Mr. Chairman and Members of the Committee, thank you very much for inviting me to testify at today's hearing on the proposed Internet Freedom & Broadband Deployment Act of 2001.  My name is James Henry and I am the Managing General Partner of Greenfield Hill Capital LLP, a hedge fund focused on the communications sector.  Prior to founding Greenfield Hill Capital I served as a research analyst following the telecommunications industry for approximately 7 years.  Most recently, I was a Senior Managing Director at Bear, Stearns & Co. Inc. where I was ranked 2^nd in Institutional Investor Magazine's All American Research Team survey for the CLEC category in 1999 and 2000.  My testimony today will provide a "Wall Street" perspective on local competition and the implications of the proposed legislation. 

LOCAL TELECOM COMPETITION

I believe that competition in the local telecommunications industry is in the public interest insofar as it (1) accelerates the deployment of advanced networks, technology, and services to businesses and consumers, (2) drives reduction in the prices of local telecommunications services, and (3) creates new jobs and employment opportunities for technologically sophisticated workers.  Competition in the telecommunications market has historically been viewed as a compelling opportunity by the investment community as a result of the substantial size, growth and profitability of the market coupled with regulatory and legislative initiatives to foster the growth and development of competition in the marketplace.  That perception has clearly changed to the negative as a result of a number of factors that include legislative and regulatory uncertainty. 

CLECS = LOCAL COMPETITION

The CLECs and other non-incumbent telecommunications companies are the principal drivers of competition in the local market.  The CLECs, including the CLEC subsidiaries of AT&T and WorldCom, have installed a total of approximately 12.2 million local access lines and achieved an annualized local revenue run rate of approximately $7.5 billion since the passage of the Telecommunications Act of 1996.  By contrast, the ILECs, principally SBC Communications and Verizon, have done very little outside their respective regions on the competitive front.  In fact, both companies announced significant pullbacks of their out-of-region competitive initiatives in the past quarter. 

ACCESS TO CAPITAL

Access to capital is the lifeblood of the telecommunications industry in general and the CLECs in particular, given the high startup costs and the capital intensity of the businesses.  Therefore, I submit that access to capital is vital to competition in the local telecom market to the extent that the CLECs offer the only meaningful source of local competition.  As a result of the relatively free-flowing access to capital enjoyed between 1996 and 1999, the CLECs deployed approximately $55 billion in capital to build alternative local networks.  Regrettably as the capital markets have collapsed beneath the weight of the broader market and the significant uncertainty surrounding the sector, CLEC capital spending has started to slow significantly.  For example, CLEC capital spending grew from $6.0 billion in 1999 to $10.2 billion in 2000, but is expected to contract to $7.0 billion or less in 2001. 

WALL STREET CONCERNS

It is my observation as an industry analyst that the investment community's willingness to fund telecom companies in general and CLECs in particular is adversely impacted by legislative and regulatory uncertainty.  The proposed Internet Freedom & Broadband Deployment Act of 2001 is illustrative of the kind of legislative uncertainty that will cause investors to move to the sidelines and withhold capital from the emerging local competitors.  I have had a number of conversations with institutional investors, including private equity investors, public equity investors, and high yield investors, that have cited regulatory uncertainty as one of the principal reasons for avoiding the telecommunications sector in general and the CLECs in particular. 

THE Internet Freedom & Broadband Deployment Act of 2001

The proposed legislation has the potential to create the following issues that would adversely impact the CLECs and therefore the pace of local competition in the United States.  The principal issues that concern me about the proposed legislation include, but are not limited to, the potential that it could (1) jeopardize competition for broadband and voice services by exempting high-speed data and internet access services and facilities from regulation, (2) significantly reduce the incentive of the ILECs to open their local markets to competition in order to qualify for entry into long distance, and (3) jeopardize line sharing and eliminate access to unbundled loops, sub loops, and dark fiber on facilities that are used for both voice and data.  Furthermore, I would submit that any legislation that views voice and data network facilities as separate is not prepared to follow the telecommunications industry into the inevitable future of unified packet-switched networks that will carry all traffic.  In conclusion, I urge the committee to not pass the proposed legislation because I believe it will have an adverse impact on local competition, which would not be in the public interest.