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| Prepared
Witness Testimony The Committee on Energy and Commerce The Regulatory Status of Broadband Services: Information Services, Common Carriage, or Something in Between? Mr. Thomas J. Tauke
Mr. Chairman, thank you for this opportunity to testify before the Committee.
I am Tom Tauke, Senior Vice President for Public Policy and External Affairs at
Verizon Communications. I am before you today to discuss broadband
telecommunications and what the federal government should do to help broadband
achieve its full potential. Unless there are changes in the current regulatory
regime, the deployment of broadband will be significantly impeded, to the
detriment of the American economy as a whole, and to all Americans.
My message today is simple. There is general consensus that broad deployment of
broadband is a good thing, that it will benefit the economy and consumers, and
that we need a coherent national policy that fosters the deployment of broadband
and all the benefits it promises. This deployment will require significant
additional investment, and government policy therefore needs to be conducive to
that investment.
We believe that the FCC took the first step in that direction in the broadband
sections of the Triennial Review order, limiting some of the "old
rules" to the "old wires" of traditional telephony. And Verizon
has reacted in the marketplace to what it believes that order says. The FCC now
needs to finish the job and free the "new wires" from the remaining
"old rules" by acting promptly to establish a consistent national
policy that does not interfere with industry's deployment of broadband
capabilities. If the Commission does that, Verizon and, I believe, others will
respond with greater investment in and deployment of broadband.
The Importance of Broadband
Broadband is the capacity to deliver high-speed data communications access with
a continuous "always on" connection and the ability to both receive
and transmit digital content or services at high speeds. It can provide the
stimulus that the economy needs, and transform the way we live, learn, work and
play. The high-speed networking of digital devices of all kinds - from PCs to
digital health monitoring devices is vital to our economy and the advancement of
society.
Mr. Chairman, the Internet is a wonderful tool that developed far faster than
anyone imagined. Use of personal computers and dial-up access to the Internet
fueled the growth the U.S. and world economy enjoyed in the late 1990's. This
growth has reached a plateau. More is needed now to move the economy to the next
level. And that stimulus - stimulus to the economy as a whole - could be
provided by greater deployment of high-speed, broadband telecommunications. The
widespread adoption of broadband will increase the efficiency and productivity
of Americans at work and at home -- with a potential $500 billion impact on the
United States economy . The benefits to the quality of life are immeasurable.
There is broad recognition that as a mainstay of the Internet's development and
growth, the telecommunications sector is hurting. Between 2000 and 2002, overall
annual investment by wireline telecommunications carriers, including Verizon,
declined from $104.8 billion to $42.8 billion, a reduction of over $60 billion
in just those two years. Spending on new equipment is down 19% in 2003 from the
already depressed levels of 2002, and R&D expenditures have plummeted. Over
half a million jobs have been lost in the sector since 2000.
Because of the importance of our sector to the economy overall, this is bad not
just for our companies but for the national economy as well. Historically,
almost a quarter of GDP growth in the 1990's was the result of investment by IT
and telecom companies. Investments by the telecom sector have huge multiplier
effects. Each dollar invested in telecommunications infrastructure results in
almost three dollars in economic output. For every $100 million of capital
spending by telecommunications companies, about 700 jobs are created, and
spending these capital dollars on broadband means even more job growth. For
every job created in building broadband networks, four more jobs are created in
related industries.
Broadband deployment will benefit the people of America directly and personally,
in addition to the benefits they will receive from a healthier national economy.
These benefits go well beyond e-mail, instant messaging and web surfing.
For example, telemedicine over a high-speed network will improve the quality of
medical care in remote or rural areas. But broadband will also make receiving
medical care less of a burden for patients everywhere by, for example, finally
making it unnecessary for the patient to run around from lab to doctor to
specialist picking up and delivering copies of her x-rays and test results.
And we all know the power of broadband for entertainment and the promise of
video-on-demand and similar services. But broadband will also let parents send
home movies of their children to their grandparents across the country,
instantly and cheaply.
It is these benefits that make Verizon believe in the future of broadband
telecommunications and want to be part of that future.
What Are the Barriers to Broadband Deployment?
Verizon broadband today is primarily DSL services, which provide significant
improvements in data transmission speeds. But DSL is only a first step, with the
goal being fiber optic deployment into neighborhoods and homes. But as costly as
the job is of making DSL capabilities widely available, the task of rewiring the
country with fiber makes DSL deployment look like pocket change. Though the
investments necessary to make this a reality are massive, Verizon realizes that
this is where its future, and the future of the industry, lies.
But very real external forces inhibit what Verizon can do.
First and foremost is regulation - both bad rules and regulatory uncertainty
have slowed and continued to slow deployment. When Congress passed the Telecom
Act, it thought competition could work for consumers in the telecommunications
market. That part was right; but regulators implemented the law by forcing
competition through the transfer of revenues from the telephone companies to
firms entering the market. This was done primarily by making incumbents sell
services to the new firms at below-cost prices, allowing the new entrants to win
customers and make profits without paying the true costs of what they bought and
without making any investments whatever. With this regulatory scheme, why would
any company take the risk of making massive investments to provide broadband
services? The FCC appears to understand that this scheme will be a disaster for
broadband, but it must issue an order to that effect.
But that's only part of the problem. The FCC has an entire body of additional
regulations developed under Title II of the Act for traditional telephone
services. Those rules limit telephone companies to recovering the cost of risky
new investments that succeed, while forcing them to absorb the cost of any that
don't. They impose still another set of unbundling obligations that increase
both the cost and risk of investing in new broadband services. And they impose
arcane advance approval requirements that delay the roll out of competitive new
broadband services that our customers want. Applying these rules to broadband
makes no sense, and deters investment.
Given the deep roots of regulation in the telecommunications sector, policy
matters a great deal. It sends important signals to investors and creates
expectations about the relative merits of investing in new technologies, cutting
costs and employing more workers. Wall Street is skeptical of increasing capital
spending in telecommunications and instead is now rewarding cutbacks in
investment. This skepticism is based, in part, on the normal factors of the
competition and the state of the economy. But in the telecommunications
industry, a significant factor is investors' belief that the regulatory rules
simply make it nearly impossible to realize any return from investments in new
technologies and services. We need to reverse these trends for the good of the
economy, the industry and consumers.
What's Needed?
What's needed is a new approach that takes account of competitive broadband
deployment. The broadband marketplace of today has a number of competing
technologies vying for the consumer's attention and wallet. Cable companies,
telephone companies, wireless companies, satellite companies and, now, WIFI
networks compete aggressively offering broadband services that consumers regard
as interchangeable.
Cable companies, free of regulation, are among the most active competitors. They
have invested $70 billion in upgrading and digitizing their networks and have
the capability of offering hundreds of digital TV channels and broadband
services. They are moving to use this same platform to offer voice
telecommunications services employing efficient Internet protocols. They are
dominant in the broadband market with two-thirds of the households (12 million)
that have signed up for broadband to date. And they are not regulated.
Verizon is eager to compete head on with cable and other technologies that are
vying for costumer's attention. We are willing to enter these new and unproven
markets and to take the risks involved in doing so. But we - Verizon, the
industry and the public - need government to do its part to reform current
regulations that affirmatively hold back investment.
First, we need a Triennial Review order on broadband that is clear and that
cannot be gamed. We need the FCC to finally declare that Broadband technologies
will not be subject to the unbundling rules that were devised for a voice
network.
Second, we need a sound national policy that permits all infrastructure
providers to compete. Cable has over 65 per cent of the high-speed broadband
consumer market. Cable's broadband network and services are not regulated. So
what is the justification for regulating the broadband network and services of
companies that have a market share of less than 35 per cent? Why is government
continuing to stymie one group of companies that is trying to invest in the
infrastructure that will serve consumers and provide full competition in the
wireline broadband market? Regulation is appropriate only where markets have
failed, and it should not be imposed in anticipation of problems that do not
exist. Cable was freed of this burden by the '96 Act and transformed its coaxial
network into the high-speed network it now touts.
Third, we need the FCC to finish the job on broadband NOW. It needs to classify
our broadband services the same way it already has classified comparable
services provided by the dominant cable companies. The FCC should first decide
that all broadband services should not be regulated under Title II, and instead
should be classified under Title I of the Communications Act. Broadband is not
telephony, and it should not be regulated like telephony. Imposing old telephony
rules on broadband makes no sense.
And we need the FCC to reform the irrational and destructive pricing rules that
are siphoning away money that could otherwise go to support new investment, and
that instead is going to line the pockets of arbitrageurs who make no
investment. To the extent we have continuing obligations to make elements of our
network available for use by competitors, we should receive a fair price that
lets us recover the prices we incur in the real world to provide those elements.
And, if investments and deployment plans are to be made now, we - Verizon, the
industry and the public -need these things done now, without further delay. Other Internet Issues
As we move toward a broadband world, the Commission is being asked at the same
time to put new rules in place relating to broadband. Some have expressed
concern that broadband network providers could discriminate against application
providers or Internet service providers or try to keep customers from accessing
services on the Internet that compete with services, like VOIP, that the
broadband providers are offering.
The Internet is built on layers of services, networks and technologies. The
operating system in your PC is at one layer or level; the ISPs are another
layer; applications, like e-mail, are another layer; and the network
infrastructure - the broadband loop into your home - is another. Every layer is
distinct but they all must work together in order to provide consumers with
information or services they want. This is what I call the "Internet's
Value Chain" and in order for it to work for the consumer, every layer - or
link in the chain - must do its part.
Microsoft, Amazon, Earthlink, and many other players provide links or parts of
links in the Internet's Value Chain. There are things that any one of these
players might do that could be harmful to the openness of the Internet- but they
aren't regulated, and I don't think anyone would seriously suggest they should
be regulated. Yet, that is what some are advocating for network providers like
Verizon. What is being suggested is pure anticipatory regulation. There is no
need for this. We should be patient and not permit the heavy hand of regulation
to skew the market forces that will determine what consumers want, how they want
it, and what they are willing to pay for it. I do not see how it is in the
interest of any player in Internet space, in the market right now, to be
enacting anticipatory regulation of the Internet experience.
We think that the High Tech Broadband Coalition principles are worthy of being
embraced by the FCC. Those principles are designed to ensure that the consumer
has access all the services available on the Internet. And we believe that it's
important that consumers have access to the Internet no matter whether the wires
belong to Verizon or someone else.
There is no need, however, to chisel these principles into regulation. Rather,
the FCC should allow the industry to follow this vision. The FCC, by endorsing
these principles, can put the industry on notice. This will have tremendous
impact on the way in which the market develops.
Put in simple terms the FCC should endorse these important industry principles,
let the market develop and allow all new services to be offered in a
"regulatory free" zone.
Conclusion
The key to reinvigorating the telecommunications industry is to send strong,
consistent signals that uncertainty in policy is about to end and national
policies will be adopted forthwith that support, not impede, investment. We're
ready to do our part. If the government soon makes the right policy changes,
broadband can be a true American success story and help to re-ignite the
economy.
Thank you.
Attachment One
Attachment Two
CONNECTIVITY PRINCIPLES OF
THE HIGH TECH BROADBAND COALITION Consumers should be able to: 1. obtain meaningful information regarding any technical limitations of their
broadband transmission service;
2. receive unrestricted access to their choice of Internet content consistent
with their bandwidth capacity;
3. run applications of their choice, consistent with their bandwidth capacity,
that do not harm the provider's network; and
4. attach any devices of their choosing that operate within the agreed bandwidth
and do not harm the provider's network or enable theft of service. |
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