to deal with, we have also had a telecom
recession that slowed down the dollars flowing into the market
where other countries that were using Government dollars
perhaps had a speedier time of outlaying a system. But I really
believe that we are on track to have the best system in a
matter of time. It is just a matter of how we conduct the
inventory because even in my State of Nebraska, we claim almost
universal deployment of broadband, but when you go into certain
communities, they are saying where is it. So one of the things
I think we need to do a better job is a real or actual
inventory because what I see in my travels around the country
is that we have got great assets, infrastructure and
competition within larger, denser populated areas and then once
you get outside of that, it is like falling off a cliff.
I want to tell a story about when I spent last August
traveling around several small communities in the State of
Nebraska, even though I only represent the city of Omaha, and
talked to areas that wanted broadband and others that didn't. I
want to tell you a story. Diller, NE, 298 people, it is the
Diller telephone exchange. There are 800 people in the entire
area, 800 lines, but they are very progressive, especially in
broadband deployment. They have gone wireless. They put out
fiber. So what has that meant to the community? Well, let me
tell you a story of a little butcher ship in Diller, just about
ready to go out of business, third generation running it,
decided that they were going to start selling boxed beef over
the Internet. So it went from three family members employed
there to now 50 in a matter of 4 years. They buy all of their
cattle locally near Beatrice, NE. They have sold to every State
in the country and Canada, and they now employ 50 people using
a broadband business plan. That is what it means for America
and that is why this hearing is so important, so we can make
sure that everyone has access to this type of technology and
can compete in a 21st century global economy no matter where
they reside.
I yield back.
Mr. Markey. The gentleman's time has expired.
The Chair recognizes the gentleman from Pennsylvania, the
vice chair of the subcommittee, Mr. Doyle.
OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA
Mr. Doyle. Thank you, Mr. Chairman, and welcome to our
panelists.
Mr. Chairman, it seems like only a few weeks ago I was
bemoaning our OECD broadband subscriber ranking at number 12. I
want to congratulate Chairman Markey for holding a hearing
about our standing in the international broadband rankings the
day after we fall from 12th to 15th. Mr. Chairman, your timing
is certainly better than Rich Little's was at the White House
correspondents' dinner this weekend.
I appreciate getting letters from companies and industries
who want to tell me that we shouldn't worry about our place in
the broadband world. It doesn't matter, they tell me, that tens
of millions of Americans don't have a fast connection to the
Internet. An open and free Internet could be considered the
first truly accessible tool to make the spirit of the First
Amendment come alive for everyone in this country, but without
an Internet available to all that guarantees fast speeds to
anyone's content, that potential is just a promise.
I am hesitant to believe those who would tell us that the
rankings aren't meaningful and that we should instead find a
new way to look at the data. Frankly, I believe those views are
what is holding us back. To say that we can't learn from other
countries whose policies are clearly working better than ours
seems to come from the same mindset that hinders our foreign
policy and other matters. Each different way I looked at the
rankings, and I have turned them upside down and looked at them
sideways, it still shows we are in the middle, and when you
look at the data over time, we are falling. We are falling
behind to countries that are doing what we tried first, lost
patience with and gave up on. That is right: Other nations are
seeing success with what should have been our policy from the
start, a policy that unbundled services from the wire those
services travel on, a policy that recognized our infrastructure
should be ripe for competition, new services, faster speeds and
lower prices.
Chairman Markey, to paraphrase something Archie and Edith
Bunker could have sung in 1996, hair was short and skirts were
long, Celine Dion really sold a song, I don't know just what
went wrong, those should have been the days.
Mr. Chairman, the lesson it seems from U.S. telecom policy
is, do what we said in 1996, not as we actually did in 2003,
and with that, Mr. Chairman, I will yield back.
Mr. Markey. Excellent. They should have had you, not Rich
Little, on Saturday night.
The Chair recognizes the gentleman from Illinois, Mr.
Shimkus.
OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Shimkus. Thank you, Mr. Chairman. I am wondering if
Colin is moonlighting for Doyle in the script and songwriting
area, so better check his compensation schedule there.
A couple quick things. First of all, I think we ought to be
going to some of these countries that are represented here
talking about our successes because we all know we can do
better, but I think my colleague, Mr. Doyle, is wrong. I think
we have a great story of success to tell, and I think we can go
to some of the countries that are represented here and make the
case why what we have done in some aspects has been very
successful. I am a competitive-market guy, and I want more
pipes, more competition and really not dictated by a large
Federal bureaucracy.
Let me give you a couple points here. In absolute figures,
even the OECD statistics indicate that the United States has
the largest number of broadband subscribers with 58.1 million
as of December 2006. That is roughly 30 percent of the
broadband connections in all the OECD countries combined. By
aggregating business and residential data, the OECD report also
fails to show that residential broadband penetration is higher
in the United States than most other countries at 42 percent,
according to a May 2006 Pew study. That is less than Denmark's,
the Netherlands' or Sweden's but more than each of the other EU
member states. The rankings do not account for geography and
population density. If we make the size comparisons more apt by
breaking residential broadband penetration down by State to the
top three, New Jersey, California and Connecticut, we beat
number one-ranked Denmark. Even the bottom three States would
beat the average penetration in the EU countries.
As many of you know, I am involved with the Baltic
countries, Estonia, Latvia, Lithuania, very closely. Estonia
has a great success story of penetration through cellular high-
speed. Why did they get there? Because of a free, unfettered
market and the fact that they could bypass the incumbents and
bring competition to the world. It is truly a great story.
Competition, competitive markets always beat government. That
is where I stand, and I think we have got a good story to tell.
I yield back my time, Mr. Chairman.
Mr. Markey. The gentleman's time has expired.
The gentlelady from California, Mrs. Capps.
Mrs. Capps. Thank you, Mr. Chairman. I welcome our
witnesses today and I will submit my statement for the record.
Mr. Markey. The gentlelady's time will be reserved.
The gentleman from Indiana, Mr. Hill.
Mr. Hill. I would waive an opening statement.
Mr. Markey. The gentleman's time will be reserved as well.
I see Mr. Stearns has just arrived. Would the gentleman
like to be recognized to make an opening statement?
Mr. Stearns. Thank you, Mr. Chairman.
Mr. Markey. The gentleman from Florida is recognized.
OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Stearns. Let me compliment you for having these series
of hearings. I think this is a diverse panel of witnesses that
have broad experience.
I caution my colleagues not to go overboard in comparing
the experience of other nations to the United States. In many
cases, it would be comparing apples to oranges. The recent
broadband ranking by the Organization for Economic Cooperation
and Development puts the United States right in the middle of
broadband subscribers. These rankings provide an interesting
snapshot but are in many ways flawed and misleading. The OECD
underrepresents U.S. broadband penetration, in part because
they do not count business lines in the United States.
Furthermore, the rankings do not take into account the varying
geographics and population densities of each country. The
United States, as we know, is very geographically diverse,
especially compared to other countries on the OECD list. In an
apples-to-apples comparison of broadband penetration by
household, the U.S. outranks Europe. A more appropriate measure
would be to break U.S. residential broadband penetration down
by State to make the size comparisons. The top three U.S.
States have broadband penetration rates greater than all
European Union member states except the Netherlands. The
average U.S. broadband penetration rate for all States is
greater than the EU average.
As flawed as these rankings may be, we still have a lot of
room for improvement, but we need to have better data than is
currently available to make the best-informed policy decisions.
I believe the United States is on the right track, but there is
more that Congress can do by promoting wireless broadband, by
identifying more spectrum and focusing on cooperative programs
to stimulate rural broadband deployment. The last thing
Congress should do is impose anticipatory regulation.
One area of improvement is on download speeds and prices.
Other countries certainly have higher average download speeds
and lower average prices than the United States. However, it is
important to see whether prices are sustainable. Download
speeds can be increased in the future and where upload speeds
are adequate or capable of increasing. France, for example,
does have lower prices for 20-megabits-per-second broadband
service but France telecom is selling that service at half the
real cost. How sustainable is that? DSL download speed in
Europe varies from 8 to 50 megabits per second because EU loop
lengths are very short in comparison to the United States loop
length. Even so, U.S. speeds on average are higher than
Europeans' to a significant degree because the United States
has platform competition.
So Mr. Chairman, I thank you for holding this hearing. I
look forward to hearing the witnesses and working with my
colleagues to increase broadband subscribership and penetration
in the United States.
Mr. Markey. The gentleman's time has expired.
The Chair recognizes the gentleman from Texas, Mr. Green.
OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Green. Thank you, Mr. Chairman, for holding this
hearing on broadband deployment around the globe, and I know
this is our continuing series and I look forward to our
witnesses today.
We have been looking at the digital future of the United
States for several weeks now, and last week we heard from
several witnesses on plans to deliver wireless broadband.
Consumers here in the United States are paying double, triple
or more per megabits per second of bandwidth than consumers in
other countries. The lack of affordable broadband access with
comparable speeds could eventually hurt U.S. businesses
struggling to grow and create jobs. Accelerating broadband
deployment is critical to the long-term health of the U.S.
technology sector that provides the building blocks for our new
networks. The U.S. does differ greatly from many foreign
countries, however, because we have multiple platforms building
networks competing for customers. Cable, DSL and soon WiMAX
will each offer broadband service to the home and to business,
and this competition could benefit consumers by driving down
prices and forcing companies to invest in their networks and
increase these speeds and stay competitive. Unbundling worked
overseas because there was primarily only one platform to
deliver broadband. It is unclear if that approach could work in
the United States because of slow investment in networks that
impede competition between the different platforms. In fact,
many members of this committee supported the Tauzin-Dingell
legislation to help push the FCC to roll back most of the
unbundling regime from the 1996 Act. Congress did not
accurately see the future in 1996 because the future of phone
competition was not unbundling but instead with voice-over
Internet. Cable companies and other voice-over Internet
companies have successfully taken millions of former telephone
subscribers and that competition has reduced the rates.
I look forward to hearing from our witnesses and working
with the subcommittee on the future of broadband deployment and
access and yield back my time.
Mr. Markey. The gentleman's time has expired.
All time for opening statements by members of the
subcommittee has expired. Statements will be accepted for the
record.
[The prepared statements of Mrs. Capps and Mr. Engel
follow:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
We will now turn to our panel. We have an incredibly
distinguished group of witnesses before us today. The Honorable
Paul Swain has been a Labour member of the New Zealand
Parliament for nearly 17 years. During his tenure, he has held
a number of ministerial positions, including the minister of
communications and information technologies. Mr. Ed Richards is
the chief executive officer of the Office of Communications,
the regulatory authority of the telecommunications and media
sectors in the United Kingdom. Mr. Richards is the Kevin
Martin, he is the equivalent of the Chair of the Federal
Communications Commission for Great Britain.
Mr. Shin Hashimoto is executive vice president of Nippon
Telephone and Telegraph Corporation, the parent corporation of
Japan's two incumbent telephone companies, NTT East and NTT
West, and its dominant mobile wireless provider, Dokomo. Mr.
Greg Wyler is cofounder and director of Rwandatel and Terracom
Communications, providers of broadband Internet access in
Rwanda, and Dr. George Ford is the chief economist for the
Phoenix Center for Advanced Legal and Economic Public Policy
Studies, a think tank that studies issues related to the law
and economics of the telecommunications and high-tech
industries.
So we will turn to you, Mr. Swain, and each witness will
have 5 minutes to make their opening statement, but you can see
there is plenty of pent-up interest in questioning the
witnesses.
We will begin with you. Welcome.
STATEMENT OF HON. PAUL SWAIN, MP, PARLIAMENT OF NEW ZEALAND,
WELLINGTON, NEW ZEALAND
Mr. Swain. Thank you, Mr. Chairman and members. It is a
great honor for me to be here in your country and be invited to
participate in this hearing related to international
perspectives on the provision of broadband. I will firstly say,
Mr. Chairman, I hope I am not asked to sing, because I think
that would lead to the clearing of the room.
As has been said, I am Paul Swain. I have been a member of
Parliament for 17 years and the minister of communications and
information technology from 1999 to 2004. New Zealand is a
small country and like all countries is dependent on high
broadband penetration rates for economic growth and social
development. Like many countries, yourself included, looking at
our penetration rates relative to the OECD, and I have to
acknowledge, Mr. Chairman, that our ranking is 21 out of 30,
and that is during a period probably of the last decade of one
of the most light-handed regulatory regimes in the world, and
we have just recently introduced some new measures to boost our
country's performance.
Just a little background. Telecommunications in New Zealand
was originally owned by the Government. In the late 1980s, the
telecommunication market was deregulated and Telecom New
Zealand was privatized in 1990. No specific teleco regulations
were introduced at that time. The industry relied on general
antitrust law to resolve disputes and issues. It was arguably
the most deregulated market in the world. While there was some
investment in competitive infrastructure in the 1990s, this
stalled alongside a growing dissatisfaction with the growing
regulatory regime and the levels of competition in New Zealand.
In 2001, I was responsible for a new telco regulatory regime
which promoted the interests of consumers, established a telco
regulator and introduced regulation of interconnection and
wholesaling, national roaming and cell-site co-location and
number portability. Local loop unbundling was not introduced at
this time. In 2002, the government provided $45 million New
Zealand to the private sector to lift broadband penetration
rates in sparsely populated areas of New Zealand centered and
focused around the nation's schools. In 2003, following a
mandate, the telco recommended against local loop unbundling
once again, and the government reluctantly agreed on the basis
of voluntary commitments from the incumbent to increase
investment of penetration rates in its Next Generation Network,
NGN. Many of the investment and penetration targets were simply
not met.
So in 2006, following a stocktake of New Zealand's
broadband performance relative to the OECD and wide
dissatisfaction with the competitive environment, particularly
facilities-based competition, the government introduced local
loop unbundling and required functional separation of the
incumbent Telecom New Zealand into three business units, an
access network, wholesale and retail business unit. Strong
equivalents of inputs requirements whereby the incumbent is
required to provide access to its network on the same terms and
conditions as it provides access to its own was also introduced
similar to the model adopted in the U.K. by OFCOM and British
Telecom. Details are currently being worked through, with
agreements expected to be reached by the end of the year. We
anticipate better broadband penetration rates as a result.
In conclusion, Mr. Chairman, New Zealand is determined to
improve the provision of broadband services given their
critical impact on economic growth, and given that we are
primarily an agricultural nation, the broadband penetration
rates are as important to us as the introduction of the freezer
ship was in the 1880s, which allowed our agricultural products
to be taken from New Zealand to British markets. Our experience
over two decades is that it is extremely difficult to achieve
greater competition and investment in broadband services under
a light-handed regulatory regime, given that incumbents do what
incumbents always do. We believe that full unbundling of the
local loop with functional separation of the incumbent will
deliver better results for all consumers.
Thank you once again, Mr. Chairman and members, for this
opportunity, and I wish you well for your deliberations.
[The prepared statement of Mr. Swain appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, sir. Thank you for being here today.
Mr. Richards, again, we are honored to have you here today.
Whenever you feel comfortable, please begin.
STATEMENT OF ED RICHARDS, CHIEF EXECUTIVE OFFICER, OFCOM,
LONDON, UNITED KINGDOM
Mr. Richards. Thank you very much. Good morning, Chairman
Markey, Ranking Member Upton and all members of the committee.
As you have heard, my name is Ed Richards. I am the chief
executive of OFCOM, the Office of Communications, with the
regulatory authority for telecommunications and the media in
the United Kingdom. It is a great honor to be asked to appear
here today.
Now, I know that the committee has been considering the
future trajectory of communications regulation here in the
United States, and as you can imagine, that is a subject of
great interest in the U.K. as well. I very much hope that
insights from our experience can be of some value to work with
your committee. We were created very much as a response to
convergence so we have responsibilities that set across
broadcasting, across telecom and indeed we are the spectrum
management agency for the United Kingdom as well. We are also
the antitrust authority for the sectors within our remit. We
work very closely with the U.K. Government but we also are very
clearly independent from the U.K. Government.
The U.K. telecoms market is similar to the United States in
many ways and our operators are facing very similar challenges
to your own. Revenues are shifting from traditional fixed voice
services to both wireless and to broadband. Given this shift, I
think in our view broadband is the key strategic product from
industry, from consumer and from a regulatory perspective.
The British broadband market is now I believe making very
rapid advances. We have seen market penetration increase from
39 households in every 100 to over 50 households in every 100
during the course of the last year. The total number of
connections has risen by some 31 percent in that time. Now,
part of that change can be attributed to a reinvigorated market
environment as a result of significant change in our regulatory
policy. In our written evidence we have explained how the U.S.
and U.K. telecoms regulatory policy, despite a very strong
shared commitment to promoting competition, investment and open
markets, have often pursued different trajectories over the
last 25 years. That I believe to a large extent simply reflects
different market realities.
When we were formed in 2003, we found that the U.K. was
very much underperforming other nations in telecoms. In
particular, we were very concerned about our approach to the
rollout of mass-market broadband. When we examined that
situation, we saw that the overall volume and activity of
regulation had steadily increased over the years but that had
not led to the conditions which would support sustainable
competition. In fact, competitors to BT, our incumbent, were
fragmented and weak, and they were overly reliant upon
regulation themselves. That didn't suit anyone. It didn't suit
the competitors and nor in fact did it suit the incumbent, who
faced an ever-expanding regulatory burden and a significant
overhead of regulatory risk and uncertainty. In our strategic
review which followed, we looked all around the world for ways
to address the problems. We looked very closely at U.S. policy
and in particular the conclusions of the 2003 Triennial Review.
We considered the option of regulatory forbearance, but our
market conditions differed from yours in a number of respects,
perhaps more crucially, the fact that cable is not as
extensively rolled out in the U.K. as it is here in the United
States. We also considered a model of your Bell breakup, which
would have meant the forced legal separation of BT's access
business from its other activities, but we judged that that
would have been complex, time-consuming and would have created,
rather than eliminated, regulatory uncertainty.
So we sought a different solution. That solution is now
being called functional separation, with the natural monopoly
infrastructure parts of our incumbent separated into a
different business unit, a new business unit called Openreach
with its own offices, its own management, its own remuneration
schemes and indeed company identity but still owned by BT Group
PLC on an arm's-length basis. We coupled that change with the
introduction of tough rules on discriminatory treatment, which
we termed equivalence of input. The equivalence of input means
that BT's own downstream business and those of its rivals
receive exactly the same products at the same price for the
same quality of service and on the same terms and conditions at
all times. The results so far have been significant. We have
certainly seen a surge of new investment in broadband
infrastructure and indeed a price wall. New operators are
coming to market with higher bandwidth services offered at
lower prices and services are being packaged in more innovative
ways. This approach has prompted interest from elsewhere as
well. We expect functional separation to become a part of the
armory available to all European regulators. As Mr. Swain has
explained, the New Zealand Government has begun to look closely
at our approach. Its communications minister is proposing a new
law that will grant its national regulator similar powers and a
similar approach to U.K. policy, and many other countries are
expressing interest as well.
One question we are often asked in this context is, what is
in it for the incumbent, what was in it for BT? Well, on the
downside, we made very clear that the only alternative was a
multi-year inquiry, which could have led to forced legal
separation. On the other hand, the voluntary agreement to
separate its business and introduce equivalence of input has
allowed us to grant more freedom to the incumbent to compete in
downstream retail markets. So as a consequence, we actually
have been able to deregulate as well. We have also been able to
offer BT greater certainty on the regulatory treatment of its
Next Generation Network. Within the framework of a guaranteed
regime of fair access, we were able to make clear that BT will
be compensated appropriately for the risks that it takes today
in terms of the regulatory pricing associated with wholesale
prices.
I believe the committee is also closely tracking the
evolution of spectrum policy as well, which we believe is
increasingly related to an effective communications policy and
an effective broadband policy. The U.K. and the U.S. I think
share a similar vision of the importance of spectrum as an
economic resort. We share a belief in the need for flexibility
in a complex and fast-moving environment. In the U.K., where
historically 95 percent of our spectrum has been subject to a
command and control model, our vision is to move by 2010 to a
predominantly market-led approach, with 70 percent of spectrum
available for use for any purpose and with any technology
subject only to a minimum set of restrictions to prevent
interference. We have a major program of spectrum release to be
conducted over the next 4 years, which will put some 350-MHz of
spectrum into the market, in each case allowing flexible use
and freedom over the choice of technology. Our European Union
partners are of course extremely important in our development
in this area as are other countries, so we look forward to
close cooperation with many countries ahead of the World Radio
Conference later this year.
Mr. Chairman, we can see many points of similarity between
our two nations in relation to these challenges. I think we are
both deeply committed to market-based policies which promote
innovation, investment and competition. I very much hope that
we can maintain a strong and fruitful dialog over the coming
months.
[The prepared statement of Mr. Richards appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Richards, very much.
Now, Mr. Hashimoto, we know that you have taken
extraordinary efforts to be here today, which we very much
appreciate. Whenever you feel comfortable, please begin.
STATEMENT OF SHIN HASHIMOTO, EXECUTIVE VICE PRESIDNT, NIPPON
TELEGRAPH AND TELEPHONE CORPORATION, TOKYO, JAPAN
Mr. Hashimoto. Thank you. Well, Chairman Markey, Ranking
Member Upton and members of the subcommittee, it is an honor
and a privilege for me to appear before you today. As a summary
of my statement, I would like to share with you some
information about the current status and the future of
broadband and next generation networks in Japan.
As indicated in the chart in the supplementary material on
page 5, in Japan more than 7 million people are enjoying fiber
to the homes subsidies and there has been some loss for FTTH
subsidy. FTTH subsidies are already widely available throughout
Japan and the typical monthly charge for a 100-megabit
connection is around 5,300 yen, or $46 U.S. NTT is now engaged
in building a next generation network named NGN. In recent
years, there has been increasingly momentum of utilizing fiber-
based broadband services, much higher speed and more stable
connectivity. NTT still owns large legacy public networks that
need to be upgraded in the near future. In view of these
circumstances, NTT has decided to build its own next generation
network in conjunction with fiber-based broadband access and
the new network infrastructure through which a wide variety of
broadband services can be very good. Our next generation
network will be able to meet various needs of our customers by
providing a wide range of services and reverse security
functionalities of NGN comprised of standards adopted by
international organizations. It is our belief that our NGN as
new communication infrastructure should have interconnectivity
with other service providers inside and outside of Japan. NTT
wishes to develop new business models that best utilize the NGN
for correlation with partners in a relationship of mutual trust
to create rich diversity of new businesses and services.
Specifications of connectivity interface have been made
available to the public.
The first step of our next generation network
implementation began a few trials in December 2006. This was
intended to verify the technological and operational issues of
our NGN commercial deployment. A number of companies have been
participating in our field trials conducting interoperability
testing interfaces. They have been developing new business
models and discovering numerous opportunities by using various
applications over NGN platforms.
I am very pleased to have this opportunity to share NTT's
plans with you today. Since the introduction of the Bell system
to our country, Japanese telecommunication industry was viewed
upon generous collaboration growth by the United States. Now it
is our time to share energy and experience and fiber optic
technology as much as possible with various U.S. industries to
fuse new next generation networks together. I hope it
strengthens our two countries' relationship even more.
Once again, I appreciate the opportunity to speak to the
committee today.
[The prepared statement of Mr. Hashimoto appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Hashimoto, very much.
And now we turn to Mr. Wyler. The subcommittee thought it
would be interesting to hear a story from the developing world,
and Mr. Wyler is intimately involved in what has happened in
Rwanda. Welcome, Mr. Wyler. Whenever you feel comfortable,
please begin.
STATEMENT OF GREGORY WYLER, DIRECTOR, RWANDATEL, S.A.,
MANCHESTER, MA
Mr. Wyler. Thank you, Chairman Markey, Ranking Member Upton
and members of the committee. I am honored by your request for
my attendance at this hearing. More so, I am appreciative that
the positive impact of broadband on developing nations is given
an opportunity to take the stage in your decision making. I
have but one of many small success stories in the developing
world where broadband has helped bring economic empowerment,
equality, democracy and change to a developing area. I am also
here as an American to testify that it is in America's interest
both economically and socially to help bring broadband
infrastructure to developing worlds.
In the early 1990s I had left graduate school to found a
company, and we developed semiconductor cooling technologies. I
was able to do that because I had an infrastructure around me.
I had entrepreneurs, financial expertise and help. I had the
ability to buy goods and services very easily. Later after
that, I took a turn to look at the developing world to try to
see what we could do to change things for them.
In Rwanda, we have developed world-class infrastructure
including the first African deployments of both fiber to the
premise and EVDO mobile broadband. I personally witnessed the
positive impact of broadband on many parts of this rural,
growing economy including successful poverty reduction and
medical treatment strategies. Two examples: The efficient
distribution of AIDS requires electronic infrastructure to
determine patterns, dosage and effect. Software from Voxiva in
Maryland creates Web sites to visually map these items and
electronically collect the data from the various health
centers. The broadband implementation allows this to happen.
Because of a desperate need in 2004 when I went to Rwanda, we
formed a small ISP to connect Internet to schools. Hiring an
entirely local staff, we climbed roofs, laid fiber and brought
the latest technologies to Rwanda. We now have almost 400
Rwandan employees and provide Internet access to approximately
50,000 end users. The fiber network designed, installed and
maintained entirely by Rwandans covers almost 400 kilometers,
interconnecting approximately 150 buildings including six of
the seven public colleges and all the government ministries.
Our EVDO broadband deployment brings high-speed mobile
networking throughout the country, including every city and
many rural areas.
What I have seen and had the opportunity to experience is a
growth of a country that had very little broadband, there was
only about 22 connections when I got there, to now something
which is one of the leaders in Africa, and what I have seen is
the economic growth and the interdependent web of businesses
that have grown, and I will give you an example. When I got
there, a deposit in one branch of a bank couldn't be in another
branch. That created a tremendous friction in commerce. So
after we put in the broadband to connect the branches, some
people left our company and left another bank and developed
another software company to create the financial software to
create those interconnections. That reduced the friction on
commerce, and of course we have seen the growth that has
happened in Rwanda. There are many examples of this that are
going where you have a multi-tiered, independent web of
business-to-business commerce that is happening inside Rwanda.
With all these positives, there is still a long way to go.
Internet backhaul costs and quality hamper development of
nations. As will be detailed, even if geo-satellite costs were
reduced, the quality of Internet over geo-satellite is so poor
it prevents participation of the developing world in the new
high-bandwidth Internet. Solving this problem requires a
significant investment in geo-satellite technology and fiber
networks. The entirety of Africa and most of the developing
world is not on fiber, so we get all of our access over
satellites. The incredible latency of satellite of 700
milliseconds, over half a second between the time when you type
something and it reaches a server or your Google or Yahoo
server slows down the access tremendously. When you go to CNN,
it takes 24 seconds. It populates very slowly. This really
prevents people from accessing and being part of the community.
Often overlooked besides the economics is the significant
and crucial role the Internet plays in fostering democracy.
Internet access eliminates a one-way channel of communication,
enhancing participatory government through both authored and
anonymous critique. Furthermore, wide accessibility creates an
open looking glass for peer review for the goings-on in any
particular country. In extreme instances, significant
deprivations of human rights can quickly be seen by the world.
The recent history of Rwanda would have been far different had
access been available. In part, the belief that communications
can free people drove this project.
Beyond the sale of equipment and cost to create
infrastructure from America, the United States exports a
significant amount of Web-based services. For example, almost
half of eBay and Google sales are international, Yahoo's profit
growth is entirely from international sales, and all the 20
most popular Web sites are American. Because American companies
continue to lead the world in monetizing Web users, it is also
in our economic interest to help develop the other three
billion people onto the Web.
Slow access speeds in the 1990s hindered the growth of the
``World Wide Wait.'' New Internet applications such as video,
Web 2.0 and Ajax require higher bandwidth. Unfortunately, most
of the developing world is stuck with extremely slow Internet
access speeds.
It is my hope this testimony will offer guidance on the
importance of broadband for development. Broadband creates
significant efficiencies for every other initiative whether for
health, education, economy or democracy and its need is often
overlooked because it plays only a supporting role. Broadband
does not cure disease but it can make the cure affordable.
[The prepared statement of Mr. Wyler appears at the
conclusion of the hearing.]
Mr. Markey. We very much appreciate your testimony, Mr.
Wyler.
Mr. Ford, we welcome you and we look forward to your
testimony.
STATEMENT OF GEORGE FORD, CHIEF ECONOMIST, PHOENIX CENTER FOR
ADVANCED LEGAL AND ECONOMIC PUBLIC POLICY STUDIES, WASHINGTON,
DC
Mr. Ford. Thank you, Mr. Chairman, Ranking Member Upton and
members of the subcommittee. Good morning and thank you for
inviting me to testify today among these distinguished guests.
I haven't traveled as far as they have, but some of you may
think Birmingham, AL is farther away than Tokyo from
Washington, DC.
I am the chief economist of the Phoenix Center for Advanced
Legal and Economic Public Policy Studies. The economics of the
communications industry has been the focus of my career
starting with my Ph.D. dissertation on competition in the cable
television industry. The Phoenix Center is a nonprofit
501(c)(3) organization with a particular emphasis on the law
and economics of telecommunications and high-tech industries.
The Phoenix Center does not endorse or support any particular
piece of Federal or State legislation or proposed regulation.
Our mission is not to tell policymakers what to think about an
issue but how to think about it. All of our research is
available for free on our Web site, www.Phoenix-Center.org, and
unlike any other organization such as ours of which I am aware,
you will also find posted critiques of our research with
rebuttal. Much of our work is published so receives independent
review as well.
The topic today is broadband communications and lessons
from abroad. As a result of this hearing and those like it, we
are laying the groundwork for the development of a national
broadband strategy for the United States. In my view,
developing and implementing a national broadband strategy is
perhaps the key issue for modern communications policy,
particularly as Internet usage explodes exponentially, and
massive additional infrastructure investment is required to
keep pace. From what I have heard today, there appears to be a
general consensus on this point, though some differences about
how to accomplish this.
On this issue I wish to make three points today. First, I
believe that the rankings across countries of broadband
subscriptions frequently used in the debate over broadband
policy are exceedingly crude measures of relative performance
and I encourage you to think more deeply about broadband policy
than what the rankings tell us, not necessarily to ignore them
but to respect their limitations. Integrating broadband into
our economy is not a collegiate sport and there is no prize for
who has the most subscriptions per capita to some
inconsistently and vaguely defined service. Rather, broadband
is an essential component of our Nation's infrastructure and we
should seek to develop the best communications opportunities
and service possible. The problems with the rankings are not
the fault of the OECD or ITU. These organizations provide a
summary of the data collected by the individual countries. The
problem lies with those who do not temper their advocacy to
reflect the considerable defects with the data such as how
connections are defined and counted. One serious defect in the
rankings data is easily demonstrated by ranking countries in
the hypothetical broadband nirvana where every home and
business in the OECD countries has a broadband connection. You
might think we would all be tied for first in this world but in
fact the United States ranks 20th among OECD countries in this
nirvana and it is further from first place than it is today.
The rankings in subscription rates in this nirvana are
provided in table 1 of my written testimony. This thought
experiment reveals the important role that expressing
connections in per capita terms has on rankings. Dividing by
population seems innocuous but it actually adds to differences
in broadband connections such economic and demographic factors
such as household size and average business size. The
experiment also suggests that the subscription numbers are not
on the same scale and thus ranking them is illegitimate.
Comparing rankings is a bit like concluding that a student with
a 3.9 GPA on a 4-point scale is a worse student than one with a
4.0 GPA on a 5-point scale.
An alternative to per capita calculations is to divide
connections by household. Table 2 of my written testimony shows
that this seemingly trivial adjustment is not so trivial since
Sweden falls from 8th to 16th and Australia rises from 17th to
4th. I doubt the economic significance of their broadband
infrastructure is so sensitive to definitions and neither is
ours. None of these simple calculations get close to measuring
what is important, which is whether or not our broadband
infrastructure is capable of supporting economic growth in the
global economy. Further, I believe that increasing the
subscription rate in this country to a 200-kilobit service is
not a legitimate goal of a national broadband strategy but that
is all a focus on the ranking data gets you. In fact, we could
magically convert every broadband connection in this country to
at least 100-megabit fiber-optic circuit offered by ten
different facilities-based providers and we would still rank
15th in the OECD rankings. Rather than focus on rank, our
intellectual resources should be devoted to figuring out
effective and efficient ways to augment the geographic
coverage, increase productive use and expand network capacity
and enhance network capabilities of our broadband
infrastructure.
Second, I encourage you to recognize the limitations of
public policy in determining broadband subscription. Variations
across countries and subscription rates are in large part a
product of factors outside the realm of communications policy.
Much of the variation in broadband subscription rates is driven
by non-policy factors including age, household size, education,
income and so forth. My written testimony provides a list of
factors that drive broadband subscription rates and some
estimates of their relative influence. A healthy respect for
what policy can and cannot do is important, but I would mention
that price can cover up a variety of ills.
Finally, I propose that what is most needed is for this
country to state plainly and with reasonable detail the desired
outcome for broadband services and then establish a framework
to evaluate policy proposals in reference to obtaining that
explicit goal. My written testimony provides a more detailed
framework for evaluating policy. I believe the desired outcome
is augmented geographic coverage, more productive use of
services and expanded network capacity and enhanced network
capabilities of broadband infrastructure.
Thank you.
[The prepared statement of Mr. Ford appears at the
conclusion of the hearing.]
Mr. Markey. I thank the gentleman, and now we will turn to
questions from the subcommittee.
Mr. Richards, in the U.K., you forced BT to unbundle loops
for its competitors so they could use these facilities to offer
their own broadband services. As a result of this competition,
BT now has less than 25 percent of the retail broadband market.
So I have three questions for you. Did competition created by
mandatory loop unbundling drive down the price of broadband?
Second, did competition increase broadband speeds? And third,
did competition increase consumer demand for broadband?
Mr. Richards. I think the headline answer to those
questions is undoubtedly yes. Did competition drive down price
and has it increased broadband speeds? Yes, it has. Our story
is one of very significant change in the last few years, and if
we went back to 2001, we were in a perilous state in relation
to broadband. We were at the bottom of whatever rankings you
wanted to take. You could have five different rankings and we
would be at the bottom of them. And there is no question that
over that period the policy framework changes have made a
difference. We certainly changed as a result of regulation the
attractiveness for investment, attractiveness for competitive
provision of broadband through the local loop unbundling
policy. That has certainly affected the overall levels of
speed, and it certainly affected the retail price. Consumer
demand, I think where we have seen benefits there is what you
see is very aggressive competitive marketing, and that has
stimulated our consumer interest. You have also seen very
aggressive competitive innovation around speeds on the kinds of
services offered. So I would answer that in the U.K. at least
that has been part of the story which has seen us improve our
position over the last 3 years.
Mr. Markey. Thank you, Mr. Richards.
Mr. Hashimoto, did unbundling remove NTT's incentive to
invest in fiber or did it compel NTT to accelerate its fiber
deployment?
Ms. Gale. Please allow him to use an interpreter.
Mr. Markey. OK, please.
Mr. Hashimoto. I believe that your question is whether or
not unbundling caused any change in NTT's investment, and as a
result of unbundling, it is very clear that we had more new
entrants, those who provide service on DSL. However, the
situation in Japan is somewhat different than in the United
States. Ever since NTT was privatized, NTT has been very
steadily preparing itself for deployment of broadband. It
started with 64 Kbps, which was called ISDN. And then from
early on, NTT had had a plan to use fiber optics as a successor
for ISDN. And the turning point for us that happened in 1995
when Microsoft introduced Windows. So the introduction of
Windows in 1995 opened up the access to Internet, and I became
keenly aware that there will be a strong demand for Internet
access in Japan and also the requirements for high-speed
connection. The DSL technology was not commercialized prior to
1995 or prior to the 1996 telecommunications act. One of the
unique competitive situations in Japan is the competition
against utilities which provide the broadband access. Backed by
very good financial situation, the utilities were very
ambitious about deployment of fiber optics network. And so
against that backdrop, the NTT started investment in fiber
optics in 1995. However, at that point the coverage by fiber
optics was extremely low in Japan, so as a transition we
started to provide ADSL.
Mr. Markey. Mr. Hashimoto, I apologize to you but I only
have 5 minutes allotted for my questions, and I do apologize to
you, sir.
The Chair recognizes the gentleman from Michigan, Mr.
Upton.
Mr. Upton. Thank you, Mr. Chairman. Before I start my
questions, I just want to put in a letter from the NCTA, Kyle
McSlarrow, into the record and just note a particular paragraph
that he writes, and that is, ``Based on company data collected
by the FCC as of June 30, 2006, cable high-speed Internet
service was available to 93 percent of households that could
access cable TV service. We think that number is even higher. A
recent report by Kagan Research shows that cable broadband
service is available to more than 94 percent of all U.S.
homes,'' and I will just share that for the record.
Mr. Markey. Without objection, we will include that in the
record.
Mr. Upton. I am going to ask sort of a long question and I
would like Messrs. Swain, Richards and Ford to answer this, and
that is, as I look through the data, and this goes back I think
to Mr. Ford's comments, that it really is sort of apples and
oranges in terms of where we are, and I look forward to having
a hearing 2 or 3 years from now to see how this data might
change as we sort of pry it apart like an onion to look at DSL,
cable and fiber to the land, and I would just like to say too,
and starting my question, Mr. Swain, to Mr. Richards, about 51
percent of our broadband comes from cable, 51 percent; 42
percent from phone companies and 7 percent from other sources
such as wireless. Such figures platform competition tends to
drive broadband deployment. How much of broadband service in
your two nations comes from the phone company and how much from
other sources like cable or wireless, and where do you expect
broadband provided by DSL to go 3 to 5 years from now, and in
particular, where do you think, particularly Mr. Richards, as
you look at the functional separation, where do you see as a
percentage per hundred inhabitants fiber itself, and then I
want Mr. Ford to conclude. Mr. Swain.
Mr. Swain. Thank you.
Mr. Upton. We look forward, by the way, to having a
subcommittee trip to both of your nations.
Mr. Swain. You would be very welcome.
Mr. Markey. Not on the same trip though.
Mr. Swain. Having sat on similar committees in New Zealand,
we are always looking for opportunities to come north as well,
so you would be most welcome in New Zealand.
The first point is recognizing the difference between the
United States and, for example, New Zealand, with your cable
infrastructure. About 93 percent of particularly our DSL
service comes via the telecommunications, primarily the
telecommunications incumbent, and about 7 percent comes from
wireless----
Mr. Upton. According to this these factors were 0.0 for
fiber per hundred.
Mr. Swain. Yes. So we have primarily two sources, if you
like. One is the incumbent telecommunications company over
copper, and 93 percent of that comes from there and the rest
comes from satellite and wireless. And so therefore the issues
of the difference between cable layout here and New Zealand are
marked and significant. However, I will make two quick points
if I may. The first one, looking at the future of wireless, as
a minister I put a lot of store and faith in the development of
wireless. Because of the geographic nature of New Zealand, I
thought this would be a great solution. Lots of the promises
and pledges around wireless had not materialized, and I have
come to the view that wireless--I may of course be wrong but
this is my personal view, that in the end wireless will always
complement other infrastructures. My view is that it will still
be cable and copper that will be the main driver of the
processes here.
Mr. Upton. I am running out of time, and since I don't have
the gavel I am not able to give myself an extra 4 minutes.
So you would say just briefly here that your 0.7, which is
in essence wireless, is going to stay about the same and your
0.0 for fiber will go up pretty small?
Mr. Swain. Yes, it will go up small.
Mr. Upton. Mr. Richards.
Mr. Richards. Cable is very, very different here. In the
U.K. it is about 54 percent coverage, about 98 percent here.
That is a very significant difference and why you have to----
Mr. Upton. And you are also at 0.0 for fiber?
Mr. Richards. Well, let me tell you about that in the 30
seconds I have. Broadband is about 75 percent DSL, so there is
a significant cable portion, but it is smaller than it is here.
We don't count 3G or wireless services at the moment. We will
in due course. I do expect those to play a very significant
part for lower bandwidth broadband. I do not expect them to
compete in the long term against high-bandwidth ADSL, cable or
indeed fiber optic cable. The answer to your question on fiber
is that we have scarcely any at the moment and that is, we do
not regard that as a problem at the moment. Fiber optic cable
should be invested in when it is an efficient investment, and
it is not yet an efficient investment in the U.K., and one of
the reasons for that is because we expect because of the
shorter copper loops in the U.K. to stretch to 24 megabits per
second. So in the U.K. copper has got a long way further to go,
and we expect, we want the incentives to be very clearly in
place such that when fiber is an efficient investment to make,
it is made.
Mr. Upton. So to conclude, do you think your number of 0.0
on fiber is going to dramatically increase? Because I expect
that to happen here in the United States too.
Mr. Richards. It will increase over time. I expect fiber to
be further ahead in the United States because of the different
geographic nature of the country. I don't think that is a
surprise or a shock. There are always differences between
countries, and we can get a lot more out of copper because of
the shorter loops than you can in the United States and
therefore you would expect fiber to roll out more quickly here.
You expect fiber to roll out more quickly in places like South
Korea, which it has, because the economics of density are very,
very different in South Korea than they are in the U.K. So none
of these things are surprises. The question for us, and I think
the question for every country is, do you have the incentives
in place which make efficient investments logical for
competitive provisions of the telecommunications
infrastructure.
Mr. Upton. And Mr. Ford, if you could just answer briefly,
that would be great.
Mr. Ford. I will be very short. The diversity of platforms
is very important in terms of penetration for a variety of
reasons that cover different areas. EVDO adds to these numbers
so will increase our ranking as people subscribe to that
service. Of these numbers here, we are one of eight countries,
I believe, that have any fiber deployed, and I think there is
no question that fiber is the platform of the future. So that
is certainly encouraging for this country, and that number will
be rising sharply I think over time.
Mr. Upton. Mr. Chairman, thank you for the indulgence.
Mr. Markey. There is no problem, and we had to have time
for the translation from Japanese and time for the translation
from Alabama, so we were kind of each allocated more time.
Let me turn and recognize the gentleman from Texas, Mr.
Gonzalez.
Mr. Gonzalez. Thank you very much, Mr. Chairman, and
welcome one and all to the panel.
Some observations that have already been made, and I think
the backdrop is so important, and that is, we were making these
comparisons to take into account something that may not be
taken into account when we say where does the United States
rank. Special access lines, I think we have had some discussion
about that that we don't count and we don't have reflected. The
other thing of course is the robust competition between our
telecom, our telephone companies in essence, and the cable
providers, which is really I don't believe duplicated anywhere
else in large measure the way we have it here. The fact that we
do have different platforms for the delivery of broadband that
is available and is of course developing and we need to
encourage of course the build-out.
My first question will be to Mr. Swain, and I do appreciate
your testimony and I am going to read from it, that the New
Zealand Government introduced a major initiative, Project
Probe. The first aspect of it was a pretty substantial
investment in the way of New Zealand dollars and that regional
tenders were sought. The objectives of the project were to
increase deployment, to lower prices, to promote greater
competition. While four of the 15 tenders were awarded to non-
incumbent providers, new facilities-based competition,
particularly wireless, did not emerge. These are some lessons
that the United States probably can learn from your experience
and that of the other witnesses. There was a review by the New
Zealand Government. At the conclusion of this investigation,
the telecommunications commissioner advised against
implementing full local loop unbundling and instead recommended
the introduction of a limited-speed unbundled bitstream
service. The government reluctantly agreed with this
recommendation so as not to delay the process further, on the
basis that the decision would lead to the development of a
competitive broadband wholesale market and would provide
incentives for Telecom, the New Zealand incumbent, to deliver
greater penetration rates and to quickly deploy its next
generation network. I guess what I gleaned from your testimony
is that sometimes what might be an incentive to a reseller may
be a disincentive to an incumbent, and somewhere you have got
to draw the line and figure what works and what doesn't work.
Again, reviewing the regime that you had and any particular
situation in New Zealand, what was your experience in trying to
balance when you have an incentive that may act as an incentive
of a certain player but not necessarily to another party?
Mr. Swain. Well, thank you. It is right, and for
policymakers and for legislators, the difficulty always is that
balance between providing pro-investment, pro-competition
policies on the one hand but on the other hand, trying to
ensure that potential monopoly or duopoly of incumbency is
overcome to provide greater opportunities for people to compete
for the consumer. In our own experience in New Zealand, we did
try that particular program. It was an up-front subsidy working
as a private-public partnership with the private sector to
increase deployment rates. I had hoped that as a result of that
there a number of new technologies would emerge and
particularly around the wireless space, but because of
arguments about protocol and because of the fact that it was an
immature market at that time, it didn't emerge. So we then went
to the position of saying well, if we gave the incumbent more
time, would they reinvest, would they attack the deployment of
penetration rates, would they move on their NGN, and the
ultimate answer to that is no, and I think finally I should say
that if we look at the next 10 years out, it is still my view
that the greatest service to the consumer is going to come from
the existing infrastructure that we have at the moment, and the
problem for policymakers is, how are we going to deal, whether
it is a monopoly or a duopoly, with incumbency, and I have come
to the position reluctantly to a certain extent myself after
having spent many, many years on this, unless you can deal with
the problems of incumbency and unless you can actually deal
with the issues such as local loop unbundling and ultimately
functional separation, it is going to be very, very difficult
to get a proper good deal in terms of price and coverage and
services for the consumer, which ultimately as a member of
Parliament is my ultimate concern.
Mr. Gonzalez. Thank you very much.
Mr. Richards, how do you see the United States' position,
again who we have as providers, competing platforms, the fact
that our percentages as far as how the inhabitants per thousand
receive broadband almost evenly if you look at DSL and cable,
how does that play--in other words, I know your experience in
the United Kingdom, but what considerations, what do we take
into account as we attempt to find some sort of not necessarily
regulatory scheme but again the economic incentives that play
to all of the participants in trying to extend broadband in the
United States?
Mr. Richards. Well, I would be cautious about making
observations about the U.S. market because my own experience
is, you have to understand your own markets in real detail to
understand what the appropriate policy response is. So in a
sense I think it up to others to interpret the lessons that I
can offer from our own experience and apply them to your
country. The difference is very significant between the
presence you have of a very, very well-built-out competitive
cable industry alongside the DSL proposition. There is no
question about that. We have only a part of that. We still have
only a part of that. I think the geographic diversity and the
rural nature of some parts of the U.S. is also a more
significant challenge than it is in the U.K. With that said,
one of the key things that we have learned so far, I think it
is that if you get to a situation where there is a real, there
is an accommodation between the existing players, which is what
I would describe as the situation we were in in 2001-02, where
really no one was taking initiative of any kind, I would
describe that for any country to be a very, very dangerous
place to be in. That is where we found ourselves, and therefore
we felt that we had to act fairly quickly to tackle the level
of competition in the market and make judgments about
incentives and the regulatory approach in particular to the DSL
incumbent. That has been reasonably successful but others have
pointed out our next challenge will be next generation access,
fiber to the curb, fiber to the home, and that is a very
significant issue for us looking forward where clearly in the
United States there is progress already being made. My key
observation I think would be not enormously different to Mr.
Swain's. I don't believe, we don't believe that in the long-
term wireless platform certainly in the next 5 years or so will
provide really profound competition or really significant
competition at the high-bandwidth end. I think you absolutely
will at the lower bandwidth end of services. I think we should
expect that and that will provide effective competition in a
number of countries around the world. And if you take that as
your starting point, you have to think very, very carefully
about the level of competitive intensity for the fixed line
services.
Mr. Gonzalez. Thank you very much.
Thank you, Mr. Chairman.
Mr. Markey. The gentleman's time has expired. Speaker
Hastert is recognized for 8 minutes.
Mr. Hastert. I thank the chairman. I also want to say to
the chairman I am glad I didn't give an opening statement
because my staff would have had a little ditty in there for me
to sing and I just thought it would benefit the whole committee
that I didn't sing anything.
Mr. Markey. The committee thanks the Speaker.
Mr. Hastert. As I listened to each testimony, I think of my
own situation. I live out in the country. Now, we don't have
natural gas piped out to us out in the country, and we don't
really have cable out in the country so anything we have to do,
it either comes from space or comes from hard wire. But there
is a company down the street that happens to be a nursery,
which is a fairly large entity and they have a special access
line and their high-capacity connection is pretty common with
business.
Mr. Ford, I understand the OECD statistics underestimates
United States broadband penetration because they didn't count
high-capacity connections, is that correct, that most
businesses or many, many businesses use?
Mr. Ford. I think the OECD uses what we report or the FCC
reports and it doesn't include special access so that is
probably the case.
Mr. Hastert. So when you talk about a half a percentage
point or 1\1/2\ percentage points, it moves us up and down the
scale maybe 5 or 10 points and would that be significant?
Mr. Ford. It could be.
Mr. Hastert. Just to clear that up.
I was interested in listening especially to the testimony
of the gentleman from New Zealand, Mr. Swain, and the gentleman
from Japan, Mr. Hashimoto. I think I heard that you said that
when you unbundled, competition really went to different
entities but real competition didn't increase. In other words,
when we talk about competition, there are two things that we
think should happen from competition: No. 1, prices should
decrease, and No. 2, you should get a better menu of services.
Very briefly, Mr. Swain, I think you said that, but I
wanted to have you clarify that, and Mr. Hashimoto, if you
would clarify that as well.
Mr. Swain. Well, that is the expectation of competition.
That is certainly right. We don't have unbundling at the
moment, but we are introducing it, and our expectation
absolutely is as a result of that, particularly for the
consumer and the small business owner, that price and quality
of service will improve. That is the objective of the process.
Mr. Hastert. And your unbundling right now is basically a
copper wire, right?
Mr. Swain. It is copper wire.
Mr. Hastert. Let me just follow up on that. The new Telecom
New Zealand chairman, Mr. Boyd, has threatened to sell off its
copper line network rather than submit to Government-imposed
regulation that would split the company three ways. How do
regulatory proposals affect the way the company operates its
business, and if the company proceeds with the sale, how will
New Zealand be able to deploy advanced broadband facilities in
the future?
Mr. Swain. You are absolutely right to pick up on that
issue and it has been in the media now publicly for about a
month. It is not clear what the intent of the incumbent is.
That would be a structural separation that it would do to
itself. It is not clear whether it will proceed with that. I
think it is probably floating an idea to see what support it
might get. Of course, any company is entitled to restructure
itself in any way. The concern I suppose that we would have is
that if it were to break off whether it would start to compete
with its formerly existing wholesale and retail services and we
would back into an issue of trying to make sure that there was
equivalence of service for those things. But I think that at
the moment, my expectation is that the model will emerge
similar to the BT model, the one that was pointed out to you
where there is common ownership but functional separation below
the level of the board, and because it is such early days,
these issues are being discussed, and it is not clearly exactly
what the outcome will be. I think we will be clearer on that in
my view in about 6 months' time.
Mr. Hastert. So it is a little clouded still?
Mr. Swain. Yes, yes.
Mr. Hastert. Thank you, Mr. Swain.
Mr. Hashimoto, the first question about unbundling and
competitive expectations creating more competition, has that
lowered costs in Japan, and are there more services for the
customers?
Mr. Hashimoto. I didn't have a chance to finish my response
to the chairman's question earlier, but definitely unbundling
was useful for the promotion of competition including lowering
the price, and we talked about ADSL and competition. When
competition was introduced in ADSL, we tried to increase our
competitiveness in the ADSL area but at the same time we
developed the fiber optic technology which could be
economically competitive. More specifically, the distance to
the house in Japan, an average distance to a house in Japan is
much, much shorter than that in the United States. It is about
200 meters. And then the percentage of the apartments is about
30 percent nationwide, and in a place like Tokyo, almost 40
percent. So we are able to provide high-capacity, high-speed,
the fiber to the apartment complex and costs can be shared by
all the tenants, or we also introduced a technology called PON,
and that separates the span of the fiber cable. By doing so, we
were able to lower the cost for fiber optics deployment.
Mr. Hastert. Thank you. Arigato.
Mr. Hashimoto. You are welcome.
Mr. Markey. The gentleman's time has expired.
The Chair recognizes the gentlelady from California, Ms.
Eshoo.
Ms. Eshoo. Thank you again, Mr. Chairman, for this
extraordinary hearing. To all of our witnesses, thank you. I
wish the C-SPAN cameras were here so that the American people
could hear what you are saying, because I think that it is so
noteworthy and so instructive.
Mr. Richards, my first question to you is, would you like
to be chairman of the FCC in the United States of America? I
would love to recruit you. As you know, in the United States
the FCC essentially has given incumbent exchange carriers a
regulatory holiday, and I think therein lies the problem for
the United States. They have exempted their next generation
network infrastructure from any meaningful competitive
obligations. Essentially the Bells argue that they need this,
no competitive obligations, I mean, which is really something
that takes my breath away and goes to the heart of why we are
where we are today. Even though Mr. Ford says that the numbers
are something other than that, I think we should recognize what
the numbers are and stop digging a hole. It is just incredible
to me that the United States of America is in the position that
she is in.
Mr. Richards, you have obligations. What I would like you
to tell the committee about is what investments have
accompanied your policy? We are always looking for investments.
In fact, people that are on the opposite side of this debate
say that we have attracted investments, that this has been
great for us. Well, our position isn't great. I don't think we
are attracting the kind of investment or the competition that
we have so can you just kind of briefly tell us about what
investments have accompanied your policy?
Mr. Richards. Sure. The critical change has been investment
by competitive providers who are unbundling, of which there are
a number. I think it ends up being three, four, five or
possibly six in the dense urban areas and two or three in
addition to the incumbent outside of that area, and they have
made very significant investments to compete, so that has
definitely happened. I can't give you an exact number.
Ms. Eshoo. Small companies?
Mr. Richards. Some small, some very substantial, so
investments by Orange or by France Telecom, investments by Sky,
who are owned by News Corporation, investments by Cable and
Wireless, another big British company, but also some start-up
companies, one called B Unlimited, which is a very small
company. It has since been taken over. So you have seen a range
of different companies coming to the market at this stage. Now,
they have required sufficient regulatory certainty and
sufficient predictability to make that investment, and I think
that was absent in the U.K. in prior years, so that has been a
very significant change. People are not, as has been observed
at the moment investing in fiber other than in new builds where
it is happening, and we would expect that to change over time,
but as I said, it is a problem at the moment.
Ms. Eshoo. Great. Thank you very much.
For Mr. Swain, thank you again for your important
testimony. Following your country's efforts to impose new
competitive regulation on the telecommunications sector, how
has investment in advanced telecommunication infrastructure
been affected in New Zealand? It follows on I think along the
lines of my question to Mr. Richards. But I would like to hear
from you how it is playing out in New Zealand.
Mr. Swain. Well, briefly there are probably three periods,
the period of non-regulation up until 2001, where no doubt
there was some new investment and some intent to try and get
some facilities-based competition but the incumbent competed so
hard against the new facilities-based competitor that basically
they gave up because they couldn't compete. From 2001 to 2006,
the period that I was involved myself, there was a quite
significant increase in investment particularly in those people
wanting to purchase wholesaling arrangements from the
incumbent. However, our view is that if people are able to get
access to the local loop, investment will increase quite
significantly. Not only that, in our view the range of services
will increase. As a result, prices should fall, and as a result
the consumer should be better off, and part of the problem for
me as a legislator is that is the ultimate goal is to try and
ensure that the consumer gets a better deal, and our view is
that with the arrangements that we are putting in place,
ultimately the consumer will get a better deal.
Ms. Eshoo. Thank you very much.
Can I just add, Mr. Chairman, my congratulations to Mr.
Wyler for your work? I read your testimony. It is a
provocative, wonderful story, and I salute you for what you
have done, and Mr. Hashimoto, thank you for traveling so far to
be a teacher to us. Thank you.
Mr. Markey. The gentlelady's time has expired. By the way,
Mr. Wyler, the story of fiber to the home in Rwanda, they
started this 7 months before Verizon did in the United States.
The Chair recognizes the gentleman from Illinois, Mr.
Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. I think a couple
things are important. One is that we have evolved through a
system of multiple pipes. If I just look at my own use of high-
speed Internet access at home, we have voice over Internet
protocol through the cable. In the townhouse here I have a
couple roommates. When one of my roommates goes back to the
townhouse and he wants to access the World Wide Web, he uses
cellular Internet cable because we have no landline--we are
cheap. We have no landline connections to our townhouse because
we all use our cell phones, and he uses the cellular high-speed
Internet accessibility. Here, you know, we are connected
through copper wires and stuff so our system has developed into
a multiple-pipe system which I think provides us some
competition and choices of services and ability to move from
one place to another. The other thing is, this is my first
question. It is just to make a point. If you drive 4 hours at
105 kilometers per hour, how far can you get in the respective
areas that you are representing? In fact, let us start with New
Zealand. How far can you travel? Probably the width of the
island except for you have got some mountains there. So how far
could you go?
Mr. Swain. Probably from Wellington, the capital city,
halfway up the north island.
Mr. Shimkus. OK, halfway up the north island.
Mr. Swain. Roughly. Very roughly.
Mr. Shimkus. That is close enough.
Let us just go down. Mr. Richards, how far could you get in
the-
Mr. Richards. Same question?
Mr. Shimkus. Yes.
Mr. Richards. You could comfortably go from London to
Wales.
Mr. Shimkus. London to Wales. Thank you.
Mr. Hashimoto?
Mr. Hashimoto. Well, the size of Japan is almost equivalent
to California, so it is probably from Tokyo to Osaka, like Los
Angeles to San Francisco.
Mr. Shimkus. Thank you.
Let us see. Can you cover the whole country of Rwanda?
Mr. Wyler. I don't have a chance of doing 105 kilometers an
hour in Rwanda but hypothetically----
Mr. Shimkus. How about 55 miles per hour?
Mr. Wyler. About 30 on the roads. But we are about the size
of Maryland.
Mr. Shimkus. And my point is, it takes from the northern
part of my district to the southern part of my district, going
65 miles per hour, it takes me 4 hours to travel. Now, I am one
of 435 Members of Congress. Many districts are very similar to
mine. You have to take some acceptance and some acknowledgement
of size and scope about this great country we have, and we do
offer incredible services. We do have issues that we have to
address though and that is what the hearing is, to make us
better, and we just don't want to go backwards. We want to keep
moving forward.
Mr. Ford, you used to work for MCI when the company relied
on unbundling for its business model. What is your experience
with that?
Mr. Ford. I also worked for Ztel Communications, which was
my last position before the Phoenix Center, which relied
exclusively on unbundled elements. I think there is a lot to
learn from that experience. The point for me of unbundling, and
this is documented in my writings, was to create a non-
incumbent demand for facilities to move customers away from the
incumbent into the hands of non-incumbent firms and then allow
those customer bases to be aggregated such that they demand an
alternative network and that demand for an alternative network
would lead to platform entry, and we have achieved that to a
large extent. I mean, we are still trying to get a lot of the
regulation out of the way to allow our platforms to compete and
invest. Franchise reform is one case. So, to some extent my
view of what unbundling was for has been accomplished. My
greatest fear about doing unbundling again is, would anybody
show up to the dance. After being in that business for a long
time, you always knew that it took one decision to put
everybody out of business, and I think everybody really
realizes that at this point and I just don't know if people
would have the courage to step up and play that game again. I
don't think I would.
Mr. Shimkus. Thank you. That is a great observation. My
time up so I will just end with two statements.
Mr. Richards, our fiber to the home only came about after
we ruled that unbundling would not apply and so that is when we
started seeing our fiber to the home. And on a side note, I
don't think Speaker Hastert has helped his rumors about other
jobs, I don't think he has helped that based upon his use of
Japanese in this hearing, and I yield back my time.
Mr. Markey. I thank the gentleman. The gentleman's time has
expired.
The gentleman from Pennsylvania, Mr. Doyle.
Mr. Doyle. Thank you, Mr. Chairman.
Mr. Wyler, I want to say also that it is good that we have
people like you in the country. I didn't have prepared
questions for you, but I am going to ask you, you have listened
to all of this debate and I have seen what you have done over--
I read your story in Rwanda and this discussion we are having
about unbundling. I would say, Mr. Ford, yes, I don't know how
many would show up either after what we did to them. We set out
in 1996 to encourage all these little companies to compete and
then we pulled the rug from under them. I would be skeptical if
we redid it too, but I don't think that means that it shouldn't
have stayed.
What do you think about this idea of unbundling and
separation to encourage lower prices? I am just curious of your
take after you have heard all these panelists speak.
Mr. Wyler. I think Mr. Ford did hit the nail on the head,
just from my friends who have been through the process and a
customer of unbundled service that went away suddenly. A lot of
the discussion has been on fiber technology and unbundling. I
am not sure how unbundling and fiber are related because when
you are using a passive optical network, a PON system like he
talked about, there is no real incentive to unbundle it because
it is usually one thing. Or there might be technically. You
might be able to get there. So if you are looking at fiber,
unbundling is nothing, but you want to back up a little bit
because everybody has a central office. That central office, is
there a way to--if you want to put fiber in the home, you need
to get access to that fiber in the first place, which means you
need to have access at the central office at 100 megabits or a
gigabit or something in order to bring in customers. So I
haven't heard any discussion of how if I want to stay a fiber
in the home project in my town, I would get access to the
backbone in my town first of all.
Mr. Doyle. Interesting.
Mr. Ford, I know you don't put much stock in the rankings
but tell me, do you think if the United States had followed
policies like those in Japan and in the U.K. and France, do you
think we would have more or fewer Americans with broadband
connections at home?
Mr. Ford. I really don't know if it is possible to tell. I
mean, for a network that was built at zero percent interest
rates, I mean, if we could accomplish that, what would our
ranking be then? I mean, if we gave money away essentially to
carriers, what would get built? I don't know. The U.K.
situation is very different. Unbundling in a regime that is
primarily a single firm and you expect it to be that way for a
long time is one thing to adopt sort of a perpetual unbundling
model where we really don't expect things are going to change.
In this country I think our view was that the unbundling was a
step to platform-based competition, not a perpetual situation.
So I don't know how much that helps. I mean, there is one thing
I have learned about unbundling is the devil is in the details,
and we always say things like that, but it really was. What was
the impact, and we have unbundling in this country. Yes, but
you couldn't get unbundled switching if you needed more than
four lines of it. And we had all these little rules, you
couldn't mix local service and long-distance service on the
same circuit, and all these things that made unbundling not
unbundling generally but a very specific regime, and to
understand the impact of regimes, you have to know the very
specific regime that you are talking about but I think you ask
yourself the simple question: Is Verizon going to stop if you
make them unbundle it? I am not going to tell you what the
answer is, and I don't know what the answer is but I think it
is a good question to ask yourself.
Mr. Doyle. I think we all know what the answer is.
Mr. Swain, when you were developing--by the way, I have
been to your country. It is a beautiful country and I would
like to get back. When you were developing your new strategy,
your new broadband strategy, what countries did you try to
emulate and why?
Mr. Swain. Well, we obviously looked around the world.
Usually our first port of call is Australia, which had been a
program of unbundling, and also bitstream unbundling, as we had
done, but I think that we were most tempted by the U.K. model,
primarily because it seemed to us there were two key elements
to it, and I think the two key elements go hand in hand. One is
an unbundling regime and the other is the ability for
competitors to get equivalent access to the network at the same
terms and conditions and we see those two things being really
two sides of the same coin, because you can have an unbundled
regime but still the incumbent making it extremely difficult to
get a satisfactory arrangement for them, so the answer to the
question, sir, is essentially that we did look around the world
but we were heavily influenced by the work that was being done
in the U.K. because it had these two elements together.
Mr. Doyle. Thank you. I see my time is up, Mr. Chairman.
Mr. Markey. The gentleman's time is expired.
The Chair recognizes the gentleman from Mississippi, Mr.
Pickering.
Mr. Pickering. Thank you, Mr. Chairman, for this hearing.
As most of you all know, in 1996 the United States started a
policy to open incumbent networks and move toward competition
to unbundle to provide for nondiscriminatory access to those
elements. We followed that policy for roughly 5 years, and over
the last 5 years we have probably seen a reduction of that
direction toward more of a multiple-platform-based and less of
a reduced access to network elements. We are I think making
progress in multiple-platform competition but this is always,
as Mr. Ford said, the devil is in the details and the question
is, what is the right balance and what are the minimum
guarantees that we need to make sure that we achieve both
broadband deployment and competition. Mr. Ford asked would
Verizon continue to deploy if it had unbundling requirements.
Mr. Richards, British Telecom has unbundling requirements.
Are they still deploying?
Mr. Richards. Well, depending on what you mean by
deploying. I mean, are they still competing in the market, are
they still investing in new structure? Absolutely. They are
about to put a very, very substantial amount of money into a
new core network, which they refer to as their next generation
network, that will move their entire backbone in the U.K. onto
IP protocol. They are still very aggressive competitors in the
U.K. market. They have become more aggressive competitors in
international markets. So there is no evidence I think from the
U.K. at least that this suggests that the incumbent somehow
backs out of the market. I think there is another question you
were trying to drive at which is, does it affect their
incentive to deploy fiber, for example, and as I said I think
once or twice, I don't think the U.K. market is at the right
point for that yet but we don't believe that there should be
any incentives contrary to a firm, whether it be the incumbent
or somebody else, making that investment when the commercial
logic makes sense, which is when we think it should be made.
Mr. Pickering. So you would look at it as a market evolves
or the incentives evolve for fiber deployment as to whether you
could have any regulatory relief to further incent them. Is
that what you are saying?
Mr. Richards. No. We are looking at our regulatory approach
to fiber deployment at the moment but we would not expect in
the U.K. context, in the U.K. circumstances, which as I said
are different than the United States, so I think one has to be
careful about reading across completely but in our context, we
would not anticipate a full regulatory holiday because we think
the key is to make sure that competition is maintained into a
next generation access world, into a fiber-optic world. We
think it would be a problem for us if the price we had to pay
for investment in fiber was the elimination of all competition
for the next decade or even longer. So we don't necessarily
see, and I wouldn't accept, that competition and investment in
further deployment are mutually exclusive. I wouldn't accept
that proposition.
Mr. Pickering. I think that is a very important point for
our policymakers to consider because I think that we sometimes
are told and there is a misunderstanding that it is mutually
exclusive, that either you unbundle and have competition or you
don't unbundle and you do not get deployment, and I really
think that is a false choice and it is not mutually exclusive,
and one drives the other. I think competition drives the
investment, and lack of competition then shifts to a tipping
point where instead of having an economic incentive to deploy
and compete, you have an economic incentive to contain cost
which is the opposite of deployment, I am hopeful that as we go
forward that we maintain multiple facility-based platforms but
we have some guarantees of minimal access to loops and a
guarantee to cross platforms interconnection policy because
without those core interconnection and minimum access, I think
we could lose the progress we have made in this country as far
as competition and then we will lose the incentive to actually
get the deployment that we seek.
Would you agree with that, Mr. Ford?
Mr. Ford. Yes. I mean, I think you are absolutely right.
Some of our papers address this issue empirically and
theoretically, that it is not just a one up, you either do this
and you don't get investment or you don't. There is some
competitive pressure and there was some evidence of investment
available, questioned evidence, but there was some evidence
that unbundling led to investment. But there is an even sort of
deeper issue. It is not that there is unbundling or not and
investment or not. The issue comes in the regulation. OK, if
you are going to force somebody to do something that they
otherwise wouldn't do, you are going to have to regulate their
price as well, and that is where the problem comes. It is the
regulation of the prices that causes the defect. If you say you
have to unbundle and they say OK, well, I will unbundle and set
my own price, then it is not an issue. Firms do that all the
time. I sell things all the time to people. The long-distance
business has been that way for a long time, people selling
their network to other people. The incentive to do that and to
invest heavily in that network is because the firm gets to set
the price. In that case, it is a competitive price. But in this
case, it is regulating a monopoly price and that might cause
sabotage or something like that. That is the issue.
Mr. Markey. The gentleman's time has expired.
The Chair recognizes the gentleman from Washington State,
Mr. Inslee.
Mr. Inslee. Thank you. I am looking at our chart of
penetration of broadband in various nations around the world,
and I just wanted to ask kind of an open-ended question of what
you all see as the reasons for Denmark, the Netherlands,
Iceland, Korea, Switzerland, Norway being in the top third,
Poland, Slovakia, Greece, Turkey, Mexico being in the bottom
tier. We are I think No. 15 or somewhere along that line. How
do you all look at the reasons for the variety of success or
lack of success of those various countries? Did you draw any
sort of broad conclusions from that? Open-ended question,
anybody can take a shot.
Mr. Ford. My testimony dealt with that primarily. There are
some very interesting things and many of them are contained in
my testimony. What is the income of the country? I mean, to a
large extent in this country we have a demand problem as much
as anything, and you could argue that is the price but you
could also argue there is just sort of an apathy towards the
purchase of broadband service. My mother was called by
BellSouth one day, she has a DSL connection, and they said
well, we will basically double your speed for $2, and she told
them no. I said why not. But there is this lack of
understanding of the service and just a lack of interest. She
said well, what I have is fine, OK, so that is part of the
problem.
Japan has very low prices in fiber yet they rank one spot
higher than we do on these charts, so what exactly is that
telling you? There are a number of factors that determine the
demand for the service absent the supply of the service, OK,
and my guess is that most of it is determined by factors such
as that. The other issue is that right now we are 15th. Twelve
of the people above us should be above us in the broadband
nirvana where everybody has a connection, so you could explain
roughly a good part of the people ranking above us just because
of the relationship of household size across countries and
business establishments per capita across countries because we
are dividing by population and there is more to population than
meets the eye. So there is a lot of reasons. Now, is that to
say that we are not lagging or that we need to do more? I don't
think so. We just need to focus more on what the issue is, and
the issue is that we need better networks, augmented supply,
which may require subsidization, and we need to have better
services and higher capacity. That is the issue, not how many
accounts we have.
Mr. Inslee. Does anyone else want to take a crack at that?
Mr. Richards. I think there are probably four main factors.
One is the economics of density, so the different geographic
environments of different countries. You will notice a number
of small countries at the top of the list. That is definitely a
factor because it affects the cost structure that underlies
what can be provided. Second is the pattern of consumer demand.
You will also notice that a number of Scandinavian countries
that are always at the top of the list. You will see that by
and large in all areas of ICT adoption. That has to do in some
ways with the levels of education and the pattern of demand in
those countries. The third is certainly income. Average income
is absolutely a relevant factor, and you will see some of the
poorer countries at the bottom of the list. But the fourth, and
the U.K. is the exemplar for this, is that the policy framework
does make a difference. So there are a range of different
factors but ultimately the policy framework does matter in
tables and assessments of this kind.
Mr. Inslee. And could you describe generally the
subsidization in various countries, to what extent has it
existed, how would people quantify it and where has it worked
and not worked?
Mr. Ford. I think that there is some evidence of Korea's
extensive subsidization of its deployment, I think $20 billion
or something like that so, I mean, there is a lot of money
spent on that, and you can spend money to deploy in New York
City or you can spend the money to augment in rural areas that
may not have access, and that is a very important policy
decision. It would be interesting possibly to see what is the
extent of government spending on, say, DSL coverage or
something like that but I haven't seen that study. It may exist
but that is probably something worthy of looking at from an
empirical perspective, I think.
Mr. Swain. I will just make one quick comment on our own is
that there are general problems with subsidies because you are
not sure whether you are doing something that the private
sector would do anyway and so there is always that tension. We
have only stepped into the subsidy area for one specific
purpose and that was really to try and help the business case
for low-density areas, particularly around the education
sector, so we had a specific purpose to look at increasing and
improving deployment, and that was because from the private
sector point of view, the business case is hard to make when
you have got very small groups of people. But if you want to
avoid the digital divide, if you want to try and make sure that
every citizen has the ability to take part in the community,
then you do need to make an effort. So the subsidy, if you
would like to try and bundle groups of people together to try
and provide competitive tenders and to get a service rollout,
results show some progress in that.
Mr. Markey. The gentleman's time has expired.
The Chair recognizes the gentleman from Oregon, Mr. Walden.
Mr. Walden. Thank you, Mr. Chairman, and thank you for
holding this hearing.
I want to go back to something. Mr. Ford, your testimony I
thought was really enlightening for me because I have heard
these statistical numbers about where we rank versus other
countries, and I am concerned about that. My district is a very
rural one, so we are always trying to figure out how do you get
broadband into really remote and in some cases even frontier
areas, and did I hear you correctly that if every person in the
United States or all the OECD countries had broadband, we would
rank 20th?
Mr. Ford. Twentieth, yes.
Mr. Walden. So if we fully penetrate, we would be 20th. So
it is a measurement issue we are working on here that really
can skew how we perceive our progress?
Mr. Ford. Yes, that is a factor because we are dividing by
population, and some people have large families and some people
have none. You need one connection per house, say, which I
think is a reasonable assumption, and some countries you have
five people in a house and sometimes you have two and a half
people in a house.
Mr. Walden. I remember in my own house, at one point we had
dial-up, wow, we got up to 14.4 or something, and then we went
to cable modem, and I have got a router inside my house and
sometimes there are four or five of us doing business online
with one connection now, and that is really the point you are
making?
Mr. Ford. Well, no, the point is----
Mr. Walden. Is that there is new technology that allows
more people to be on so the measurement----
Mr. Ford. I think at the nirvana, the point is that even in
the best of all worlds, we are not all tied for first. I mean,
there is this perception that this number varies from zero to
one and those guys closest to one are in the best position, and
that is not necessarily true. Like in our country, and I don't
remember exactly what the number is, but if everybody had it
and every business had it, we would be 0.38 or something like
that, OK? Well, does that mean--and another country might be
0.5, so for the other country, they should be a little bit
higher than us even if half the businesses have it and half the
households have it, they are going to have a higher number than
we do just because they have smaller families than we do or
larger families that we do.
Mr. Walden. It helps because we hear this all the time
about where we rank, and that is important as we try to figure
out where to go. We need to know what we are hearing.
Mr. Swain, welcome, by the way. I come from the State of
Oregon. The current ambassador to New Zealand is a friend of
mine, Bill McCormick. He is a terrific gentleman who has great
restaurants, by the way. That is not a plug but I just know
that. And Butch Swindell before that, also from Oregon. Some
have argued that the introduction of greater regulation in New
Zealand has driven increased broadband deployment. Regulatory
intervention has been quite recent however, it is my
understanding with bitstream access available in 2005, local
loop unbundling in 2006, and the functional separation
requirement has been adopted but I guess has not yet been
implemented. Isn't it more likely the steady increase in
broadband uptake since 2000 has been the result of many factors
including those in effect prior to the regulatory intervention?
Mr. Swain. Well, firstly, can I say that yes, I know both
the current ambassador and the former ambassador, both great
gentlemen, and I have also been to Oregon. It is a beautiful
State which reminds us very much of New Zealand actually, and
so my regards to the people there.
I think the first point really is that yes, there has been
an increase in deployment over a period of time and of course
that was in periods of relatively to what we have got now
light-handed regulation, but we also look at the tables
notwithstanding the discussion about how you measure and we are
in an area where our GDP growth is pretty good but we are at
the bottom half of the OECD. We look at our distance and we
also look at our population density, and there are certain
challenges that we have, geographic challenges because of the
shape of the country, and in the end it is kind of a line call
really. If we were to leave the regulatory regime in place,
would we be better off, worse off or stay the same, and of
course this is a very difficult problem that legislators have,
which is why everybody has an opinion on what we should do. But
we have come to the view after quite a considerable period of
not just looking at our own performance but comparing it, that
we think that we can get better penetration rates if we go to
the step that other countries have taken because of the fact of
incumbency in New Zealand and because of the fact that we think
that there is lots of opportunities for new investment and
greater services available to the consumer if we take that
step. So the answer to your question is that it is difficult to
know but on our own experience, what we have decided is that we
are to move up the rankings, whatever that means or whatever
they are, and for New Zealand it is most important because for
us it is next stop Antarctica. We are a long way away from
anywhere. And so for us, the importance is that we get
ourselves up those rankings, and the way to do that, we feel,
is the kind of policies that we have implemented.
Mr. Walden. Thank you. Thanks for coming to testify to all
our panelists. I appreciate your input. It is helpful as we
deliberate these issues as well.
Thank you, Mr. Chairman.
Mr. Markey. Thank you.
I was going to ask Mr. Richards if Boston, Massachusetts,
reminds you of London the way Oregon reminds Mr. Swain of New
Zealand, but I won't go there.
Mr. Hashimoto, does your country allow NTT to rip out the
copper wires as you deploy fiber-optic cable, or must NTT leave
the copper wire there for competitors to use?
Mr. Hashimoto. Well, the government hasn't yet come up with
specific policy on that. Currently there are about five
dominion fiber access lines for new generation network
available. However, we have 50 dominion copper lines.
Mr. Markey. So is NTT removing the copper wires as they
deploy fiber optic?
Mr. Hashimoto. Yes. As we are deploying the new generation
network, we are considering the possibility of removing the
current fixed line network as well as copper lines.
Mr. Markey. Thank you.
I am going to ask Mr. Richards one final question. Then I
am going to ask each one of you in reverse order of the opening
statements to make a 1-minute summation to us to tell us what
you would like us to remember and highlight from your
testimony.
I am going to ask, Mr. Richards, you have made a decision
to ban all junk food advertising to kids. In the United States,
obesity has become an epidemic amongst U.S. children, and I
surmise that there is a similar problem in the U.K. Could you
talk a little bit about your reasoning on that?
Mr. Richards. By all means. Obesity is a rising problem in
the U.K., as it is in most developed countries. We did a
serious piece of work over the course of 2 years to identify
what the causes of that were and the role in particular of
television advertising. We concluded that television
advertising played a modest but direct effect, so there are all
sorts of other factors as well, but we concluded it did have a
modest and direct effect and also an unqualifiable indirect
effect, and as a result of that we have introduced some
limitations on the advertising of foods which are high in fat,
salt and sugar which people often refer to them as junk food,
and that is now in place. It is not a total ban. It is a
restriction, in particular around children's airtime and
programs which are of particular appeal to children. So it is a
fairly limited restriction but we do think it will reduce the
exposure that children have to junk food advertising.
Mr. Markey. I thank you, Mr. Richards.
Mr. Hashimoto, just to clarify a little bit, as you do
remove the copper, NTT is required then to unbundle the fiber
optic for competitors. Is that correct?
Mr. Hashimoto. Currently we are maintaining the fiber
optics as well as copper, and in order not to discourage NTT,
the further investing on fiber optics currently that NTT is
asking the government not to impose unbundling on the fiber
optics. Well, our goal or plan is to provide 30 million fixed
line by fiber optics by year 2010. However, we have some
geographical issues in Japan as well, and there are a lot of
challenges with respect to providing fiber optics to rural
areas so there are a lot of issues we have to overcome in order
to provide fiber-optic connection to the rural, isolated areas.
Mr. Markey. Thank you. So it seems that you are maintaining
both networks right now and unbundling both networks at the
same time, and that helps us to understand Japan's policy a
little bit better.
Mr. Ford, we will begin with you. Thank you for your
testimony.
Mr. Ford. I guess my point in 1 minute would be that these
are very complicated issues and people that tell you they are
not are lying to you. I think that probably the most important
thing for policymakers is to establish what your goals are:
augmented coverage, better networks, lower prices, whatever it
may be and then require people who come in and tell you what
they want you to do to explain explicitly and precisely how
would they propose makes things better rather than just come in
and say here is what I want, can I have it, please, which is a
lot of what is going on today.
Mr. Markey. Thank you.
Mr. Wyler.
Mr. Wyler. Just establishing for businesses, establishing
goals and metrics for businesses to follow them will allow them
to come up and use their ideas to create what you are looking
for, and of course having an understanding--you want to know
what the visibility is of the legislation, how long it will
last in order to invest, so I would put that together with
metrics and goals.
Mr. Markey. Thank you.
Mr. Hashimoto, you have 1 minute to summarize.
Mr. Hashimoto. Well, this unbundling, the requirement
imposed on us is a very, very severe requirement in view of the
harsh competition. Of course, it is good for promotion of
competition, but it is a tough requirement on us in view of the
harsh environment of competition. However, I think that it is
possible to provide the value added, not relying on unbundling,
and I would like to emphasize here the fact that we are
focusing on long-term strategy rather than short-term strategy.
Mr. Markey. Thank you.
Mr. Richards.
Mr. Richards. Four simple points, I think. The first is
that I absolutely agree that policy in this area is complicated
and it needs, in our view, constant vigilance and attention.
Second is that every country does indeed need to be carefully
assessed on its own merits. Every country is different. Third,
the lesson I think from the U.K., if there is a clear one, is
that the policy framework does matter and does make a
difference. And fourthly, I think we would hold out for the
proposition that competition and investment are not necessarily
mutually exclusive.
Mr. Markey. Thank you, Mr. Richards.
Mr. Swain.
Mr. Swain. Well, in addition to those points, I think that
we all agree that improved broadband service is fundamental for
economic growth. We have a goal in our policy framework to
achieve that in the interests of the long-term benefit of the
consumer. We have had an interesting journey from the most
deregulated environment to now international orthodoxy. The key
issue for us is how to promote competition and investment and
how we deal with the issues of incumbency, and we think that
our solution will do that for New Zealand, and I thank you, Mr.
Chairman, for this opportunity to present here today, perhaps
on behalf of all of us. It has been an honor to be here, and on
behalf of the New Zealand tourism industry, if you ever want to
come to New Zealand, you would be most welcome.
Mr. Markey. I think we might all take you up on that
invitation so that we can follow your course from the lower
rankings to the higher rankings which, from my perspective, is
inevitable if you adopt the U.K.'s policies.
We thank each of you for testifying today. The challenge
for the United States is really whether or not in this whole
broadband area we are going to adopt a Lake Wobegon standard,
which is that every country can be above average, depending
upon how you look at the rankings, and actually that is an
argument I used to make to my mother when I brought home my
report card that as I got older I decided there were certain
subjects I just wasn't that interested in, and so I would just
try to persuade my mother that I was doing very well in the
areas that I wanted to do well in, and that was not a standard
my mother accepted easily, and I think that is going to be the
test for America going forward because even if we actually just
looked at the areas where the United States or the Bush
administration says it wants to do well and that is all we
looked at, we still wouldn't be number one, much less all the
areas that we are not doing well in in terms of broadband
deployment. So the witnesses today have really issued a
challenge to us to respond to this international ranking, and I
promise you, it is going to be very helpful in the months and
years ahead.
With that, this hearing is adjourned.
[Whereupon, at 12:40 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
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Testimony of Dr. George Ford
Page 31 of 31
render better results and eliminate the waste of resources
devoted to quibbling over bad ideas.
Mr. Chairman, thank you again for the invitation to
testify. I would welcome any questions the subcommittee might
have.
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THE DIGITAL FUTURE OF THE UNITED STATES
THE FUTURE OF VIDEO
----------
THURSDAY, MAY 10, 2007
House of Representatives,
Subcommittee on Telecommunications
and the Internet,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 9:30 a.m., in
room 2123 of the Rayburn Building, Hon. Edward J. Markey
(chairman of the subcommittee) presiding.
Members present: Representatives Doyle, Gonzalez, Inslee,
Boucher, Eshoo, Stupak, Green, Capps, Solis, Dingell, Upton,
Stearns, Deal, Shimkus, Radanovich, Bono, Walden, Terry, and
Ferguson.
Staff present: Johanna Shelton, Colin Crowell, Maureen
Flood, Tim Powderly, Mark Seifert, David Vogel, Kyle Chapman,
Neil Fried, and Courtney Reinhard.
OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS
Mr. Markey. Thank you, ladies and gentlemen. Good morning.
Today we have an all-star lineup to help this subcommittee
learn about the next part in our series of oversight hearings
on the Digital Future of the United States. Today's focus is on
the future of video.
We have already had a few hearings that address the topic
of the transition of free over the air broadcast television to
digital technology. Twenty years ago I chaired the first
hearing on high definition television in this subcommittee in
this room, so this transition has been a long time in coming.
But now we can see a light at the end of the tunnel or rather
at the end of the tuner. And our hope is that if we plan
comprehensively and the relevant agencies work diligently the
broadcasting industry can switch over in February of 2009 to
full digital service.
Today the subcommittee will explore the future of video
more broadly. This inquiry will run the gamut from high
resolution, high definition digital on big screens to digital
wireless video services on mobile gadgets and finally to the
video services and technologies enhanced by a high speed open
architecture Internet. It is a future characterized by services
that may compete with the movies or traditional television as
well as by services and technologies that will compliment the
video experience consumers have been using for years.
New technology such as TiVo and the Slingbox are
fascinating technologies that help to make consumers the
masters of their video universe, no longer tethered to the
networks' time schedules or the physical space of the living
room. Moreover, broadband wireless technologies will give
consumers even greater chances to have video on the go as they
roam.
These technologies often supplement efforts by existing TV
networks and content creators themselves to find other
apertures and distribution mechanisms for their video content.
In our inquiry today we will examine how the explosion of
video services and technologies affect consumers, as well as
existing businesses, practices, rules and regulations. All of
this is happening at a breathtaking pace.
For instance, 2 years ago in January 2005, YouTube didn't
even exist. Today there are 100,000,000 downloads per day on
the site. The openness of the broadband Internet helps to
ensure that innovation can continue to drive opportunity,
entrepreneurial investment and economic growth in this area.
The fact that today any consumer can be a programmer and
get their video content up on the Internet is changing the way
consumers view the Web, their creative opportunities and even
how politicians run for President of the United States.
Last December Time magazine named you as the Person of the
Year in a salute to consumer-generated media. In that spirit,
today we are going to film a brief clip that we will put up on
YouTube because we have all become programmers. And I thought
that perhaps we could have the first ever YouTube video of a
committee hearing from the chairman's perspective. Could the
witnesses waive for a second just so that everyone will know
that we are--and how about the audience? The audience is
looking great today.
So what we will do is we will file this. We will put it up
on YouTube later on, and it will show that congressional expert
is an oxymoron, like jumbo shrimp or Salt Lake City nightlife.
There really is no such thing. But anyone can put their video
up on YouTube, and we are going to prove that later on today or
in a few more days. So we thank all of you. We look forward to
your testimony.
I am going to the gentleman from Illinois, Mr. Shimkus,
for his opening statement.
OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Shimkus. Thank you, Mr. Chairman. I see you have your
makeup on, but I did not quite get there, that is the
disadvantage of being a minority. You do not get advice about
all these great plans coming up here. But we do thank you for
holding this hearing. And the Ranking Member is going to be a
few minutes late. Hopefully he will get here to share his
opening comments. But this is a very exciting and important
hearing as we continue to follow-up on these series of
hearings.
The video industry truly has flourished over the last
several years. And one of the big reasons for this has been
minimal regulation. Just think back about 10 years or so when
TiVo came out. That is coincidently when I got elected into
Congress. Just think about those periods of time and all the
changes. TiVo has allowed viewers to watch what they want when
they want. Back then TiVo was a novelty. Now it and other DVRs
are on many cable boxes and satellite receivers.
TVs certainly have changed as well. Remember back to TVs
that weighed a ton and were the size of a small refrigerator.
In fact, if I were to ask the audience to raise their hand and
see how many still have those big TVs that are the size of
small refrigerators they would probably raise their hand. But
that debate is really for another hearing and how we deal with
those leftover analog TVs. Now we have the flat panels that
hang on the wall, various sizes and various cost prices. And we
can find these TVs in all sizes and price ranges. It has really
been remarkable to watch and very, very exciting.
As the video industry continues to develop and we move into
an increasingly digital world we need to continue investment
into the network and bring quality and competition to
consumers. We must revisit old rules and make sure they apply
to a new playing field. What we do not need is heavy regulation
that stifles growth, access and competition.
The future of video is very bright and I look forward to
working with the industry and my colleagues to make sure that
it continues to make great strides. Thanks again, Mr. Chairman,
for holding this hearing and thanks to the witnesses for
sharing their testimony. I yield back my time.
Mr. Markey. The gentleman's time is expired. The gentlelady
from California, Ms. Eshoo.
OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Eshoo. It is always exciting, Mr. Chairman, to come to
the subcommittee meetings that you chair. Thank you.
I would particularly like to welcome Mr. Hurley and Mr.
Krikorian from YouTube and Slingbox and congratulate, again,
the Chairman on continuing to attract the best and the
brightest from my district to these excellent hearings.
We are witnessing an upheaval in the evolution of video
programming, and this hearing, I think, is yet another exciting
opportunity to explore many of the implications of this
creative disruption of the video marketplace.
Until recently, video has been transmitted to the public in
a push fashion, delivered to consumers at certain times and
limited instances and in restricted formats. The broadcast
media, motion picture producers determine the content they
would develop. They would present it when they chose. And
viewers could decide to watch it or not. Digital technology and
the Internet have changed all of that. Now Internet users pull
the information they want to use, they want to see, whenever
they choose in whatever format they decide to watch it in. When
a TV show is broadcast at 8 o'clock tonight I could watch it
live. I can watch it next week on my TiVo. I can download it
onto my iPod, and I can watch it when I fly home tomorrow.
Disintermediation of the delivery of video is also
transforming the diversity and the types of content available.
User-generated content is exploding on YouTube and other Web
sites. And we no longer have to be attached to a global media
conglomerate to broadcast interesting video to the masses.
I am concerned that the almost limitless diversity of
voices on the Internet is threatened and that the power to
control access to information and content is becoming
increasingly concentrated in a handful of large media and
telecommunications companies. It is this issue, the development
of gatekeepers to content and information on the Internet that
I think is at the heart of an issue that has been intensely
debated in this subcommittee and the Congress, net neutrality.
I think the future of video will depend in large part on
how we resolve this issue, and I think Congress has to ensure
that the voices of the many can continue to speak to the many.
Consumers have to be able to access the content of their
choice, and they must also be able to access that content in
the manner in which they choose. Internet access providers and
video providers should not be able to dictate to consumers how
they will view content and programming and they should not be
able to force them to buy equipment from them to view it if
other equipment is available.
I have worked hard during this committee's consideration of
the 1996 Telecom Act, that seems like almost a century ago
today, to secure the inclusion of a provision in the Act,
section 629, to enable cable customers to buy set-top cable
boxes from someone other than their local cable companies.
While there have been repeated delays in the implementation of
this law, cable operators are required to comply with the
standard set forth by that section by supplying interoperable
cable cards by July 1 of this year.
I am concerned that despite the implementation of this
mandate many cable operators will either hobble or render
competitive set-top boxes unusable by deploying new channel
switching technology that will not work with other boxes. This
is but one example of how content providers can limit the use
of technology by creating artificial barriers to access that
impede competition and innovation. So I look forward to the
testimony. I welcome all the witnesses and also the response to
our questions. Thank you again, Mr. Chairman, for these
terrific hearings.
Mr. Markey. Thank you. The gentlelady's time has expired.
The gentleman from Oregon, Mr. Walden.
Mr. Walden. Mr. Chairman, thank you for holding the
hearing. I am going to waive my opening in lieu of additional
time for questions.
Mr. Markey. Thank you. The gentleman from New Jersey, Mr.
Ferguson.
OPENING STATEMENT OF HON. MIKE FERGUSON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Ferguson. Thank you. Mr. Chairman, thanks for holding
this hearing and for putting together a really distinguished
panel. Thank you all to all of our witnesses for being here
today.
This subcommittee can serve an important and constructive
role in examining the area of digital video content, ensuring
that a playing field exists that fosters competition in the
marketplace and encourages creativity and innovation. These are
exciting times for consumers, from IP video to digital cable,
from webcasting to wireless. There are more video options in
the digital marketplace than ever before on multiple platforms.
But the American consumer has a wealth of video content to
enjoy, and it is in this committee's interest to ensure that
options for the consumer continue to grow. How do we achieve
the most options? Avoiding burdensome regulatory policy is
naturally one route to take. However, of equal importance is
encouraging creativity and innovation by ensuring that
intellectual property rights are not only protected by law but
respected by those who deliver content to our constituents.
The consumer enjoyment and ultimate success of digital
video content was not born out of unauthorized uploading nor
was it achieved by circumventing copy protection technology
under the banner of fair use. Thankfully, the majority of U.S.
companies have done the right thing and ensured that the video
content that they carry is indeed legal. I am sure the video
you are creating today, Mr. Chairman, will be a completely
legal upload. A great example is Verizon Wireless's VCAST
technology, a company I am pleased to say is headquartered in
my district in New Jersey. But unfortunately not everybody in
our country has followed suit.
With all of the exciting options for consumers that the
consumers have to access video on the Web, it is all too easy
to overlook the fact that much of this content is being
transmitted illegally. The plain fact is this: If we want to
continue to see a flow of new and exciting technology to our
constituents, if we want to ensure that the most options are
available, if we want to encourage creativity and innovation,
if we want to have truly a pro-consumer digital marketplace,
then creative content must be respected.
I thank you again, Mr. Chairman. I thank you for putting
together this very distinguished panel of witnesses. I look
forward to their testimony. I look forward to the opportunity
for questions.
Mr. Markey. The gentleman's time has expired. The Chair
recognizes the gentleman from Michigan, the full committee
chairman, Mr. Dingell.
OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Dingell. Mr. Chairman, I thank you, and good morning. I
also want to thank you for holding the hearing. And I wish to
also welcome the distinguished panel of witnesses who will
appear before us today.
This is the fifth in a series of important oversight
hearings that are going to examine the digital future of the
United States. Each of these hearings is focused on how digital
technologies are changing the communications marketplace.
Like many of my colleagues, I have embraced the new digital
technologies. My iPod holds the kind of music not normally
heard enough on the airways: Classical music. And I hope
someday I can find a way to watch the History Channel more than
I do now. I suspect a number of the witnesses here could help
me with that.
Today's hearing focuses on digital video. I have paid
particular attention to the impact of digital video on local
media outlets. This committee has worked in the past to see to
it that local media outlets, including television broadcasters,
adequately serve the local communities. It is clear that the
advent of digital video is both an opportunity and a challenge
for local broadcasters. It is an opportunity to better serve
local communities with increased coverage and more delivery
options. It also presents challenges to a business model which
is centered on advertising.
The growth of Internet video and the upcoming digital TV
transition will make more content available to consumers
through many avenues: over the air, cable, satellite, Internet
and wireless handsets. I am interested in how this growth could
affect consumer access to programming no matter how they
receive it.
And not only must we examine the consumer access to
programming, but also what the growth of digital video means to
those who create it. Broadband is just starting to flex its
muscles in the marketplace. A successful broadband policy will
focus on how we are to foster increased investment by both
network operators and those who provide content over these
networks.
I have been witness to more than a few fundamental changes
in the telecommunications technology. I have had the
opportunity to see video move from black and white to color to
HD to fiber optic cables and to cell phones. The core
principles of localism, diversity and competition in the local
market have guided our decisions in the past. And I would note
they must continue to do so now.
No matter the method or matter of delivery, these people
and these issues and the way that we provide what we need in
the way of service through the media is always going to be an
important responsibility that we have to American citizens.
Again, Mr. Chairman, I thank you for your courtesy. I
commend you for the hearing, and I look forward to the
testimony of our witnesses.
Mr. Markey. The gentleman's time has expired. The gentleman
from California, Mr. Radanovich.
Mr. Radanovich. I will waive.
Mr. Markey. The gentleman will waive. The gentleman from
Texas, Mr. Green.
OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Green. Thank you, Mr. Chairman, for recognizing me and
for holding the hearing on the future of video. And I would
like to welcome our witnesses like our other members.
Just 15 years ago consumers had to set up their VCRs to
record a program if they wanted to watch it later. Today they
do not even need television access because of products like
digital video recorders, Slingboxes and technology like Cable
on Demand, giving consumers more options to view the
programming they want, when and how they want to view it.
Programs like iTunes allow users to download unlimited
previously broadcast programs for small fees.
When you look at the future of video, one issue I think is
uncertain and I plan to ask our witnesses about is the
viability of delivering full screen broadcast quality video
over the Internet. It is still unclear how feasible or
desirable this would be. If demand increases dramatically down
the road it could strain the network capacity, especially in
that last mile.
Applications like Joost are coming online and offer full
screen broadcast quality programming. Many other sites, like
Amazon and Netflix are offering downloadable movies to buy or
rent directly over the Internet and sent to a computer hard
drive or a TiVo player. Unfortunately, many Internet users are
also sharing the downloaded video content and other media files
illegally over peer-to-peer networks.
Not only are they illegally downloading the content but
with the price of hard drives and storage dropping
dramatically, they can store and share large quantities of it
that clog the network and could degrade service for the
legitimate Internet users.
While there are legitimate uses for peer-to-peer, it
consumes large amounts of bandwidth in an area where it is
limited, that last mile of the network.
These are issues the industry and the Congress must work
through to ensure that illegal uses of the Internet do not
affect the network as a whole and users that pay to use the
Internet for legitimate applications.
Again, Mr. Chairman, thank you for holding these hearings.
Mr. Markey. The gentleman's time has expired. The gentleman
from Texas, Mr. Gonzalez.
Mr. Gonzalez. I waive.
Mr. Markey. The gentlelady from California, Ms. Capps.
Ms. Capps. Thank you for having the hearing. I will waive
my opening statement.
Mr. Markey. So we will turn to our panel. Mr. Terry?
Mr. Terry. I will waive.
Mr. Markey. Who will waive. Thank you. Any other statements
for the record will be accepted at this time.
[The prepared statements follow:]
Prepared Statement of Hon. Lois Capps, a Representative in Congress
from the State of California
Thank you Chairman Markey for holding what I'm sure will be
another informative hearing on the digital future of our
country.
This is an exciting time to be a consumer of video.
TV remains vibrant, and new technologies--like those
represented by TiVo and Slingbox at our hearing today--allow
consumers to watch video when they want and increasingly where
they want.
And video on the Internet has arrived, as all of us saw in
the last election. Today you can find videos for any taste or
interest on the Internet.
The new technologies, however, raise many questions for us
as policymakers.
We must balance the rights of copyright holders with the
principle of fair use, especially on the Internet.
We must examine the erosion--perceived or real--of network
television's advertising base and the subsequent rise of
product placement within programs.
We should explore if the regulations on broadcast
television that have been in place for many years are still
prudent in today's media environment.
Finally, we must also consider what policies will encourage
innovation and consumer choice in video services.
Finally, we must also consider what policies will encourage
innovation and consumer choice in video services.
For every consumer of video to benefit from the range of
offerings, we need to increase broadband access.
I trust we will explore these questions today.
----------
Statement of Hon. J. Dennis Hastert, a Representative in Congress from
the State of Illinois
Thank you, Mr. Chairman.
I would like to welcome the panel here today, and I look
forward to hearing about the future of video.
Competition in the video marketplace has dramatically
changed since 1984 when I first got involved in
telecommunications issues. Video is now available through
competing platforms such as cable, satellite, wireline and
wireless. In addition, video is now present on the Internet on
video sharing Web sites like ABC and JOOST. Innovative
products, like the ones that will be showcased today, are key
players in the future of video.
This diversity requires a robust infrastructure. Cable,
phone and satellite providers are already making large
investments in upgrading and deploying broadband. Broadcasters
and programmers, likewise, are incurring large costs to create
and transmit their product digitally.
Congress must continue to promote policies that encourage
investments in technology and not set policies that will stifle
competition. Consumers benefit from new innovative products and
services. Market forces do work. It is critical that we do not
enact regulatory burdens that hinder investment and delay the
roll out of video services to consumers.
Thank you and I look forward to hearing from our witnesses
today. I yield back my time.
----------
Prepared Statement of Hon. Joe Barton, a Representative in Congress
from the State of Texas
Thank you, Chairman Markey, for holding this hearing on
the future of video.
The video market has never been more competitive. ABC,
CBS, and NBC are no longer the only networks. From 1992 to
2005, cable operator share of the multichannel video market has
dropped from 96 percent to 69 percent while direct broadcast
satellite share has grown from zero to 28 percent. Add video
over the Internet, over phone lines, and over cell phones and
you get even more programming outlets.
As the video industry moves to a digital environment, what
we need is investment. Downloading a single, half-hour
television show uses more bandwidth than receiving 200 e-mail
messages a day for a year. A high-definition movie requires
more bandwidth than 35,000 Web pages or 2,300 songs. Without
significant additional investment, the public Internet will not
be able to provide streaming, full-length video programming--
let alone high-definition content--to a mass audience in a way
that will be acceptable to consumers. Even apart from the
Internet, offering digital programming over existing video
platforms is requiring broadcasters, cable operators, and
satellite providers to incur large costs for equipment,
capacity, and content.
Last month's international broadband hearing reminded us
once again, however, that regulation stifles investment,
especially in markets with multiple, evolving platforms. If new
and old platforms are going to grow into viable outlets for
digital video, we must resist the temptation to create new
regulations.
We must also question our existing regulations. They were
built around old business models, and to a certain extent
protect those business models. They may have been created in
the name of promoting diversity and competition, but they often
end up just advantaging one company over another and preventing
consumers from getting what they really want.
The must-carry rules, for example, simply set aside shelf
space for broadcast programming as compared to non-broadcast
programming, regardless of whether anyone really wants to watch
it. The program access rules make it easier for cable and
satellite providers to all carry the same existing content
produced by others, rather than create their own diverse and
innovative programming to compete. Should existing regulations
continue to apply to video services in a competitive, digital
age? Should YouTube and video on cell phones be regulated like
cable and satellite service when they offer multiple channels
of broadcast-quality video? How will geography-based rules that
were designed around the physical reach of broadcast signals
work when content can be sent anywhere using Internet-based
services or devices? What happens to our broadcast model when
networks and affiliates are putting programming on Web pages?
In an increasingly competitive market, it is not the role
of government to level the playing field with regulations. We
don't want a level playing field; we want a fair playing field.
That means removing regulations that are hindering competition;
not adding regulations that give particular participants a leg
up in the guise of promoting competition and diversity. Market
forces will promote competition and diversity, and it will do
so on consumers' terms, not regulators'.
----------
Prepared Statement of Hon. Nathan Deal, a Representative in Congress
from the State of Georgia
I thank our witnesses for joining us today. The future of
video certainly is an interesting topic to explore. I find it
interesting to learn more about new technologies which are
revolutionizing the way in which consumers receive the video
content they most desire. I am pleased anytime I learn of
instances in which the consumers are being provided more choice
and opportunities. After all, fostering a free video market
where distributors have the ability to provide consumers with
the content they demand is the goal we should seek to achieve.
As these witnesses will attest, rapidly evolving services
and technologies are creating a whole new forum by which
viewers can access video content. There now exists a whole host
of tools by which a viewer can, at the time and place of their
choosing, watch his or her favorite television show. These
realities are forcing change and adaptation within the video
industry.
The question for members of this committee is how
Government regulations are affecting the video marketplace. As
one who has studied these issues, I have come to believe that
much of the current regulatory regime is designed to prop up
old, outdated, business models which do not necessarily reflect
consumer demand.
In contrast to such old models, we have new technologies
such as the Slingbox which allow viewers to watch their local
news when they are away from home. The success of the Slingbox
indicates to me that consumers enjoy and demand being able to
watch their local broadcast stations even when they are not
within the boundaries of the local DMA. I have heard rumors
that Members on this committee make use of the Slingbox. I am
even considering it for myself. Yet, oddly enough it is exactly
this service, the ability to provide consumers with out of
market broadcast stations, which we specifically deny to other
distributors of video content. Because of two components of the
current retransmission consent regulatory regime--the network
non-duplication rule and the syndicated exclusivity rule--
neither satellite nor cable companies can negotiate to provide
out of market broadcast signals to their subscribers. It seems
that if this committee were to be consistent it would find the
Slingbox in violation of the spirit, if not the letter, of
these rules. Yet, I don't think any of us here want to do that.
We want to encourage these new technologies which are pro-
consumer and drive new innovation. Why then, do we continue to
impose anti-market and anti-consumer rules on other video
distributors? It is my hope this hearing will serve as a
catalyst for change in the current regulatory regime toward
rules which are more market and consumer friendly so that it is
not simply these new and unique technologies which allow
consumers to enjoy the services they demand.
----------
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress
from the State of Wyoming
Thank you Mr. Chairman. I must admit that I am in awe of
the technologies available today in the video marketplace. Not
speaking for myself, of course--I'm much too young--but many up
here on the dais well remember when it was a big deal for a
family to own one television. Before we knew it, two
televisions and a home personal computer was the height of
luxury. Now we're talking about television broadcasts from
satellites, in high definition, that can be saved for later
viewing and ``slung'' to my laptop. These are truly exciting
times for consumers of video content.
But while these new technologies continue to be released at
breathtaking speeds, the Federal Government moves at its usual
turtle's pace. Our laws and regulations that govern the video
market were designed for a bygone era, even though that bygone
era was only a decade ago in some cases. In an age of mobile,
digital video, it is high time we look again at these laws and
regulations to determine if they are best for consumers.
One of these arcane laws is the current system by which we
define our local markets for video broadcasts. In a previous
hearing I discussed the absurdity of Direct Market Areas in
Wyoming, where the ``local'' markets in some communities
originate from broadcasts almost 400 miles away. That would be
like Washington DC's local market originating in Boston. While
I'm sure the chairman would be just fine with that idea, I
think we can agree it would be absurd in practice.
That is why Representative Mike Ross from Arkansas and I
will be introducing a bill to change the definition of what a
local market is, in effect, to allow cable and satellite
companies the option to offer customers broadcasts not from 400
miles away, but from an adjacent market that offers true local
programming. The bill is a reasonable approach that still
protects local broadcasters from national intrusion, but makes
a heck of a lot more sense in this digital age. Just like most
folks have the choice of what service and device they use to
enjoy video broadcasts, they also ought to have the choice of
viewing content that is truly local.
----------
Prepared Statement of Hon. Mary Bono, a Representative in Congress from
the State of California
Good Morning. I would like thank to Chairman Markey and
Ranking Member Upton for holding this very important hearing.
Today we have an extremely diverse panel and I would like to
welcome each of you to our committee. As a result of this
panel's diversity, our hearing has the potential to go in a
variety of directions. This will certainly lead to a lively
discussion.
When I look at today's panel one area of particular
interests and concern comes to mind. The issue surrounds the
treatment of intellectual property in the digital age--
specifically when that property is online.
Most people who know me realize that I am a moderate when
it comes to a lot of issues. However, when it comes to the
protection of intellectual property rights I have very strong
and uncompromising beliefs. The copyright industries are a
significant part of our economy. For instance, according to the
International Intellectual Property Alliance the United States
``total'' copyright industries accounted for an estimated $1.38
trillion or 11.12 percent of GDP in 2005. Protecting this
industry is directly connected to the overall health of our
economy.
This is why I am so concerned with the behavior Google,
and particularly YouTube, when it comes to its approach and
apparent arrogant disregard for copyright protections. The idea
behind YouTube is very innovative. However, its business
practices leave room for improvement. Let's examine YouTube's
business and economic models in light of the Digital Millennium
Copyright Act. First, there is little doubt that YouTube is a
for profit organization. If it wasn't, I seriously doubt Google
would have invested $1.6 billion into acquiring YouTube. In
short, YouTube makes a lot of money by attracting people to its
Web site and selling ads. The ad revenue increases when traffic
increases. Thus, the more entertaining the content, the more
visitors to the site. It's not rocket science.
Second, with respect to that content, ``Does YouTube have
knowledge of the material on its site?'' The facts point to
yes. If YouTube's managers know when hate content is posted or
when pornography is posted on its site, then it is easy for me
to believe that they know when copyrighted material such as
NBC's ``The Office'' or the latest music video from MTV is
posted.
Third, ``Does YouTube have the power and ability to remove
content posted on its Web site?'' Again, the answer is yes.
When that same hate content or pornography is posted, it gets
pulled down. All of these facts--financial benefit, actual
knowledge, and power and ability--in my opinion lead to legal
liability for YouTube in its failing to provide adequate
copyright protections on its Web site. Now, YouTube may cry
foul and claim that it is the responsibility of the content
owner to patrol its site and request that the content be
removed. This seems backwards and overly burdensome on the
individual copyright holders. If large media companies can't
find all of their content on YouTube then how does an
independent artist stand a chance?
As freelance journalist Robert Tur put it: It's past time
for the Tony Soprano online business model--Where:
You don't pay for anything;
You get your content for nothing; and,
You sell to the highest advertiser
To come to an end; and for companies who don't comply to
suffer the legal consequences.
Thank you, and I yield back my time.
----------
Prepared Statement of Hon. Marsha Blackburn, a Representative in
Congress from the State of Tennessee
Good morning Mr. Chairman. I thank you and Ranking Member
Upton for once again allowing me to participate in today's
proceedings.
The topic of today's subcommittee hearing on the future of
video is of paramount importance to Tennessee's seventh
district and is of great interest to me personally. And while
our esteemed witnesses will cover a wide variety of important
subject matters, I want to focus my brief comments on two
issues that currently face the FCC and Congress: video choice
and intellectual property protection in the digital age.
Simply put, constituents in the seventh district do not
have access to the breadth of competitive choices in the video
market that they would like.
In most of my counties consumers typically have three
choices for video access; cable, satellite, and over the air
rabbit ear signals. While this is a vast improvement from a
bygone era where consumers had no choice at all, it is still a
far cry from what is possible if deregulation and market forces
are allowed to carry the day. Yet complex, arcane franchise
agreements at the municipal level are holding that process
back.
That is why I introduced H.R. 3146, the Video Choice Act of
2005, in the 109th Congress along with my good friend Rep.
Wynn. The legislation sought to promote the deployment of
competitive video services and eliminate redundant and
unnecessary regulation that holds back competition.
While Rep. Wynn and I were unsuccessful in passing the
legislation last year, our effort has yielded a state-by-state
effort to deregulate local franchise agreements that is already
bearing fruit. Eight States adopted centralized franchise
agreements between 2005 and 2006, and at least 12 bills are
currently circulating through legislatures around the country.
These state-based franchise agreements are already promoting a
competitive landscape and offering consumers more choice, low
prices and increased service.
It is a shame that our panel does not include a witness
prepared to speak to this important issue. However, it is my
hope the subcommittee will refocus on video franchise in the
future and include appropriate witnesses who can speak to the
matter before Members take up any potential legislation
regarding video service.
I also want to focus on the intellectual property concerns
that impact the creative community in the digital era. While
more and more content is available to consumers on television,
the Internet, and personal digital recording devices attached
to computers and TVs, Congress and the FCC must ensure that the
innovators who create this content are properly compensated and
protected.
I share my colleagues' desire to prepare for a not-so-
distant future where consumers will make full use of the
Internet for their entertainment needs. However, the content
our constituents download--be it streamed video from the
Country Music Channel or live music from the Grand Ole Opry--
must remain safe, legal, and subject to the same intellectual
property laws that we adhere to today.
I look forward to the testimony of our witnesses and yield
back the remainder of my time.
----------
Mr. Markey. We will turn to our panel. It is an
exceptionally distinguished panel. And I am honored to have our
first witness with us, Mark Cuban.
Mark Cuban was the founder of Broadcast.com, the co-founder
of HDNet. He is a revolutionary in this media and for all of us
who watch big sports, big productions in HD quality, your
support, your investments in high definition are most welcome
here. And by consumers across the country, it really is a
pleasure to have you here, Mr. Cuban. And whenever you feel
comfortable, please begin.
Mr. Cuban. Thank you.
STATEMENT OF MARK CUBAN, CHAIRMAN AND PRESIDENT, HDNET, DALLAS,
TX
Mr. Cuban. Chairman Markey, Ranking Member Upton, other
members of the subcommittee, my name is Mark Cuban. I
appreciate the introduction, so I will leave out my bio here.
New technology can be incredibly exciting. It seems to
always be improving, getting faster, cheaper, smaller, with
seemingly no end to that trend in site. While that was always
the case in the 1980s and 1990s and early 2000, it is no longer
the case that all technology improves with age.
What I am about to tell you will sound like heresy to many,
particularly some of us here at the witness table, but the
reality is that the consumer Internet as it is constructed
today has matured and its future, unless there is significant
investment, will constrain economic development in this
country.
First, let me say that there is plenty of bandwidth and
upside for the backbone of the Internet. Those fibers that
connect the networks of Internet providers have plenty of room
to grow. Unfortunately, the quality of the Internet experience
to consumers and the opportunity to provide products and
services, particularly using video, over the Internet to the
consumer are only as good as its weakest link. Right now, with
limited exceptions, those links are pretty weak.
The vast majority of broadband users in this country today
are connected via coaxial cable or copper wiring. Coaxial cable
was exciting in the 1970s and early 1980s, but was used as the
foundation of major cable system upgrades in the 1990s. For
telco broadband users, basic phone wiring is still the primary
method of access for DSL subscribers. Although Verizon's FiOS
product and some other companies have installed fiber to or
close to the home, they are still small in number.
Both of these technologies are limited not only by their
intrinsic bandwidth capacity, but also by the networks they can
be attached to and the distances over which they can deliver
bits. The bottom line is that the future of broadband and
consumer connectivity for more than 95 percent of broadband
users is built upon ancient, I use this word lightly,
technology. That is a problem for our country.
This bandwidth limitation for the last mile of consumer
Internet connectivity means we are severely limited in heavy
bandwidth consuming applications that exist today, such as
video, and completely precludes and excludes unique
applications that could positively impact not only our economy
but our quality of life.
The issue of Internet neutrality is the perfect example of
how constrained bandwidth creates conflicts between the
interests of consumers and broadband providers. Internet
consumers are concerned that their favorite Web sites will
either cost more due to increased hosting costs or will be slow
or erratic when accessed because they are not given the
priority of those who pay more. This issue goes away completely
if bandwidth constraints go away. In an all fiber network as an
example, bandwidth is gigabits per second to the home and
throughout the network, making network neutrality a non-issue.
I will give the analogy--it is not in my testimony--our
highway system. If you have a highway system with 100 lanes or
1,000 lanes, there is no need for an HOV. There is plenty of
room for everybody. Unfortunately right now in our broadband
environment there is not enough room for everybody.
In our current bandwidth constrained environment, the
concept of Internet video replacing standard definition TV is
laughable. The perspective that it could replace HDTV
programming is not even on the radar. With the current design
of the Internet, every single video stream must be delivered
individually to the consumer. It does not matter if the video
stream is transported from a centralized host server, from a
locally hosted server, or from a peer or a P2P network. You may
have noticed that CBS made a big deal of delivering 300,000
simultaneous video streams at 350k of bandwidth, less than TV
quality, of the NCAA final four games this year. They said the
demand was far greater, but 300,000 was the most they could
support at a single time. They could have served many, many
more had they been able to, but the Internet does not have the
capacity nor are the costs reasonable to be able to deliver
live TV over the Internet. That is not going to change in our
current environment.
Now there are some that will tell you that Internet video
will replace TV using peer-to-peer technology but it will not
happen. Peer-to-peer technology does not reduce the amount of
bandwidth required to deliver video content over the Internet.
In fact, it moves much of the requirement for bandwidth from
the backbone, which is built primarily on fiber and has
basically no bandwidth limits, to the individual consumer where
the user must not only receive the entire amount of bits
required for the delivery of the video they have chosen but
must retransmit it to peers on the network, resulting in
significant inefficiencies and overconsumption of bandwidth.
The reason this method of delivery has become so popular is
that it shifts the cost from the distributor of the video to
the consumer of the video.
This is not to say that consumers will not want and will
not consume video and TV programming over the Internet. They
will. In particular, Internet video consumption is very high
during the day. At work, people will watch their favorite shows
that they missed at lunch or hopefully at lunch or on breaks.
They can stream it, they can download it, and they may save it
to their iPods or phones. There is certainly a market for video
content on PCs, but it is a complementary market, not a primary
market for content. People of all ages will watch video on
their PCs, their mobile devices and phones or PDAs, whatever
devices happen to exist when they do not have access to their
TVs. It is in essence a convenience.
Over the last few years the technology industry and the
media have become fixated on Internet video. The explosive
success of YouTube has convinced many that it foreshadows a
future of people sitting in front of their PCs watching user
generated videos. It does not. The area of consumer video
consumption that is going through the most significant change
and upheaval is not Internet video. It is high definition
television.
If you look at the PC on your desk at home or at work it
looks and works pretty much exactly like it did 5, 10 even 20
years ago except that it is faster. There was a time when
people felt that upgrading their PC was a rite of passage that
happened every few years. We all went through that period where
we said oh, if I just buy it now it is just going to get
better, cheaper, faster. Why am I doing this? Well, that period
is gone. It is no longer in existence. There was a time when
new PC based software was coming out on a regular basis
impacting our work productivity or creating new entertainment
options for us. Not anymore. It is stagnant. If you go through
the list of top-selling personal computer software, it has not
changed in years, particularly in the office environment.
The same applies to Internet applications. What we call Web
2.0 is not a reflection of new and exciting technology. It is a
reflection of the maturity of the Web from Web 1.0 to 2.0.
MySpace, Facebook, YouTube, Digg, any Web 2.0 site you can
think of are certainly not technological breakthroughs. They
are applications developed with mature programming tools that
users feel confident to use. They are very excitable. They are
very innovative. But from a technological basis, there is
nothing new there.
Contrast that with what is happening in the high definition
television market. Like the PCs of yesteryear, HDTVs are
getting bigger, faster, cheaper, better on almost a monthly
basis. It was just 3 years ago that if you were in the market
for a new television you would expect to go to the store and
pay $800 or more for a 27-inch tube TV that could weigh 300
pounds or more. It was just 3 years ago that if your friend had
a big screen TV, which probably was a 40-inch or more
monstrosity that cost $3,000 or more, you went over to his or
her house for the big game or the big show.
Today, those types of TVs cannot even be found on
retailers' shelves. They are gone. They are no longer even
being made. They are part of history. Instead, tens of millions
of homes have purchased LCD and plasma TVs that hang on the
wall such as we see here. And you might remember when that was
a Jetsons-like fantasy that we could hang a TV across the wall.
Mr. Markey. Mr. Cuban, I am feeling a little bit like David
Stern here and I apologize for that. But you are 8\1/2\ minutes
into it and it is all fabulous. I have read it and it is great.
I think you are going to have plenty of interest from the
Members----
Mr. Cuban. No problem. I read slower than I practiced.
Mr. Markey. So if you can summarize.
Mr. Cuban. I will summarize very quickly here at the bottom
of the testimony. The reality is that technology improves where
there is the greatest opportunity. And where the greatest
opportunity and change is happening is in acquisition devices
for digital video. You are starting to see 3D movies. You are
starting to see 4k cameras. You are starting to see 4k cinema.
That is where we are heading in terms of digital video. If we
are trying to support that as a community, as a country, and
broadband buyer to the home we will see medical and security
and all kinds of unique applications. Then that is what we have
to look at. The Internet today is not prepared to do that.
[The prepared statement of Mr. Cuban appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Cuban, very much. Our next
witness, another revolutionary, Blake Krikorian, who is
chairman and chief executive officer of Sling Media,
Incorporated. This new technology is changing the consumer
experience. It has taken off like wildfire. It is an honor to
have you here today, Mr. Krikorian. Whenever you are ready,
please begin.
STATEMENT OF BLAKE KRIKORIAN, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, SLING MEDIA INC., FOSTER CITY, CA
Mr. Krikorian. Thank you very much, Chairman Markey and the
members of the subcommittee. It is a great, great opportunity.
I never thought I would find myself here, but it is an honor. I
am just an everyday consumer and really just want to explain to
you a little bit about what we have been doing and how we even
came about. It is all based on consumer frustration, this thing
called a Slingbox, place-shifting.
In fact, a few years ago in the summer of 2002, my brother
and I, we were born and raised in the Bay area, big San
Francisco Giants fans. And it was the year the Giants were
actually doing quite well and headed to the Series.
Unfortunately, they choked in the sixth game, which is a
different story. But it is a 5-month thing, by the way, or four
outs away, I believe. So we found ourselves though sitting in
the office quite a bit working day and night in the consulting
practice we had. But we also found ourselves traveling quite a
bit.
I remember vividly one day in the summer they were playing
the Cubbies and it was a day game, and we wanted to watch this
game. Got to see it. And we looked around to try to see if
there was various ways we could do it when we were in the
office or when we were abroad. At this point we were in the
office. And we ended up realizing there was no way we could get
our Giants game.
We said well, wait a second, here. Here we are as
consumers. We are spending more and more time outside of our
living room. We are spending more and more time in front of
display devices other than that TV. Like, we are more in front
of PCs and laptops, mobile phones, media players. And
everything is connected via the Internet. Why the heck can we
not just watch our home living room television regardless of
where we are, regardless of what displays we happen to be on.
And at the same time, of course, I was also a big TiVo user,
still am. And a lot of the content that I love to watch
actually, besides sports, a lot of it was time-shifted. And so
it was actually sitting in my living room on my TiVo hard
drive. I said I just want access to the stuff. Why the heck
can't I watch it? And so we came up with this product called
the Slingbox.
And really, this is one of the versions of the Slingbox. We
sell it in over 5,000 stores now, retail: Best Buy, Circuit
City, CompUSA. And it is a very low-priced product. It is about
$149 to $249, depending on which model you get. And the way
that it works is you put this little box in your home and you
plug your TV signal into it. Now we do not care if that is your
TiVo or if it is your analog cable for those of you who still
have it or your DirecTV or cable. It does not matter. Plug your
TV signal in and connect it to your home network. Now you need
to have broadband. But as we know, most people do, so we can
have faster and faster uploading speed. We would have even
better and better experiences.
But you plug it into your home network. Once you have done
that you leave that guy there. And then regardless of location,
whether you are in China, whether you are in the district
office--Congressman Dingell could actually watch the History
Channel when he is here at the office during lunch break. You
can be really anywhere in the world and you can watch and
control your living room TV off of your laptop or even on your
mobile phone. And in fact, right now on my Treo with the Sprint
Network I am watching live Good Morning America from my home in
San Mateo right now. And I can change the channels. I can
pause. I can rewind and so forth.
So I want to give you a few different recent examples of
how I have used it and also how we are seeing the product being
used via the marketplace. I just had this this last Sunday, my
wife and I went with some friends to the Kentucky Derby, which
was an amazing experience. The one downside was Saturday night
we were with a bunch of friends and the de la Hoya/Mayweather
fight was on. And we were scrambling around downtown trying to
find out where it might be on. We went back to the hotel room
and found out there was no Pay Per View in the hotel room
either for the fight. So I fired up my little laptop. And yes,
I would have loved it to be a 16-inch plasma. My friends gave
me grief even though I gave them the game anyway. We fired up
the laptop. We had 30 people around. I connected that to my
Comcast back home via my Slingbox, ordered the Pay Per View,
and we watched the fight.
Another example that we see used quite a bit is hundreds if
not thousands of our servicemen and women are using the product
actually in Iraq where they put the Slingbox in their family's
home here in the States and they are able to watch their
television programming when they are over there. That has been
really fun. We have been doing some pretty cool things with
some of the troops' mother groups in the Bay area.
In addition to that, you as Congressmen and women, I think
the Slingbox is something that would be great for you guys as
well. In fact, you could stay connected to your district office
back home. You could put a Slingbox there and you could be
watching your local news every single day.
Now last but not least, I know I am just about out of time
here, the thing that is kind of really interesting is we found
all sorts of interesting new applications that we had never
thought of. There was an article in CNet yesterday. It was a
video article where they gave an example of the CBS local
affiliate in the Bay area who is actually using Slingboxes
around the Bay area on ferries, by the Golden Gate Bridge. They
are plugging cameras into the Slingbox and it created basically
an ability to have traffic cameras scattered around the Bay
area at a fraction of the cost of what it cost them before. So
we are seeing all sorts of interesting applications.
I would conclude here just by saying as Mr. Munoz from CBS
had pointed out, the Slingbox is one of these technologies that
turns local to global. And thank heaven for the notions of fair
use and for allowing us to basically create this company in the
beginning and innovate without asking for a whole bunch of
permission. Thank you very much.
[The prepared statement of Mr. Krikorian appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Krikorian, very much. And just
for the Members, there is a roll call on the House floor at
this time. We cannot, however, use the Slingbox yet to vote
over in the House floor and be here simultaneously, so we will
try to make a determination as to what our exact status is over
there.
Our next witness is a Hollywood legend, a real creative
genius, the creator and executive producer of ``Everybody Loves
Raymond''. He is testifying on behalf of the Writers Guild of
America and the Screen Actors Guild, Phil Rosenthal. It is an
honor to have you here today. Whenever you feel comfortable,
please begin.
STATEMENT OF PHILIP ROSENTHAL, WRITERS GUILD OF AMERICA WEST
AND THE SCREEN ACTORS GUILD, LOS ANGELES, CA
Mr. Rosenthal. Thank you. Good morning, Chairman Markey and
members of the subcommittee. Thank you for the opportunity to
appear today. My name is Philip Rosenthal. I am a writer and an
actor in the television industry. I did create and was
executive producer of the comedy ``Everybody Loves Raymond,''
which ran on CBS for 9 years. I am here today on behalf of the
Writers Guild of America, West, that is the Guild that
represents Hollywood's screen and television writers, and the
Screen Actors Guild which represents Hollywood's performers. I
am a member of both guilds and the Directors Guild of America.
At home I have no say whatsoever.
My brief testimony discusses our concerns about three
issues: fair compensation for new platform content; independent
production; and product integration. But for time's sake today,
I will just limit my remarks to product integration.
Now we are all accustomed to seeing an actor in a movie or
a TV show hold a beverage with its label clear for the entire
world to see. This is commonly referred to as product
placement. On an artistic level I am not crazy about this, but
the story flows regardless of whether the drink is a Pepsi or a
Yoo-hoo or an unmarked can.
The new policy now hoisted upon the creative community by
production companies and studios is product integration. This
is the practice of not only placing the product in a scene but
making the product a part of the story line and the character
is required to talk about the product as well. The studios and
production companies claim that no one is watching commercials
anymore because of the DVR. So they have decided to just turn
the shows that sell into commercials.
In 2006, product integration occurred more than 4,000 times
on network prime time television. A recent episode of Desperate
Housewives, for instance, featured characters discussing the
cool features of a Nissan Xterra. On Smallville, contact lenses
helped one crime fighter with her duties, prompting another
character to say, ``Acuvue to the rescue.'' Oreo cookies were a
major part of the plot in two separate episodes of the family
drama Seventh Heaven. We have a clip.
That is a beautiful story, yes? Maybe if the writers and
actors were not so worried about covering that engagement ring
in creamy filling they could have taken a look at the line:
``Will you marry me on our wedding day?'' surely a nominee for
``Most Terrible Anything.''
In addition, reality television programs are chock full of
integrated props. The poor contestants on American Idol must
make Ford commercials every week which are then presented on
the show as hip videos. And the judges cannot say anything
about it because their mouths are full of Coca-Cola.
If we are concerned about the effect commercials identified
as commercials have on our children, how much more insidious is
this new practice? This is a level of corporate pressure that
impinges upon free expression over the airwaves and the long-
established protection of viewers against stealth advertising.
As writers, we believe our creative rights are affected
when we are told we must incorporate a commercial product into
the story lines we have written. Actors are subjected to forced
endorsement when their character must extol the virtues of a
product within a television program, a practice that can
seriously impact an actor's ability to get endorsement and
commercial deals.
For the public, product integration exploits the emotional
connection viewers have with shows and their characters in
order to sell merchandise. It also raises the serious issue of
adequate disclosure. We believe that writers and actors as
creators of television should have the opportunity to refuse
integrations if they believe it will harm the integrity of the
program.
To protect viewers, we support disclosure that both
adequately reveals product integration, is legible, and held on
the screen long enough for viewers to read. Maybe at the
beginning of such shows it could say, ``This program contains
references to `Reynolds Wrap.' The network has been paid for
this inclusion. The writers and actors have not.'' Maybe this
would end the problem.
But right now, individual writers and actors are nearly
powerless against the companies who require them to perform
these commercial services and consumers are often
unsuspectingly deceived in the process.
The problem of product integration is exacerbated by the
fact that 20 years ago there were 29 dominant entertainment
firms and today there are six. Our kids are watching. We are
watching. Would we have wanted our memories of Casablanca to be
Bogart saying to Ingrid Bergman as they said goodbye, ``You're
part of his life, the thing that keeps him going. Now get on
that plane and enjoy United's non-stop three-class service to
Paris with seats that recline to a full 180 degrees.''
Thank you for the opportunity to testify.
[The prepared statement of Mr. Rosenthal appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Rosenthal, very much. Our next
witness, Gina Lombardi, is the president of MediaFLO USA, which
is a division of QUALCOMM. This is a world-class innovative
company which is bringing video to wireless. We welcome you,
Ms. Lombardi. Whenever you feel comfortable, please begin.
STATEMENT OF GINA LOMBARDI, PRESIDENT, MEDIAFLO, USA, INC., SAN
DIEGO, CA
Ms. Lombardi. Thank you. Good morning, Chairman Markey,
Ranking Member Upton, members of the subcommittee. I am Gina
Lombardi, and I am the president of MediaFLO USA. We are a
wholly-owned subsidiary of QUALCOMM, Incorporated, which is a
technology-innovative company.
And I want to start by thanking members of the subcommittee
for the DTV hard transition date. February 17, 2009 is quite an
important date for us. We have acquired spectrum UHF Channel 55
nationwide, and we are building a multi-cast network to bring
live television to the mobile phone. So the DTV transition date
has been very important to us as many more markets will be
available to consumers to experience our service as that date
rolls around.
We are currently launched in 27 markets across the country
with our launch partner, Verizon Wireless. The service is
called VCAST Mobile TV. We will be launching with AT&T this
fall providing that same type of service to consumers.
So the way our service works is we have come up with the
technology that is unique to the cell phone. QUALCOMM is a
company who has prided themselves in coming up with mobile
technologies and how to bring more and more value to the
consumer. So in creating this technology, there were several
attributes we wanted to focus on. Mobility from the ground up.
We wanted to make sure that consumers had the same TV
experience they have in their homes. We wanted fast channel-
switching time so they could feel like they were holding their
remote control in their hand. And we wanted to make sure the
battery life of the device was equivalent to talk time. So
there are two devices in the marketplace today. One by LG that
has a swivel phone. Another one by Samsung, much smaller, and
has a cute little TV-type antenna.
So to enable this, we thought the easiest thing for a
consumer would be to have a button on the phone, a TV button.
The consumer hits that TV button and very quickly will be able
to access the many different channels that are available. And
what we have done is we have launched with Verizon on March 1
in 27 markets with brand-name content providers. So our
partners from a content point of view are ESPN, CBS, FOX, the
VIACOM properties, as well as NBC. And so we have eight
different channels available today for consumers from live
sports with ESPN and CBS and FOX, as well as live news with NBC
who has combined a NBC/CNBC/MSNBC news channel along with the
Today Show.
And so many of the shows are simulcast live. And what the
content providers have done is created unique content made for
mobile offering. We only have 6 MHz on UHF channel 55, so we
are limited on how many actual channels and services we can
have. We have got eight. We can go up to 20 video channels and
10 audio channels.
So what I thought I would do is share with the subcommittee
a video that kind of puts this all in perspective on what we
are actually doing.
To give you some additional perspective, QUALCOMM and
MediaFLO USA is spending over $800 million to bring this type
of service to consumers and we plan to add more and more
carriers and content providers as well as consumers to the
service.
So thank you very much for the opportunity.
[The prepared statement of Ms. Lombardi appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Ms. Lombardi, very much. Our next
witness is Benjamin Pyne. He is here representing the Disney
Company and ESPN Networks, which is a major content creator and
embracing new media strategies. And we are very glad to have
you here with us, Mr. Pyne. Whenever you are ready, please
begin.
STATEMENT OF BENJAMIN PYNE, PRESIDENT, DISNEY AND ESPN
NETWORKS, AFFILIATE SALES AND MARKETING, NEW YORK, NY
Mr. Pyne. Thank you, Congressman Markey and Congressman
Upton and other members of the subcommittee this morning. My
name is Ben Pyne, and I am president of Disney and ESPN
Networks Affiliate Sales and Marketing. I appreciate the
invitation to talk with you today about the future of video.
At Disney, we recognize that technology has empowered the
consumer more than ever before, and we create and use
technology to create and deliver quality content. Consumers
today want to access content from Disney, ABC, and ESPN in so
many different ways and we have made responding to that demand
in new and innovative ways one of the highest priorities in our
company.
Now and in the future, getting the balance right between
convenience and pricing is a challenge facing all of us who
create and distribute content. Adding to that challenge is the
problem of piracy. While there is no one answer to the
challenge of piracy, we believe the best place to start is to
bring content to market on a well-timed and well-priced basis.
We are now firmly in the ``Consumer Era,'' where consumers
want their content to be available anytime, anywhere, on
devices ranging from TVs to cell phones. Disney led all video
producers in moving this ``on demand'' digital era from theory
to reality with our groundbreaking agreement to make television
content available for video downloading from iTunes 18 months
ago. That deal allowed consumers not only to download their
favorite shows but also to make them portable between shared
devices on a single iTunes account.
Today, the variety of Disney video content available on
iTunes continues to expand: movies, TV shows, sports and news.
Over 20 million episodes of our series have been downloaded on
iTunes, including many of our most popular shows. Everything
from ABC's Grey's Anatomy to Lost to Disney Channel's Hannah
Montana and High School Musical and to ABC News. Here is a
screen shot from iTunes to give you a sample of some of the
content available. And also from ESPN.
On the movie studio side, last year Disney was the first
movie studio to announce a deal with Apple to enable
downloading a full-length feature film through iTunes,
including copies to multiple PCs and portability using iPod
devices. We have also reached separate digital distribution
deals with Wal-Mart, Movielink, and CinemaNow here in the
United States.
Disney's next innovation was its Emmy award-winning full
episode broadband player. We have made our most popular
content, including much of ABC's prime time schedule and
original programming from the Disney Channel and ABC Family,
available on the Internet in high quality video streaming
format. Right now a consumer can go to the Internet to ABC.com
and watch individual episodes of ABC or Disney Channel programs
if they want to for free. This is an effort to continue the
evolution we started with iTunes but is different in a number
of ways. Specifically, unlike iTunes, content on ABC.com is
free to viewers but it also includes limited commercial breaks.
Since the fall of 2006, the ABC.com media player alone has
served over 87 million episode requests.
Notably, in support of our local broadcasters, we work with
our ABC affiliates to design a version of the media player for
ABC content in which both the network and the affiliate are
able to participate. Affiliates can brand the player with their
station's channel number and call letters including local
advertising and provide links to local news and information
that broadcasters provide their communities. Here are a few
screen shots of the ABC broadband player that show the variety
of programming, the advertising experience, and how the media
player is accessible from our local stations' Web sites. Here
is the player. Some pause functionality. And then how you get
in from your local broadcaster's Web site.
And finally, just this January Disney announced its latest
Internet innovation, this time in the Web space, Disney XD.
Disney XD is broadband entertainment taken to the next level:
Disney-style content with safety in mind. It is a customizable
experience with Disney games, music, trivia, and high quality
engaging videos including kids' favorite Disney Channel shows
plus movie clips and previews. I think one more slide. There
you go.
Video on Demand is yet another way we make Disney, ESPN,
and ABC content available for viewers to watch whenever they
want. Just this week we announced an agreement with Cox
Communications to allow Cox customers to watch our most popular
ABC television content, including Grey's Anatomy and Lost, on
demand. Similarly, we are discussing opportunities with our
local affiliates to help monetize this.
Disney has moved aggressively to ensure that our content
travels with our viewers, wherever they are, including on their
cell phones and mobile devices. ABC News Now is available to 4
million subscribers. ESPN is also available through MediaFLO
with Verizon.
Finally, Disney consistently has been a leader in high
definition television. ABC was the first network to produce its
morning news show, Good Morning America in HD. Now virtually
the entire ABC prime time schedule is broadcast in high
definition.
With the launch of ESPN HD and ESPN2 HD, between the two of
them ESPN will provide 9,000 hours of original HD content. And
in early 2008, we will add to that with ESPN News HD, Disney
Channel, ToonDisney HD, and ABC Family HD.
Disney is also a leading supporter of high definition
content on next-generation high definition packaged media. We
have already announced more than 50 titles for release on Blu-
ray Disc, which we believe will further drive HD adoption.
Finally, at Disney we will continue to work to be the first
choice for digital and interactive entertainment and
information in the most convenient and timely ways possible.
Thank you again for inviting me to testify today.
[The prepared statement of Mr. Pyne appears at the
conclusion of the hearing.]
Mr. Markey. Thank you very much, Mr. Pyne. Our next
witness, Tom Rogers, is the president and chief executive
officer of TiVo Incorporated. Mr. Rogers and his company are
revolutionary. I know it has revolutionized my life, TiVo.
These west coast basketball games, Mr. Cuban, I have to TiVo.
At a certain point you get into a negotiation with your wife
around 11:30, 11:45. And I have lost every one of them so far.
But I gamble with the pickup, because of TiVo, the rest of the
action at some future point in my life.
But Mr. Rogers is an alumnus of this committee. He was the
chief counsel of the Telecommunications Subcommittee long ago
and far away in another life. He was a visionary then in terms
of the changes that he felt had to be made in American law in
order to open up this innovation which we have seen today. We
welcome you back, Tom. Whenever you are ready, please begin.
STATEMENT OF THOMAS S. ROGERS, PRESIDENT, CHIEF EXECUTIVE
OFFICER, TIVO, INC., ALVISO, CA
Mr. Rogers. Thank you, Mr. Chairman. I have to say I am
exceedingly uncomfortable sitting here. You have no idea. I
feel like I should be up there passing you notes. And being
down here just does not seem quite right. I do feel like this
is my alma mater. I am not quite sure if it is like being a
cheering love returning for a football game or a former student
returning for disciplinary action. But in any case, I am very
pleased to be here. Actually, in deference to you and Mr. Cuban
I should have said returning for a basketball game. Excuse me.
Mr. Markey. I was going to ask you to tell the truth, the
whole truth, and nothing but the truth.
Mr. Rogers. I had to do that as a staffer and I will
continue to do so. Thank you. I guess going back 25 years ago--
and to be truthful and honest I was counsel to this
subcommittee from 1981 to 1986, so I can actually speak in
terms of 25 years ago of what the subcommittee was looking at.
We were asking the same question. What is the future of
television and how can this subcommittee guide it?
I have to say, I think this subcommittee has had an
unbelievably strong legacy in guiding the future of television.
I go back to the 1984 Cable Act, which I had some hand in. And
that certainly helped to very much encourage the number of
cable channels that developed over the course of the 1980s. The
1996 Telecom Act, of course, has had a major impact on the
growth of the Internet.
And along the way, the subcommittee has always had a clear
view of not letting incumbents choke off competition. And I
think back to distant broadcast signals being carried by cable
and how the subcommittee avoided competition by cable broadcast
being choked off by ensuring access to those broadcast signals.
The issue came up again with satellite and cable and making
sure that direct broadcast satellite had access to cable
channels. More recently, the issue of requiring cable to open
up consumer access to cable set-top boxes. And I will return to
that point in a minute.
But the last 25 years both in terms of TV policy and the
business arena, in terms of both, it has been all about getting
viewers more choices. And now we are going from an era of
consumer choice to an era of consumer control, where the
consumers' decision of what they see, when they see it, where
they see it, how they see it, that is all decisions now that
the consumer can make about how they take television into their
lives.
TiVo has been a pioneer in terms of leading the way with
this. Many other innovators are contributing to this. Sling is
a perfect example. We made it much easier for people to find
and record any show. A number of innovations since the initial
development, such as you are out to dinner, a friend mentions
to you a great show and you say I wish I had recorded that, you
can pull out your cell phone now, type in a code, talk to your
TiVo from dinner and make sure it records it at home. Or you
are late at work at the office and you can do the same thing
over the Internet. And many other innovations which I will not
go into now.
But I think for purposes of this subcommittee, maybe our
most important innovation goes to an issue that you have been
grappling with even before my time, which is kids' television
and all aspects of kids' television: quality kids' television;
violence on kids' television; how to keep inappropriate content
out of the view of kids. And this has been a really, really
tough issue in terms of the Government's ability to solve. How
do you get all the great kids' TV that is actually out there,
Disney being a perfect example of somebody that provides it.
How do you get all that great television that is actually out
there and make sure when the child turns on the television set
that--those TV shows are actually the ones sitting there in
front of the set and at the same time how do you block all the
bad stuff from coming in? It is a double order. And if the
future of TV in this country, in my opinion, having toiled
heavily in these issues going back to my subcommittee days--if
that future is going to be bright one this issue has to be
solved. And we believe that TiVo may have solved it.
Congressman Upton last year actually took the lead in
helping us announce this new feature called TiVo Kids Zone.
Supporters include Senators Clinton and Obama. We also have
support from the National Evangelicals Association, the YWCA
and the NEA. And you say how do you put together a group like
that? And I guess my answer is we came up with a private sector
technology-based non-regulatory approach to solving the kids'
TV issue.
And we recognize there are limits as to just how far the
Government can go in solving any problem, and that is why we
felt we had to take it upon ourselves to help try to solve it.
And what we did is we created a really easy way for parents to
create the ideal kids' world in the household. The V-chip has
gone unused and all this great television programming that you
have helped encourage be out there for kids has largely gone
unseen. So how did we do that?
Well, we allow various groups, Parents Television Council,
Common Sense Media are two groups I know the subcommittee is
well aware of--on a daily basis try to give parents guidance on
what are the best shows to watch. And we let them create menus,
maybe 30 shows a week, that are delivered automatically to the
television set and nothing else gets through unless the parent
wants something else to get through.
So we have created this way of an ease for a parent. You
have got to let the kids use the remote control. You cannot
deny them that. And anything the parent wants is behind a wall
that the children cannot see. And it is a free service as part
of the TiVo service. One great innovation that we think has a
lot to do with making the video future bright.
Let me just close by going back to the CableCARD issue.
Because if a company like TiVo as an independent consumer
electronics company is going to continue to flourish, companies
like us need to continue to have access to the digital signals
that are being provided. And CableCARDs in that respect are
key. Our new boxes are going to be CableCARD based. And
CableCARDs, of course, are the regulatory response to the
policy this subcommittee created in terms of opening up set-top
box competition.
But a potential problem has emerged. And that is that
CableCARDs could be rendered useless. And why could they be
rendered useless? Because cable companies are beginning to send
their signals with a new technology called switched digital
that the CableCARDs cannot read. And that creates a real
problem. It creates a potential black eye for the FCC, for this
subcommittee, for NCTA, for TiVo, for other consumer
electronics companies.
And I will close by simply saying there is good news. We
pointed out this problem to the cable industry and to their
great credit they said we want to work this out. We want to
work this through. Consumers should be able to get this kind of
expectation, the CableCARDs and new technologies like this will
work. And we are hopeful it will be solved. And Mr. Chairman, I
well remember how mad I got when people went over their
allotted times, so I profusely apologize.
[The prepared statement of Mr. Rogers appears at the
conclusion of the hearing.]
Mr. Markey. He got the former staffer courtesy testimony
extra minute and 54 seconds. And we thank you, Mr. Rogers.
Our final witness is an innovator and an entrepreneur who
has put his stamp on the Internet and its history. He is a
historic figure. He stands with Jerry Yang at Yahoo! and Jeff
Bezos at Amazon and Sergey Brin and Larry Page at Google as
someone who has revolutionized the relationship between not
only the American people but the people of the world and this
technology. We really are so glad that you are able to come
here today.
YouTube has revolutionized the complimentary video media,
empowered consumers. Chad Hurley is the chief executive officer
and co-founder of YouTube. We welcome you here today, Mr.
Hurley. Whenever you are ready, please begin.
STATEMENT OF CHAD HURLEY, CHIEF EXECUTIVE OFFICER, YOUTUBE, SAN
BRUNO, CA
Mr. Hurley. Chairman Markey and members of the committee,
it is a great pleasure to be with you this morning. My name is
Chad Hurley, and I am the CEO and co-founder of YouTube. This
is my first appearance before a congressional committee and
hopefully I will not mess this up. Because if I do, it could
end up on YouTube. I thought we would open with a YouTube video
that you in particular would enjoy.
So today I am here specifically to talk about three of
YouTube's goals: promoting community, advancing democracy, and
driving economic growth.
Let me start with a few facts about YouTube. YouTube is the
world's leading online video community. YouTube allows people
to watch, discover and share originally created videos. We
started the company after realizing there is no easy way to
share homemade videos with our friends. Two years later things
have changed. Every day people upload hundreds of thousands of
videos to YouTube and watch hundreds of millions of videos on
the platform.
The way YouTube works is simple. An individual creates a
video, then posts it to our site. The community of viewers then
decide what rises to the top. They connect and engage around
videos that inspire, teach and entertain them. Videos that are
less compelling to the masses, for an example a video about how
to make omelets in a Ziploc bag, still will find an audience on
our site.
Videos that include unauthorized copyrights are removed as
soon as we are made aware by the rights holder. And those that
violate our community guidelines come down minutes after users
flag them. And as a father of two, that last part is
particularly important to me.
YouTube is helping a wide range of video producers reach a
new audience in a changing marketplace. For example, we
currently have more than 1,000 partnerships with organizations
ranging from the NBA to 10 Downing Street.
Now let me turn to our goal of promoting community. Content
creators such as entertainers, educators, authors, medical
students and U.S. military are building audiences on YouTube.
You can even learn how to remove a tree from your sewer drain
by tuning in to ``Ask the Builder.''
Then there are stories like that of Leigh Buckley, a mother
of two from Derry, NH, who discovered that she was suffering
from leukemia. A family friend made and posted a video about
Leigh's search for a bone marrow donor on YouTube. That video
helped draw more than 1,000 people to a registry drive. A donor
was found and she underwent treatment. Through the power of
video, people came together to help a complete stranger.
Now I will turn to advancing democracy. YouTube is a new
platform for putting democracy in action, a great forum for the
free exchange of ideas where everyone is provided equal
opportunity to be heard.
Our new You Choose '08 platform creates the world's largest
town hall. 17 presidential candidates are currently on YouTube,
and they have combined to post over 500 videos, and they have
been viewed millions of times.
We believe that YouTube provides another way to promote the
values of freedom and liberty, to strengthen democracies and to
let citizens from other countries give an authentic voice to
their most urgent needs and common dreams.
Turning to economic growth, many examples arise. Owners of
small businesses, such as real estate agents and music
teachers, have a much less expensive way of finding new
customers on YouTube. Musicians are selling their own CDs and
in some cases signing with record labels, as Terra Naomi did
with Island Records.
YouTube would never have launched had it not been for this
country's commitment to an open Internet. We share with many
the belief that access to the Internet must be open to all
users and services on fair and equal terms.
So where is online video headed next? If I had to identify
a few trends to watch for in the future I would point to the
following. First, originally created video content will
continue to establish itself as a new form of communication.
Second, a critical mass of content will continue to be built
from small communities online. Third, YouTube will increasingly
empower users to take control of how they create and consume
media.
Finally, as more and more countries utilize YouTube,
citizens from around the world will have the opportunity to
communicate across borders. Even when nations disagree, video
brings a human element to our dialog that enhances
understanding.
Mr. Chairman and members of the committee, thank you for
letting me appear here today. And I look forward to answering
your questions.
[The prepared statement of Mr. Hurley appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Hurley, very much. The Chair
will now recognize myself for a round of questions. And my
first question will go to you, Mr. Rosenthal. Do you think the
television industry should be permitted to use programming--not
advertising but programming--in order to sell Oreos or other
unhealthy products knowing that it is targeting a child
audience and knowing that we have a childhood obesity epidemic
in the United States? Do you think that the industry should be
allowed to do that?
Mr. Rosenthal. There would be a conscience that would self-
regulate it. But in lieu of that there might have to be some
kind of restrictions placed in the same way that you cannot
sell alcohol on television or cigarettes anymore on television.
This is a major health issue and maybe it should be looked at.
Mr. Markey. OK. And thank you, Mr. Rosenthal. Do you think
it is harmful for movie producers to include the use of tobacco
products in their movies knowing that they cannot advertise on
television and knowing that in certain G and PG movies that the
kids are going to be looking up at this huge screen seeing the
actor or the actress smoking cigarettes? Do you think that that
is an appropriate thing for movies that are specifically
targeted at the G and the PG audience?
Mr. Rosenthal. I think the ratings should dictate whether
or not this is to be allowed. I think that is a very good
point.
Mr. Markey. I thank you, Mr. Rosenthal. My next question
goes to the panel. And that is a question that refers back to
our first hearing this year where Sir Tim Berners-Lee, who is
the creator of the World Wide Web, was our first witness this
year. And here is what he told the committee. He said that if
the Internet had not been open, and he likened the Internet to
a white piece of paper, that he would not have been able to
create the World Wide Web because someone would have told him
no, that his idea was not acceptable.
Mr. Cuban, Mr. Rogers, Mr. Krikorian, Mr. Hurley, do you
agree with that assessment? And please give us an example, if
you have any, of how openness actually helps in the creative
process to revolutionize the Internet on an ongoing basis. Mr.
Hurley?
Mr. Hurley. Yes. I mean, you can take our own site as a
perfect example. It did not exist over 2 years ago. Because of
an open Internet we were able to look at problems that we were
personally faced with and that was how to deal with video
online, how to make that easy. And we were trying to address
those needs. And we were able to develop a service that was
able to compete with other competitors in the market. And
because of that we have been able to provide a service that has
been helpful for people and have been able to spur innovation
in the video market online.
Mr. Markey. Mr. Krikorian?
Mr. Krikorian. I will just give you just our example. First
off, we clearly have enough large industry folks who would
rather see us go away, so we had some challenges there from the
start. But just quite simply, we got laughed at a lot of
different capital firms for just talking about building a
hardware product with a U.S. based company--questions about
copyright and so forth. If we had another going on there in the
business plan which would set--the first thing we need to
accomplish is get approval from AT&T or something like that to
do this, I mean, we would have been kicked in the pants on the
floor. I mean, there is just no way that any of these new
technologies would make it.
It is not to say anything bad about AT&T. It is just the
fact of the matter is that things are being created every day
that none of us ever even thought about before. And without
having that open flexibility there is just no way in heck this
stuff could ever come to life.
Mr. Markey. Mr. Cuban?
Mr. Cuban. I guess I am always the contrary. Before the
Internet there was CompuServe. There was The Source. There were
a variety of companies that offered services that were host-
based computers that offered content but none of them were
graphically driven--and offered hyperlinks which Mr. Burn and
the folks that put together Mozilla/Mosaic originally used as a
step forward.
So in essence, our beautiful capitalistic system is really
what propelled us to this point. And I do not think that it can
be constrained at this point because communications and telecom
activity was here and will continue to be here no matter what
happens.
Mr. Markey. And a quick word, Mr. Rogers?
Mr. Rogers. We look at the Internet in terms of the
combination of your two jurisdictions. Where does the Internet
meet television? And ultimately the Internet connected directly
to the television set is what is going to give people the
ability to choose what they want to see when they want to see
it anytime.
In addition to YouTube via broadband on the Internet, every
movie company, every television company, every program company
today is putting its content on the Internet. Most of it is
only viewable on a PC. What we have started to do is make it
viewable straight to the TV set. We look through Amazon today
directly to your TV. You can download any number of movies to
your television set. If the Internet is not open that promise
of ultimate choice to the TV will totally be frustrated.
Mr. Markey. Thank you, Mr. Rogers. My time is expired. The
Chair recognizes the ranking member of the subcommittee, the
gentleman from Michigan, Mr. Upton.
Mr. Upton. Thank you, Mr. Chairman. I appreciated too the
testimony of all of you. And I have got a couple questions
before these long series of votes here this morning.
Mr. Markey. If the gentleman would yield just briefly. What
we have is, for the Members, a 15-minute vote followed by two
5-minute votes. Then there will be 10 minutes of debate and a
vote on recommital.
The plan that the Chair is going to try to execute would be
to continue for an additional 10 minutes to recognize Mr. Upton
and then to recognize Ms. Eshoo, then to break so that we can
make the 15-minute vote and then the two 5-minute votes. I will
then immediately return to reconvene the hearing and then try
to get in 20 minutes of additional questioning before the vote
on recommital.
So any members that wish to be recognized should return. I
will try to recognize them there in that 20-minute period. The
gentleman from Michigan is recognized.
Mr. Upton. Thank you. Mr. Hurley, am I correct that YouTube
proactively filters out adult content and child pornography?
Mr. Hurley. We provide those tools to our users. We made it
very clear to our community what it is about and not to violate
our Terms of Use. And we have been able to provide the tools
where they are easily able to flag content that they can
identify as----
Mr. Upton. And when that appears, a consumer can actually
report in. Is that right?
Mr. Hurley. That is correct.
Mr. Upton. And then take it off? Now is there a reason why
you wouldn't think about looking at filtering out copyrighted
content as well? Can you address that at all?
Mr. Hurley. Visually when you get a piece of video content
you cannot tell who owns the rights, so a perfect example is
marketing departments within studios and networks uploading
content to our site and then the next day we receive the calls
from the lawyers to take it down.
Mr. Upton. Did it work?
Mr. Hurley. Yes. We take it down when it is requested to do
so. But it is hard for our users to make that decision. And we
are working with thousands of media companies that are fighting
us for officially licensed content.
Mr. Upton. Mr. Rogers, it is a good welcome back. It is
good to see you. And I was pleased to participate last summer.
You talked about TiVo consumers being able to send messages
from their cell phones as it related to taping and then viewing
content from their homes. I wonder if TiVo devices, and maybe
the Sling devices as well, ought to be perhaps regulated to
ensure that they comply with existing geographic limitations,
whether it be network non-duplication, syndicated exclusivity
or something that Mr. Markey and I care deeply about, that is
sports blackouts as it relates to our Cubs and Red Sox and
Wolverines.
Mr. Rogers. From TiVo's point of view, those are really not
issues for us because TiVo can only be used within the
household. You can watch things on your television set or
transfer something within your house to another consumer
electronics device, but we do not provide for the ability to
transfer things out of the household. They must be part of the
same subnet.
Mr. Upton. Mr. Krikorian, do you want to comment on that?
Mr. Krikorian. We absolutely enable a consumer to watch
their TV wherever the heck they are, so a few things there. One
is if you look at one of the examples I gave you earlier, it
was Saturday night and we were watching the de la Hoya fight. I
paid $50 while I am sitting in a Kentucky hotel room. It was
pretty good for me and pretty good for the industry I would
say.
If you look at the appearance perspective first off, does
the Internet and the Slingbox bring in the question the decades
old notion of geographic boundaries? Absolutely. And that cat
is out of the bag. Now if we look at it from a true
perspective, an industry perspective, think about what is
happening. First off with the Slingbox--I have a Slingbox at my
home. Things such as blackouts, let us say the San Francisco
49ers are blacked out. If I am sitting here in Washington, DC--
--
Mr. Upton. I believe that.
Mr. Krikorian. What is that?
Mr. Upton. Based on their record, that might be a good
thing.
Mr. Krikorian. Yes. Tell me about it. The Raiders are
blacked out, thank gosh. If I am sitting here in my hotel room
in Washington, DC and I want to watch the 49ers game, I am
thinking back home. The blackouts are basically maintained just
as they were intended for me as a consumer. So it sort of
follows you. If you look at it from the local broadcaster
perspective, when the technology first came out there was a lot
of concerns.
But if you stop and you really look at what we are doing,
we are turning local into global. We are giving the consumer
the ability to watch and control their, like, local television
programs wherever they are. That for the local broadcasters is
a wonderful thing. And by the way, it is actually very
measurable with the existing Nielsen rating system.
Now some people do not like it because it brings into
question these boundaries that were thought about 50 years ago.
But from a pure economic perspective, I think it is a great
thing.
Mr. Upton. Mr. Cuban, I wanted to finish up. Can the
Internet currently handle the free streaming of live full
length digital high def programming on that scale?
Mr. Cuban. No.
Mr. Upton. How much investment do you think that would
take? I do not want to watch a sports game on a screen that is
this small and look for that little ball constantly.
Mr. Cuban. The costs are declining, but the reality is the
amount they need to deliver is limited by that last mile. If we
get fiber to the home--and from my perspective of everything we
should encourage that, then not only can you get high
definition as we know it today with ATSC standards but you will
get ultra high definition. At some point, that will enable a 4k
camera that will be sitting in front of Grandpa with that
picture transmitted to a doctor somewhere around the world at
the best hospitals and enable health care. So there is not only
high definition applications for sports but for our welfare as
well.
Mr. Markey. The gentleman's time has expired. The Chair
recognizes the gentlelady from California, Ms. Eshoo.
Ms. Eshoo. Thank you for recognizing me, Mr. Chairman.
First, I just want to make an observation. In Silicon Valley we
like to talk about disruptive ideas. And we have heard some of
them today. And the technologies that make the shifts to new
paradigms and fundamentally change the status quo. YouTube has
certainly had this affect on the Internet, on media and on
politics and our culture generally. And I might say that the
new majority party in the Congress owes something to YouTube as
well. It helped change another shift in our country.
What I would like you, Mr. Hurley, to just comment briefly
on because I have another question to ask is how an open
Internet really facilitates all of this. There are some here on
the committee that really tend toward gate keeping and
chokepoints. And I think what the testimony today really
highlights and underscores is that that really is a thing of
the past. We cannot afford to sit on old platforms and old
ideas. So would you just comment on that, Mr. Rogers?
Mr. Markey. Was that to Mr. Hurley or Mr. Rogers?
Ms. Eshoo. I mean Mr. Hurley. I am sorry.
Mr. Hurley. Yes. I believe an open Internet allows the
ability for not only businesses to participate and be
innovative, but it is giving consumers choice and it has
allowed them also to participate, allowed them to look for
media, to distribute their media through services like our own
and a chance to decide what they want to consume, not only when
but where they want to do that. So I feel because of that open
Internet this is all possible.
Ms. Eshoo. And to Mr. Rogers, I was taken with your phrase
that we are moving from consumer choice to consumer control.
And I did mention in my opening statement the part of the
Telecom Act that I worked so hard on to enact, section 629. You
only were able to spend just a few seconds on that. Would you
elaborate, please, and maybe refresh the memory of the
committee about that and what that means and where it is going
now and if it is not fully realized, that section, the effect
that it will have?
Mr. Rogers. Well, I will try to be very brief. It is a very
important provision of legislation to appoint some time for the
FCC actually to construct the policies that they are supposed
to put together from that legislation. What emerged from it was
a way to open up set-top box competition to allow independent
players like Barcel to be able to provide alternative ways for
people to think about controlling their media life in their
home. The CableCARD emerged as the way to do that. The
CableCARD has just begun to roll out. It is a one-way
CableCARD, meaning it was worked out by the FCC with the
industry. It does not allow for two-way services to be read.
The new technology that cable is using to transmit signals to
the home, I referred to as switched digital, is a two-way
technology that cannot be read by a one-way CableCARD. That is
the conflict. All of the sudden this whole promise that this
committee created is going to be frustrated to the extent an
issue like that is allowed to continue. As I said, I am hopeful
it will be worked out because I do not think any of us want the
black eye that comes from a bunch of consumers who rightfully
went out to buy consumer electronics devices dependent on these
new CableCARDs and not have them work. So the good will of
ourselves and the cable industry, which I said indicated a
willingness to work this out, will hopefully take care of this
problem for consumers. But it is obviously one this
subcommittee needs to keep a close eye on.
Ms. Eshoo. I think some cable operators in some parts of
the country are doing a better job than others.
Mr. Rogers. There is no doubt. There are some cable
operators that comply easily with CableCARDs. There are other
consumers that call up and they are told, what, a CableCARD?
Jeez, to get a CableCARD we have to come out to your house and
we have to hand deliver it to you and you have to be there when
we say you have to be there and all kinds of things that causes
people to jump through hoops simply to get a card that could be
mailed to easily operate a set-top box.
Ms. Eshoo. Thank you very much. I commend all of you on
terrific and creative testimony today. Thank you.
Mr. Markey. The gentlelady's time is expired. There are 3
minutes left on the House floor for this roll call so what we
will do is we will adjourn right now. I urge the Members to
come back after we have the second 5-minute vote. We will
reconvene. So to the witnesses, you have about an 18-minute
break right now. Thank you. This hearing is recessed.
[Recess.]
Mr. Markey. The hearing is reconvened and the Chair
recognizes the gentleman from Illinois, Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. I will just move
rapidly. First of all, I want to thank the panel for being
here. And I also want to especially recognize the Disney
representation. It just highlights something that the chairman
and I have been working on, our kids.us, ABC.kids.us. You have
been there on that site for many years. My 4-year-old actually
said it is the fall site, so he thinks he is going on the
Internet. He is in a limited way--protected. He cannot get out
of it.
I want to use this opportunity to thank you. I also
encourage you to put a Disney lineup on there and an ESPN
lineup on there. We are working with NTIA to restructure some
of the cost, but for good corporate citizens like yourself, I
do not think it is much to ask. And I want to encourage all of
you to use your ability to leverage your positions to help
explore the kids.us Web site, which is one way that you can
really protect kids and give them that initial experience. And
they really do think they are on the Web. They are but they
cannot get out of it there. So I just wanted to raise that.
Mr. Markey. I have worked together with the gentleman over
all these years. I think it is excellent work.
Mr. Shimkus. Thank you. The other issue that is the real
elephant in the room of this hearing is net neutrality. And
this is the way I tried to explain it to folks, and you can
correct me if I am wrong. I want Mr. Cuban to talk. I have my
notes here, but since I had to run from microphone to
microphone I have kind of lost them.
There are a lot of things that have been said. There is
open Internet. There is gate keeping. There is choke points,
fiber to the home, and I like the highway analogy. What I use
to talk about it to constituents or people that are saying oh,
we want to have an open access and net neutrality so innovation
can aspire, I talk about the pipeline. And the fear is that
someone is going to choke off innovation.
I have always came to the premise that you really have to--
if Mr. Cuban is right and technology is going to be driven by
digital video--I think in his opening statement he said there
is not enough broadband. There is not enough spectrum. So the
public policy debate that we need to hear from you is how do we
expand more pipeline.
Mr. Cuban. Right.
Mr. Shimkus. And Mr. Cuban, if you could follow up on that.
Because I am a supply guy. The more supply we have the greater
opportunity we have. The limited supply we have you all are
always going to be fighting over this part.
Mr. Cuban. Thank you, sir. There is no question bandwidth
will cure it all. I think in all these discussions we are
recognizing that the Internet family itself is actually a
utility. Like other utilities, whether it is transportation
over a highway, whether it is electricity, you have to have
enough to power the applications that the entrepreneurs, that
the innovators in this country envisioned.
Unfortunately right now because of what is happening here
via the witnesses and other companies, we are consuming all the
utility that is available. And we are arguing about the fact of
who gets it when in reality we should be focusing on how do we
get bandwidth to the next level so that any constraints go
away.
And so if we are saying where to start and how to do it, I
cannot sit here and give you dollar figures. But I can tell you
from an application perspective and as an entrepreneur, an
opportunity perspective, that until we get to 1 gigabit per
second switched to the home we are not going to really
entertain competitive opportunities that make us a power in the
global economy. We will find ourselves always fighting
limitations, and that is unfortunate.
Mr. Shimkus. Let me follow up. Do you think regulation
limits that ability to get to that 1 gigabit?
Mr. Cuban. I do not think regulation limits it per se. I
think it misdirects. I think it puts a focus where it should
not be. I think it is just the nature of where we are that
everybody is trying to get something. I think we have got to
just supersede that and just say what we need. And right now
people are trying to get more bandwidth but more bandwidth is
not enough.
Mr. Shimkus. One thing I love about this committee is that
technology, you guys are all proof of it, it moves faster than
we can regulate.
Mr. Cuban. The reality is the fact that we are here, we
jumped the shark, to use some Hollywood terminology. It would
move so fast that, like you said, you could not keep up with
it, but we are keeping up with it. We are putting constraints
of 10 minutes of video. We are happy to have Slingbox because
there is not enough bandwidth to go around. We are happy to
store it to our TiVos because we cannot just get it when we
want it, how we want it, where we want it. Those are all
responses to constrained bandwidth. If we had the gigabits at
home who knows how long that would last--all those constraints
go away.
Mr. Markey. All right. The gentleman's time has expired.
The Chair recognizes the gentleman from Texas, Mr. Green.
Mr. Green. Thank you, Mr. Chairman. And I think all of us
experience amazement with our panel and what they have done on
the cutting edge of technology. We just need somebody to show
us how to turn on the button, to make our lights even work. But
Mr. Hurley, there is a difference in video on YouTube and full
screen and broadcast quality video, but many people, especially
you, who believe there is a future in the service you started.
I know there are limitations on the video length and quality
users post on YouTube. Do you see YouTube trying to get into
longer, better quality video?
Mr. Hurley. No, not at this time. We are offering a
different experience than the TV. We are offering low quality
short clips that can easily be viewed by everyone and ways for
them to interact with that video. It is far from full length
high quality television programming. What we do, we provide
this chance for people to get in front of media that they would
not have otherwise had an opportunity to do. But the cases with
our partners, like CBS for example, providing clips on our
site, they have probably said that it has helped increase their
ratings by 5 to 7 percent. So we are just seeing that it is
just an opportunity for them to enjoy basic content and provide
them the best experience possible without being TV.
Mr. Green. Do you have comments on Mr. Cuban's concern
about the past view, the limitations on the current consumer
Internet infrastructure?
Mr. Hurley. No. We are not seeing those limitations.
Mr. Green. Mr. Cuban, before you did HDNet--I am from
Houston. Obviously, I am a Rockets fan. I am glad at least both
of our teams made it to the playoffs, but we did not make it
after the first round. I know you more as the Mavericks' owner,
but when you mentioned in your answer just now that the utility
of it--that the Internet is a utility--and I guess as a lawyer
that comes from a different side.
A utility is something that needs to be regulated, needs to
be shared with everyone. But I go from 1996 and the Telecom
Act. And since then it is to try and eliminate that utility and
have lots of competitors in there with comparable service, so I
can have a competition between my cable and satellite. So that
is why I am glad our Bells are getting into it so we do have a
competition and not necessarily ``a utility.''
But you started your testimony discussing current capacity
limitations on the Internet. I think you made a good point,
especially regarding P2P. Do you think software applications
can become more efficient or will the real problem be the
capacity, the actual lines into my home?
Mr. Cuban. The real problem is in the capacity in the
actual lines into your home. You cannot fit more into it than
what it has capacity for.
Mr. Green. OK. The broadband speeds in a number of
countries overseas dwarf the speeds that we have. And do you
see anything that Congress should or should not do to help the
U.S. close that gap and do we think the competition with DSL,
cable, and wireless will force those increased speeds and solve
our capacity problems?
Mr. Cuban. It is hard to say. I will tell you that if we do
not go much further than where we are, we will not be able to
compete in the global environment. We will see an exodus of
people who deliver content to those countries who can. And that
is how eventually we want to be.
Mr. Green. Because my colleague from Illinois says these
are so much Telecom issues and not partisan issues, because I
have a concern about that last mile and the net neutrality
issue. My concern is how do we pay for that? If it is AT&T that
last mile then they are going to charge me if they happen to be
my Internet service provider instead of the folks who end up
making money on it, whether someone else through--and I guess
that is our bottom line. I do not want them to control your
access or YouTube. How do we pay to get that last mile there?
And if they are going to charge us as a utility, and I have a
district that tends to be underserved by Internet, I want the
monthly charge to be cheap so I can encourage our families to
get on it.
Mr. Cuban. I understand completely. What I would tell you
is what we can see is all we can see. But if we start as an
economic policy, I do not understand how you guys do all that
you do unfortunately.
Mr. Green. We do not either.
Mr. Cuban. But if we start an economic policy of 1 gigabit
to the home then you will start to see other applications that
will pay for it. So in other words, there will be medical
applications that insurance companies will look to pay for,
that hospitals will look to pay for, that pharmaceutical
companies will look--because their costs drop dramatically.
There will be security applications that will enable us to
better monitor our neighborhoods. There will be other
applications that I cannot even envision.
When we went from no PCs to PCs, we started to see
applications. When the PCs started becoming practical, smart
people came up with new applications we never envisioned. The
platform for our future of this country is bandwidth.
Mr. Markey. OK. The gentleman's time has expired. The Chair
recognizes the gentleman from New Jersey, Mr. Ferguson.
Mr. Ferguson. Thank you, Mr. Chairman. I want to go back to
a line of questioning, Mr. Hurley, that Mr. Upton had been
talking about before.
When someone posts something on YouTube that is not
appropriate, do you have a way of just pulling it down?
Mr. Hurley. Yes. First of all, that is not what our site is
about and we are not experiencing those problems because we
have been able to have effective policies. We also have
effective technology that we provide to our users. And we
leverage the power of millions of people on our site to police
it.
Mr. Ferguson. If someone does not follow the rules, they
put something up there that is obviously offensive or
pornographic or something inappropriate, what do you do? Do you
have some people viewing it?
Mr. Hurley. Our community understands that that is not what
our site is about. They flag that piece of material. We have
people 24/7 reviewing what is being flagged, and they are
removed from the site within minutes.
Mr. Ferguson. Now before, when Mr. Upton asked what about
something that is copyrighted that is put up there you said
that it is impossible for someone to know everything that is
copyrighted or not copyrighted. But clearly that is probably
technically in all cases may be true, but clearly if somebody
puts a clip of a movie or a show from FOX or ABC or some
copyrighted basketball game or something that is very obviously
copyrighted, why would----
Mr. Hurley. Well, we have a lot of partners. And in the
case of the NBA, we do have a partnership with them. So we are
relying on our users as like a content to correctly----
Mr. Ferguson. What about someone who you do not have a
partnership with?
Mr. Hurley. Well, we provide them with industry leading
tools to let us know and make it more easily identifiable to
let us know.
Mr. Ferguson. But I could get on a computer right now and
go to YouTube and I could pull up hundreds more clips of
copyrighted work that is very obviously copyrighted work. Why
do you not take that stuff down?
Mr. Hurley. Because the DMCA has a cooperation between
content creators and----
Mr. Ferguson. That leads me to my next question, actually.
Mr. Cuban, I keep reading and I have heard many times in the
press and other places that Google, who now owns YouTube, they
are protected by the DMCA. You are obviously a successful
business person. You are a high tech person. You have had a lot
of experience in this regard. Is that your opinion as well?
Mr. Cuban. No, it is not.
Mr. Ferguson. Why?
Mr. Cuban. No, I do not feel they are. Again, I am not
going to try to play the lawyer here. But we had Broadcast.com
and we were active in the initial thoughts of the DMCA. It was
just the concept of hosting or being a service provider was so
that Comcast or any ISP could post whatever a user wanted to
upload and not be liable for it. And there were constraints put
in. They were saying we generated revenue or if something was
red flag obvious that you had to be responsible for it just for
cases like YouTube.
And what is happening now is that YouTube/Google has a
choice. They can hide there behind the DMCA or be proactive,
and I do not think they have the right to hide behind the DMCA.
They are earning revenue. There is obviously red flag
knowledge. Chad, all he has to do is go on to his site. I am
sure if he searched for Comedy Central or whatever he could
bring it down. And so I think it is just a misapplication of
the DMCA.
And as a content owner, the concept of takedown, it was not
so that we had to continuously monitor the host and service
providers every single one of them on a 24/7 basis. One of our
most is Enron, the smartest guys in the room, and others
goodnight, good luck. We have to monitor continuously. For some
of our smaller movies we spent more monitoring than we made on
the movies. And so I think it is a definite misapplication and
they do not fall behind the DMCA.
Mr. Ferguson. Mr. Hurley, back to you. Eric Schmidt, who is
a CEO of your parent company, Google, recently said at an
investor conference, this is a quotation, ``Traditional media
argue that content has a certain intrinsic value while Google
says, `Prove it.' Ultimately, product value is determined if
people view it,'' Schmidt argued. ``They vote with their
clicks. They vote where they go.'' Do you agree with him that--
or with Google that the number of clicks should determine the
value of somebody else's property? I mean, it just seems to me
that is a very dangerous road to go down.
Google's search engine technologies, they have invested a
good bit of money in developing that and something that is
their property, if someone got access to that and just put it
out there for free for everyone else to use would you say or
would Eric Schmidt say that that is a violation of Google's
intellectual property rights or would they say that is really
just a big motion for people?
Mr. Markey. The gentleman's time has expired. Mr. Hurley,
you can answer the question.
Mr. Hurley. Our site is not about copyrighted material.That
is what it has never been about. The word YouTube is about you,
the people.
Mr. Ferguson. But it is. I understand that. It is a great
product. I use it all the time.
Mr. Markey. The gentleman's time has expired. I want to be
able to recognize Mrs. Capps, if you can you answer, Mr.
Hurley?
Mr. Hurley. What we are doing, we go up and be on with DMCA
and we have always been proactive because we want it to be
about the community. And we put 10-minute limits on our videos.
So it does discourage people uploading full length content of
copyrighted material. We also take a half of each individual
file we take down from the site so it does not make it back
into our system. And then we strictly enforce our policy to
keep people off of our services that violate our Terms of Use.
Mr. Ferguson. Thank you. Mr. Chairman, just for the record,
if somebody wants to watch a 30-minute TV program they could go
to three different sections of Google and watch three 10-minute
clips.
Mr. Markey. The gentleman's time has expired. There are 10
minutes left to go on the roll call on the floor. The
gentlelady from California has 8 minutes to be recognized. I am
going to leave it with her discretion as to when she leaves to
go make the vote on the floor. We will then have two votes and
then we will return approximately 10 minutes after the point at
which the gentlelady completes her questions. And the
gentlelady is recognized for 8 minutes.
Mrs. Capps. Thank you, Mr. Chairman. This has been a
fascinating hearing. I am kind of dreaming of a sequel hearing,
more like a round table. These entrepreneurs, I would love to
see them talk with each other as well as to us. It would be
fascinating. I am going to try to do three sets of questions.
Mr. Rosenthal, you raised some important questions about
product integration in TV shows and the decline of independent
producers. As you know, there are FCC regulations providing for
children's programming during certain hours. The United Kingdom
has also limited advertising for unhealthy foods during
children's programming. Do you think that product placement
during children's programming could undermine current and
potential regulations about advertising?
Mr. Rosenthal. Let us get back to you in writing on that.
Mrs. Capps. All right.
Let me try this. I was going to say anybody else, but I
think we may be flooded. Do you believe that the rise of
YouTube and other user-generated content mostly available on
the Internet will counteract the trends of product placement
and the consolidation of the media? And can new media pressure
old media then to reform its practices?
Mr. Rosenthal. Well, where I am coming from whether you are
watching on TV or a big screen or a little screen or your
computer or your phone, it is all content. And the people who
create that content should be compensated. So that is our
concern.
Mrs. Capps. I understand.
Mr. Rosenthal. Yes.
Mrs. Capps. Well, how about the new media pressuring old
media to reform its practices? Do you think there is any
validity there or----
Mr. Rosenthal. I do not know.
Mrs. Capps. You do not know?
Mr. Rosenthal. No.
Mrs. Capps. Well then, Mr. Hurley, we are talking about you
maybe. Would you comment on that question and what effect do
you think YouTube will have on TV programming, especially with
regard to the issues that I attempted to get out of Mr.
Rosenthal?
Mr. Hurley. Well, in terms of our effects on television
programming--and like I said, I think we are a great
promotional platform, a way for people to experience media and
drive them to a better experience, which would be on TV. And we
are committed to that. And we are committed to allowing
everyone the opportunity to participate in that process where
before they would not have had the opportunity to.
Mrs. Capps. Do you feel that YouTube and other non-
traditional video providers would prod mainstream? Is it a push
or a pull into increasing the diversity of its--can you make
them be better, mainstream? And curtailing what some would see
as perhaps excessive product placement?
Mr. Hurley. I think so, because you are allowing more
people to participate in the process. And you are also allowing
talent to be discovered, to take what they are creating to the
next level. We have had many examples on our sites, users that
are signed not only with record labels but with major
television networks. And this is just a new resource for people
to expose their talents on.
Mrs. Capps. Thank you, Mr. Hurley. And one more round, but
I will maybe have time to go back to that, my first question,
and open it up.
I would like to ask you, Mr. Krikorian. The Slingbox sounds
like a fascinating device. I can hardly imagine how it happens
but I can only appreciate it. As you say in your testimony, it
is a great example of American innovation. You also state that
it is extremely important for companies creating new devices to
know that consumers are able to attach any device they please
to broadband networks.
How do you see the balance between the ability of consumers
to attach devices to the network, the potentially large demands
on the network made by these devices, and the network
providers' desire to maintain high quality of service for all?
Mr. Krikorian. These products are in demand. I would
actually call that a high class problem.
Mrs. Capps. What do you mean by high class?
Mr. Krikorian. It is a high class problem. I mean, what
drives innovation? What drives investment? What drives
broadband, newer services, higher tiers? They can charge more
and so forth. Without innovation they commonly become stagnant.
If you are a service provider--and let us say--on a contrary
view, let us say you are a service provider and we are the
business--you believe you are the business of selling gym
memberships, so to speak, where you are going to charge
consumers and hope to gosh they do not use the product. Well
certainly having more and more products using the network is a
bad thing.
I will give you a specific case in point with the Slingbox.
So in my local area, Comcast has one service that they charge,
let us say it is $29 and it is for 3 megabits down and 384
kilobits up. Now they also have a service that they call the
Plus Pack, or something like that, that they charge another $10
a month for and you actually get 6 meg down and 768 up.
Now we actually get complaints from our customers who call
us and tell us hey, I see this product called the Slingbox that
you guys have. When I am sitting at work I realize that if I
have higher speed I get a better quality. I am calling my local
cable company and telling them I want to pay them that money, I
want to pay them $10--and how often do you hear that, by the
way? Right?
Mrs. Capps. Exactly.
Mr. Krikorian. And I get in an argument with the customer
service operator because they do not even know the thing
exists.
Mrs. Capps. I guess that is a good definition of high
class.
Mr. Krikorian. That is a high class problem, I would say.
Mrs. Capps. Now I am going to run real fast and vote so I
am going to take a little bit more time. A lot of parents and
many of us are concerned about advertising on kids' programs.
We have an obesity problem. We have lots of kids being
bombarded with--even though the show--the content might be OK,
that the advertising of food products is anything but OK in
terms of their healthy lifestyle. So the United Kingdom has
limited advertising for unhealthy foods. Do you think that this
kind of product placement during children's programs could
undermine current and potential regulations about advertising?
Anybody. Yes, Mr. Pyne?
Mr. Pyne. Just a couple of points here. One is that product
placement in children's programming is--our understanding is it
is illegal so we do not do any at the Walt Disney Company for
any of our services, product placement within children's
programming. In addition, the one----
Mrs. Capps. Well, do you think we should make it legal?
Mr. Pyne. No.
Mrs. Capps. OK.
Mr. Pyne. In addition, the Walt Disney Company, as I think
many of you know, has taken a real leadership role from Bob
Iger, our CEO, on down to change its licensing practices to
really take on the challenge of obesity and really revamped how
it works.
Mrs. Capps. Even though the advertising might run counter
to that goal?
Mr. Pyne. We have changed throughout the company, our
licensing, our advertising, throughout the whole company. We
would like to try to take a proactive step to address the issue
that you raised.
Mrs. Capps. OK. Mr. Rogers?
Mr. Rogers. I will say since I was with the subcommittee
when the issue was there were too many commercials attached to
kids' programming and those commercials were influencing kids
in ways that was not healthy, TiVo and DVRs have dealt with
that because what we find is that the people who fast forward
through ads more than anyone else are kids. They know how to do
that. And so then you face other issues once that happens, none
the least of which is the product placement issue you
mentioned, although there are regulations related to product
placement in kids' programming. But kids have gotten really
smart about figuring out what they do not need to see or want
to see and commercials are first on that list.
Mrs. Capps. So you think that is taking care of the
problem. Of course, you have to have a TiVo.
Mr. Rogers. I will not say it is taking care of the problem
but it does show how new technology, to your original question,
can influence old media in a way that may have a good public
policy impact.
Mrs. Capps. I think I am out of time. Thank you.
Mr. Markey. All right. The hearing is recessed for 10
minutes.
[Recess.]
Mr. Markey. The hearing is reconvened. Without objection I
would like to submit a statement from the National Association
of Broadcasters into the record. Hearing no objection it is so
ordered.
Let me now turn and recognize the gentleman from Texas,
Mr. Gonzalez.
Mr. Gonzalez. Thank you very much, Mr. Chairman. And
welcome to the witnesses. The first observation is I know that
my colleague from Illinois said that the elephant in the room
is net neutrality. I do not believe that it is. It is to the
extent that the Congressman has put it in the room. It is
really not necessary. It is not relevant. It is not material to
what we are discussing and the common goals that we all share.
All of you represent a different actor or player in a
system. And innovation will determine, as Mr. Krikorian has
indicated, whether you are successful or not. The obligation of
Congress is that we have a level playing field and that we
encourage investment and such. I think Mr. Cuban has touched on
that.
This is a delicate balancing act for us. We are talking
about buildout of broadband and the expense that it takes. And
who are the individuals know that are going to do that and who
is going to make those investments? And then now it is whether
it is going to be backboned infrastructure or are we going to
be talking about peer to peer? You know more about it than any
of us up here.
But we also still would like to apply those historical
principles of law that have served this country so well. And I
am talking about patents. And I am talking about copyrights. I
am talking about trademarks. And I am talking about the
sanctity of contract. Technology does not really change any of
that.
We have had individuals in court that have said it does. It
was not that many years ago that somebody in this universe of
the Internet and computers said we really ought to have
temporary monopolies in this country because technology allows
that and it will thrive if we have monopolies. That is not
true. It was not true in that case and it is not true today.
The other issue I know that Mr. Markey said he was going to
have a statement submitted by the National Association of
Broadcasters, and I think that is an important point here. In
this whole debate, Congress's nexus--what it authorizes us to
pass laws that truly impact what is out there for the people
because we represent the people. And they do have use and they
do have values. And they would like those somehow translated
and reflected in some programming. And it is really the
broadcasters out there. That is the only nexus is the public
use of this spectrum by the broadcasters. And we have to, I
think, be real sensitive as to as we proceed if we diminish
their role and make them less competitive then what impact do
the people have? All of that.
Then we go into something else that you also discussed. The
international impact of this, to allow us to continue to be
competitive and not let other countries that maybe do not
safeguard this business environment. I will ask Mr. Rogers.
This is really interesting. Because we have had I guess the
effect of what TiVo has done in essence, which I think is a
wonderful, wonderful device. But nevertheless it impacts ad
revenue, does it not? And so if we have these new business
models out there that are changing basically how people do
business, who pays for the production? Who pays for the product
and such? So how do you all view your role in changing that
particular landscape?
Mr. Rogers. Well, that is a great question, Congressman.
The first thing I would say is that the trend related to local
over-the-air broadcasting has been one of audience erosion for
the last 25 years as cable has emerged and Video on Demand,
satellite channels have emerged. It has met a steady erosion of
audience from broadcasting.
And what TiVo has meant is for the first time there is the
new technology which has actually caused an increase in
broadcast viewing, which is critically important, I think, from
a policy point of view. Today when you look at prime time
shares, it is about 50 percent broadcast, 50 percent cable.
When you look at replay of programming, about 70 percent of
what gets replayed in TiVo homes is of a broadcast nature. So
what we actually see is broadcast viewing increasing.
That leads to another question, which is OK, the viewing
may be increasing, but if the commercials are not necessarily
getting seen, what is the revenue impact for the public
licensees that you are concerned about. And there we are seeing
some very positive things as well.
What we have introduced is all kinds of new advertising
inventory which allows advertisers to find ways to engage
viewers when they might otherwise be fast forwarding through an
ad to do something to prompt a response, to get them to go
deeper, to get them to instead of seeing something for 30
seconds see a 2 or 3-minute clip of some kind which may be a
much deeper way to engage with that advertising product or
service.
And we are getting the kind of response from advertisers
that suggests that makes television advertising more valuable,
not less. So the combination of higher viewing on broadcast and
greater opportunities to engage the viewer and create a more
valuable advertising experience makes me quite optimistic,
actually, that this technology is going to help broadcasting.
Mr. Gonzalez. Mr. Rogers, I hope you are right. But it also
leads to other things, as Mr. Rosenthal has pointed out. We are
hoping that the marketplace and you guys will be able to figure
it out and you all survive because we need each and every one
of you.
In my last 2 minutes, Mr. Cuban--and it is wonderful to see
you here as opposed to on the floor of the Spurs' arena. I wish
the Mavericks were in there, and I wish the Rockets had made
it. It would be wonderful.
In the time that is remaining, you likened or you made a
comparison to a thousand-lane highway and how do we encourage
the builder of that highway to make that kind of investment?
And we say, an open Internet, net neutrality. It all sounds
good. And we are not at that crisis state at this point. But we
are also, by the same token, not building out as we should
broadband applicability and the new technologies.
If you were the one that was going to build that thousand-
lane highway and I told you well, someone can buy 85 percent of
your lanes. You cannot do anything about it. I still want you
to make that investment. 90 percent of your lanes. 95 percent
of your lanes. Would you still go and make that investment? And
those individuals that are occupying the 85, 90 percent or
whatever it is of the lanes, you may not be able to negotiate
anything with them. You are a businessman. Where are we in that
debate?
Mr. Cuban. Well, I think our problem is we are looking at
consumer-driven applications as how we fill that family pocket
as opposed to commercial applications. I think we have got a
lot of issues in this country with technology. Although it may
not be able to solve it, it could have an impact on it. I
alluded to this one earlier: health care.
If I was being an entrepreneur and there were 1 gigabit
platforms, then as I mentioned earlier, I would be going to
health care providers commercially--in other words, I would
look at commercial applications and say if we were to enable a
1 gigabit platform, what type of new commercial application
could you provide, put your thinking caps on, and how would you
be willing to contribute to paying for this? Because you can
move the cost from physical and other types to digital. I think
that is the unique opportunity we have to leverage.
Mr. Gonzalez. Thank you very much. Yield back.
Mr. Markey. The gentleman's time has expired. The gentleman
from Nebraska, Mr. Terry.
Mr. Terry. Thank you, Mr. Chairman. And may I suggest, Mr.
Chairman, that for future hearings we take Mr. Rosenthal's
testimony, download it to YouTube and e-mail that testimony to
any of our potential witnesses so they can see the new
standards that have been set for this subcommittee.
Mr. Markey. Can I just augment what you said without taking
away from your time is that Mr. Rosenthal probably is not aware
that he is the first witness to ever be applauded by the
Members of Congress.
Mr. Terry. Yes.
Mr. Markey. So that is an unprecedented moment in my 31
years.
Mr. Rosenthal. I am going to come here more often.
Mr. Markey. I have never seen that. Anyway, the gentleman
is recognized for 8 minutes.
Mr. Terry. Thank you, Mr. Chairman. And just to follow up,
Mr. Rosenthal, to your comment that at home we all seem to have
our neutral setting. And I understand that. Our spouses'
sometimes missions are to humble us and mine does a great job.
With that, I do not think I have ever felt as inadequate
with the panel. I mean, all of you are impressive and
successful. And I am a Congressman, and I am glad my wife did
not see this because she is going to say why can't you be more
like them. But with that, let me, Mr. Rosenthal, just throw
something out to you.
I have noticed the trend of embedding into scenes
commercial products. I think one of the first ones I saw was
maybe it was a Sprint phone where they got to download their
music and in one of the many cop shows on they were sitting
there talking about downloading and naming a product
specifically. But then on the other side of that, let us not
talk a product of Oreos or specific phones but political
speech.
For example, I do not watch Law and Order. I got tired of
that entertainment and me being told as a conservative
Republican how bad I am for supporting certain ideals. And then
even in the speaking parts of the characters would take slaps
at specific Republicans in Congress. Is that OK but Oreos are
bad?
Mr. Rosenthal. In that case you are talking about honestly
an exchange of ideas and free speech.
Mr. Terry. Oreos are not?
Mr. Rosenthal. Well, you are selling a product. If you have
Rush Limbaugh for the other side. Right?
Mr. Terry. All right. I just wanted to lay that out,
because I think that is an irony that needs to be discussed.
Mr. Rosenthal. We are in America. Thank God for that we can
do that.
Mr. Terry. So as long as it does not involve an Oreo but it
involves----
Mr. Rosenthal. The moment Law and Order says that you
should eat these Oreos, then I think it----
Mr. Terry. OK. But as long as you vote for Hillary Clinton
and Republicans are bad then it is OK politically?
Mr. Rosenthal. I am actually fine with that.
Mr. Terry. Yes. I thought you would be. So is Dick Wolf,
and that is why I do not watch that show anymore because there
is a lot of other good shows on that do not slap my politics
while I am watching it.
I appreciate that. I just wanted to lay that out there. It
has been one of my frustrations with nighttime television is
how political they have become, especially that show.
Speaking of shows, I really appreciate ABC making a
commitment to 9,000 hours of HD programming. I think as we move
to the digital switch with our hard date in place, the
programming has to be there in place. So I compliment you on
that. I am going to ask you for some help on something. I have
an HD set at home and I cannot watch my HD programming on my HD
set because your local affiliate refuses to allow it to be
shown. Would you help the HD roll out and tell your affiliates
to quit hijacking their HD signal from me? Will you do that?
It is Hearst Argyle, Omaha, Nebraska. I will give you
their phone number.
Mr. Pyne. We only have 10 owned stations for which we have
retransmission consent. And all of our stations have digital
retrans that will give the signal to all those consumers in
those areas. ABC has 215 affiliates, Hearst being one of them,
that could control that conversation and negotiation between
them and your Omaha station.
Mr. Terry. Well, we are going on almost a 1-year
anniversary. And I think it is atrocious. And I do think you
have a say with your affiliates. But does it not disturb ABC,
your national company, that you are denying me something that
you are bragging about? Or not you but your affiliate is doing
it. Are they not hurting our relationship by doing that? Are
they not hurting the HD rollout by doing that?
Mr. Pyne. I mean, clearly as I think from the testimony and
I think practice with the 9,000 hours, our goal is to get as
broad an HD roll out of our viewership of all of our
programming as we possibly can. But there are also local
negotiations that take place that quite frankly our
relationship with the affiliate is----
Mr. Terry. So it is OK with ABC national, the corporate,
that this is going on? That I am being denied, my constituents
are not----
Mr. Pyne. We do not----
Mr. Terry. I am going to move on because I only have 2 more
minutes. Mr. Rogers, you brought up the CableCARD and it has
come to my attention that the CableCARD is becoming an issue
between the consumer and the cable companies. I have been told
by our cable company what a huge problem these CableCARDs are.
That they do not work. They are losing a lot of time having to
work with them. Are you aware of this problem? Is that a
separate one than the CableCARD that enables the product to
work?
Mr. Rogers. No. It is the same CableCARD. And the
CableCARDs generally do work. There are issues getting the
CableCARDs into consumers' hands, which are really cable
company operational issues relating to their own marketing and
how easily they want to make it for customers to access those
cards. And most of the friction for customers has been on
actually getting their card in their hand from their cable
company, the requirement that you schedule a visit from your
cable operator to actually come and hand you the card, as
opposed to being able to get it through the mail, easier ways
to access it.
The issue I was pointing to is actually an operational
issue relating to the CableCARD where cable operators are
moving to a technology called switched digital. And that is
beginning to create actual issues with the CableCARDs not
functioning, which would undermine the entire ability of
CableCARD technology and CableCARD set-top boxes such as ours
to work. Though as I said earlier, the cable industry has
indicated----
Mr. Terry. Do you think the cable company is doing this to
eliminate your product in that the consumer can only buy their
DVR?
Mr. Rogers. No. The particular issue that I was referred to
is actually one where the cable operators are going to switched
technology to be more efficient with the use of their
bandwidth. It just happens to be a technology that isn't able
to work with CableCARDs and somehow that is going to end up
being a big problem for consumers that support that.
Mr. Markey. The gentleman's time has expired. The Chair
recognizes the gentleman from Michigan, Mr. Stupak.
Mr. Stupak. Thank you, Mr. Chairman. And thank you for
putting together this panel and this hearing. It has been an
excellent hearing. I apologize for being in and out as we were
doing other things with food safety and gas price gouging. But
I did catch a lot of it and read the testimony.
So I would like to start with Mr. Hurley if I may. I
understand that YouTube has a feature that allows users to
designate the video they upload as private and that users can
then share them with friends of their choosing. Right now is
there any way for a copyright owner to search through private
videos to determine whether any of them are unauthorized copies
of copyrighted owners' works?
Mr. Hurley. Yes. We provide a tool where they are able to
easily identify content in our system. And they are industry
leading tools that we have been working on for quite some time.
We provide them to everyone that is working with us. And what
we are doing is giving a choice for them to not only have the
opportunity to remove material from the site but after----
Mr. Stupak. But who is making the determination that--if it
is in violation of copyright laws?
Mr. Hurley. Well, under DMCA, they notify us that something
is rigid.
Mr. Stupak. Who are ``they'?
Mr. Hurley. The media company, the rights owner.
Mr. Stupak. If they are private, how would they access them
on YouTube?
Mr. Hurley. Yes. With private videos in particular, they
are not accessible through the tools. It is a private feature
that is limited to the user.
Mr. Stupak. It is limited to the user but not possibly the
owner of the copyrighted works. And they have no way of
determining whether or not their copyrighted work was being put
on this private videos then, right?
Mr. Hurley. Yes. We are working on technology to make it
more effective to those----
Mr. Stupak. OK.
This leads to my next question. Violating private or
copyrighted stuff, we have got copy laws to take care of that.
Last year we held 10 hearings on child pornography,
exploitation of children on the Internet. What we saw was
disgusting. We have sexual predators now taking part in peer-
to-peer sharing of videos of children, babies often being
sexually exploited. They trade these images and now videos just
like baseball cards. So can you or can you not monitor this?
Mr. Hurley. Yes.
Mr. Stupak. There is no way you can underneath your
privates, in these so-called private videos. How would you
monitor that?
Mr. Hurley. Well, we made very clear in the Terms of Use we
do not tolerate any of that content in our system.
Mr. Stupak. Well, no one does.
Mr. Hurley. Yes.
Mr. Stupak. But there is literally millions of them out
there. So how do you do that at YouTube?
Mr. Hurley. We monitor the activity that is happening on
the site. And we, when notified of anything inappropriate--and
our users have done a very good job of letting us know when
something should not belong.
Mr. Stupak. Well, let me ask you this. In your testimony
you said that videos that violate Community Guidelines come
down minutes after users flag them. So what are these Community
Guidelines? You never mention them in your testimony. Who
determines Community Guidelines?
Mr. Hurley. We have a very clear set of Community
Guidelines that clearly states things such as adult content,
violent content, hate. All of these are against our Terms of
Use and our Community Guidelines and also make it very clear to
our users that is what we are about.
Mr. Stupak. So it is really up to the users to flag the
violations?
Mr. Hurley. Yes. We are seeing that not being an issue on
our site. Very few of the videos that are being uploaded to our
system are actually private. The main drive for people putting
video on our system is to be seen and to be heard, to get
views, to get comments and to interact with our community.
Mr. Stupak. Sure. Do you monitor these private videos?
Having these Community Guidelines is like the FDA on food
safety giving the industry voluntary non-binding non-
enforceable management practices. But if no one is enforcing,
how are they being enforced? What are the consequences?
Mr. Hurley. Well, we enforce our Terms of Use, and we
eliminate users that violate that. And what we are seeing is
that it is not a problem, and we are aggressively working on
technology to address all the issues potentially with our
system.
Mr. Stupak. OK. Thanks. Mr. Cuban, a number of questions,
but first of all, I come from a very, very rural district. In
addition to the satellite cable we have several wireless
broadband efforts. We literally have water towers instead of
cell towers being used to provide wireless broadband. But the
upcoming 700 MHz auction--everyone is talking about wireless
broadband becoming the true third pipe for Internet content.
And you talked and you discussed about the need to upgrade the
infrastructure of the current cable and copper-based Internet
system to fiber to regrow the Internet into the future. So a
couple questions. Do you think the Government has a role in
encouraging fiber to the home?
Mr. Cuban. Yes.
Mr. Stupak. And including investment, to encourage that
investment to get that last mile as we talked about?
Mr. Cuban. Yes, I do. As much as I would like to call
myself a Libertarian, just like building highways, just like
putting the right of way in place for electrical wires and
telephone wires, I think there is a place simply because from a
competitive perspective if we find ourselves without it we will
have problems. I am not qualified to say that we cannot get
there on the road we are on already but it would be something
that would be appropriate.
Mr. Stupak. Well, let me ask you this, if I may. Is it in
your view going to be a true competitor to fiber? Can it offer
the same quality in bandwidth? And how do we build a wireless
network that is forward looking that can handle videos, gaming
and other high bandwidth applications?
Mr. Cuban. I think it is an interim competitor but not a
long-term competitor. It is a shared medium, which means the
more people that use it and the more heavy the use, the slower
everybody gets. And that has a point of diminishing returns.
Mr. Stupak. Thank you. Thank you, Mr. Chairman.
Mr. Markey. The gentleman's time has expired. The Chair
recognizes the gentleman from Florida, Mr. Stearns.
Mr. Stearns. Thank you, Mr. Chairman. This is for Mr. Pyne.
I have a headline from the Internet here which says, ``Walt
Disney Sells 23.7 Million TV Shows and 2 Million Movies via
Apple iTunes Store.''
So my question is a little bit tied in to what Mr. Terry
talked about when he asked Mr. Rosenthal about the product
placement. Just give me maybe a personal opinion here. Is this
subscriber model that I just read from this headline, how far
is this away perhaps where you can actually see a day when
consumers would say I am just not going to watch the TV. I am
just going to go to my shows here, download it, and then I will
have it.
And advertising people say golly, we cannot even get to
this person. Now we have got to get to them through the
Internet. So the first question is do you think this subscriber
model is going to replace anything in the near future and if
so, when?
Mr. Pyne. I do not think it will replace our current
broadcast model, whether for ABC or for any of our cable and
satellite networks. I think our view and what we have seen
through all of our research is that today's audience--and 10
years ago, 15 years ago, people would come home from whatever
they were doing during the day, school, work, whatever, and
they would go to the TV set.
Mr. Stearns. Yes.
Mr. Pyne. In today's world, given all the plethora of
technology that has been enabled, that is out there, our
audience just gets it in so many different ways. They still,
whether it is at their 52-inch HD set, they still go to the TV.
But what we have found is whether it is what we do with Apple,
what we do with our ABC.com player, or what we are testing now
with Cox with via free VOD, all of that we have found is
complimentary to the broadcast. In fact, we have seen ratings
go up. We have seen increased viewership.
Mr. Stearns. You have heard Mr. Rosenthal. He suggested
that product placement should be regulated. I think that is
what we are hearing from you. Did you agree with his idea?
Mr. Pyne. I do not agree.
Mr. Stearns. This has probably already been covered, if you
will bear with me here.
Mr. Pyne. For the record, the Nissan ad that was referred
to before we checked with our sources and in fact the actual
dialog that was referred to did not take place. Our standards
and practices took that out of the broadcast. In addition, we
have no product placement in children's programming and
following the rules any time we integrate, and this is a
producer's decision. It is not our companies'. It is the
producer's who is very entwined with the creative process.
There are something called a 317, so that there are specific--
--
Mr. Stearns. But you do not think we need to have product
placement regulated by the Government?
Mr. Pyne. I do not.
Mr. Stearns. OK. And Mr. Rosenthal, is there a point,
though, where you pick up a show and you watch maybe a man and
woman pick up a cigarette and it is a Lucky Strike and that
actual use of that cigarette at that moment creates the
authority and the drama which carries full scene? And maybe it
is not a Lucky Strike. It is a Marlboro. Or maybe it is a Coke
or maybe it is whatever. Isn't there some creative freedom here
that should be allowed instead of having product placement
under Government----
Mr. Rosenthal. I think what Mr. Markey was talking about,
and I concur, is that we are only talking about in the--in
terms of how it looks to kids who are watching. So he--what he
is suggesting is that for rated G and PG movies that the
``cool'' character is not portrayed as smoking because that is
what the kids are responding to.
Mr. Stearns. OK.
Mr. Rosenthal. I just want to apologize if there was any
misinformation in the last thing. The other thing is I do not
think we are talking about regulating. I think we are only
coming from, and I speak for the WGA and SAG, is disclosure.
Mr. Stearns. I have this Treo and sometimes it is
frustrating because there is so much information on it and I
get fooling with it and really I am wasting a lot of time.
And I guess the other question that goes for I guess Blake
Krikorian and Mark Cuban. Use of the bandwidth is intensely
used when you have streaming video. What is the best way for
wireless carriers to manage the various funds--voice, video,
data traffic? Because I cannot imagine if this had video it is
even more addictive. How do you even as a consumer go about
disciplining yourself so that you are not fooling with it?
I see Members on the floor, and I see them on the subway,
everywhere. They are just fooling with this thing. How do
wireless carriers go about managing all those various forms of
voice, video, and data traffic?
Mr. Krikorian. First off, you get a Sling player on there
because that will make you more educated as opposed to
destroying your productivity. Yes. I think first off there is
probably a couple of questions in there. No. 1, in terms of
these applications that are going to drive or are going to
require more and more bandwidth--again, back to my earlier
point, I view a lot of that as a high class problem. I think
that the way that a mobile operator should deal with it is to
certainly not discriminate between services they are providing
and other ones that are available on the Internet.
But for those people who are actually using the bandwidth
quite a bit, it is all about a pricing game. Something we just
did in the UK, actually, with Three and Hutchison, they are the
first mobile operators to really embrace the Slingbox. And what
they did is they created another tier of service called the X-
Series. I cannot remember exactly what it was because it was in
pounds. But you paid an incremental amount and you basically
get things such as Slingbox functionality and even Skype,
believe it or not. And they found that to have quite a bit of
good amount of success.
Mr. Stearns. My time is expired. Is it possible to have Mr.
Cuban answer that question?
Mr. Cuban. Just very quickly, kind of the mantra of the
management is bits for bits. In the digital world, it does not
matter what the application is. To the provider, it is all just
digital bits. On the consumption side, though, it gets to be an
issue because there once you start filling up the pipe other
people suffer. And right now we are in the scenario where most
bandwidth is being priced on an all-you-can-eat basis. And that
might change to a revenue per bit or a cost per bit basis. And
that will have different implications.
Mr. Stearns. Thank you.
Mr. Markey. The gentleman's time has expired. I do not know
if any other members are going to return. But what I am going
to do is I am going to ask each one of you to give us your
summation, 1 minute that you want us to retain out of your
visit here to the Subcommittee on Telecommunications and the
Internet. While you are thinking about that, let me just ask
you, Ms. Lombardi. Channel 55 all across America is going black
on February 17, 2009. No more Channel 55. You will have
MediaFLO on that. How long after February 17, 2009 will it take
for you to be up and fully operational across the whole
country?
Ms. Lombardi. We have 27 markets today. We will be
continuing to buildout, and by the time we get to early 2009 we
hope to have the top 100 cities in the United States fully
functional.
Mr. Markey. Excellent. Thank you. And you, Mr. Pyne, you
are an old business but without an old business model. How do
you negotiate this relationship between your affiliates that
are the old model and this new business strategy which you
have? How do you negotiate that tension?
Mr. Pyne. Carefully. We have in terms of our local
broadcast affiliates, again we have over 210 of them. We have
tried to work with them collectively as we delve into this new
media. So for instance, our dot com player, our ABC.com player,
we include them in the advertising so that they can monetize
it. They can take advantage. And in addition, we allow them to
co-brand their local station with the ABC brand. So the viewers
in that community can actually access through the local Web
site. You can see local news but that can be brought to the
ABC.com player.
In addition to what we just announced this week with Cox
Communications on a VOD model that was broadband, we look
forward to doing a similar type of thing and we have got a
strong interest.
Mr. Markey. Mr. Shimkus, do you have a final question?
Mr. Shimkus. Just two follow ups.
Ms. Lombardi, what does the free spectrum from the DTV
transition mean for MediaFLO and for wireless video innovation
generally?
Ms. Lombardi. Sir, QUALCOMM is a company that continues to
innovate and look at new wireless technologies. And the fact
that the United States Government had spectrum available that
we could acquire and utilize to bring consumers more choice,
every content, like ESPN, to consumers wherever they go on
their handset--the picture quality is fantastic. People up to
70 years old are willing to watch the screen. And to be able to
do that across the country is very compelling, we think, to the
marketplace.
Mr. Shimkus. Ms. Lombardi, could MediaFLO have gotten off
the ground if the spectrum auction it participated in had rigid
conditions on how the spectrum could be used?
Ms. Lombardi. No. The rules have been very good to us, and
we have complied with the requirements of the FCC, and that has
enabled us to launch this service across 27 markets.
Mr. Shimkus. Thank you, Mr. Chairman.
Mr. Markey. The gentleman's time has expired. So we will
turn now to the members of our witness panel. You have been
outstanding. We thank you for that. Your one-minute summation
to the committee is very much appreciated. Mr. Cuban, we will
begin with you.
Mr. Cuban. I will try to get to the one minute. First, in
terms of the February 2009 cutoff date, I think what has not
been anticipated is that it is going to be a retail bonanza for
consumers. As cable competes with satellite, TV manufacturers
try to take advantage of the conversion, we are going to see
some of the best deals for multi-video distribution that we
have ever seen in our lifetime, so it is going to be
interesting.
Two, I think there needs to be significant respect for
copyrights because if we do not deal with it, whether it is
YouTube, whether it is other video-hosting environments, that
content providers are going to look to get very Draconian in
how they protect their content and that is going to be a
significant negative for consumers over the long haul.
And three, in terms of bandwidth for consumers, we need to
start thinking in terms of 1 gigabit and up, not just merely
incremental increases, simply because the consumers benefit,
the commercial opportunities that are created with that
platform will propel this country in a competitive basis in all
things we have been considering at this point.
Mr. Markey. Thank you, Mr. Cuban. Mr. Krikorian?
Mr. Krikorian. OK. So I think if I could leave you with one
thing I would say that when we talk about disruption,
disruption and invasion are very much synonymous. You hear them
mentioned in the same breath many times. And one thing that I
really thank you guys for giving us the opportunity to come
here. I encourage you to keep doing that because as you really
see things that can be viewed as disruptive end up becoming
actually great things for the people who were threatened by it.
And I do not need to remind you too much, but I will just a
little bit. Remember when radio came out. People were saying no
one was going to provide music. We all know what happened with
the Betamax issue and where we went there. And in fact, we saw
last year $9 billion in movie ticket sales and $24 billion in
this little thing called DVD and VHS. There are certainly
challenges, even TiVo brings up in terms of people skipping
commercials. But at the same time I am confident that in fact
what Mr. Rogers was saying that there is going to be new
innovations there that are going to address that and perhaps
make advertising even more successful.
I urge you to keep the forums that you are having here
because a lot of times--I am a big believer in copyright, as an
example, but I am not a big believer in using copyright to
protect business models.
And so I think it is very important that all of us really
understand what this technology means, what it does, and keep
an open mind on how it can be used to the industry's advantage
as well as the consumers' advantage. Thank you.
Mr. Markey. Thank you. Mr. Rosenthal?
Mr. Rosenthal. I just want to thank you for having these. I
learned a lot today and it has been such a pleasure listening
to these brilliant people.
I disagree a little bit with Marsha Blackburn's statement
that ``the medium is the message.'' I believe that the message
is still the message. And all I would ask of these geniuses is
that as new technology is implemented that they continue to
respect the creators of the cup.
Mr. Markey. Thank you, Mr. Rosenthal. Ms. Lombardi?
Ms. Lombardi. Sir, one thing that I would like to put on
the record, mobile TV has existed in the world for a while. In
Korea they have had mobile TV and now Europe is rolling it out.
What we have done here in the U.S. is leapfrog what exists in
the marketplace today. And with the flexibility, with the DTV
transition date, with the flexibility here in the United
States, we are able to innovate, create a new technology,
create a new service, and provide consumers a real value. And
so I want you to realize that the U.S. is driving things faster
than other countries because of your flexibility. Thank you.
Mr. Markey. Thank you, Ms. Lombardi. Mr. Pyne?
Mr. Pyne. Thank you. Clearly I think the technologies have
enabled the consumer to access content in so many ways that I
think 5 years ago were completely unthought of. And we as a
company and content creators want to make sure that we are in
the forefront of that and to work with, to be out funding, and
to be proactive. Clearly creating quality content the way we do
every day is expensive, it requires a tremendous commitment of
resources and time. And we are committed to looking for new
models to make all of this possible.
Just to reiterate one point, section 317 of the
Communications Act actually already requires disclosure of
product placement. So just to reiterate the point before, we do
not believe any new law is needed. Thank you.
Mr. Markey. Thank you, Mr. Pyne. Mr. Rogers?
Mr. Rogers. I would simply say that this subcommittee has
always been guided by creating more competition and creating
more consumer choice. And you do not create innovations. But
this committee does define the future in terms of whether those
innovations are going to succeed.
And I must simply say as you always have done, do not allow
incumbents to choke off new competition, new choice, be it in
broadband or new set-tops or wherever it might emerge. This
subcommittee has always been a great guider of innovations
being able to emerge in that sense. And I think if you continue
in that role the video future will be a bright one.
Mr. Markey. Mr. Hurley?
Mr. Hurley. Yes. I would like to say first of all thank you
for having me here today. And secondly, that YouTube is more
than an entertainment destination. YouTube is truly a site that
informs, inspires and empowers people to communicate their
messages to the world.
We hear stories about children in Africa having the
opportunity to go to computer centers. And they are actually
viewing YouTube. And this is acting like a window to the world
for them, where they have a chance to see what is happening
beyond their borders. And we really feel in the future it is
going to be able to really promote understanding between
cultures.
Another thing with what we are working on is we take
copyright seriously. We are going to continue to work on
technologies and work with our rights holders and partners that
are currently working with us to create new markets to exist
for them to promote and create new revenue services. Thank you.
Mr. Markey. Thank you, Mr. Hurley, very much. I cannot tell
you how much the subcommittee appreciates the incredible
expertise that this panel represents. And I cannot tell you how
many times I have been complimented during the breaks by the
members. They very much appreciated your testimony and really
feel illuminated.
Mr. Krikorian, even going back before radio, the disruptive
technology, when they moved from silent movies to talkies it
put 20,000 piano players out of business who were playing in
each theater across America as the movie was up there. It was
probably a very tough time for piano players in America in 1928
and 1929.
When I arrived here 31 years ago on the Telecommunications
Subcommittee we had one phone company that had 1.2 million
employees. It was bigger than the next five companies in
America combined. And we were all using a rotary dial phone
even though they had invented touchtone phones 20 years before.
The cable industry was in its nascent form. So was FM
radio. There was no Internet. Cell phones were just something
that was in the imagination of telephone companies but not of
the inventors.
And so this subcommittee over the years has played a role
in breaking down these barriers--as Mr. Rogers said, moving
over 200 MHz of spectrum in 1993 so that a third, fourth,
fifth, and sixth cell phone company could be created; passed
the 1996 Telecom Act, the 1992 Cable Act, all of them with the
intention of further making it possible for technological
innovation. And I think to a very large extent this hearing
would not have been possible without all of those changes.
And hopefully we will be guided by your testimony so that
we can continue to adapt and change in a way that in another 5
or 10 years there is a whole new panel of people who are
sitting down here that the committee members can basically say
wow, look at those people down there. Look how they are
changing not only our country but the world.
With the thanks of the subcommittee, this hearing is
adjourned. Thank you.
[Whereupon, at 12:55 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Statement of Mark Cuban
Co-founder, HDNet
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Statement of the National Association of Broadcasters
The National Association of Broadcasters (NAB)
respectfully submits this statement for the record in the
subcommittee's hearing on Digital Future of the United States:
Part V: The Future of Video. NAB is a trade association that
advocates on behalf of more than 8,300 free, local radio and
television stations and also broadcast networks before
Congress, the Federal Communications Commission and other
Federal agencies, and the Courts.
The future of video clearly includes free over the air
television. The broadcast television industry has invested and
continues to invest very significant time, effort and financial
resources to complete the transition to digital broadcasting
successfully, expeditiously, and in a consumer-friendly manner.
The local television stations that today keep their
communities--and your constituents--informed and connected
intend to remain a vibrant part of the media landscape in the
21st century. Innovations such as digital broadcasting will
enhance broadcasters' competitiveness and ability to serve
local communities and viewers in numerous ways.
Beyond ensuring a smooth digital transition by February
17, 2009, broadcasters must also look towards a future where
the Internet and its myriad applications will alter profoundly
the video marketplace. Despite rumors of their demise, however,
local television broadcasters and national networks will also
play an important role on new distribution platforms, including
Internet delivery, vodcasting, and mobile video. In the coming
years, with local programming as the backbone, broadcasters
will effectively compete in a ``wherever, whenever'' video
environment.
Broadcasters Have Made Tremendous Strides Toward Completion Of The
Digital Television Transition, To The Benefit Of Consumers
Broadcast stations have made remarkable progress and are
fully committed to completing the digital television (DTV)
transition in a timely manner--and in a manner that is as
seamless as possible for consumers. As of May 7, 2007, 1600
full-power television stations in 211 Designated Market Areas
across the United States were providing programming in digital.
Why have television broadcasters embraced DTV? In short,
because digital technology is the future of video--it will
enable us to better serve our local viewers and communities and
to remain competitive in a marketplace where all communications
services and media will be digital.
Digital technology offers service of far higher quality--
high definition (HD) pictures, improved sound, and screen
dimensions better suited to the human eye. This technology also
allows broadcasters to offer additional, free programming
streams within each television licensee's six MHz channel.
Because digital technologies are more robust than traditional
analog technology, stations can be packed closer together
without causing destructive interference to the public's over
the air service, thereby reducing the amount of spectrum needed
for over the air television stations. At the end of the DTV
transition, this ``left-over'' spectrum will be returned to the
government. Some of the returned spectrum will be used for
vital public safety needs--needs we have all become acutely
aware of in light of the events of September 11, 2001. Some of
the freed spectrum will be auctioned for other innovative uses
at substantial benefit to the U.S. Treasury.
Indeed, even though the digital transition is not yet
completed, consumers have already benefited from it. The major
broadcast networks provide their most popular programming,
including prime-time programming and major sporting events, in
HD. About 45 local stations throughout the country, including
WUSA-TV here in Washington, broadcast their local news in HD.
Hundreds of local stations are also using their digital
channels to provide multiple program streams within their
digital signal, and many more are considering doing so in the
future. Decisionmark, a media technology and software and
information firm, estimated in late 2006 that approximately 780
television stations were offering multiple program streams,
including news, weather, entertainment, sports, religious and
ethnic-oriented programs. Even local stations in medium and
small markets, including markets as small as Boise, Idaho, are
providing numerous news, sports and weather services to their
local communities over their digital signals.
Clearly, the public--even those who view television
through cable--would be served by access to these new program
streams. So far, however, many broadcasters have encountered
resistance from cable operators who have denied, delayed or
otherwise impeded delivery of the full digital signal to cable
consumers. Stripping out these services is contrary to the
terms of the 1992 Cable Television Consumer Protection and
Competition Act, and threatens the health and vitality of
broadcast services for all viewers. Congress should accordingly
direct the Federal Communications Commission (FCC) to prohibit
cable and satellite operators from stripping out programming
streams from broadcasters' digital transmissions.
Congress, the FCC and the National Telecommunications and
Information Administration (NTIA), as well as all sectors of
the television industry, must also work to educate the public
about the DTV transition. In particular, members of the public
need to know what steps they must take to continue to have
access to the television programming they rely upon after the
analog television cut-off on February 17, 2009.
NAB has formed a Digital Television Transition Team to
spearhead the broadcast industry's efforts to provide
information about digital transition issues. Managed by a new
Vice President of Digital Television Transition, with a full-
time media relations director, two directors of outreach, and a
multimillion-dollar budget, this team will coordinate a
national public affairs and consumer education campaign with
the goal of ensuring that no consumer is left unprepared, by
lack of information, for the end of analog broadcasting.
Specifically, the NAB consumer education campaign has and will
continue to utilize both survey research and focus groups to
identify and market to those impacted by the transition. The
campaign's media relations director will be making sure DTV has
a presence in local, as well as national, publications and
programming. With the help of local affiliates, NAB will
spearhead a national speaker's bureau aiming for thousands of
local speaking engagements throughout the country about the
transition. NAB will produce and distribute high-quality public
service announcements for play on networks and local stations.
NAB's digital transition team will also help coordinate the
Digital Television Transition Coalition, a coalition of (to
date) about 85 member organizations that have joined together
to raise consumer awareness of the digital transition.\1\
---------------------------------------------------------------------------
1 Members of this Coalition include the Association for Maximum
Service Television, Inc.; the National Cable and Telecommunications
Association; the Consumer Electronics Association; the Association of
Public Television Stations; the Consumer Electronics Retailers
Coalition; the Leadership Conference on Civil Rights; and many others.
---------------------------------------------------------------------------
This Coalition, which intends to work closely with NTIA
and the FCC, will launch public education efforts (including
media placements) to convey accurate, consistent and needed
information to the public.
Broadcasters Continue To Explore New Distribution Platforms For News,
Information and Entertainment
Traditionally, broadcasters have relied on transmission
through the television signal to reach local communities with
national and local news and entertainment. That distribution
medium will remain, and in fact thrive, in the digital future,
as outlined above. In addition, broadcasters are actively
embracing a future where video is consumed through multiple
outlets, including the Internet, cell phones, portable gaming
devices, iPods and personal digital assistants (PDAs). Each of
these distribution channels provides broadcasters with new
opportunities, both to extend their current business model, and
to create new models that will take advantage of each medium's
unique characteristics.
Broadcasters have long used the Web to provide local news,
both in text form and through video clips. The Web offers
broadcasters more flexibility to provide deeper coverage of
their local communities. Concurrent with the expansion of
broadband penetration in the United States, broadcasters have
accelerated Web video offerings, including longer versions of
stories that originally appeared on their local newscasts.
Plus, many broadcasters are providing live local news
simulcasts through their Web sites. As the convergence of
television and the Internet comes to fruition, broadcasters
expect to provide a virtual bridge between the technologies, so
that in the future, as the so-called ``I Generation'' matures,
the local television brand will extend seamlessly across
multiple platforms.
Much of the attention at today's hearing focuses on ``new
media'' initiatives in the video marketplace, and with good
reason. The remarkable rise of YouTube, for example,
illustrates the volatile nature of an industry that for decades
has relied upon established, larger media companies. Today, a
16-year-old auteur in Des Moines can film a clip of his friends
skateboarding that could be viewed by thousands, even millions,
of global viewers within a week. The Internet is breeding
``video stars'' like Lonelygirl15 who have never appeared on
television or in the movies. And with the combination of more
powerful computing, faster broadband speeds and lowering costs
of storage, this trend will only continue and quicken.
In many households, appointment television has been
replaced by recorded television with the increasing use of
personal video recorders like the Tivo. And consumer
expectations are shifting with the technology. For example,
digital cable consumers can count close to 4,000 programs
available through on demand services, most of which are free to
cable subscribers. With Apple TV or Sling Media's SlingCatcher,
consumers with a wireless home network can stream almost
anything they see on the Internet directly to their television.
In a virtual sense, the broadband Internet connection is now
just a few inches away from the television. And when it finally
gets plugged in, it will open an infinite channel universe
through which consumers will merely point-and-click, rather
than change the channel.
But, even in the face of increased competition,
broadcasters remain confident that the very best products and
programming will still draw the most eyeballs. High-definition
television is the killer application for television in the
digital age. It may be more than a decade before the Internet
can provide a comparable quality picture to an over the air
signal. As the price of high-definition televisions continues
to drop, consumers will look for the very best signal to fill
their screens. And broadcasters will be there, providing local
and national news, high-quality entertainment, and, when
necessary, life-saving emergency information.
Broadcasters are not satisfied to merely provide the best
signal to your television, however. They are actively looking
to extend their content to other devices, including cell
phones, as well. In the last six months, major technology
companies have announced two exciting standards that could help
broadcasters reach millions of consumers when they are away
from their home televisions. Samsung's Advanced Vestigial
Sideband (AVS) standard, and the LG/Harris MPH In-Band Mobile
DTV System, each enable portable devices to receive broadcaster
signals independent of a cellular network. Local broadcasters,
with little infrastructure investment, can use capacity in
their digital stream to accommodate each new standard, and
reach on-the-go consumers with real-time, high quality video
signals. Soon consumers will be able to catch American Idol or
The Office on their cell phones just as they can on their home
televisions. The new technology will also work well with Mp3
players like the iPod, PDAs, and in-vehicle television screens,
even at speeds as fast as 80 miles per hour. While latency
issues and low quality have impeded adoption of mobile
television by consumers in the United States, these new
standards foretell a revolution for broadcasters and cellular
companies alike.
Even in this Web 2.0 world, broadcasters will play a
prominent role in the way consumers watch video long into the
future. With the promise of digital television, and the advent
of new distribution streams, broadcasters are well positioned
to provide top quality video programming to every American,
just as they have for the past 60 years. The National
Association of Broadcasters, local television stations, and
national networks look forward to working with Congress to
ensure that free, over the air television remains an important
part of any conversation about the future of video.
----------
THE DIGITAL FUTURE OF THE UNITED STATES
THE FUTURE OF TELECOMMUNICATIONS COMPETITION
----------
TUESDAY, OCTOBER 2, 2007
House of Representatives,
Subcommittee on Telecommunications
and the Internet,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 9:37 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Edward J.
Markey (chairman) presiding.
Members present: Representatives Doyle, Harman, Gonzalez,
Inslee, Boucher, Towns, Pallone, Eshoo, Stupak, Engel, Green,
Capps, Dingell, Upton, Stearns, Deal, Shimkus, Pickering,
Fossella, Radanovich, Walden, Terry, and Ferguson
Also present: Representative Blackburn.
OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS
Mr. Markey. Good morning. Today's hearing is about the
future of telecommunications competition in the United States.
But I also feel a certain sense of deja vu. In April, the
subcommittee held a hearing on broadband deployment competition
and consumer adoption in other nations, including Japan, New
Zealand, the United Kingdom and Rwanda. That hearing took place
the day after the United States dropped from 12th to 15th out
of the 30 countries in the OECD broadband rankings. And mind
you there is no excuse for the fact that America is falling
behind. This is because the United States started out on the
right path by implementing provisions in the 1996
Telecommunications Act designed to jumpstart competition both
between and among technology platforms. Gradually, however, we
lost our way. As regulators became convinced that competition
within a platform actually hindered overall broadband
deployment and took market opening rules off the books, it is
as if the FCC several years ago picked up a loose football on
the field after a collision and started running with the ball
full speed towards the wrong end zone.
Our international competitors look on at what we are doing
and must be stunned, and that is because we started this
Internet game ranked No. 1 in the world because we invented it
and now we are No. 15. People quibble with the methodology of
the OECD rankings, but regardless of how you slice it, price,
speed, percentage of subscribers, the United States is no
longer in the top tier and we continue to drop.
Many other nations took one look at our broadband
situation, learned from our experience and took the opposite
approach. Japan and the United Kingdom implemented the very
polices that the FCC had gradually eliminated in recent years
such as local loop unbundling and broadband resale which
facilitate competition using the incumbents' plan regardless of
technology.
These foreign competitors are now enjoying broadband
success stories. The United States, however, continues taking
the opposite approach. We are digging ourselves a hole, and now
we are in violation of the first law of holes, which is if you
are in one, stop digging. Take the issue of forbearance. Some
incumbent phone companies have asked the FCC to eliminate their
essential network sharing arrangements under section 10 of the
Act. One of today's witnesses, Cavalier Telephone, leases
copper phone lines for the last mile and provides residential
consumers with the triple play bundle of voice, 150 channels of
cable TV, and high speed broadband for approximately $80 a
month. But if the forbearance petitions are granted, Cavalier,
Time Warner Telecom and other broadband competitors will lose
access to the critical bottleneck facilities that they need.
A related issue is special access. Special access circuits
are the lifeblood connections for wireless carriers such as
Sprint Wireless, and as a result wireless carriers depend on
special access which will grow as they deploy broadband
networks that deliver greater bandwidth but correspondingly
require more capacity.
The GAO found that the FCC's deregulatory pricing regime
for special access has resulted in higher prices and little
competitive choice for special access circuits. Because prices
today are higher than what a truly competitive market would
support, current and future wireless providers will expend
funds on special access that would be better spent reducing
prices to consumers or deploying more and better broadband
facilities. Unless this market failure is corrected, special
access could have a negative impact on all wireless broadband
deployment, including deployment that facilitates
interoperability between public safety organizations.
But the most outrageous issue is copper retirement. In this
sense interpret the word retirement the way Luca Brasi used to
retire competitors to the Corleone family. Some incumbent
telephone companies are disabling perfectly functioning copper
loops that could be used by competitive broadband providers
such as Cavalier after the incumbent deploys its own fiber
facilities. Like Sherman's march to the sea these incumbents
leave scorched earth in their wakes cementing the broadband
duopoly between the incumbent phone company and the cable
company.
In the final analysis, today's hearing goes to the core of
our nation's broadband policy. How many apertures will
consumers have to reach the broadband Internet, one, two or
many more? At what speed? At what price? Will municipalities be
permitted to serve their citizens and provide the best
broadband service they can? I have certainly battled for such
rights. These choices are vital.
For example, we recently saw Verizon's initial and quick
reversal of a decision to block certain text messages on its
service, as well as the fine print in AT&T's contract terms
which seem to indicate it might censor messages it finds
unpleasant.
Network neutrality rules could safeguard consumer rights in
such instances, but more and better broadband choices would
help, too. And we are simply not going to reach that goal if
regulators keep knee-capping those who would provide consumers
such much needed broadband choice.
I look forward to hearing from our witnesses.
I turn to recognize the ranking member of the
subcommittee, the gentleman from Michigan, Mr. Upton.
Mr. Upton. Well, thank you, Mr. Chairman. I might just ask
initially that all members be able to submit their statements
for the record. We have a Republican conference this morning
that runs until a little bit after 10:00.
Mr. Markey. Without objection.
OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Upton. Good morning. I would like to start by welcoming
our witnesses and particularly you for holding yet another
hearing on the digital future of the U.S.: today's installment,
the future of telecommunications competition.
The trend in the telecommunications sector is towards
deployment of advanced technologies and increased competition.
Deregulation has successfully promoted investment, innovation
and more competition, benefiting consumers. The growth
statistics are impressive and further bolster the arguments for
a deregulatory posture. VoIP subscribers grew an eye-popping
709 percent from 1999 to 2006. The number of wireless
subscribers grew 372 percent from 1996 to 2005. The number of
competitive local exchange carrier lines grew 263 percent from
1999 to 2006. And meanwhile the number of incumbent local
exchange carrier lines dropped 5.6 percent from 1996 to 2005.
And as the saying goes, the numbers do not lie. And even more
telling about the strong state of competition, as of June of
last year the number of high-speed data lines was nearly
equally split between incumbent phone companies on one hand and
non-incumbent cable providers on the other.
The business market is particularly competitive for
computer networking, Ethernet services, with no one entity
having more than a fifth of the market. Time Warner Telecom,
the third largest provider with 14 percent behind AT&T and
Verizon, and the rest spread among many other entities. The
number of consumer choices and services available has
significantly grown as we trend away from regulation. Where
competition is present we must continue the course away from
regulation. As new services and technologies become available
we must avoid the lure of government red tape.
Another issue that will be addressed today is municipal
broadband. Chairman Boucher and I have recently introduced H.R.
3281, the Community Broadband Act of 2007. Our legislation
preempts States from prohibiting municipalities from providing
broadband, voice data or other video service. It is important
to note that the bill requires municipalities to apply all of
their regulations to their own broadband service without any
preference. And before a municipality may provide broadband
service it must seek public and industry comment on the cost
and benefits of the proposal and any alternatives.
While there are clearly risks associated with
municipalities offering broadband services, it may prove to be
a value in communities where there is no commercial provider.
Municipalities and their citizens should have the right to
decide for themselves whether to enter the market and should be
allowed to succeed or fail like any other broadband provider.
Lastly, I would like to again recommend the auctioning of
white spaces. The market is much better than the regulators at
determining the value of and best uses for this spectrum. There
are likely a number of possible uses, and one that has recently
been raised is an alternative to special access. All potential
providers and services should be given an opportunity to
compete for this spectrum in a fair auction. Licensing would
also have the added benefit of protecting against any
interference with digital TV should it arise. The recent test
results released by the FCC demonstrate that that indeed may be
a problem. At a minimum, additional FCC testing is needed.
Again, I thank our witnesses for joining us today, and I
look forward to your testimony. I yield back the balance of my
time.
Mr. Markey. Gentleman's time has expired. The Chair
recognizes the gentleman from Pennsylvania, Mr. Doyle.
OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA
Mr. Doyle. Thank you, Mr. Chairman. Mr. Chairman, it is
kind of funny. Everyone downtown is worried that I might be up
here this morning with an ax to grind. I just want to let
everybody know that I woke up on the right side of the bed this
morning. I had my Starbucks and I had a rather delicious bacon,
egg and cheese sandwich on multigrain toast and I am feeling
pretty good.
I just want to take a step back and talk about the future
of competition. I read an article by Art Brodsky in The
Huffington Post about a man in the United Kingdom who built a
spreadsheet to compare his options for broadband services. And
some estimate that there are now over 200 ISPs in the UK.
Across the pond there is competition on price, speed,
installation cost, Web storage space and more.
Mr. Chairman, have you ever been to a grocery store and you
see a hundred different bottles of wine on the shelf fighting
their way into your basket? That is the kind of choice this guy
has, except wine is better than broadband in that it doesn't
hit you with a $200 early termination fee if it is not any
good. Give Americans the same choice for Internet providers
that the people in England have. Isn't as catchy a slogan as
``one if by land, two if by sea'' or ``the Redcoats are
coming.'' But it is an important question I hope my colleagues
on the committee have considered.
Now I wouldn't blame the CEOs and executives on today's
panel if they had been afraid of having to compete with 200
Internet service providers. But we don't live in that world.
Instead, Cavalier has to hope that Verizon isn't successful in
killing the competition rules that will allow it to survive
until 2008. And Sprint Nextel and T-Mobile have to hope that
special access rates don't eat a hole in their bottom line so
big that it will slow them down from rolling out faster
technology.
Now I suspect there will be much talk about Verizon
Wireless blocking pro-choice groups sending text messages to
its supporters, and they quickly changed their policy, a smart
move. But I say to my friends who oppose net neutrality because
competition will take care of any problems, we can't cut
competition off at the knees and then expect it to save us.
A few months ago I said the debate over special access
should really be called critical access, that these special
access lines are critical to broadband deployment and
competition. These lines allow America's businesses to bring
growth and development to far-flung areas. They allow us to
stay connected to our data and to the world around us. These
are not small issues with funny names. They are our link to the
broadband future, Mr. Chairman, and we can't get this one
wrong.
I yield back.
Mr. Markey. The gentleman's time has expired. The Chair
recognizes the gentleman from Georgia, Mr. Deal.
OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF GEORGIA
Mr. Deal. Thank you, Mr. Chairman. I want to thank our
witnesses for joining us today. I think the future of
telecommunication competition is certainly one of the more
important issues facing our committee and one that we should
continue to explore.
As I have expressed in the past, I believe it is critical
for our telecommunications infrastructure to be grounded in
competition where market forces create proper incentives and
pricing. We should strive to avoid regulation whenever
possible. The Government should not interfere when competitive
forces are at work, but at the same time where a free
competitive market has yet to evolve it remains necessary to
uphold protections which ensure the public interest is met
while promoting increased competition.
The forbearance petitions currently pending before the FCC
are excellent examples of how these questions are being played
out in the marketplace. We here in Congress do not have the
expertise to know which particular markets are competitive and
which are not. This responsibility rests with the FCC, which
has been tasked with encouraging competition whenever possible
while simultaneously ensuring that deregulation does not occur
where competition is absent.
I am interested to hear from today's witnesses as to their
views on how the forbearance petitions allow them to work with
the Commission to ensure that adequate data and information is
provided in a timely manner. The various industry participants
feel they are afforded sufficient time and opportunity to
respond to data and statements submitted to the FCC in the
forbearance petitions. Do they feel that the FCC is doing a
good job of analyzing competition in all aspects of the market,
both residential and business?
In large part these questions also apply to the special
access market. I know certain industries have expressed concern
that the special access market is broken. These companies
describe a pervasive problem where a lack of competition in
certain segments of their local markets, where inflated prices
are increasing as are anti-competitive terms and conditions.
Finally, I would note the pending retirement of the copper
facilities. I am interested to learn if the incumbent carriers,
when they decide to retire the copper wire, are open and
willing to sell the copper network in the last mile to allow
for another carrier to purchase them. It doesn't seem
beneficial to the public interest if we simply allow this
valuable network to be retired when numerous companies have
expressed interest in purchasing it.
Thank you, Mr. Chairman. I look forward to hearing from our
witnesses, and I yield back my time.
Mr. Markey. The gentleman's time has expired. The Chair
recognizes the gentleman from Washington State, Mr. Inslee.
Mr. Inslee. Thank you. I just look forward to the testimony
about these multiple forbearance issues and I hope we can reach
a consensus on the truth of special access. That will be a
bright day. Thank you.
Mr. Markey. The Chair recognizes the gentleman from
Virginia, Mr. Boucher.
OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF VIRGINIA
Mr. Boucher. Well thank you very much, Mr. Chairman. And I
particularly want to express my appreciation to you for making
a part of today's hearing the subject of State barriers to the
provision of broadband and other commercial telecom services by
municipalities.
A century ago as the electricity industry was emerging it
was deemed to be in the public interest to permit local
governments to offer the new electricity services to their
residents in places where the investor-owned utilities had
declined to make investments. Broadband today, I would argue,
is as essential to the economic future of communities as the
new electricity services were to the people of America 100
years ago. And where broadband is either not available or is
available only at unaffordable prices, municipalities clearly
have a role to play in filling the gap.
We stand, as the chairman pointed out in his opening
statement, fifteenth in the world in the deployment of
broadband, and for the sake of our national economy we have got
to do a lot better. Freeing local governments to offer the
service is one way in which we clearly can do better. Today 14
States bar in whole or in part the provision of
telecommunication services in commercial form by local
governments. The ranking member, Mr. Upton, and I have
introduced the Community Broadband Act of 2007, which would bar
States from enacting laws that prohibit or have the effect of
prohibiting the offering of these services by their localities.
This measure is very similar to a provision in the
telecommunications legislation that was approved in this
committee and passed by the full House during the course of the
last Congress. And my recollection is that when that measure
was a part of the base bill that was approved in this committee
there were no amendments offered to remove it. In fact, it was
not even the subject of debate or further discussion beyond a
mere description of its presence in the bill. So that provision
was not controversial last year, and I think this year it
clearly deserves to be enacted on a freestanding basis.
Across the Nation there are many examples of municipal
networks that have stimulated economic growth. And I would note
the presence on our panel today of Mr. Wes Rosenbalm, who is
the chief executive officer of Bristol Virginia Utilities. That
is a municipal broadband provider with a great story to tell
about how that investment has stimulated the arrival of a very
large number of technology-based jobs and we welcome Mr.
Rosenbalm and look forward to his presentation of that
testimony.
The Community Broadband Act would open the door for
additional communities to enjoy that progress. I appreciate the
subcommittee's focus on this need, and I very much look forward
to the testimony of our witnesses.
And that said, Mr. Chairman, I yield back.
Mr. Markey. The gentleman's time has expired. The Chair
recognizes the gentleman from Nebraska, Mr. Terry.
Mr. Terry. Mr. Chairman, thanks for calling this hearing.
It is an important one but I want to waive to reserve enough
time for questions.
Mr. Markey. The Chair recognizes the gentleman from New
Jersey, Mr. Pallone.
OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. Thank you, Mr. Chairman, and thanks to the
witnesses here today. I am happy to take part in what is sure
to be an interesting look at the telecommunications marketplace
and what lies in its future.
Studies have increasingly shown that consumers benefit
tremendously from competition in the telephone marketplace. I
have continually been a firm believer that all consumers, both
individuals and businesses, deserve to have many choices when
deciding on their telecommunications services. I also believe
that there is a role for the Government in the
telecommunications sector to ensure that competition is
vibrant. That role, however, is a tricky one as we must make
sure that the level of regulation is appropriate to the level
of competition. And I am hoping that our witnesses will shed
some light on this and flesh out the debate on some of the
issues we have been hearing so much about this past year
including special access services.
The FCC began decreasing regulation of special access to
increase competition and investment, and I am interested to
hear whether some of our witnesses think that this approach is
working. But I suspect that our panel will present compelling
evidence on both sides.
And finally, Mr. Chairman, I would like to bring a letter
to my colleagues' attention. Last week the Communications
Workers of America filed a letter at the FCC with respect to
special access services, and I would like to ask unanimous
consent that this letter be made part of the record of this
hearing. I believe their position on the issue deserves a place
in this debate.
Thank you, Mr. Chairman.
Mr. Markey. Gentleman's time has expired. The Chair
recognizes the gentlelady from California, Ms. Eshoo.
OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Eshoo. Thank you, Mr. Chairman. Welcome to the
witnesses, and thank you for yet another important hearing that
you are holding this year.
The preamble of the Telecommunications Act of 1996 states,
``An Act to promote competition and reduce regulation in order
to secure lower prices and high-quality services for American
telecommunications consumers and encourage the rapid deployment
of new telecommunications technologies.''
So I think that we need to ask ourselves if the 1996 Act
has lived up to its preamble. I don't believe that it has
fully, in most frankly, in any way, shape or form. That may be
a harsh judgment but we are more than a decade past the passage
of that, and what I think many of us have observed is a crest
of a wave that is unprecedented consolidation in the
telecommunications market in our country.
Now I recognize that not all consolidation and mergers are
bad. And realignment of a dynamic industry such as
telecommunications is inevitable. But the course of events that
has led us here, I think is really rather distressing. So I am
very glad we are having this hearing this morning.
The competition that I envisioned and I think that many of
us envisioned in the 1996 Act has largely been frustrated. One
bottleneck to the competition is the last mile and I think many
of us are going to raise questions about this this morning.
Michael Powell, the previous FCC Chairman, and others had
their solutions to the last mile, broadband over power lines.
Proponents of this technology assured us it was just years
away. Well, we are years away from those rather bold
pronouncements and broadband over power lines has just 0.008
percent of the broadband market. I want to repeat that, 0.008
percent of the broadband market. I really don't think that's
the American way and I don't think anyone can say that we have
leapfrogged into the future. That is a dismal percentage. So
surely this isn't the answer that we bring competition to the
last mile.
This morning I want to hear the assessment of our witnesses
that are here today about competition in the last mile, and,
also, on special access lines. These two parts of the network
are critical bottlenecks that can be used by incumbents to
actually strangle competition. I think that Congress has the
responsibility to ensure that nascent competition is given the
opportunity to take root and that emerging avenues of access to
potential customers remain open to innovators and new entrants.
So thank you again, Mr. Chairman, for holding this hearing.
I look forward to the testimony and the answers to the
questions that we pose to the witnesses.
Mr. Markey. The gentlelady's time has expired. The Chair
recognizes the gentleman from Florida, Mr. Stearns.
OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Stearns. Thank you, Mr. Chairman. I am not sure I agree
with the gentlelady from California. Where there once were
separate phone companies and cable companies and wireless and
other industries all providing distinct services, we now see, I
think, a blur, convergence, all competing against each other
offering broadband, voice and video services and more. I think
we see the iPhone now is moving us all ahead in terms of our
cell phones and what we will see in the future. Even the copper
network once thought a dinosaur for traditional voice services
can now offer triple play services and up to 100 megabits per
second.
So I think the future looks good and I think we are moving
in the right direction. I think after the Internet bubble
burst, the core investment dropped to about 85 billion at the
end of 2002 but that has rebounded to almost 120 billion in
2005. And I think that is due in no small part to the
deregulatory framework that we had in Congress and the FCC.
Furthermore, it's not just one set of companies investing
billions in new technologies. The witnesses before us today all
are investing, bringing new innovation and applications that
will drive tomorrow's digital economy.
And my colleagues, against this backdrop the proper course
is to continue the trend away from regulation of new services
and towards deregulation of traditional services where
competition is present. At minimum we must be mindful of re-
regulation of particular services absent a compelling showing
of market failure for certain services.
At our hearing in July I questioned the FCC's
implementation of the forbearance statute in section 10 of the
1996 Act. As I said then, I am well aware of Congress's intent
in this matter to deregulate based on proper analysis of the
competitive market. However, I am concerned about whether or
not adequate procedures are in place to ensure that a rigorous
analysis is conducted. Are there adequate rules in place? If
not, what should the FCC do to ensure an equitable process? I
understand that there is a pending petition before the FCC to
adopt a certain set of rules for forbearance petitions. I think
this might be a good idea.
So I look forward to our witnesses' views on this subject
in particular because they are in one way or the other
obviously going to be affected by the outcome. Let me be clear,
I am not taking a position one way or another on the merits of
the actual petitions. I am merely saying that there needs to be
a proper process in deciding whether or not these petitions
should be granted.
So, Mr. Chairman, I thank you for this hearing. I look
forward to hearing from our witnesses and ensuring that a
tremendous technological growth continues in a deregulatory
environment. Thank you.
Mr. Markey. The gentleman's time has expired. The Chair
recognizes the gentleman from Texas, Mr. Green.
OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Green. Thank you, Mr. Chairman, and I want to thank you
for holding the hearing and I want to thank, like my
colleagues, I want to thank our witnesses for being here. But I
am not going to share with you what I had for breakfast.
In the series of hearings the subcommittee has had over the
last 9 months, and I frequently talked about promoting
competition to consumer choice, last month in my hometown of
Houston, like many other cities around the country, experienced
its plans for a municipal WiFi network fall through. The
Houston system was planned to be the largest in North America,
covering 600 square miles and it would have offered low-income
individuals and households with reduced rates for the service.
It also would have greatly benefited public safety and our city
employees as well as increasing broadband coverage and local
competition.
Our Houston system would vary significantly from Mr.
Rosenbalm's, who is on our second panel. I look forward to
hearing from him on the fiber optic system deployed in Bristol,
VA and hope we can take away some of the ideas for building a
successful municipal network.
I look forward to hearing from today's panels on another
issue. There seems to be a lot of interest in special access. I
believe the Federal Communications Commission should make a
thorough review and analysis of the special access marketplace
in competition as well as significant impacts on rolling back
phase 1 and phase 2 flexibility could have on this market and
on the jobs it creates. Many of these companies are the same
companies investing significantly in residential and next
generation broadband networks, investment necessary to meet
consumer demand for broadband bandwidth now and in the future.
Additionally, I look forward to hearing from our witnesses
on the issue of forbearance. As the technology and
telecommunication industry evolves, I think the forbearance
process is important both from the industry side and the
Commission side as regulations become unnecessary and outdated.
And I am concerned, however, that with other procedural issues
at the Commission right now that if a lot of these conditions
are not acted on, Congress may have to revisit the issue.
And, again, I thank the chairman for holding the hearing. I
look forward to the testimony.
Mr. Markey. The gentleman's time has expired. The Chair
recognizes the gentleman from Mississippi, Mr. Pickering.
Mr. Pickering. Mr. Chairman, I want to thank you and
commend you for having this hearing. I would yield the balance
of my time, reserve those for the questions, please.
Mr. Markey. The gentleman's time is reserved. The Chair
recognizes the gentleman from New York, Mr. Towns.
OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK
Mr. Towns. Thank you very much, Chairman Markey, and of
course, Ranking Member Upton for holding this hearing. I also
want to thank the witnesses. And it is also good to see a
former member, Tom Tauke, who is here. It shows you that there
is life after this place. It is good to know.
I am sure many of my colleagues on this committee will
agree with my views when I say that I hope that the future of
telecom competition is vibrant, sustainable and beneficial to
the consumers. Hailing from New York it is safe to say that the
consumers and businesses probably benefit from as much
competition as any city in the United States. New York City's
dense population and heavy concentration of businesses make it
a target rich environment for telecommunication carriers,
especially for business customers.
I do believe that facilities-based competition is very
healthy for the market, beneficial to the consumers and
sustainable in the long term. And it illustrates why the FCC
needs to stay the course set by former chairman Bill Kennard
back in 1999, and ignore the calls to re-regulate the special
access market.
Mr. Chairman, thank you again for holding this hearing
today, and I look forward to hearing from our witnesses, and on
that note I yield back.
Mr. Markey. The gentleman's time has expired. The Chair, by
unanimous consent, will recognize the gentlelady from
Tennessee, Mrs. Blackburn, who is not a member of the
subcommittee. Welcome.
OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TENNESSEE
Mrs. Blackburn. Thank you, Mr. Chairman, and I thank you
and Ranking Member Upton for allowing me to continue to
participate in the hearings that we have. And I thank you for
the hearing that you are going to have today because I do
believe it is a timely and really a critical matter that there
should be a discussion about.
Over the weekend I did what a lot of Americans do, I
watched a little bit of football. The Tennessee Titans were off
for the weekend, but Indianapolis had to come to Tennessee to
find them a quarterback, and I had to check in on him and make
certain that he was carrying forth in the appropriate manner.
And like a lot of Americans I kind of glanced through the
football game but I pay a lot of attention to the commercials.
I like to see what is being marketed out there, and I was
struck this weekend with how much time was being spent on
telecommunications providers and the new options that are being
rolled out there. My goodness, traditional video services,
their expanded triple-play options, voice video, phone,
broadband, voice-over Internet protocol, everybody was
marketing their low-cost service. And it just seemed to go on
and on for the weekend. I think it does say a couple of things.
Number 1, competition is robust. It is quite robust and there
is a market that is there and there is a void to be filled. If
it was not, you all wouldn't be advertising like you are
advertising on Sunday football.
Until recently, as Mr. Stearns said, everybody operated in
a stove pipe, providing one or the other. But now companies
that are both large and small companies can compete with one
another on a regulatory playing field that doesn't force
competitors to line up and choose sides. Today's industry
leaders are playing a different game in an environment that
provides for robust telecommunications competition and the
American consumer is the winner in this. VoIP subscribers grew
by 709 percent from 1999 to 2006, the number of wireless
subscribers by 372 percent from 1996 to 2005, local exchange
lines grew by 263.5 percent.
So the companies are increasing. A lot of this has happened
because of the Telecom Act of 1996 and the framework that it
put in place. The current deregulatory regime seems to be
working. I am looking forward to hearing from our witnesses and
I appreciate the courtesy of the chairman and ranking member, I
yield back.
Mr. Markey. We thank the gentlelady for participating. We
also thank her for raising college football. We Boston College
football fans are quite dismayed, actually, that we have now
risen to No. 7 in the Associated Press Poll. But Boston College
football fans are also dismayed that the United States has
dropped to No. 15 in the OECD broadband rankings and those two
subjects have been commanding my attention for the last 2 days.
Any other statements for the record will be accepted at
this time.
[The prepared statements of Mr. Stupak and Mrs. Capps
follow:]
Prepared Statement of Hon. Bart Stupak, a Representative in Congress
from the State of Michigan
Thank you, Chairman Markey for holding this hearing on the
future of telecommunications competition.
The timing of this hearing could not have come soon enough,
with the recent developments regarding pending forbearance
petitions at the Federal Communications Commission. The FCC's
decision on these petitions will have far reaching consequences
for Competitive Local Exchange Carriers.
I am concerned that the FCC is implementing section 10 of
the Communications Act, which allows forbearance, in a manner
that is inconsistent with sound agency practice. I am
specifically interested in how the FCC's failure to act results
in a petition to be ``deemed granted.''
If the granting of forbearance is supposed to be in the
public's interest, it is difficult for me to believe that
failure to act can ultimately serve that purpose.
In the case of the 2006 Verizon petition for forbearance,
the FCC was under gridlock with a split 2-2 vote because it had
only 4 commissioners at the time.
The lack of majority should have resulted in a rejection of
the petition. However, because the rules governing the process
by which forbearance petitions are handled are not clearly
stated, the petition was ``deemed granted.''
I find it troubling that according to the GAO, decisions to
deregulate are guided by insufficient data used to predict
future market competition.
Another issue that we are discussing today is the
implications of ``copper retirement.''
I understand the difficult position of companies that
invest large sums of money in deploying fiber optic lines while
maintaining their old copper network. However, I feel that the
current ``Copper Retirement Procedure'' can use some slight
modifications to be more fair and open.
I welcome suggestions from the witnesses here today in how
to properly address the issue, so that Americans don't suddenly
find that their rights to competitive choice were pre-emptively
disconnected.
Lastly, the issue of barriers to municipality provided
broadband. It is unfortunate that communities that need
broadband the most, rural communities such as the ones I
represent, are swept up in the legal and lobby battles between
big cities, States, and the telecom companies.
How can we expect rural Americans to compete and their
communities to thrive if we do not ensure them broadband access
to the Internet?
The reality is, broadband access is as essential to an
economy as electricity. It is my belief that communities simply
will not be able to survive and thrive in the 21st century
without high-speed, broadband Internet access.
Mr. Chairman, thank you again for holding today's hearing.
I look forward to the testimony of our witnesses, and I hope we
can find answers to these very important questions.
----------
Prepared Statement of Hon. Lois Capps, a Representative in Congress
from the State of California
Thank you, Chairman Markey, for holding this important and
timely hearing on competition in telecommunications.
As we are all aware, pending FCC decisions regarding
special access and forbearance petitions will play a major role
in shaping the competitive landscape of the telecommunications
industry.
My district experiences changes in the telecom industry
rather distinctly. Not only because of its urban and rural
settings, but also because of its geographic composition.
Mountain ranges and remote areas can restrict access to
communications technology for my constituents.
With that in mind I am especially interested in ensuring
that competition remains vibrant and fair, so that smaller
telecom companies can continue to provide services where others
may not recognize an opportunity.
In particular, I am concerned that special access costs may
present a barrier to entry for some broadband companies and may
stifle deployment.
As I have stated in the past before this committee, the FCC
should continue to work for greater transparency in the special
access market, and I commend it for reopening the record on
this issue.
The FCC should ensure that these fees are fair and not set
or collected in a manner that reduces competition.
Finally, I would like to take a moment to address the need
to reform the forbearance process.
Deregulation requires careful consideration and an active
response to the realities of the market--not tacit approval
borne of insufficient time or consideration. I am concerned
that the ``deemed granted'' language in the statute makes it
difficult for the FCC to make good decisions. And since we are
talking about the core competition provisions of the Act, I
believe we may need to take a look at forbearance.
As technology and media continue their convergence toward
advanced communications technologies that we cannot know,
robust oversight of competition is necessary to ensure market
fairness and consumer protection.
I again want to commend Chairman Markey for holding this
hearing and look forward to hearing from the witnesses.
Thank you.
----------
Mr. Markey. And our panel here today can help us to unravel
the mystery of the second phenomenon which is of great
consequence for our Nation's future. And we are going to begin
our distinguished panel today with Mr. Parley Casto. Mr. Casto
is an assistant vice president in the AT&T Business Marketing
Division. He is responsible for all aspects of AT&T's pricing
for a dedicated Internet line sold to competitors, can't be a
more important person in the country in terms of these issues.
We welcome you, Mr. Casto. When you are ready, please begin.
STATEMENT OF PARLEY CASTO, ASSISTANT VICE PRESIDENT, AT&T
BUSINESS MARKETING, AT&T OPERATIONS
Mr. Casto. Thank you. Chairman Markey, Ranking Minority
Member Upton and other distinguished members of this
subcommittee, thank you for the opportunity to testify at
today's hearing on the future of telecommunications
competition.
My name is Parley Casto, and I am assistant vice president,
Strategic Pricing, AT&T Business Marketing. I am responsible
for all aspects of pricing for AT&T wholesale products and
services, including services sold to interexchange carriers,
wireless carriers, CLECs, content providers, systems
intergrators and Internet service providers. Insofar as I am
responsible for wholesale products and services, I am well
aware of the competitive alternatives that are available to and
utilized by AT&Ts wholesale customers. Since the FCC
implemented its pricing flexibility framework for special
access services in 1999, that competition has dramatically
increased.
AT&T faces both intra-modal competition and increasingly
intermodal competition from wireless and cable-based technology
platforms. I will focus my testimony today on the competition
AT&T faces in the wholesale enterprise market. AT&T faces
intense business market competition from a very large number of
competitors. Traditional wireline CLECs have continued to
expand their fiber networks to virtually all areas where there
is demand for special access services. Indeed, CLEC fiber
blankets most major metropolitan areas of the country where
large businesses that use special access services are
concentrated and increasingly in more remote areas, as well.
This intense competition is recognized by analysts, one of
which recently reported that CLEC competition for wholesale
private lines services rates a 9 out of 10.
In recent years CLEC competition has been accompanied by
the advent and rapid growth of inter-modal competition from
cable and broadband wireless providers. With fiber and coaxial
networks that blanket nearly all locations where people live
and work, cable operators can and increasingly do provide all
levels of service including to business customers.
Broadband wireless providers likewise are actively and
successfully competing against AT&T. All the major wireless
carriers now rely heavily on wireless backhaul. According to
one study, roughly 20 percent of mobile base stations in the
United States are already served via wireless technology, and
that percentage is expected to double by 2011.
AT&T has responded aggressively to these competitive
pressures. AT&T has significantly lowered its prices for DS1
and DS3 circuits including where rates have been deregulated.
Rates are far lower today than they were at the time the FCC
established its pricing flexibility regime. Moreover, AT&T is
taking other steps to meet its customer specialized needs,
including dramatically increasing investments in its network
and deploying more innovative service offerings.
These trends, characterized by declining prices, increased
investment and increased innovation, demonstrate that re-
regulation of special access services is unnecessary and
inappropriate. To be sure, any large business would welcome a
Government mandate of price reduction in the cost of its input.
But the FCC was right in 1999 to introduce pricing flexibility
where AT&T faced competition. Eight years later competition for
special access services are even fiercer and the justification
for pricing flexibility is even greater.
AT&T special access customers constantly remind AT&T that
they can turn to alternative providers. In fact, Sprint has
repeatedly pointed out that it has many other options to meet
its backhaul needs, especially from cable and broadband
wireless providers, as well as its ability to self-supply
special access via microwave solutions.
These are not hollow threats. In August, Sprint announced
that fiber power will provide backhaul services in seven of
Sprint's initial WiMax markets and that is just one example of
this competition. As a result, my team at AT&T is constantly
looking for ways to provide special access service to our
customers more efficiently at lower cost and higher quality in
ways that are better tailored to customers' individual and
diverse needs.
It is not necessary for me to rely solely on customers to
confirm that there are a myriad of special access alternatives
throughout the country. My colleagues in AT&T Mobility have
confirmed that AT&T Mobility generally has multiple
alternatives for backhaul suppliers at its many cell sites.
AT&T purchases thousands of backhaul facilities from broadband
wireless and cable companies outside of AT&T's local service
territory.
The reality is that prices are lower and differentiation is
greater, both of these thanks to the introduction of robust,
facilities based competition. This competition obviates the
need for re-regulation which would destroy the incentives that
all companies currently have to constantly approve their
service offerings and enhance their networks.
Mr. Chairman, thank you for the opportunity to testify
today.
[The prepared statement of Mr. Casto appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, sir, very much. Our next witness is
Ms. Larissa Herda. Ms. Herda is the chairman, president and
chief executive operator of Time Warner Telecom. She also
serves on the Economic Advisory Council of the Federal Reserve
Board of Kansas City. We welcome you, Ms. Herda. Whenever you
are ready, please, begin.
STATEMENT OF LARISSA HERDA, PRESIDENT, CEO, AND CHAIRMAN, TIME
WARNER TELECOM
Ms. Herda. Thank you, Mr. Chairman. Thank you, members of
the subcommittee.
My name is Larissa Herda. I am chairman, president and CEO
of Time Warner Telecom. And let me be perfectly clear. We have
absolutely no association with Time Warner, Inc. or Time Warner
Cable. We are a separately traded company, and we simply lease
their name. That lease runs out next summer.
It is an honor to appear before you here today to discuss
the future of broadband in this country. This is an issue that
not only impacts my business but the bottom line of every
American business that wants to take advantage of the
additional bandwidth cost-savings and efficiencies that
broadband technology provides.
In order for American businesses to have access to this
technology, the FCC must not forbear from regulating the ILECs
because unlike the residential market the ILECs still control
the only last mile transmission facility or local loop to the
vast majority of office buildings nationwide. Instead, the FCC
needs to revise the current regulatory regime to recognize the
fact that the ILECs still control the last mile connection to
the business customer regardless of what technology is used to
provide the service.
Time Warner Telecom has invested billions of dollars to
connect approximately 8,000 buildings with our own fiber
network, more than any other non-incumbent telecommunications
carrier in the country. But there are many locations where it
is simply uneconomical to build our own network facilities. In
such locations we have no choice but to rely on facilities we
lease from the ILECs to meet customer demand. In fact, we have
no choice but to serve a high percentage of our customer
locations by leasing incumbent facilities.
At Time Warner Telecom we are focused on serving the data
and communications needs of enterprise customers. We are
particularly focused on providing those customers a service
that is called Ethernet. I want to explain a bit about Ethernet
because it is such an important tool for business and the ILEC
petitions for forbearance that are currently pending at the FCC
threaten the potential economic benefits of Ethernet.
Ethernet is a plug and play transmission technology that
allows customers to converge all of their data communications
needs on to a single transmission facility. Older technologies
like ATM and frame relay require a piece of equipment to
translate between various different kinds of equipment used by
end users and carriers. Ethernet technology eliminates the need
for these translations making it simple and cheap for customers
to add new services and capacity to their communication
services. The qualitative difference for businesses between
Ethernet and older and more complicated technology such as ATM
and frame is like the difference between dial up broadband and
cable modem or DSL service.
Ethernet allows businesses to function more efficiently in
countless ways. For example, Ethernet enables medical
institutions to send urgent messages and information between
locations in seconds. It also enables banks to improve response
times and process more information in significantly less time.
It supports all customers with data and disaster recovery
capabilities crucial to protecting the electronic files
critical to both business and public institutions.
Despite the great benefits of Ethernet, most businesses are
unable to purchase this service today. It is an economic burden
on business development that businesses across the country
don't have access to the benefits of this technology. It places
the United States at a disadvantage vis-a-vis other countries.
In striking contrast to what is available to American
businesses, Ethernet is widely available in the UK. The
question is then why aren't more businesses receiving the
benefits of Ethernet in this country? The answer is quite
simple. The ILECs have relatively no incentive to promote
Ethernet aggressively because it cannibalizes their huge
legacy, the old generation of frame-relay and ATM services.
Not only is Ethernet unavailable from the incumbents in
most office buildings, the cable companies generally do not
offer it to a significant degree. And in reality, we are in
more business buildings than they are. That means it is up to
competitors like Time Warner Telecom to drive the rollout of
Ethernet.
In fact, Time Warner Telecom is the No. 3 provider of
Ethernet in the country. But we are the third biggest fish in a
very small pond, and we do not have the power to make it much
bigger because we cannot economically reach most business
locations without our own network. Only 25 percent of our
customer locations are on our network. For the remaining 75
percent of customer locations I rarely have a choice but to
lease the ILEC network facilities in order to provide service
the customers demand.
Even where the ILECs offer Ethernet on a wholesale basis,
they charge extremely high prices for services as illustrated
in the charts that are supposed to show up on that up there.
Well, they should be showing up there, and what you will see,
there we go, the color code there is ivory is Time Warner
Telecom and the red are the various different incumbent local
exchange carriers. And I think we have got Qwest, Verizon and
AT&T up there.
In most cases, as you can see, our prices are considerably
lower. In most cases it is not economical to purchase wholesale
Ethernet and combine it with our non-Ethernet product, in order
to sell customers the complete service offering they need to
manage their communications needs most effectively.
Mr. Markey. If you could summarize your statement, please.
Ms. Herda. Yes, I have been told countless times, well, I
have been told countless times from a diverse group of
customers that they could not purchase Ethernet until it was
offered by Time Warner Telecom. And the reality, let's see,
that won't happen if the FCC forbears Ethernet services, we
will not be able to have a discussion on special access because
Ethernet is special access. Thank you.
[The prepared statement of Ms. Herda appears at the
conclusion of the hearing; because of its length, the appendix
of her statement is on file with the committee.]
Mr. Markey. Thank you so much, Ms. Herda. And now we will
hear from one of the most distinguished alumni of this
committee, Tom Tauke, who was a member of this subcommittee for
12 years, and he is now the executive vice president at Verizon
for Public Affairs, Policy and Communication. Welcome back,
Tom. Whenever you are ready, please, begin.
STATEMENT OF HON. THOMAS J. TAUKE, EXECUTIVE VICE PRESIDENT,
VERIZON
Mr. Tauke. Thank you very much, Mr. Chairman. I first must
note I spent the weekend, parents weekend at Boston College,
watching the soaring Eagles, and I do want you to note that the
poll that counts is the Coaches Poll, that counts in BCS and
there we are No. 6.
Mr. Markey. There BC is No. 6.
Mr. Tauke. BC is No. 6.
Mr. Markey. Let me just tell the audience this that Tom,
this is not, can we go back to 5 minutes, that Tom is actually
a graduate of Loras College, which is a Jesuit school in Iowa,
and up until there was an unbundling of Notre Dame's control
over Catholic high school graduates playing football for them
there was no chance that somebody from Iowa was going to Boston
College at the campus, so it just shows you what happens when a
competitive football marketplace opens up and kids are allowed
to make their own decisions as to where they are going.
Mr. Tauke. And we are grateful for that, Mr. Chairman.
Mr. Terry. Mr. Chairman, as the gentleman from Nebraska and
maybe the gentleman from Michigan, this football talk is making
us a little uncomfortable.
Mr. Tauke. Here I thought I was watching the Iowa-Indiana
game this last week.
Mr. Terry. Well you notice how I moved from Iowa to Boston
College very quickly.
Mr. Markey. So the gentleman is recognized for 5 minutes.
Mr. Tauke. Mr. Chairman, members of the committee. The
world of telecommunications keeps changing ever more rapidly.
Since Congress and the FCC have adopted policies that permit
adaptations to the market technology in the marketplace have
unleashed a host of new communications services and we have
seen the development of a highly competitive telecommunications
market.
Now we have TV services being offered by companies like
Verizon and AT&T. Phone services from Comcast, Cox, and other
cable companies. And, of course, we have the most aggressive
and most advanced wireless mobile communications market in the
world. Not only do we have four national carriers but we have
dozens of regional carriers like Alltel, U.S. Cellular, Leap,
that are providing a host of new services to consumers. Not
just voice, not just data, but text-messaging, video, and now
even live broadcast services.
The U.S. wireless consumer is not only benefiting from this
advancement of new services, but the wireless market is also
driving down prices and serving consumers well. When you look
at the U.S. versus Europe, for example, here consumers pay 60
percent less for their wireless services and they use, not
surprisingly, twice as much service on a per capita basis.
Similarly the investment in broadband has been a good
success story. The adoption rate for broadband is remarkable.
The fact is that the adoption rate for broadband is faster than
it was for TV or even cell phones, and prices are going down.
Consumers in most parts of the country have at least three
competing platforms for broadband, and the speeds that those
platforms are offering go up, up, up.
But is it good enough? Definitely not. We do need to be No.
1, Mr. Chairman, not only in deployment and availability but
also in the innovation and the services that are offered. It is
important that the Congress and the FCC do two things, I think,
as you look to the future. First, stick with those policies
that are working, and secondly, adopt new policies that will
address challenges in certain areas. Two that I will mention
briefly are universal service and broadband adoption.
First, let us talk about the existing policies, the
forbearance petitions. Creating broadband service for the
underpriced market with the light regulatory touch is working.
It has been demonstrated by the forbearance Verizon received a
year ago and what has happened as we have entered into
agreements with hundreds of companies since then to offer
services to those entities. This kind of market-based
competition allows for investment, innovation and competition.
Second, the traditional special access services policy is
on target. These are services that connect business locations
obviously to each other and cellular services to the landline
network. What Chairman Bill Kennard did has proven to be
successful. Prices in this market are falling 5 percent a year
in real terms since he adopted these policies, and more players
are entering the market, and there is more competition in the
special access market.
Now let me mention a couple of those issues that need
attention, first, broadband deployment to underserved areas. We
support Congress's effort to create programs to gather more
information. We need to know who is not being served in order
to focus attention on those areas. We believe the Connected
Nation process has been a good process. It was used as Connect
Kentucky in Kentucky, and as you know, it found out where the
problems existed. It focused attention on those areas, and it
created a public/private partnership, and Kentucky leaders tell
us they will be at 100 percent availability for broadband by
the end of the year.
As we look elsewhere in the country, it is not just
broadband availability, however, it is also adoption that is a
problem. And as the Consumer Electronics Association study
recently showed part of the problem is that 26 percent of
households have no home computer. That also is an issue that
needs to be addressed.
The second issue, Mr. Chairman, is the Universal Service
Fund. This fund is badly in need of reform. In the past 8 years
the high-cost funding has grown from $1.7 billion to $4.1
billion. And we are seeing a distortion in the way this money
is distributed which we can talk more about later. The bottom
line is this needs urgent action or that percent that is in the
bottom of the bill, which is currently 11.1 percent the
consumers are paying for universal service is going to move to
15 percent in a few years, and 22 percent 5 years out.
Something needs to be done to correct this issue, and it is
going to be easier if Congress acts now. We urge the FCC to
adopt the recommendation made by the joint board to try to put
some kind of a cap on the Universal Service Fund. And we
support a reverse auction to try to fairly distribute these
funds in the future.
The bottom line, Mr. Chairman, Congress, and the FCC have
generally done a very good job in creating policies which are
allowing this marketplace to grow, and to bring new services.
Is it good enough? No, but we are making good progress.
[The prepared statement of Mr. Tauke appears at the
conclusion of the hearing.]
Mr. Markey. We thank the gentleman, and now we turn to Gary
Forsee who is the chairman and chief executive officer of
Sprint Nextel Corporation. He is also the chairman of the
President's National Security Telecommunications Advisory
Committee. We welcome you, Mr. Forsee. Whenever you are ready,
please, begin.
STATEMENT OF GARY D. FORSEE, CHAIRMAN, CEO, AND PRESIDENT,
SPRINT NEXTEL CORPORATION
Mr. Forsee. Good morning, Chairman Markey, and Ranking
Member Upton, members of the subcommittee. Thank you for the
invitation to be here.
I am Gary Forsee, chairman, and chief executive officer of
the Sprint Nextel Corporation. I would like to thank you for
the opportunity to testify about a substantial barrier to
bringing broadband to the American public. As Chairman Markey
recently wrote to the FCC, the special access market failure
directly affects the pace of broadband deployment, and I urge
you to let the FCC know that it must fulfill its statutory
obligation to ensure that special access rates are just and
reasonable.
Let me point out that Sprint takes a backseat to no one
when it comes to advocating free markets, and we commend you
for your key role in creating the competition we see in
telecommunications today. Thanks to your efforts over time
Sprint brought competition to the long-distance market with the
first all-digital fiber optic network in the 1980s. Sprint and
Nextel brought competition in the 1990s to the wireless market
that had been a duopoly, and we continue to invest in our
wireless markets to the tune of $5.7 billion this year.
We are also investing an additional $5 billion to bring
competition to the broadband marketplace through our announced
plans to deploy the world's first mobile broadband network
using WiMax technology. However, when markets fail the
Government must act to protect consumers. This is a primary
obligation of the FCC.
As someone who has been in this industry for 35 years, I
have been around the block and including a few chairs at this
table, I can tell you that the failure in the special access
market is obvious and I think it is also unique given what
would also be considered the hyper-competitive aspect of this
industry. But it is obvious due to the overwhelming and
increasing market share of the two dominant special access
providers, AT&T and Verizon. It is obvious in their vast and
increasing special access revenues and their inflated special
access prices and in their exclusionary lockup terms and
conditions.
The FCC relied on its hopes and predictions of competition
for special access in granting the dominant providers pricing
latitudes. But special access competition has not developed.
The incumbent LECs' share of the wholesale market as shown on
this chart grew to more than 94 percent in 2005, 94 percent.
Having acquired AT&T and MCI, the two biggest proponents of
special access reform in addition to Sprint and the two biggest
alternative providers of special access, AT&T and Verizon now
account for 81 percent of the incumbent LEC special access
revenues. Even in the largest markets, including New York, the
incumbent LECs dominate. As this map shows, nearly 98 percent
of our connections to our over 60,000 cell sites are provided
by incumbent LECs, again, primarily AT&T and Verizon. With no
competition, special access prices are substantially inflated.
So compare the prices for similar capacity services in
competitive markets. As this table shows, Verizon's FiOS
service is $39.99 a month. But DS1s, which we rely on
substantially for our cell sites and for our ability to provide
commercial services to our retail customers are nearly 10 times
that price. Again, for a similar capacity oriented service.
As the next slide shows, with no competition AT&T's after
tax special access return grew from an already excessive 40
percent in 2000 to 100 percent in 2006. Verizon's more than
tripled in that same period in growing from 15 percent to 52
percent. In 2006 alone, AT&T and Verizon brought in $6.3
billion over what they would have earned in an 11.25 percent
rate of return.
I understand that there is some assertion that there is not
sufficient data available to analyze the market. I respectfully
disagree. The data on this chart combined with the fact that
Sprint purchases 98 percent of its special access, which is
about $2 billion, from one source, meaning the ILECs, is more
than sufficient to demonstrate that this market has indeed
failed.
As Sprint Nextel and the other independent providers are
being over-charged, we are subsidizing AT&T and Verizon, our
largest wireless and long-distance competitors. These subsidies
directly affect the availability of broadband and other special
services that we provide.
Let me give you an example. Special access represents about
33 percent of our cost to operate a cell site. Since we are
paying at least twice a cost-based price, that 33 percent
figure includes funds that are going to be diverted from our
deploying this fourth generation WiMax global broadband
network.
There is a ready solution to the obvious special access
market failure. The FCC has the tools, the evidentiary record,
and the congressionally mandated obligation to ensure that
special access prices are just and reasonable. I urge this
subcommittee to let the FCC know that it must meet its
obligations to reduce special access rates to reasonable levels
and supply effective incentive-based regulation until the LECs
face competition for special access services. That is not, by
the way, accomplished by granting forbearance and giving them
even greater latitude to overprice special access service.
Addressing the special access market failure will produce
tangible benefits for consumers today, including a choice of
providers into the future, other than AT&T and Verizon,
improved service quality, and faster rollout of broadband
markets in the United States.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Forsee appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Forsee, very much. Our next
witness is William Cheek. He is the president of the Wholesale
Markets Division of Embarq. Embarq is a local phone and
wireless company with operations in 18 States. Welcome, Mr.
Cheek.
STATEMENT OF WILLIAM E. CHEEK, PRESIDENT, WHOLESALE MARKETS,
EMBARQ
Mr. Cheek. Mr. Chairman, Ranking Member Upton, and members
of the subcommittee. Thank you for the opportunity to testify
today.
I am Bill Cheek, president of Wholesale Markets for Embarq.
Headquartered in Overland Park, Kansas, Embarq is a full-
service communications provider delivering voice, Internet,
wireless, and entertainment products to about 6.5 million
access lines in 18 States. We serve primarily rural
communities, which typically have higher cost to serve, and we
are always mindful of the role robust communications networks
play in enhancing rural economies. Embarq was established 16
months ago when Sprint Nextel spun off its local exchange
operations, and we have been operating independently since that
time. It is also a privilege for me today to testify on the
same panel as my former chief executive, Mr. Forsee. While we
may now approach telecom policy from different perspectives we
continue to enjoy a relationship of great mutual respect. We
commend the subcommittee for convening this hearing on the
future of telecommunications competition.
One particularly timely topic for this hearing is the call
by some for the FCC to reverse the trend of deregulation and
reimpose price controls and other regulations on the market for
special access. While we fully appreciate and participate in
the Commission's recent steps to refresh the record in its
special access rule-making, we find the prospect of re-
regulating the market that was initially deregulated 8 years
ago to be inconsistent with competitive conditions in the
marketplace today.
To put the issue in perspective, about 71 percent of
Embarq's special access revenues are still subject to price cap
regulation because they are provided in geographic areas where
the Commission has not found the indicia of competition under
current law. At the same time, 75 percent of our special access
lines are subject to either CLEC or cable competition. In a
more densely populated, low-cost market we typically face five
or more competitors. Also, more than 70 percent of our special
access revenues come from sales to carriers that are at least
twice our size. And in fact, in most cases they are six times
our size or larger.
Increasingly, large buyers are putting their special access
needs out for competitive bids, especially in the wireless
backhaul markets where Embarq bids against multiple
competitors, all of whom can see our public price schedules and
few of whom are regulated to the same extent we are.
Just this past month we submitted competitive bids for two
multi-million dollar backhaul contracts in Nevada and the
Carolinas. In both cases more than a dozen competitors
submitted bids. Unfortunately, our most aggressive competitors
aren't counted under the current competitive trigger analysis
the FCC uses to determine when a particular geographic market
should be deregulated.
The problem is that current rules only count competitors
who physically co-locate their equipment in the incumbent's
central office. But many of the new generation of competitors,
cable, fixed wireless, and other new entrants, bypass Embarq's
network altogether and are never included when competition is
measured. Despite the FCC's recent invitation to refresh the
record, our top cable and fixed wireless competitors did not
file their data. In fact, our own analysis indicates at least
one of our currently regulated markets would merit pricing
flexibility in deregulation if all of our competitors were
counted because we are in direct competition with a cable
provider, a fixed wireless provider, and a local electric
utility that has entered the special access business in that
city.
In August and September, Embarq filed substantial data with
the FCC showing our special access competitive losses as well
as the continuing impact of price cap regulation on our rates.
In fact, Embarq demonstrated that our DS1 channel terminations
which are often used to connect cell towers are on average
priced below forward-looking economic costs to providing the
service. Prices for our high capacity DS3 services have
declined 35 percent since deregulation in 2001. Just this year,
to meet growing competitive threats, Embarq more than doubled
fiber investment plans for wireless backhaul even as our prices
have generally held steady or declined in some cases. Perhaps
most tellingly, a November 2006 study by the GAO found that
since the beginning of deregulation the average price per unit
actually paid for special access has declined.
Ultimately we believe that if the Commission were to take
action on the special access rule-making a necessary
prerequisite would be to close a gaping hole in the record by
obtaining data from all new competitors in our filings and
those of other ILECs in ensuring that services provided by such
providers were considered in any eventual rule change.
On the question of regulatory forbearance our chief concern
is that once a market has become competitive and new entrants
are strong and healthy, it is unfair to impose extensive
economic regulations on just one provider even if only by
regulatory inertia while others grow their share unburdened.
Congress seemed to anticipate this danger, and deliberately
structured such intents so regulators would periodically
reaffirm the public interest in maintaining economic
regulations or otherwise pare them back.
In conclusion, ultimately we believe the best course for
policy-makers is to pursue a technologically neutral approach
that lets the market choose winners, and losers, not
government, and recognizes that competition often comes about
in ways very different, excuse me, from how it was originally
predicted.
We thank you for the opportunity to appear and look forward
to working with the members of this subcommittee. Thank you.
[The prepared statement of Mr. Cheek appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Cheek, very much. Our next
witness is Brad Evans. He is the chairman of Cavalier
Telephone. Cavalier is the third successful competitive carrier
that Mr. Evans founded. We now turn to you for 5 minutes.
Whenever you are ready, please, begin.
STATEMENT OF BRAD EVANS, CHAIRMAN, CAVALIER TELEPHONE
Mr. Evans. Thank you, Mr. Chairman, and members of the
committee.
I am Brad Evans, founder and chairman of Cavalier
Telephone. Thank you for the opportunity to testify here today.
I will briefly introduce Cavalier and then discuss the threat
to competition posed by forbearance petitions pending at the
FCC. We need congressional help to stop these petitions filed
by AT&T, Verizon, and Qwest.
Our company is a success story of the new, competitive
marketplace mandated by the Telecommunications Act of 1996.
Cavalier, we launched voice service on its first switch in
Virginia in 1999. Since that humble beginning we have grown to
become a profitable company with over $650 million in revenues
and over 2,000 employees. Cavalier, we embrace the residential
market, and we are adding approximately 25,000 new customers
each month. We have made significant capital investments, and
we now own over 11,000 miles of fiber, and we have saved
customers untold millions on their telephone bill.
Cavalier is a facilities-based provider. The only part of
the network that we don't own is the so-called last mile. These
are the copper lines that run from a local central office
directly to a customer's home or office. These last mile
facilities are essential for telecom competition and were the
underpinning of the 1996 Telecom Act, and it is access to these
facilities that forbearance threatens to eliminate.
Cavalier has super charged the legacy copper network with
the latest technology. Our super charged broadband provides up
to 15 megabits to the home, to users. And Cavalier is an
industry pioneer in competitive TV service that uses IP
technology to provide 150 channels of television over
Cavalier's broadband network.
Unlike Verizon's FiOS, our TV service runs over existing
copper loops. That means we can serve the older neighborhoods
with copper facilities, not just the gated, suburban
communities with the newly built fiber networks. Cavalier is a
low-cost provider. Most of our 400,000 residential customers
are in the lower-income brackets and enjoy the 20 percent
monthly savings Cavalier offers. Our triple-play customers save
$70 per month compared to the monopoly prices.
As part of its FiOS rollout, Verizon is removing copper
loop facilities built with rate-payer dollars. Why? Because
Verizon wants to remove the copper facilities that competitors
can use, replacing it with a fiber that the FCC has exempted
from any unbundling requirements.
We believe Congress and the FCC should not allow the
dismantling of a valuable American asset, America's copper
network. Forbearance permits the FCC to consider changes to the
Act if those proposed changes will promote competition. Our
problem is not with section 10. Our problem is that the FCC has
permitted changes to occur using a process that is deeply
flawed. Last minute evidence dumped into the record with no
opportunity for other parties to respond. Orders being issued
so no one even knows what relief was granted, and an agency
process riddled with confidentiality and secrecy that makes a
mockery of administrative transparency.
Verizon has admitted using E911 data that was flawed in
overstating competition in a proceeding before the Virginia
State Corporation Commission. The word is now out. The way you
get the relief you want from market opening protections in the
Act is simply to file forbearance petitions. There is no due
process. The forbearance proceedings are effectively a kangaroo
court.
Past forbearance petitions have been limited to small
markets like Omaha, Nebraska, and Anchorage, Alaska. However,
the Bells are now seeking forbearance in major markets like New
York, Boston, and Denver.
Cavalier alone has over 90,000 residential customers and
another 50,000 business lines affected by the pending Verizon
petitions in Philadelphia and Virginia Beach. All told 47
million Americans live in areas affected by these petitions,
and no one should kid themselves. Just as we saw in the grant
of the Qwest forbearance petition, the Bell companies will not
offer meaningful commercial terms. Once our right to access is
removed through forbearance it will only be a matter of time
before they choke off the remaining competition. Congress did
not intend such intent of the Telecommunications Act to be a
weasel clause for the Bells to eliminate competition.
In conclusion, we ask Congress to urge the FCC to just say
no by rejecting the pending petitions and setting clear
standards or processes by which future forbearance petitions
will be judged.
Thank you.
[The prepared statement of Mr. Evans appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Evans, very much. And our final
witness is Mr. Wes Rosenbalm. He is the president and chief
executive officer of Bristol Virginia Utilities. He is
responsible for managing the municipal broadband network in
Bristol, Virginia. Welcome, sir.
STATEMENT OF WES ROSENBALM, PRESIDENT, AND CEO, BRISTOL
VIRGINIA UTILITIES
Mr. Rosenbalm. Good morning, Mr. Chairman, Representative
Upton, and subcommittee members.
My name is Wes Rosenbalm. I am president and CEO of Bristol
Virginia Utilities. I would like to thank you for this
opportunity to be here today.
Bristol Virginia Utilities is a city owned, public utility
offering water, sewer, electricity, phone, data, and cable
television. We manage over 50,000 traditional utility and
telecom accounts with an annual budget of $64-plus million.
Bristol Virginia Utilities began a process of entering the
telecom and information service business in 1999 because
Bristol and its region were losing population. It was losing
most of its manufacturing base. It was losing its most
lucrative cash crop, and it was losing its highest paying jobs.
Sharing Congressman Boucher's vision, city leaders decided that
the city should install an infrastructure that would permit
this area to compete in the information society if the city was
to survive. It was not otherwise going to happen.
We felt it was important that the people of our community
have broadband options sooner rather than later. At an expense
of $2.5 million in legal and regulatory costs plus capital
expenditures, Bristol Virginia Utilities began offering
services. The $2.5 million is equivalent to the approximate
cost of initiating service to an additional 2,000 customers. By
July 1, 2003, Bristol Virginia Utilities was able offer all
three of its current services, phone, cable, and data, via a
state-of-the-art fiber to the premise network.
Have we been successful? We believe our success can be seen
in the following facts. We currently enjoy a 65 percent
residential penetration rate within the city of Bristol,
Virginia. We have recently won the prestigious 2007 Cornerstone
Award for customer service. We have stabilized rates in our
community, thereby improving the quality of life. Because this
infrastructure is now in place, we have launched a
comprehensive economic development effort titled ``Access
Bristol.'' It is our belief that broadband is the new essential
infrastructure. That point was re emphasized recently by
Virginia's Secretary of Commerce and Trade Patrick Gottschalk,
who supported the launch of this economic development effort.
Most recently we have been noticed on a regional basis.
Economic development partnerships in the southwest Virginia
counties of Washington, Smith, Wythe, Buchanan, Russell,
Tazewell, and Wise have all requested that our infrastructure
be expanded from Bristol into their communities with the help
of economic development money and encouragement from State and
Federal legislators. Many of them now have the broadband access
that they so desperately need to thrive in the high-tech 21st
century.
Last, and potentially most important is regional outreach
has brought new companies and jobs to our region. Fortune 500
companies Northrop Grumman and CGI Group, two highly broadband
dependent companies, are locating 700 jobs in Russell County
alone. They pay an annual average salary of $50,000,
significantly higher than the region's current average salary.
Both companies attributed their decision to locate in our
region in part to Bristol Virginia Utilities high capacity
fiber optic infrastructure. The president of CGI Group stated
in a letter to the editor of the Bristol Herald Courier that
the fiber optic infrastructure was just like those found in
northern Virginia.
Because of this we have been contacted by as many as 50
public entities with the assistance of the American Public
Power Association, most of whom are facing the same lack of
broadband technology opportunities in their communities. These
municipalities are seeking from us solutions for their
communities that will allow for the same level of choice and
economic availability that we have now. They are telling us
that the infrastructure in their city to provide broadband
technology opportunities is not developing. The Community
Broadband Act of 2007 will empower other communities to bring
these same advantages to their residential and corporate
citizens without delay and added expense.
As has been noted this morning, according to the
Organization for Economic Cooperation Development, the United
States has dropped to fifteenth place on the global list. The
Community Broadband Act of 2007 will remove the legal and
regulatory barriers that prevent communities from uniformly
providing the essential broadband infrastructure they so
desperately need. For the hundreds of small, rural communities
that want a robust broadband network available at a fair and
stable price, providing for that infrastructure is a top
priority. The Community Broadband Act of 2007 will allow
municipalities to improve the quality of life in their
communities, and enhance their economic development
opportunities.
I cannot say enough to express the debt we owe Congressman
Rick Boucher for his efforts not only on behalf of Bristol but
on behalf of all our country's needs for this new essential
utility, high speed broadband service.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Rosenbalm appears at the
conclusion of the hearing.]
Mr. Markey. Thank you, Mr. Rosenbalm, very much. That
completes the time for opening statements from our witnesses,
so we will now turn to questions from the subcommittee.
Let me just begin by saying that at our international
broadband hearing I asked an executive from NTT, Japan's
incumbent telephone company whether NTT was allowed to disable
copper loops after it deployed fiber to a home or business. He
responded that as much as NTT would like to do so, to dismantle
the copper, that the Japanese Government had not allowed this
practice because it would prevent broadband competitors from
using the copper. So let me begin by asking you Mr. Tauke, does
Verizon have a legitimate business reason for disabling the
copper loops, or is Verizon just simply afraid of a truly
competitive broadband market with more than two competitors the
way it exists in Japan?
Mr. Tauke. Let us start, Mr. Chairman, with the fact. The
fact is that we don't disable the copper loops. We have not
disabled copper loops to any home to which we have extended
fiber, and we continue to provide services to competitors over
copper loops in areas where we provide fiber. The FCC has
established a process that we would have to go through if we
decided to disable copper loops. Now there are instances where
because of connections to the home or something, the last wire
from the pole to the home, in some cases aesthetics and some
cases other issues such as poor wire, is taken down. But we
have an obligation under current rules to provide that copper
loop or last wire from the pole to the home to a competitor if
they choose to purchase that service from us.
Mr. Markey. Well let me go to----
Mr. Tauke.I will just say that we have a timeframe within
which that must be installed as we do for other duties.
Mr. Markey. OK. So would you oppose any efforts to disable
such loops?
Mr. Tauke. Well, Mr. Chairman, I think that the bottom line
is that this is the technology that is getting older. We are
replacing the network. At some point down the road there will
be a point where either you have to put a lot of money into
rebuilding the copper network or you decide to not continue to
maintain it. And our view of that is a decision that we should
be able to make down the road depending on what is going on in
the marketplace, what customers want, and so on.
Mr. Markey. So let us go to----
Mr. Tauke. It is not an issue that we think is, frankly,
ripe right now.
Mr. Markey. Who owns that copper wire? Is it Verizon or the
consumer?
Mr. Tauke. Verizon owns the copper wire.
Mr. Markey. You don't think the consumer owns it?
Mr. Tauke. No, the consumer doesn't own it. The
shareholders of Verizon are the ones that put up the money to
continue to invest in the infrastructure.
Mr. Markey. Well, again, I disagree with that. I do believe
that the consumers have through their rates spent billions of
dollars in helping to create that lifeline to their homes, a
competitive lifeline to their homes as well in the future. And
I think therein lies the core of this debate, and I would like
to go to Mr. Evans who depends upon this copper wire as a means
of competition.
Mr. Evans. Yes, Mr. Chairman. Verizon is knowingly cutting
off the wire into the homes when they put in the fiber. They
are removing the NID, the box that interconnects the copper
wire, and totally disconnecting the customer's home. They are
putting a roadblock upon the local road so we can't get access.
And so in order to do that then they would have to go back. We
would have to issue a special order. Have a truck roll to pay
charges for and re-put a box on a customer's house. There is no
reason to take that box off the house. They are just doing it
so that it is not easy for competitors to get to use that
copper network.
Mr. Markey. So Mr. Tauke says that that would just be an
accident or aesthetics that would have the removal.
Mr. Evans. We have had proceedings in Virginia and
Pennsylvania. It is not an accident. It is happening all the
time. It is commonplace.
Mr. Markey. It is commonplace. So let me then move on to a
question for Mr. Casto. You assert that special access prices
have declined since 1999, but the GAO found that list prices
and average revenues are higher in areas where AT&T and Verizon
were granted unconstrained pricing authority then in those
areas where prices are still capped by Federal regulation. How
do you explain that outcome, Mr. Casto?
Mr. Casto. Well, Mr. Chairman, I would at first reiterate
that, in fact, prices have declined since the advent of pricing
flexibility, in fact, double digit declines over that period of
time. I think what the report indicates is that list prices as
outlined in the deregulated section of tariff, which by the way
are analogous to the prices on the sticker of a car are the
prices that are, in fact, perhaps slightly higher. And those
list prices are not prices that very many customers pay at all.
Mr. Markey. OK. Where you have been given so-called phase
two flexibility to set your own special access rates, those
rates have actually risen. Ms. Herda, could you deal with that
question?
Ms. Herda. I would love to comment on that actually. I
think that the statement that their prices have gone down is
extremely misleading. In fact, that sticker price has gone up
but what they have done is they have been locking up companies,
customers, and user customers, as well as carriers into these
long term contracts that I not so affectionately refer to as
the heroin drip. The more you buy the more you have to buy in
order to be able to get the discounts where you can be
competitive. And every year the requirement gets higher and
higher and higher, and this is a very anticompetitive practice.
In fact, Mr. Forsee over there has major commitments. We have
major commitments. I have tried to sell to Sprint, and the
problem is that we can't bring our prices low enough to make up
for the penalties that Sprint would have to pay if they move
some of their services to us because they are not meeting those
commitments. So it may appear, I think what is important is
context here. If you see the prices look like they are going
down, it is the result of these long term contracts that are
very, very bad for us. One of the issues we have today is that
as the world is moving to Ethernet, and Ethernet is special
access. Even the incumbents have it in their tariffs as special
access, in the category of special access. As the world is
moving to Ethernet they are not even allowing us to put
Ethernet into these revenue commitments so that, as we have to
get bigger, and bigger commitments every year for special
access, and the world moves to Ethernets, we are all going to
be stuck with these big commitments with huge penalties at the
end of the day without having any kind of recourse.
Mr. Markey. Let me just conclude by saying that in the
United Kingdom, in Japan, and other countries around the world
they are using the age of copper to move to a bright broadband
future for their countries. And I think it is very important
for us to understand that this copper is invaluable in ensuring
that there is real competition out in the marketplace.
Let me turn now and recognize the gentleman from Michigan
for his questioning.
Mr. Upton. Thank you, Mr. Chairman. I just want to go back
to the dialog between Mr. Evans and Mr. Tauke. Mr. Evans, you
seem to indicate that, in fact, the copper is, in fact,
disconnected, disabled. Mr. Tauke, you said it was not.
Mr. Tauke. First, let us have definitions. The loop is from
the central office to the home.
Mr. Upton. Right.
Mr. Tauke. The bulk of the loop is up to the pole. If you
disconnect the wire from the pole to the home, which we do
regularly----
Mr. Upton. When you put in the fiber.
Mr. Tauke [continuing.] When we bring in the fiber, in part
for aesthetic reasons and in part because it reduces
maintenance costs we do that on a periodic basis. Not in all
parts of the country, but we do that in many areas. However, if
the customer wants the copper or if a customer wants another
carrier to use copper we put that copper back in, and we have
rules that require us to do it within the same timeframe as we
provide any unbundled network element. So there is no instance
in which we are denying a carrier access to copper
infrastructure to a consumer.
Mr. Upton. You don't remove that last mile copper.
Mr. Tauke. We are not removing the last mile. In no
instance have we removed the last mile. Now I will say down the
road as you know, obviously we are putting our investment into
fiber. It is tough to invest and maintain two networks. We are
putting the investment into fiber, but we are continuing to use
the copper ourselves. Some others use copper but, frankly, not
many customers want the copper services after they have the
fiber available.
Mr. Upton. So, Mr. Evans, what is wrong with that?
Mr. Evans. Well the last mile loop is pretty useless if it
stops at the telephone pole. I can't, haven't had many of my
customers like on Green Acres.
Mr. Upton. Yes, but they are able to reconnect it though is
what Mr. Tauke is saying.
Mr. Evans. It never works as easy as what he makes it out
to be. When you try to order a loop they will say they do not
have one available. We have to expedite and go around the
process, and they have very stringent processes. They charge us
truck rolls. They charge us reconnect fees for a piece of cable
that should just stay in the ground and be where it is. They
are only doing it to hamper competition. They don't have to
maintain it if it is not in use. It just sits in the ground.
Mr. Upton. Mr. Tauke.
Mr. Tauke. There is no charge for reconnecting the drop
from the pole to the home. We do not charge for that. For the
customer we don't charge, and we don't charge the CLEC for it.
Mr. Upton. All right. This question is for Mr. Tauke, Mr.
Casto, and Mr. Cheek. There has been some confusion about
whether the forbearance petitions at the FCC also apply to the
facilities and the special access proceeding. The facilities
and special access proceedings are called DS1s and DS3s. If the
forbearance petitions were granted would either of these two be
affected? Mr. Tauke or you can go ahead, Mr. Casto.
Mr. Casto. Although I am not familiar with all the
procedural aspects of it I can tell you from AT&T's perspective
we are only seeking relief on switched and packet based
services. In fact, DS1s, and DS3s will continue to be made
available pursuant to the existing tariffs today.
Mr. Upton. Go ahead.
Ms. Herda. I would love to be able to respond to that. As I
said earlier, Ethernet is special access. It is simply an
access technology that takes a customer from one location to
the other. It is less expensive than special access. It doesn't
require all the equipment. We have Ethernet in this building,
and most business buildings have Ethernet. You go to another
building, and they have Ethernet in their LAN. What special
access does is convert Ethernet to another technology to just
turn back into Ethernet in the next building. What we have done
is created a product that allows customers to take Ethernet all
the way through so it reduces the electronics. The technology
is slightly different. It is less expensive but it is the same
concept, and Ethernet is part of the forbearance proceedings.
If they allow it to forbear Ethernet then we will not be able
to address Ethernet in the forbearance proceedings.
Mr. Upton. Mr. Tauke.
Mr. Tauke. Mr. Upton, again, I think definitions are
helpful here. Just understand that under FCC terms you have a
switched access bucket and you have a special access bucket,
and everything that isn't in switched is thrown in special. But
as you go further things like DSL have been taken out in our
forbearance petition. The FCC further refined its definitions
so that there are two categories. Special access is the
traditional ATM services such as DS1 and DS3. The more advanced
services like IP based services, Ethernet services, those
things were put into the high speed broadband category, as the
FCC did with the broadband marketplace, and residential, they
looked at a nationwide market for broadband for the high speed
business market. Now understand this is for the high speed
customer. The Fortune 500 companies, these aren't the poor
residential customers, these are the Fortune 500 companies.
And, yes, that category of services, those high speed services
are the subject of the forbearance petition. But they are not
traditional special access services such as DS1, and DS3.
Ms. Herda. I want to correct one thing that Mr. Tauke just
said. The FCC did not redefine anything in their forbearance
petition. It was strictly done by default. There was no
process. There was no discussion. There was no debate. It just
happened, and no decision was made.
Mr. Forsee. And those DS1, DS3 services are the exact
services we rely on today to get access to our networks for
wireless, and for our retail customers, so it is at the heart
of broadband deployment in this country, and again, to let that
lapse, and not take action, again, will ensure that we will be,
again, on the slow road to 18th place instead of 16th.
Mr. Markey. The gentleman's time has expired. The Chair
recognizes Chairman Dingell from the State of Michigan.
Mr. Dingell. Mr. Chairman, I commend you for holding this
hearing. I believe it is both timely, and valuable. I ask
unanimous consent that my opening statement appear in the
record in an appropriate fashion.
Mr. Markey. Without objection, it will be.
[The prepared statement of Chairman Dingell follows:]
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
Mr. Chairman, thank you for holding this hearing. I am
pleased that we have this distinguished panel before us today,
and I thank the witnesses for being here.
The focus of today's hearing is on the future of
telecommunications competition. We will hear about four issues
concerning broadband, and the pace of broadband deployment.
Underlying any decision must be the twin goals of promoting
greater broadband deployment, and greater choice for consumers.
The first issue I wish to highlight is that of regulatory
forbearance. Section 10 of the Communications Act permits the
Federal Communications Commission to forbear from applying
certain statutory requirements to telecommunications carriers.
It is unusual for Congress to vest such power with a regulatory
agency. For that reason, when Congress passed section 10, we
included several provisions to protect consumers, and protect
the ability of Congress to conduct oversight.
Unfortunately, to date, I believe that the forbearance
process lacks the necessary level of transparency. In one
instance the FCC permitted a petition to be ``deemed granted,''
and did so without issuing a written order. I am not expressing
an opinion on the merits of that petition. However, the lack of
a written order renders unclear the scope of relief, prevents
the Congress from conducting appropriate oversight, and may
hinder the FCC's ability to defend such action in court. This
cannot be permitted to happen again.
Second, entities petitioning for relief have been
permitted to make substantive changes to their petitions at a
very late date--so late that opposing parties have been denied
a meaningful chance to respond. I believe that we must make
sure that the forbearance process is fair, open, and
transparent in the future.
Next on the list is special access. The FCC granted
providers a measure of regulatory relief in 1999 and is now
reviewing the marketplace to determine what, if any, changes
are necessary to protect consumers, and promote continued
investment in infrastructure. Much has changed since 1999. The
market structure changed when the largest local, and long
distance companies merged. And the incumbents are facing new
competition from cable, and wireless companies, and others.
The FCC must have all the relevant data if it is going to
make an informed decision. I am troubled by reports that those
seeking re-regulation have thus far been less forthcoming than
they might be with data about their facilities. I expect to
hear commitments from the witnesses today that they will make
sure that the FCC is kept properly informed.
Similarly, it is not the business of the Government to
simply effect the transfer of funds from one set of private
actors to another. Therefore, I also hope to hear specific
commitments concerning how consumers will benefit from any
reductions in special access rates.
Finally, I want to mention municipal broadband.
Municipal broadband networks are becoming more important
in ensuring that all Americans have access to advanced
broadband services. Provided that all competitors are treated
fairly, it makes little sense for the law to prohibit
investment in advanced broadband networks by municipalities,
particularly in those areas least likely to attract private
sector investment. I wonder if the panel, and the Members of
this Committee can reach agreement around that simple
principle.
Again, I am pleased that we are holding this hearing today,
and I look forward to the testimony of the witnesses.
----------
Mr. Dingell. I may have a lot of questions here, and so I
am going to have to hurry the process. I am going to ask these
questions in this way. Does anyone at the table disagree that
the public has a right to know specifically which statutory and
regulatory provisions the FCC is forbearing from? I take it
that you all then agree with that statement. Do you all agree
that the FCC should issue a written order to clearly set out
the exact scope of the relief granted and to set forth the
rationale underlying the agency's decision?
Mr. Tauke. Mr. Chairman.
Mr. Dingell. Yes.
Mr. Tauke. If I may, let me comment on that. The statute
that Congress passed suggested that if the FCC did not issue an
order that the forbearance petition was granted. That was
designed to force the FCC to address the issue.
Mr. Dingell. Is that a quite different result though? The
different result is that all of a sudden we have orders issued
by the FCC which are unappealable, which are unwritten, which
no one has an opportunity to comment on, and which no one has a
right to get any justice on simply because the FCC has failed
to act. That is very wrong, isn't it?
Mr. Tauke. Mr. Chairman, I don't think that is the right
process either. But under the statute that is what happened,
and what my concern would be is if you require an FCC order,
and the FCC doesn't issue one, and many of us have waited years
for the----
Mr. Dingell. Well, I am aware of that.
Mr. Tauke. Then the forbearance piece falls apart.
Mr. Dingell. But it is quite probable that there are better
ways of addressing this problem, and that is one of the things
that I intend for this committee to do. Now, does anyone
disagree with this? Because the deemed granted language of the
statute has resulted in petitions being granted without a
written order would you agree that the deemed granted language
should be removed from the statute? Is there anyone who
disagrees with that statement? Would you want to tell us why?
Mr. Tauke. Mr. Chairman, without knowing how you are going
to force the FCC to act within the 15 months and issue an order
I am reluctant to agree that the deemed granted piece should be
removed because in essence what that does is put us back to
where we were in the past where the FCC, there was no forcing
mechanism to require the FCC to address an issue.
Mr. Dingell. And so would you agree that we have
substituted one abomination for another?
Mr. Tauke. That could be, but I guess that the point is,
Mr. Chairman, is what we want to do is to have some mechanism
to force the FCC to act. If we can get an order that is even
better.
Mr. Dingell. Does anyone disagree with this statement: Any
interested party should have a fair opportunity to comment on
the merits of the petition? No disagreement. Would any disagree
that if a petitioner revises its petition in the midst of a
proceeding all interested parties should have a meaningful
chance to comment on the change? I assume that all, therefore,
agree. And then would anyone disagree that the FCC should adopt
procedural safeguards to ensure that interested parties have
sufficient opportunity to weigh in on revised forbearance
petitions? No disagreement. And I want to be fair, but you have
got to understand time is limited here. Now would any disagree
with the statement that the FCC needs a clear picture of the
state of the telecommunications market to make informed
decisions concerning special access?
Mr. Forsee. Mr. Chairman, I would submit that in
disagreement with the GAO report that, in fact, that record has
been established, and the facts that we have showed today that
represent a $16 billion market for the ILECs, with excess
profits that we would estimate in the $8 billion range, that
that record is clear, that the market hasn't developed, and
that the FCC should act on.
Mr. Dingell. Of course, it should be observed that the FCC
does need that clear picture, does it not?
Mr. Forsee. They had the picture. The record has been
established.
Mr. Dingell. Are you satisfied that they had that?
Mr. Forsee. They don't need more data to make that
determination.
Mr. Dingell. Now is there any disagreement with this
statement, that to get a clear picture of the market the FCC
needs to know where some of these exist, and where they do not
exist, is that a fair statement? Anybody disagree with that?
All right. Now then let me ask this, would each of you commit
to ensuring that your company provides the FCC with all the
data it needs to make an informed decision? Is there anyone who
will do that?
Ms. Herda. Yes, Mr. Chairman, if I may? At Time Warner
Telecom we are the largest competitive provider in terms of
actual buildings connected with fiber in the country. We have
8,000 buildings connected with fiber, and we have participated
in all of the proceedings. We have given our information to the
GAO. We have given it to the FCC as recently as last month, and
last year, and whenever they ask for it. And as part of the
Department of Justice process with regard to the merger
activities they had subpoena power.
Mr. Dingell. The question, however, is just this, would all
of you commit to ensuring that your company provides the FCC
with all the necessary data it has to have to move forward with
an informed decision?
Ms. Herda. We do, and we have. Absolutely.
Mr. Dingell. Very good. Is there anyone who would not agree
to file periodic reports to the FCC providing data that the
Commission determines it needs to remain informed about the
telecommunications marketplace, and the state of affairs there?
Very well. Now is there anyone there who would not agree that
if the FCC decides to lower special access rates the amount
your company spends on special access will decrease?
Mr. Tauke. Could you repeat that?
Mr. Dingell. Well in other words, if the FCC decides to
lower special access rates the amount that each of the
companies there will spend on special access will, in fact,
decrease? Is there any disagreement with that statement?
Mr. Forsee. Well, in fact, if prices were decreased as you
suggest that may allow faster deployment of broadband, and our
special access deployment may accelerate as a result of that so
on an apples to apples basis the prices roll back.
Mr. Dingell. So you qualify the statement but you----
Ms. Herda. Actually that depends because a lot of the
commitments that the incumbents have required us to commit to
have our rates down as a result of those so it would depend on
where the rates would actually go.
Mr. Dingell. Now which of the companies at the table will
pass the savings on to the consumers in the form of lower
rates, and which will use the savings for other purposes?
Starting at your right, ladies and gentlemen, at your left and
going across to your right.
Mr. Rosenbalm. This really is not an issue for Bristol
Virginia Utilities. We are facilities-based and defined in
geographic region so it is not our issue.
Mr. Dingell. Sir.
Mr. Evans. Cavalier would pass it on. We have lower access
rates in Detroit, for example, because AT&T charges us about
half of what Verizon charges us for special access already.
Mr. Dingell. Sir.
Mr. Cheek. As a local exchange carrier, Embarq, we are not
really faced with the pass on question. That is really for
those that would be charged the rates that we have for special
access if our rates go down.
Mr. Dingell. Sir.
Mr. Forsee. Yes, in some cases today as we provide retail
services to Fortune 1000 customers, in fact, we are not
competitive today because we are having to rely on special
access services so there could be an opportunity for us to pass
that along and to be more competitive and ensure that there is
robust competition for long distance. Related to wireless, it
is our opportunity to be more innovative, to deploy more
broadband services, and to deploy a more robust wireless
network, and we would intend to use those sources for that
purpose.
Mr. Dingell. Mr. Tauke.
Mr. Tauke. Mr. Chairman, we would be paying less to some
carriers obviously for special access services, but we would be
receiving less on the other side, so I suspect it is something
of a wash for us.
Mr. Dingell. Ma'am.
Ms. Herda. If the rates actually do go down below what we
are paying today it would allow us to be more competitive and
would also allow us to make more investment in adding fiber
into more buildings across the country so that there actually
are distinct, separate alternatives for the local exchange
carriers.
Mr. Dingell. Sir.
Mr. Casto. AT&T is in much the same position as Verizon, as
we are both a seller and a purchaser of special access so it
depends. I think it probably would be a wash. I would be
interested in making one observation and that is that the
prices that all of these customers currently pay for special
access with AT&T is going down. I would be interested if they
would pass those on to the consumers.
Mr. Dingell. All right. I guess that is the questions that
I have. Mr. Chairman, thank you for your courtesy.
Mr. Markey. The Chair recognizes the gentleman from
Nebraska, Mr. Terry, for 8 minutes.
Mr. Terry. Thank you, Mr. Chairman. I am going to start off
with you, Tom. Actually, your opening statement piqued this
question regarding the Universal Service Fund, and I appreciate
your comments in bringing it up, and I simply say that I think
I would agree with all of the principles that you brought up
from prior conversations. We may have disagreements about
details of how to implement those principles, though. But I did
want to express my appreciation for you bringing up the
Universal Service Fund. Now in comparison to the special access
issue and the forbearance petitions, if Congress had to act on
one thing this year, in your mind, in your opinion should we be
focusing on the special access issue or the Universal Service
Fund?
Mr. Tauke. Well the special access issue has to deal with
the high end of the marketplace, and we can discuss these
statistics that have been offered, but the way I look at the
marketplace it is highly competitive. We have seven or eight
national carriers who are providing special access services.
There is vast deployment of new capability every year. So we
see this as a very highly competitive market that serves the
high end of the market, and there the customers, by the way,
are driving down prices because they have choices. I think the
biggest area of concern that the Congress should address is
this area of broadband deployment. While we have made great
progress on broadband deployment the fact remains that we have
some areas of the country that don't have broadband capability
yet. And as several of the Members said in opening statements,
this is the future. This is how you are connected to the world.
This is how you grow your economy. This is how you are going to
get health services and various other education services. So I
think that is what is most important, and that is why we would
like to see Congress move on these efforts to do mapping, to
try to establish public/private partnerships to get this
broadband deployed in the hard to serve areas.
Ms. Herda. Congressman, may I just make one correction in
what Mr. Tauke said when he said special access is.
Mr. Terry. We will just allow you to make a correction to
Mr. Tauke for the request.
Ms. Herda. I just want to give you the names of a couple of
businesses of the 25,000 or so that we have that are served via
special access, and these are not the Fortune 500 companies of
the world. Blue River Hardware.
Mr. Terry. Before you start, would you endorse my USF bill?
That is really where I was going with the question.
Ms. Herda. You have Duke School for Children in Raleigh
which is a preschool. You have Robert's Printing which is a
printing company in Tampa. You have Amsterdam Family Practice
which is a healthcare organization. You have Michael Willis
Architect which is an architect firm. These are small business
customers that are impacted by special access. This is not a
big business issue. This is an all business issue.
Mr. Terry. All right. Reclaiming my time. Mr. Evans you
mentioned, I am not going to ask you a question but I do
appreciate you bringing up my hometown, Omaha, Nebraska. It is
interesting because the incumbent company there, Qwest, is the
minority provider both of residential, and it is probably close
to a 50-50 split on business, and you have Cox Cable that is
now the Cox Communications, sorry, wrong name. Now as I am
frequently corrected by them. Cox Communications has been very
aggressive. They run commercials about their small business
package. They brag about the Fortune 500 companies in Omaha
that they provide service to, and as I understand in the
special access, Cox Communications doesn't have to open up
their systems to anybody but the incumbent, Qwest, does, is
that an accurate understanding of the status quo?
Mr. Evans. Yes, the Telecom Act was aimed at unbundling the
copper network that rate payers had paid for over the last 100
years. Cox being a private company didn't have the benefits of
all the subsidization and the rate of return to build that
copper network.
Mr. Terry. All right. Would you agree with the level of
competition in Omaha, Nebraska that forbearance should have
been granted?
Mr. Evans. No, I do not agree.
Mr. Terry. All right.
Mr. Evans. Forbearance didn't help Qwest compete. It just
took out another competitor or multiple competitors, and if
that happens everywhere there will just be Cox and the
telephone company, and so all the smaller guys that really get
innovative, really save consumers more money, it will be a
duopoly, and that is what they want. They want to go back to a
duopoly where they both can have a big share of the market and
both can charge exorbitant rates.
Mr. Terry. Well I would have to say that by observation the
vicious competition between the two have driven down prices.
Mr. Evans. Well if those two were so great in Richmond they
will wipe us out anyway so we still find a way to have 25,000
customers. When I compete in Virginia Beach with Cox, I compete
with Verizon. We do not compete with Qwest.
Mr. Terry. I understand the point, although I would
somewhat disagree. Mr. Cheek, Embarq is in a unique position
from all the other folks at this table today, for which I will
have to compliment our chairman. Once again, this is a pretty
blue ribbon panel for us to have this level of discussion with.
But it seems my interpretation is that you agree with Verizon
and AT&T on the forbearance and special access issues but you
come at it from kind of a rural position, or thought process,
or philosophy versus theirs. And I just want you to go through
for me, as kind of the rural protector, of why your position is
different. Your position is different from the other companies
on forbearance.
Mr. Cheek. From forbearance we did file a forbearance
petition that is very similar to the forbearance that was
granted to Verizon and the other petitions that are filed. It
only applies to the higher capacity broadband services that is
above the DS3 level. So in our case the answer to the
Congressman's question earlier this morning, DS1 and DS3, we
are not seeking forbearance for those regulatory services. We
are different than Verizon and AT&T in that we are not an
integrated carrier. All right. We don't own a long distance
company. We buy long distance minutes from Sprint. We also are
not a wireless company. We have to buy every minute that we
sell through our wireless company that we have formed. We have
to sell every minute that we purchase from another provider as
an MVNO provider. So we are different in those regards. We do
operate in rural territories as I said. USF is extremely
important to us, and to answer your previous question, we
believe that should take front, and center attention by this
subcommittee and, frankly, by the FCC.
Mr. Terry. I appreciate it. Now, well my time is almost up
so I will yield back my 13 seconds.
Mr. Doyle [presiding]. Thank the gentleman. The Chair now
recognizes himself. This question is for Mr. Tauke, Mr. Casto,
Mr. Forsee, Mr. Evans, and Mr. Cheek, and very quickly just a
yes or no answer. By Labor Day next year over 53 million
numbers will be automatically removed from the Federal do-not-
call list. And since many of you have to report numbers that
disconnect to scrub the do-not-call list clean, and since a few
of you sitting there are responsible for calling me at
dinnertime to ask me if I am happy with my long distance
carrier, I just want to know will you support the bill that I
introduced with my good friend, Chip Pickering, making the do-
not-call registry numbers permanent? It is just a quick yes or
no, folks.
Mr. Tauke. Yes.
Mr. Casto. I am not familiar with the bill, but I will tell
you that from a consumer standpoint I am on a do-not-call list,
but that is about the extent of my expertise in that area.
Mr. Doyle. I will take that as a yes.
Mr. Forsee. Yes.
Mr. Cheek. Yes.
Mr. Doyle. OK. Very good. Mr. Evans.
Mr. Evans. Yes.
Mr. Doyle. Now I understand Cavalier is launching service
in the Pittsburgh area next week. Can you tell me where you are
offering service?
Mr. Evans. Yes, we just built a new switching center,
deployed fiber to 18 Verizon central offices throughout the
Greater Pittsburgh area from downtown to East Liberty to
Northside, Oakland, Squirrel Hill, Perrysville, Sharpsburg,
Robinson, and Wilkinsburg. So we build very big networks so we
can offer services to all the consumers in that region. Once we
get established and start getting successful then we typically
expand out to even more offices to provide greater coverage.
Mr. Doyle. And you are going to be able to do that by what
date?
Mr. Evans. We are turning on the service the 10th of
October.
Mr. Doyle. The 10th of October. Mr. Tauke, can you pledge
on behalf of Verizon, that you will roll out FiOS to all those
areas that Mr. Evans just described in my district by, what is
it, October what, Mr. Evans?
Mr. Evans. Tenth.
Mr. Doyle. October 10.
Mr. Tauke. We won't make it by October 10.
Mr. Doyle. Well I see, well, listen I want you to know I
appreciate the progress that Verizon is making. I saw your
initial buildout plans in Allegheny County, and I sort of felt
hurt that it seemed like all the FiOS was going north and south
of me, but more recently I see a little bit more of my district
is being included. But tell me, Mr. Tauke, how do I explain to
my constituents and small and midsize business owners that I
sit here on the Telecommunications and Internet Subcommittee
and I sat back and saw Verizon kill their new Internet provider
by playing games with these FCC rules on forbearance?
Mr. Tauke. I am not sure what carrier we killed.
Mr. Evans. If your forbearance is successful we will have
to shut down Pittsburgh. Without the last mile loops we have
nothing to offer.
Mr. Doyle. So how do I explain that back home to the folks?
Mr. Tauke. Mr. Chairman, let us just be clear here. Just
because there is forbearance doesn't mean that we aren't
selling services to our carriers. We have had forbearance, and
we have had removal of rules of selling services----
Mr. Doyle. So you negotiate rates with Cavalier.
Mr. Tauke. We have negotiated contracts. When the UNE-P
went away the view was, oh, the world is going to collapse
because there will be no UNE-P. We negotiated contracts with
all of the carriers who were using UNE-P, and we still have
four or five.
Mr. Doyle. But you are the only game in town so if they
can't pay your rates they have got to walk, don't they?
Mr. Evans. I can give you a great example of that. We just
bought a company in December of last year that was one of the
largest UNE-P providers. They had contracts with Verizon. It
basically put them in a negative cash flow so they had to be
sold. They were a public company. Cavalier bought them, and the
rates for UNE-P went from around $18 on average before Verizon
did their commercial agreement to around $35 per customer.
There is no economic model that we can pay a cost of $35 and
recover that in the chart. That is just for a plain phone
service. So we are harvesting those customers. They are going
away. We are not adding new customers or marketing new
customers. It is not a viable business when Verizon does their
commercial agreement.
Ms. Herda. We have had the same experience. We recently
bought a company that had UNE-Ps, and we have had to let those
customers go because you just can't make any money on it, in
fact, it is a money loser.
Mr. Forsee. Just to go back to the time UNE-P rates were
changed both Sprint, AT&T, and MCI were the largest providers
of UNE-P services, and all three of those companies
dramatically exited that business as soon as that rule changed
because it wasn't economical to stay in it.
Mr. Tauke. If I might point out, Mr. Chairman, all of those
companies went under or were forced to sell at a time when the
rates were heavily regulated by the FCC and the State
Commissions. Rate regulation was not the problem with the UNE-
P. It was that the business model was a faulty business model.
Mr. Doyle. Yes, thank you, Mr. Tauke. I have a little bit
of time left, and I don't want Mr. Casto to feel left out. Mr.
Casto, in your testimony I saw where you said that you are
``not aware of any significant commercial area where AT&T does
not face facilities based special access competition today.''
And I think that is great because I love competition but I am
confused. Could you describe to me what you mean by the term
significant commercial area?
Mr. Casto. Sure, they are generally the MSAs within our 22
State footprint. You can look at our pricing flexibility
record, and we have been granted pricing flexibility in a
number of these MSAs and, in fact, in areas where we haven't
been granted pricing flexibility we run into competition and
were unable to respond because we haven't been granted
flexibility pursuant to the----
Mr. Doyle. But within an MSA would you concede that there
are some areas where there is obviously some places where you
don't have significant conversations?
Mr. Casto. If you mean is there a building that is not lit
or something like that?
Mr. Doyle. Yes.
Mr. Casto. Absolutely, there are instances like that.
Mr. Doyle. OK. So there are some areas obviously where AT&T
is indeed the only supplier of special access, right?
Mr. Casto. Consequently there are areas where we are not
the supplier within our territory.
Mr. Doyle. There are some areas where you are the only
provider, is that correct?
Mr. Casto. In a particular building that may be the case.
Mr. Doyle. So in cases where AT&T is the only game in town,
do you use that to leverage other areas where you do face
competition?
Mr. Casto. It actually works quite the opposite. When
customers come in and negotiate broad master agreements with us
they utilize that to get us to extend prices across the entire
MSA or across the entire region, including favorable terms and
conditions across every area. And that is traditional practice
that is occurring in the negotiations, and in fact, the way the
pricing flexibility rules work we are not allowed to price down
to a building level. We, in fact, have to extend this pricing
either to an MSA level or broader on a State or regional level.
Mr. Doyle. Thank you. Ms. Herda and Mr. Forsee, isn't this
really one of the most important parts of this special access
debate, that the big guys can sort of leverage where they are
the only game in town to take business in areas where there is
competition?
Mr. Forsee. We sent out in February of this year a request
to 77 supposed alternative access providers for our 52,000 cell
sites. We had a response from 16 of the 77 that could cover 1
percent of our 52,000 cell sites. The market has not developed
with all the efforts of this committee, of the Commission, of
competitors around the table, the market has not developed,
52,000 cell sites, 16 responses covering 1 percent of our cell
sites. The market has not developed.
Mr. Doyle. Ms. Herda.
Ms. Herda. Yes, sir, it is all about the buildings. At the
end of the day if there is not another provider who actually
has a physical infrastructure into a building there are no
other alternatives than the incumbents. Even the Department of
Justice as part of the Verizon/MCI case indicated that the vast
majority, and this is after getting all the data that they got
from everybody through subpoenas, the vast majority of
commercial buildings in its territory that they were the only
last mile provider. That they controlled the access, and that
is really the key to competition not a central office. It
actually amazes me that the FCC used the central office co-
locations as a means to determine that there was competition.
The only reason why companies build into central offices is to
use the loops that the local exchange carriers have out of the
central offices. So when you deregulate them you have
essentially killed competition because now they can no longer
get reasonable prices on those loops.
Mr. Doyle. OK. Thank you, Ms. Herda. I am well past my
time. The Chair recognizes the gentleman from Florida.
Mr. Stearns. Thank you, Mr. Chairman. And perhaps you might
be willing to offer some more time as we go along here, to
others on this side.
Mr. Doyle. We will see.
Mr. Stearns. OK.
Mr. Doyle. Depends on the questions you are asking.
Mr. Stearns. Mr. Forsee, if you don't mind I wouldn't mind
you putting your charts up again. If you could have your staff
put your charts up.
Mr. Forsee. I would be pleased to.
Mr. Stearns. The beauty about this situation is that you
have offered your charts, and you have made some pretty
charges. And in an open forum like this I think people like
myself are actually, honest to goodness, we are trying to
understand this and also see who is right. And I think it is an
opportunity. Keep moving the charts down. Keep the next one.
Get to the one where they say they are paying 10 times the
rate, yes. Yes, this is the one, that you make these claims,
and I think most members are looking at this and saying is this
true? So I was going to give Mr. Tauke and Mr. Casto an
opportunity to respond to these charts. You have made these
claims, and I think, judging from sitting up here it is a
pretty dramatic chart, and what you are indicating in this
chart is you are paying 10 times what AT&T and Verizon FiOS is
paying, and so I want to give Mr. Casto an opportunity to
respond to that.
Mr. Casto. Sure, thank you.
Mr. Stearns. And not a lot but I mean just----
Mr. Casto. Let me just offer a couple observations.
Mr. Stearns. Yes, maybe you could tell us first of all, do
you agree with the chart?
Mr. Casto. I disagree with the number completely.
Mr. Stearns. OK.
Mr. Casto. Looking at that number, and I have done an
analysis personally and had my team do an analysis of the
rates, Mr. Forsee and his company paid AT&T, and that is not
the rates. In fact, they are much lower than that. I know that
is a representative example. I would also take exception with
the example that it is not characteristic of the way the
network is actually architected or purchased from AT&T, in
fact, there is not generally two channel terminations, there is
one. The average distance is shorter, so I think it is a
mischaracterization of the facts. And, in fact, the rates are
much lower than that.
Mr. Stearns. Is there a discrepancy instead of 10 times? Is
there a three times or one time or what is your opinion? If we
used your figures.
Mr. Casto. Right. They may be half.
Mr. Stearns. Half, so instead of $390 it would be roughly
$200.
Mr. Casto. The other point that I need to make is it is not
really an apples to apples comparison example.
Mr. Stearns. One is fiber, one is copper, you are saying.
Mr. Casto. Not necessarily, but one is a best effort.
Ethernet broadband service that is servicing consumers, Mr.
Forsee's business has very sophisticated needs in terms of
carrying both data and voice, and he needs services that are
more a dedicated nature and therefore, they are more reliable,
and there are different characteristics to the provisioning of
the services that drive.
Mr. Stearns. But I hear you characterizing the graph as
incorrect but the proportion would be half of that. OK. Mr.
Forsee, I am going to let you respond after Mr. Tauke. So I
will let Mr. Tauke, your response.
Mr. Tauke. The chart is meaningless in my view.
Mr. Stearns. OK.
Mr. Tauke. It is like saying that well, we have Chevys and
we have John Deere tractors and comparing the prices for them.
I mean they perform different services. They perform different
functions. One is to a residential customer that has much less
usage then for a business customer that has larger usage. But
the biggest factor is that there are quality of service
requirements that are much tighter on a DS1 than it is for a
residential customer, and the second is that it is
asymmetrical, while the residential customer is symmetrical. So
they are just different services, and suggesting that there is
a comparison between the two is wrong.
Mr. Stearns. So in your opinion the chart is not only wrong
but the information is being used improperly because they are
comparing apples, and oranges.
Mr. Tauke. Right. It is like the John Deere tractor and the
Chevy. They are used for different purposes and different
functions, and, yes, the John Deere tractor costs a whole lot
more than that.
Mr. Stearns. OK. But Mr. Casto says that the chart
approximately makes the argument that instead of $390 it is
roughly twice or $200. So he is at least giving.
Mr. Tauke. I would stipulate the price is squarely more for
a DS1 because it is a totally different service then it is for
broadband connection to the home.
Mr. Stearns. OK. Mr. Forsee, your opportunity to respond.
Mr. Forsee. Yes, I will try to follow the tractor analogy.
I think we are talking a different kind of tractors here than
we are tractors and sedans. We are talking about broadband
pipes. And we are talking about services that on the end that
I----
Mr. Stearns. But aren't these broadband pipes that these
folks have put in?
Mr. Forsee. Absolutely, and they put them in over 100 years
of infrastructure and switches and all of the participation and
the regulatory framework, but the pipes at the end of the day,
as you can see by how much traffic is being carried, it is the
same technology. It is the same stuff that is going out there,
and the fact that they acknowledge, Verizon has acknowledged in
their filings that FiOS represents similar services which is a
term I used in my testimony, it is similar services using the
same technology bandwidth going out to consumers and business
customers. It is the same stuff and to be charged 10 times as
much in one case because it is their competitive market that is
special access that is still, again, being dealt with in a
different environment where competition hasn't developed. That
is the issue.
Mr. Stearns. On one of your charts I think you talked about
the profits to competitors. You folks made a profit too, didn't
you?
Mr. Forsee. Yes, and my margins are 100 basis points less
than AT&T and Verizon's today, part of which is the result of
the $6 billion of special access profits that they enjoy beyond
the rate of return that would otherwise be calculated. That is
the difference.
Mr. Stearns. OK. Thank you, Mr. Chairman. I wonder if I
have forbearance here just to ask one more question?
Mr. Doyle. We are not granting any forbearance petitions
here on this committee. Yes, one more, Mr. Stearns, and make it
quick.
Mr. Stearns. This question is for the entire panel. Have
special access rates gone up or down? Is the market keeping
rates competitive or is it the regulation? Just left to right.
Mr. Doyle. Very quickly left to right.
Mr. Stearns. Yes, very quickly, and have special access
rates gone up or down? Is the market keeping the rates
competitive or is it the regulation?
Mr. Casto. Special access rates are dramatically down, and
it is the result of the competition we face in the marketplace.
Period.
Mr. Stearns. OK. Ms. Herda.
Ms. Herda. Our special access rates are down, but the
incumbent rates are significantly up.
Mr. Stearns. Mr. Tauke.
Mr. Tauke. That is interesting because the rates where we
are saving are going dramatically down; the payments have been
averaging over 5 percent reduction a year in real terms.
Mr. Forsee. Retail customers and a filing to the FCC
earlier this year estimated that in 2007-09 that special access
pricing could cost as much as 234,000 jobs and $66 billion in
economic profit. That was filed by the Ad Hoc
Telecommunications Users Committee earlier this year.
Mr. Cheek. As I said in my testimony our special access
rates for DS3 have gone done 35 percent since price flexibility
was implemented. And also, our DS1 prices are actually below
cost as we also have testified to today.
Mr. Evans. They have gone down slightly and more so in
competitive buildings, but the technology cost, the capital
cost to provide DS1 now is so much lower than it was 3 years
ago. It is a fraction of what it was. So it should be down much
greater if there was true competition in all buildings.
Mr. Rosenbalm. We do not operate in that market, so I can't
answer your question.
Mr. Stearns. Thank you.
Mr. Doyle. The gentleman's time has expired. The Chair now
recognizes the gentlelady from California, Ms. Harman.
Ms. Harman. Thank you, Mr. Chairman. I am impressed to see
you in the Chair and appreciate your good humor. This is a
fascinating hearing. It is good to take this kind of broad look
at where the industry is, but it also offers some lessons, at
least it does to me for a short-term issue or a shorter term
issue, which is the 700 MHz band auction. I think a lot of the
issues we are talking about now, what is happening with
competition and innovation, what is happening with access are
playing out there, and in fact, at least one of the companies
sitting here is also playing a big role there. So since at
least for this member that auction is absolutely critical
because it will either make us have an interoperability
solution for public service agencies or it won't, I am paying
close attention to what you are saying here. And let me say
while I am at it that I hope the FCC is paying close attention
to what is being said here because I think the FCC rulemaking
is highly innovative and highly significant. And I worry that
because of lawsuits and other actions that some companies are
taking that highly innovative proposal may be changed, and
changed so significantly that we don't have a chance to have
the innovation and have the access for our first responders
that I think their situation requires. So having said that let
me just ask if anybody has a comment on this 700 MHz auction.
Any of the witnesses. I am surprised that Verizon wouldn't have
a comment.
Mr. Tauke. I presume your comments were directed my way so
I do want to at least offer a couple of observations. One
instance that we have filed suit against the provisions
relating to the C-block, that did not do anything on the
provisions relating to the segment of the block that dealt with
public safety. We have asked the court to expedite the
proceeding because we, too, want the auction to go forward as
rapidly as possible.
Ms. Harman. Well, I hope your lawsuit, whatever its merits
are, does not delay this auction. It has already been delayed
by Congress at the request of many outside once, and I don't
think we can wait for an inoperability solution. But let me
just ask you about access, the subject of access. I just
recently changed my carrier for my BlackBerry, and I am an
addicted crack berry operator, but I am not the most skilled
operator, and I am struggling with the features of this new
device. And every time I ask somebody a lot smarter than I, who
could be almost anyone who works for me, ``why do I have to do
this?'' The answer is because that is what you have to do if
you want this device, and if you want to do what you did with
your other device then you got to go back to the other device.
So I feel trapped in this piece of technology that I would like
to change to be more friendly to me. And I think a lot of
people feel the same way. My access to features that I would
prefer is denied, and I am not accusing any of your companies.
I am saying I think that this is generally true. So, again,
taking that, and applying back to trying to have these first
responders structure a solution that would work best for them.
Would anyone like to comment on the subject of access? Again,
practices that you have. My understanding, well, let me ask
Verizon. Is it true that for the foreseeable future your
customers will not be able to access your network with any
device or run any application over it? For Sprint Nextel, you
are building a new WiMax network which will bring a fourth
generation broadband Internet technology to a hundred million
American consumers. Are you going to let consumers use devices
of their choosing, such as computers and all kinds of cell
phones to access your WiMax network?
Mr. Tauke. Well first on the relating to Verizon and the
open access, two things. One is that yesterday, in fact, we
issued a news release announcing a new policy related to
changing devices which if you happen to have your BlackBerry
from us maybe you can use because you can change your devices
without doing a new contract. So that may be something that
part of the ongoing effort I think to try to facilitate more
consumer movement in the marketplace. We, also, by the way have
a phase out system for our early termination fees. In response
to the second issue of open access, in most cases the blocking
of access is contained in the device, not in networks. Our
issue, not to get into too much detail here, but our issue with
the FCC on the open access provisions relating to the C-block
is that they do not accommodate devices that are manufactured
by other companies and that block access to certain things on
the Internet. And we didn't believe that because we had a
customer base that has devices that we don't make that deny
access to certain services on the Internet that that should
preclude us from being able to bid, and use that spectrum.
Mr. Doyle. The gentlelady's time has expired.
Ms. Harman. Mr. Chairman, could I just get the Sprint
Nextel witness to respond to the question?
Mr. Doyle. Sure.
Ms. Harman. I appreciate it.
Mr. Forsee. There is a lot of good news coming as we begin
the deployment of our WiMax which is a mobile broadband
network. We will start turning up markets as early as the first
part of next year, and that will allow, again, for the first
time in this country and actually worldwide a mobile broadband
network. That model is a different model. It will allow open
access for those chip sets that are deployed and embedded in
computers and in devices because the network and the technology
will be unique. So they will be able to be bought by service,
be able to be activated on occasion as opposed to contracted
force. It will be a different model, and I think will be very
much in tune with the line of your questions.
Ms. Harman. Thank you, Mr. Chairman, for indulging me. I do
worry though about the 700 MHz auction, and I hope we will all
pay careful attention. Thank you.
Mr. Doyle. I thank the gentlelady. Thank you. The Chair now
recognizes my friend from Mississippi, Mr. Pickering, for 8
minutes.
Mr. Pickering. Mr. Chairman, thank you. Please forgive me
if I reminisce. When I first came to Washington at the young
age of 26, I was working for the first President Bush, and
working on East European and Soviet programs, and reforms for
economic, and political freedom, and as I came to the Hill in
1991 to begin working on telecommunications reform, hoping to
take monopoly telecom policy to an economic policy of freedom
choice competition. And as you look at the parallels between
the two, we see across Eastern Europe and in the former Soviet
Union primarily success, more freedom, more political freedom,
stronger democracies. You look at the Ukraine, you look at
Eastern Europe. But if you look at Russia we can probably say
that we have seen some setbacks or rollbacks. And so just like
in economic policy or political policy you can have success and
progress or you can have failures, rollbacks, setbacks. And so
as we look at telecommunications competition and the state of
where the industry is today I think we can see a number of
successes. If we look at the IP applications and market
increasing competition towards freedom. You look at wireless, a
fairly strong, healthy, vibrant competitive sector. But as we
go forward, how do we assure or guarantee that we don't have
rollbacks or setbacks as far as economic freedom,
telecommunications and competition and choice. And before us we
have some key policy areas that I think will assure that we go
forward in the right direction and path and continuing to see
greater competition and choice. But we can also have setbacks
and failures if we choose wrongly or poorly. I think on the
forbearance petitions that are before the FCC right now, if we
take away the access the competitors now have for the last mile
and for the last loops then we could see, just like we lost in
the early part of 2000 an entire sector of telecommunications
long distance, we could see the loss of C-sector that gives
very important competition and choice to competitors.
In 1999 when special access was granted those reforms, you
had AT&T and MCI. You had hundreds of other long distance
providers, and facilities based competition in special access.
Well since that time all those companies have either
disappeared or been acquired, and four regional Bells are now
two national carriers of consolidation and concentration,
local, and long. And so if you look at that market we could say
there is actually less choice today then we had when the reform
was adopted in 1999. And what do we need to do to make sure
that special access stays competitive and economically priced?
As the FCC looks at forbearance I would like to ask the
political dissidents at the table, Mr. Evans, and Ms. Herda,
what would happen if the FCC granted the current forbearance
petitions to your business model and your ability to compete?
Mr. Evans. Our business model would be decimated. Without
the local loops we cannot offer service. There are no other
alternatives. We are paying Verizon $11 a month just to rent a
pair of wires. For every wire, we have over 500,000 loops that
we are paying. We pay Verizon alone $72 million dollars a year.
So it is just to eliminate competition. We have no other
choices. We tried wireless. We tried WiMax. We have been
working with broadband over power. There is no other solution.
The copper network is the best network available to give us the
lowest prices.
Ms. Herda. We are primarily concerned with the forbearance
of Ethernet services and OCN services. In the case of Ethernet
services today we have been unable to get any agreements with
the various different incumbents, large incumbent carriers to
be able to buy wholesale Ethernet services and in fact, the
prices that they are charging which were on the slides that I
showed earlier are higher than the retail prices that we are
seeing them charge to retail customers in the market. So it is
very uneconomic for us to buy those services. We can't be
everywhere. We have spent billions of dollars building
infrastructure in 75 markets across the country. We have 8,000
buildings connected with fiber. We are feverishly making
investments every single day to build more fiber into more
buildings, but our customers want us to be able to serve them
where they want us to be. Wherever their services they have a
need. If it is in Fargo, ND or if it is in Boise or whatever
markets. If we are not in that particular building we have to
acquire the service from someone, and that someone is
inevitably always the incumbent carrier. So the problem with
forbearance particularly of Ethernet services is that we will
not be able to have a discussion about that pricing of Ethernet
services during the special access proceedings, which is
critical to the future of telecommunications service.
Mr. Pickering. Mr. Tauke, one of the points of your
testimony was on broadband deployment and how USF can either be
used to help that or hurt that. You also talked about wireless
broadband as a competitive force in the market and as a
substitute for the incumbent Y-line capability. But you support
a cap or a reverse auction. Wouldn't that actually restrict
wireless broadband, especially in the small and rural markets,
eliminating competition and choice in broadband deployment
especially as we get ready for the 700 auction. So how do you
reconcile your USF position with broadband objectives of
increasing that across the country?
Mr. Tauke. Here is the problem that we face today. You have
in many areas of the country now 4 or 5, 6, in some cases 9 and
10 carriers who are receiving universal service support to
serve hard-to-serve areas. OK. Generally the amount that each
carrier receives is based on the cost to the wireline carrier.
So let us say there is a community with 500 homes. The wireline
carrier when it had 500 homes maybe was receiving $10 a month
in subsidy. As other carriers come in and take customers from
the wireline carrier maybe now they have 250 homes. So then
they get a subsidy of $20 a month because their costs haven't
declined. Not only do they get $20 a month but the other five
carriers all get $20 a month, and this is driving up the amount
of money that is going into the community. The community
obviously isn't that hard to serve because it has multiple
carriers, and these multiple carriers are getting ever larger
amounts of money to serve the community. This system is broken.
Our suggestion has been a reverse auction. I am not saying it
is the only one, by the way. And I think that you raise a point
that should be taken into consideration when we look at a
reverse auction.
Mr. Pickering. A reverse auction could go to just one
carrier. Would you agree that the only thing worse then
subsidizing competition would be subsidizing monopoly?
Mr. Tauke. Well I think that this is an important public
policy decision for the Congress. If you have a hard-to-serve
area, how many carriers do you want to serve? How many carriers
do you want to support to serve that area? I would argue that
in the past the position of the objective of universal service
has been to provide service to areas. I don't know how many
carriers you think would be sufficient. But I do think that in
that town of 500 people or many of the communities that we are
familiar with in our native States that four, five, six, seven
carriers in the community makes no sense. Economically it only
is supported by the strangeness of the Universal Service Fund.
Mr. Pickering. Mr. Chairman, my time is up, but I do hope
that as a panel that we work. I don't think the outcome of two
to three competitors in a market is a good outcome, and I do
hope that we look to have policies that promote multiple
choices for the greatest degree of economic freedom in
telecommunications. Thank you, Mr. Chairman.
Mr. Doyle. I thank my friend. The Chair now recognizes Mr.
Inslee for, Jay did you have an opening statement or did you
wait?
Mr. Inslee. I had a brief opening statement.
Mr. Doyle. For 5 minutes.
Mr. Inslee. Thank you. I wonder if someone could help me
put that chart up again that we were looking at because I
wanted to make sure that I understood everybody's position on
it. I understood Mr. Casto, Mr. Tauke basically you were saying
this is an apples and oranges or Cadillacs and John Deeres, and
I wanted to ask them both is there a comparison actually it was
the other one. We were looking at the bar graph showing the
various costs, the various services. Is there a non-Cadillac to
John Deere comparison associated with this type of matrix that
we should be familiar with, Chevy as, excuse me.
Mr. Casto. Not that I am aware of. I really do think it is,
again, it is the Cadillac and the John Deere, they are
completely different services and serve different purposes, and
they are provisioned differently, architected differently, and
purchased differently.
Mr. Tauke. It seems to me that we have to recognize that a
company like Verizon is a major purchaser of special access
services, as well as a seller of special access services. So
our Verizon Wireless company in 75 percent of the country is in
the same boat as Mr. Forsee's company. We have to go and buy
special access services from other carriers. So what do we do?
Well first in many instances we use microwave in order to not
have to go with any of the incumbent carriers. Then we look at
the carriers that are available in that marketplace, and
usually there are several, and we bargain with them to try to
figure out what is the best price we can get. But we are in the
same boat as a wireless company that he is in 75 percent of the
country because we don't have wireline facilities, special
access facilities in all of those areas. And so I guess the
point that I want to make is that our wireless company figures
out how to compete, and we do it by buying services from a wide
variety of people, and there are a wide variety of people who
offer those services. I have sheets of names if you would like
me to put them in the record. And we don't see that this is a
market where as a wireless company we have few choices.
Mr. Inslee. Mr. Forsee, do you want to comment on their
responses?
Mr. Forsee. I would reiterate what I said earlier that we
put out a request to 77 providers, probably most of the same
names that were on that list. We got 16 responses that covered
1 percent of our cell sites. There is no alternative except to
go the incumbent local exchange companies. They built out these
networks over 100 years. They are dispersed. They are deployed
where cell sites have to be located in order to serve and
provide better service to municipalities. That is the fact. And
our WiMax network plan which is now being launched, we put out
a request for microwave support because we want an alternative.
But at the end of the day we will move the needle ever so
slightly. We will move that needle from 98 percent over 3 years
or 4 years to 93 or 94 percent. That is the fact. There is no
other alternative except to rely on the regional Bells, now the
ILECs, for that type of service.
Mr. Casto. I would just like to extend an offer to Mr.
Forsee that if he is interested we would certainly be
interested in talking about providing special access in the New
York and Boston area. And in the Verizon territories, as I am
sure Verizon would be willing to extend that same offer in
Chicago, and other markets where they provide service.
Ms. Herda. I think the difference here, and when you look
at that chart and forget about the numbers for a second and
think of the difference in the prices, and even if that is $100
under the DS1 line, I know in the 8,000 buildings that we have
connected with fiber we sell special access in those buildings.
But in every single one of those buildings we have a
competitor, and it is the incumbent local exchange carrier. In
all the buildings that were buying services if we had another
alternative than the incumbent carrier, I could tell you right
now I would love to buy from someone else. We try to buy from
someone else. We have gone to other competitive carriers. We
have gone to the cable companies. The problem is that we are in
more buildings than they are, and they can't really help us. We
continue to look for alternatives in those buildings but in
order to even get the kinds of rates that are on those charts
you have to make big commitments and ever-growing commitments
to the local exchange carriers to get the discount.
Mr. Tauke. Mr. Inslee, we get the impression here that all
these prices are deregulated. Let me just make this simple
point. If there is any failure in the FCC process it is that
the last mile prices for special access remain heavily
regulated under price caps. In Boston, New York, Washington,
DC, Baltimore, Philadelphia, five of the most competitive
places in the country we are still under price cap for the last
mile for special access, DS1s and DS3s. We still have all our
rates regulated by the FCC. This is when Cablevision is
advertising in New York they have more fiber than any phone
company reaching more buildings then any phone company. Time
Warner says to Wall Street they have access to 900,000
buildings. Now how can it be that she says 8,000, and they say
to Wall Street 900,000? Well it is because the issue is not
whether you have lit a building, the issue is do you have
access to that building?
Ms. Herda. And you are providing the access.
Mr. Tauke. No. What happens is if what you are telling
others, and what is the story that the investment community is
told and what the Department of Justice uses in its assessments
is you put on a fiber ring. And when you put on a fiber ring
you don't go light a building if there is no customer there to
order the services. But once a customer comes to order the
services you split off fiber from that ring and you go to the
building. If I have a 50 square foot building and three tenants
in that building, and nobody is choosing Time Warner as a
carrier, of course they are not going to take fiber to the
building. They aren't going to light the building. But if it is
close to their fiber ring, are they going to light the building
when a customer wants service? Of course. So I think that you
have to understand that there is a lot of competition in these
urban areas in particular. The rates are still capped by the
FCC. The failure has been that the process used at the FCC has
been so slow in freeing this market.
Ms. Herda. I think it is important to understand. We are
physically in around, a little less than 8,000 buildings with
our network. If we have a building right here, and our fiber is
going right by the building right next to it, we may never be
able to economically go into that building. We have to get a
return on our investment. When we go into a building we have to
have a customer contract, and it can cost anywhere on the low
end of say $50,000 to build fiber into a building even if the
fiber is going right down the street. And it can cost as much
as $300,000, and so you have to be able to get enough revenue
in that building. And I can tell you if we can't build into the
building with as big as our networks are that do go in so many
different places, nobody else is going to be building. The
capital markets are not going to fund another competitive
player to do that.
Mr. Markey [presiding]. The gentleman's time has expired.
The Chair recognizes the gentleman from Illinois, Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. I am going to ask Ms.
Herda if she will respond to questions that I pose to her and
not jump in on questions that I don't pose to her. I have seen
that frequently this morning, and I find that troubling and
disconcerting. And I would like to start with Mr. Tauke,
another problem which really troubled me with Mr. Markey was
his comment about who owns what. So Mr. Tauke, assume my friend
rents an apartment, and he has been paying rent for multiple
years. A lot like many Members here. Does he own that apartment
any more than your customers who rent part of your network or
the last mile as Mr. Markey made the assumption?
Mr. Tauke. I notice we pay the taxes on the network.
Mr. Shimkus. It is a very real problem. This is the keyhole
of telecommunications. If you pay rent on an item do you own
it? And I am not for takings. And the chairman of this
committee has talked numerous times about when the Federal
Government takes things the Federal Government has to
compensate. Just because you pay rent doesn't mean you own it.
Now there may be other ways to address this concern, but
assuming that someone who pays rent owns the property, that
obviously struck a tough cord in a personal property rights
Member like I like to be. But let me go to Mr. Tauke, Mr.
Casto, and Mr. Cheek, and you tried to identify this before.
When you sell special access services to business customers how
much leverage do these customers have, and Mr. Casto why don't
you go first. If you go briefly I have a couple of other
questions.
Mr. Casto. They are really carrying the cards given the
environment that we operate in today, and they are very
sophisticated customers, are well aware of their options, and
they utilize those options, including the customers the
representatives at this table when they purchase special access
from us.
Mr. Shimkus. Thank you, Mr. Tauke.
Mr. Tauke. I will simply repeat what he said.
Mr. Shimkus. And Mr. Cheek.
Mr. Cheek. Along the same lines, if you look at our
territory in Florida alone, we have in excess of 24 active
competitors. I should say all of our Florida markets, the
majority of our Florida markets. So there is plenty of leverage
in the marketplace because it is a competitive marketplace.
Mr. Shimkus. And I appreciate, you have been pretty quiet
on the panel compared to the opening statements and stuff, and
I think the frustrating thing is if we were in the old days of
a monopoly instead of seven people sitting up here we would
have one. Now comments have been made during the break. I
walked off the floor. I met with some constituents, and I kind
of told them over the TV what we were doing. And he says, boy,
I yearn for those old Ma Bell days. Talking about the
frustration of dealing with the billing, and for consumers to
have choices, and I said but if we were in the old Ma Bell days
what would we have? We would have no cell phones. We would have
no broadband. We would have no competition. And my fear is that
people who yearn for the old days of a monopoly provider, you
all are perfect examples of the competitive market trying to
deal in the arena that we have obviously there is some
regulations still there. Regulations that Mr. Tauke has
mentioned. Regulations that Mr. Forsee has mentioned. And so my
final point based upon these questions, Mr. Evans you talked
about your triple play option. How much do you charge for that?
Mr. Evans. Seventy-nine dollars.
Mr. Shimkus. Mr. Rosenbalm, and I appreciate because you
are a provider by the local municipality, correct?
Mr. Rosenbalm. Correct.
Mr. Shimkus. What does yours cost?
Mr. Rosenbalm. Around $80.
Mr. Shimkus. Around $80. I need you all to deploy to my
area. I have the triple play, the one thing about this
committee, too, is we all deal with these services that we are
fighting about, right? And right now mine is $99.97 for my
phone, voice, my video broadband, and home phone services, but
I have other options, too. AT&T is trying to roll out to get in
my neighborhood. So I would ask Mr. Rosenbalm because if it is
a utility does the other aspects of the utility help subsidize
or roll out or was there any Government real development or
State development loans that helped you do this?
Mr. Rosenbalm. There were no loans from the State. We
launched our network in Bristol itself with bond issue back
from the venture. Since then we have received some EDA grant
funding to expand in southwest Virginia, as well as the
Virginia Tobacco Commission has extended funding.
Mr. Shimkus. I just want to applaud that. I have 30
counties in southern Illinois, and I think going that direction
where it is more difficult for other people to provide is a
good answer. Thank you, Mr. Chairman.
Mr. Markey. Thank you. The gentleman's time has expired.
And, of course, the reason Mr. Rosenbalm is here is that many
States are now, well at the behest of large incumbent companies
trying to prohibit municipalities like Mr. Rosenbalm from
deploying their broadband which gives an extra option for the
community, and that is something that Mr. Boucher and myself
and many others here are going to try to make sure it doesn't
happen. Up until the 1992 Cable Act it was most of the local
cable contracts actually prohibited the municipality from
allowing another company to come into that community, which the
1992 Act voided so that communities could bring in other
competitors to compete against the incumbent cable companies.
So this is not a new phenomenon. It is something that this
committee has had to deal with over the years. I have a letter
here from the Consumers Union addressed to the subcommittee on
the issues before us today which by unanimous consent I would
like to have it included in the record and turn and recognize
the gentlelady from the State of California, from Silicon
Valley, Ms. Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman. And thank you to all
the witnesses. I have had the advantage of being here since
9:30 this morning and having heard the give and the take
certainly the testimony, and I think it has been highly
instructive. I can't help but think of something that my father
used to say, and it is the following. That it is a great deal
if you are willing to buy back what you are offering. And so I
think that for everyone at the table that is a consideration to
make. I doubt that most frankly the incumbents would do that.
Honestly, I think that there is a tilted case here. It is
somewhat rigged for a variety of reasons, but I come down on
that side as I have for sometime, not because I don't have any
friends that work with the incumbents. I respect the American
companies but there is not a fairness to this. And I think that
it really is American to have competition, and when you look at
the numbers it is not there. Do we have a proliferation of
services in our country? We do, and I welcome that, and I want
to see more of it. But I don't think there should be only two
or three that get to have a leg-up on it. So I want to ask Mr.
Casto, you are in the business marketing end of your company,
and I learned something that is in section 5 of your terms of
service. There are a couple of things in it that I don't have
any problem with, but part of it says that AT&T may immediately
terminate or suspend all or a portion of your service, this
means the consumer, any member ID, electronic mail address, IP
address, universal resource locator or domain name used by you,
again the consumer, without notice for conduct that AT&T
believes tends to damage the name or reputation of AT&T or its
parents, affiliates, and subsidiaries. Now my question to you:
have you booted anyone's service as a result of this policy in
your terms of service? I think it is really disturbing. I
thought that people can pretty much say and write their
opinions even if they are harsh. Have you booted anyone's
service?
Mr. Casto. I will apologize in advance. This is not my area
of expertise.
Ms. Eshoo. OK. Whose is it?
Mr. Casto. I am in the marketing side of special access,
but I would be glad to take this back and find out.
Ms. Eshoo. I would really, I think we need an answer to
that. It is menacing I think to have a stated policy like that.
To Mr. Forsee, according to the GAO report on special access in
a particular case in San Jose, CA, while that is not in my
district, it is in my region, competitors only have access to
only 6.2 percent of all buildings. That is a paltry percentage
I think by anyone's measure. To put it another way, the
incumbent provider is the only provider of access in 93.8
percent of all the buildings. How would you reverse this?
Mr. Forsee. I think the policy opportunity before this
committee and before Congress to understand forbearance,
understand what it means to this very specific area. We talked
earlier about competition has developed. Developed very
robustly across a wide range of services. In this particular
case in special access it hasn't developed. It is an
opportunity to ensure that competition can develop by ensuring
that the right balance of rate structure, and competition as a
result of FCC action takes place.
Ms. Eshoo. OK. To Mr. Tauke, those who are forced to buy
special access services from you claim that in order to receive
the deep discounts, because there are discounts, that they have
to sign long-term contracts that lock them into revenue
guarantees and requirements for shifting business away from
competitors and severe termination penalties. Can you tell us
how these practices encourage competitive investment? Or do you
just not agree with the terminology that describes these
practices?
Mr. Tauke. There is no question but that if you are willing
to sign a long-term contract and if you are willing to give
assurances as to the volume that you will purchase from Verizon
that you get a lower price than if you are purchasing a smaller
volume. No question about that or for a shorter term.
Ms. Eshoo. What is considered short term, what is
considered long term?
Mr. Tauke. I think we are talking 1 to 3 years.
Ms. Eshoo. Short term?
Mr. Tauke. No, I mean that would be the range of these
contracts.
Ms. Eshoo. I see.
Mr. Casto. Can I comment on this point? At least with
AT&T's experience since the advent of pricing flexibility back
in 1999 we filed between three and four hundred contracts. We
have more than half of those do not have any kinds of those
terms that are required in terms of a spend commitment. They
are very circuit specific. These agreements are really tailored
based on the negotiations on a business to business basis
between the parties. The other comment I wanted to make was
that over the last 6 months AT&T has received roughly 700 RFPs
or bid responses for special access. You can look at the public
record. We filed about 90 to 95 contract tariffs which are the
vehicle to effectuate the pricing and the terms and conditions
associated with those contracts which is a very low win rate.
Ms. Eshoo. OK. Mr. Chairman, just 10 seconds to say
something. I just want to say to Ms. Herda that if there are
any young people that are tuned in to this hearing today, I
think it is very powerful for girls and young women to see a
woman testifying as a president, as a CEO, and a chairman.
Thank you. Thank you, Mr. Chairman.
Mr. Markey. And to be questioned by a woman who represents
the Silicon Valley I think is especially because of that. Let
me turn and recognize the gentleman from California, Mr.
Radanovich.
Mr. Radanovich. Thank you, Mr. Chairman for holding this
hearing, and I do have a couple of questions of some of the
folks. Mr. Tauke, thank you for being here today. I wanted to
ask that even under the current pricing flexibility regime
can't competing carriers file complaints if there is a problem,
and if so how many have been filed?
Mr. Tauke. I don't know how many have been filed.
Complaints can be filed, but I don't know how many of them, I
guess I am not aware of any at the current time.
Mr. Radanovich. Can you, there is time for a written
comment on this, can you respond, I believe, that regular time
is within 10 days or so with a written response to that
question?
Mr. Tauke. I would be happy to.
Mr. Radanovich. If you would that would be most helpful.
Also, I have a question for Ms. Herda, Mr. Forsee, and Mr.
Evans. Mr. Casto states in his testimony that AT&T has lowered
its prices for DS1 and DS3 circuits and that rates are lower
today then they were when the FCC established its pricing
flexibility regime. Did you agree with that statement?
Ms. Herda. Specifically, with AT&T's rates, no, they have
their wholesale rates, and they have been locked out. They have
had their restrictions as a result of the acquisitions that
they've made on increasing rates. We have seen carriers like
Qwest for instance who raised their rates in 2004, 17 to 18
percent across their entire region. So we have seen a slow
rise, or actually in that case that was a rather large rise. It
was quite expensive to our business that we couldn't do
anything about it because they were allowed to make those
changes.
Mr. Radanovich. Thank you. Mr. Forsee.
Mr. Forsee. We try to distinguish between rates, in fact,
may have come down. I can't speak specifically to the rates of
return that the companies are earning as a result of the rates
that remain in place. So while the cost of providing that
service has come down more dramatically as was represented
earlier, more dramatically, yet the rates may have come down
disproportionately not as much.
Mr. Radanovich. All right. Thank you. Mr. Evans, please.
Mr. Evans. Yes, I am not personally familiar with whether
they have gone up or down. They are lower in AT&T's region then
they are in Verizon's region.
Mr. Radanovich. Thank you very much. One last question. Mr.
Forsee, your company used to own what is now Embarq, and is it
true that you sold off the special access facilities in a spin
off?
Mr. Forsee. Yes, we spun off Embarq to our shareholders.
Embarq represented about 6 percent of the access lines in the
country and was a small footprint on a national company, and
again, it wasn't sufficient to have made a difference in our
overall special access pricing on that particular question.
Mr. Radanovich. OK. Because my question is if you do need
special access as you had stated in your testimony, why would
you sell off Embarq?
Mr. Forsee. It was a small 6 percent of our total
requirements of 100 percent of the country.
Mr. Radanovich. OK. All right.
Mr. Forsee. It wasn't large enough.
Mr. Radanovich. Thank you very much, and I yield back my
time, Mr. Chairman.
Mr. Markey. I thank you, Mr. Radanovich, very much. And we
thank, oh let me turn and recognize the gentleman from San
Antonio, Mr. Gonzalez.
Mr. Gonzalez. Thank you very much, Mr. Chairman, and I will
start off and probably start and end with my questioning of Mr.
Forsee because I think your testimony has been very forceful.
When you view what is going on here, and I really think when
you have a contest among AT&T, Verizon, and Sprint, there are
no little guys involved in this one. And my general
understanding is that they usually can take care of themselves
pretty well. There are a lot of other people that can't, and
that is when I think Government needs to come in. But, Mr.
Forsee, you seem to indicate that special access fees could
almost spell doom for Sprint. I don't think you really intend
to say that, but if you read your testimony it is pretty dire.
But is it to the extent where maybe Google and Clearwire should
reconsider the partnership they have formed with you in rolling
out this whole new system in which I really sincerely wish you
great success. I venture to guess when the smart guys from
Google and the brilliant guys from Clearwire got together with
you they looked at pretty much what special access fees
constituted and said guess what? You are still going to do
well. We are going to do well together. I think you understand
the concept that if someone uses someone else's infrastructure
or system there should be some fair compensation. I don't think
that the issue here truly is then one of what is fair.
In San Antonio I had a little tier-two provider, Cricket,
come to me complaining about roaming charges that AT&T,
Verizon, and Sprint charge. Now they don't think those are
fair, just as you don't think the special access fees are fair.
They also alluded to, were not complaining at this point about
what they pay to rent or lease space on a cell tower. My
understanding is that you lease them, you got them, and then
you can sublease or you own them, and you can lease space on
those things. But I am not sure they think that is a fair
arrangement but they are not much in a position to contest a
lot of this. And I think sooner or later we are going to go and
talk about the Crickets and the Pockets of this world, but
today I am just trying to establish conceptually you understand
that AT&T and Verizon are due something. And what is that? What
determines what is fair, and what you charge someone like
Cricket for roaming? Or what you charge someone like Cricket
for renting space on a cell tower that you may own? Is there
regulation out there that establishes some parameters? Because
this is what you state in your testimony about the access fees.
This figure is at least twice what it should be if special
access prices were even remotely related to the cost of
providing special access.
So I want you to apply your same standard and test to what
you charge for roaming fees and what you charge for basically
rent on cell towers. Should it really be any more than what is
the cost of providing that particular service or access? It is
very interesting because I think Cricket and others would say,
no, it is not related at all. And they would mimic pretty much
what you are saying about AT&T and Verizon here today. I am
going to stop there because I am using up most of my time. If
you can go ahead and just respond.
The other thing is it is interesting when we had the chart
up there, are you saying that you would like to be treated and
placed in the same shoes as an AT&T or Verizon customer of a
particular service rather than being charged, it is contested,
$390. Maybe it is $200. Because if you adopt that reasoning
then why don't you treat the Cricket customer in the same way?
In other words don't charge them any more, piecemeal it out,
than you would charge someone that you provide that service
for. Why charge Cricket any more or their customers for that
cell tower. I am just saying let us just go in and apply all
the same reasoning that you wish for us to apply today to AT&T
and Verizon, and remember Cricket is complaining about all
three of you. But I am just saying today do you have one
philosophy in how you deal with a Cricket and another
philosophy or business model when you deal with Verizon and
AT&T?
Mr. Forsee. What we know today is that 100 percent rate of
return is what is being applied to this market called special
access. And as you mentioned we are, in fact, going to deploy a
WiMax network that will rely on the special access, and our
ability to deploy that network could, in fact, and the speed of
that deployment could be impacted by the rates that we are
being charged. So what we are looking for is fair and
reasonable. A 100 percent rate of return is not fair and
reasonable.
Mr. Casto. May I comment? I want to comment on the returns
comment made by Mr. Forsee in the chart placed up there.
Similar to the special access pricing that was placed up there,
there are serious flaws with the margin analysis presented. My
assumption is that is based on ARMIS, and ARMIS basically has
frozen the cost allocations associated with the inputs while
the revenues have not been frozen. Albeit the revenues have
increased, demand has greatly outpaced the revenues, which is a
direct result of pricing coming down. Also, based on my
experience with the competitive opportunities across my desk, I
talked about 700 of them, the returns do not get anywhere near
the returns presented on those charts.
Mr. Radanovich. Thank you, Mr. Chairman.
Mr. Markey. The gentleman's time has expired, and all time
for questions from the subcommittee members has expired. I
think everyone will agree that this has been a fascinating
hearing or as fascinating as a hearing on special access and
forbearance can be to anyone.
But I thought that I would note that a lot has changed
since 1999 when pricing flexibility went into place. And at
that time we still had the seven Bell companies that had been
born out of Ma Bell. When it was broken up Pac Bell,
Southwestern Bell, BellSouth, U.S. West, Ameritech, Bell
Atlantic, Nynex, and we had an incredible battle going on
against AT&T, MCI, Sprint, and dozens of other companies. But
today to quote Paul Simon, and his famous song we have seen a
mother and child reunion with Ma Bell bringing the children
back together, and while they were doing it, gobbling up AT&T
and MCI, and then SBC changing its name to AT&T. As Sergeant
Joe Friday would say to protect someone. And so AT&T is now
over SBC so a lot has changed, and I think the FCC obviously
has to recalibrate its rules in order to deal with that change
in the marketplace.
We can't be looking at the future in a rearview mirror, and
I think what we are seeing here is that this examination of key
building blocks in our competition policy is vital so that we
can ensure that as time goes on that we have enough people at
the table to have a real conversation about competition in the
telecommunications marketplace. And so it is not right for the
FCC to forbear without giving real justification. It is not
right to allow incumbents to modify their petitions without
allowing the other competitors a right to be able to respond in
a timely fashion. It is not right to have special access fees
that aren't allowing for competitors to be able to buildout
their own competitive systems. These are all central questions
in terms of the long term marketplace in the United States.
And the reason it is important is that we are in an
international competition. We are actually becoming the Notre
Dame of international broadband policy where we are dropping
like a rock, and our goal has to be to find a way to become No.
1 again looking over our shoulders at Nos. 2, 3, and 4 in
pricing, in access, and in the power of the broadband which we
are providing. And this hearing today, I think, has gone a long
way in helping to illuminate those somewhat arcane and obscure
issues but in a way that makes it quite clear that all
Americans have a stake in its outcome.
I know that at 7 Towson Street in Malden, Massachusetts, we
have paid thousands and thousands of dollars to New England
Telephone and its successors to have that copper wire coming
down our street. And we didn't really have a choice because
that is all there was, was New England Telephone. So we didn't
have any competitors that we could have given our money to, and
so we did kind of have a feeling that we owned it too. And I
for one don't like the idea that it can just be ripped up and
so limits my ability to have other competitors that my family
and other families can choose.
And so these are all very important debates about what the
relationship between competition and consumers and innovation
is. We are going to continue in this series as the months go
by.
We couldn't have had a better panel. We thank you all for
coming, especially you Tom Tauke returning to our committee
once again. Thank you. This hearing is adjourned.
[Whereupon at 12:37 p.m., the subcommittee was adjourned.]
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