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The Committee on Energy and Commerce
Good
morning Mr. Chairman, Ranking Member Dingell, and distinguished members of the
Committee. Thank you for inviting me
here today to testify on this very important issue.
My
name is Charles McMinn. I am the
Chairman of the Board and a co-founder of Covad Communications Company. Covad is the nation’s largest competitive provider of broadband DSL
Internet connections, offering service to nearly 50% of the country--more than
any other CLEC and any other ILEC. We have over 320,000 DSL subscribers, half
of which are residential customers. I
am here today to tell you that if you pass the bill before you as it is
currently written, you will eliminate the driving force in the deployment of
broadband technology in the United States, competition that the Telecom Act of
1996 created.
Your
decision in 1996 to open local telecommunications markets to competition allowed
consumers a choice in broadband services from a variety of competitive
providers. The bill you are
considering today will take that choice away.
The
public telephone network is the only ubiquitous, government-subsidized
communications delivery system in the nation.
Using copper phone lines, companies can and do offer a variety of
different services, including voice, data, and video. While other delivery systems offer a promise for the future, the
monopoly copper phone network is the here and now. It is the only choice that many consumers will have for the next
decade.
The sad fact is that competition in
local telecom markets, especially in residential broadband services, would be virtually
eliminated bythis bill. The
Tauzin-Dingell bill dismantles the core market-opening provisions of the 1996
Act, eliminates line sharing, and ensures that the four Bell monopolies will be
the only companies offering residential consumers broadband DSL internet
connections to the vast majority of consumers in the U.S.
Two
colleagues and I founded Covad in October of 1996, just months after you passed
the Telecommunications Act. We took DSL
technology – which had been collecting dust on the shelves and in the
warehouses of the Bell companies for over six years– and quickly used it to build
a broadband network that can reach nearly half of the homes in America.
This
competition drove the Bells to deploy their own DSL services for the first time.
The total number of DSL lines installed nationwide in 1996 was zero. In 1998 it was about 38,000. At the end of 2000, that number topped 2.3
million. Verizon alone jumped over 500%
between 1999 and 2000, from 87,000 to 540,000. SBC ramped up to 767,000 from
169,000.
The
speed of DSL deployment by the RBOCs would not have been accomplished without
competition from companies like Covad.
Still today, CLECs like us are the only competition that the ILECs face
in many of their markets. We offer services in all of their markets, while they
offer services only in their own markets. The fact is, we are the ones who
compete against each and every ILEC in each and every region in the United
States. They do not compete against
each other.
Let
me repeat that. Even though the ILECs
were allowed to compete against each other, none of them have chosen to do
so. Only CLECs like Covad are competing
to offer consumers a choice. If this
bill is passed, competition will be history and consumers will suffer, as they
have in the past.
The
ILECs, of course, will say that they face competition from cable
companies. This is true only where
cable companies offer high-speed data services, which is a small fraction of
the whole country. To put that
competition in perspective, Covad’s national DSL network alone has more
coverage than all of the cable modem systems in the U.S. combined.
I believe that Covad is a tremendous example of the type
of innovation and entrepreneurship that you envisioned and expected when you
passed that great law. Starting from
scratch, we at Covad have led the charge to bring broadband services to every
home in America, and we couldn’t have done it without the Telecommunications
Act.
I
have with me today our newest product – the Covad JumpStart kit. It represents
the progress and innovation possible through a policy of local competition.
Using the equipment in this box, and by following some easy instructions, new
DSL customers can install broadband in their homes without a visit from a
technician. As a matter of fact, almost
80% of our residential lines are installed using the JumpStart kit. There is no need for a separate data line,
and a customer can get connected in a matter of days. With JumpStart, broadband DSL can be wrapped up and given as a
gift. That’s quite a long way from a
few years ago when the ILECs controlled broadband services, when prices were
high, availability scarce, and installation times stretched into months on end.
This was a time when no consumers and
few businesses could even afford broadband connections. This bill would return us to those times
because it would eliminate the only competition that the Bells face—CLECs like
Covad.
Our
JumpStart kit works by employing line sharing.
Line sharing is a simple policy. It allows a customer to receive DSL and
surf the net over the same copper phone line used for regular old telephone
service, that same copper line that has been paid for by consumers over and
over again. Because of the unique
technical characteristics of DSL, broadband services and voice services can
travel over the same copper wire. They
literally share the line. The issue
before the committee is – who has the right to choose how that wire is used
-- the customer or the monopoly?
Using
line sharing and ADSL technology is the only economically feasible way to serve
residential users and to mass market DSL service. When a Bell company provides DSL to a customer, it exclusively
employs line sharing. They do not force
the customer to install a separate phone line, and they do not send a
technician to the customer’s house to complete the installation. When Covad serves a residential customer, we
also employ line sharing. This fairness
principle is at risk in the legislation you are considering.
The Tauzin-Dingell bill as it is
currently written eliminates line sharing for everyone but the ILECs. This conveys a preferred status
on the ILECs that we can not possibly overcome. Let me be clear. If line
sharing is eliminated, Covad and other CLECs will have no choice but to stop offering broadband
services to consumers. This could result
in the disconnection of 50,000 residential DSL lines for Covad alone. It also means that our Jumpstart kit would
become a thing of the past. The
oft-ignored section of the current bill reads:
“…the Commission shall not require an Incumbent
Local Exchange Carrier to provide
…unbundled access to any network element used in the
provision of any high speed data service, other than those network elements
described in Section 51.319 of the Commission’s regulations (47 C.F.R. 51.319),
as in effect on January 1, 1999…”
Line sharing was ordered
in November 1999, and therefore would, under the proposed Tauzin-Dingell bill,
cease to exist. How can this possibly
benefit the consumer?
I would also note that numerous other pro-competitive
rules that are vital to a competitive marketplace would be completely
eliminated as well, but the elimination of line sharing is at the top of the
list
Aside
from unplugging over 50,000 Americans from their Covad broadband connections,
the elimination of line sharing also represents a serious retreat from the goal
of a competitive local telecommunications market. By eliminating line sharing, Congress will ensure that the
Bell monopolies, and only the Bell monopolies, are allowed to offer residential
customers DSL services in the vast majority of the U.S. In the absence of line
sharing, competitors will have to lease a separate phone line and send a
technician to the field, adding significant costs and time delays, a cost disadvantage
that we can not hope to overcome. And so we will have to withdraw from the
consumer market.
Moreover,
the Tauzin-Dingell bill would relegate consumers to only those broadband services
the Bell monopolies decide to offer. While
the Bells offer only one type of DSL called ADSL, Covad and other competitive
companies offer a menu of DSL services and products that give consumers a wide
range of broadband choices, higher speed and farther-reaching services. The Tauzin-Dingell bill takes away new and
innovative services from consumers. I
submit, and Covad firmly believes, that such a re-monopolization of the local
market is clearly not in the best interests of the nation. That certainly was not the goal of the
Telecommunications Act.
We are not alone in our opposition to returning to a
local phone monopoly. I point to an
April 18, 2001 Business Week editorial that reads:
“The Bells are not known for their competitive vigor
or their willingness to roll out broadband quickly. Indeed, it was only competition
from new companies that spurred them to start. Even now, the monthly
cost--about $40--for broadband service is high, and the quality of digital
subscriber line (DSL) service often low. Baby Bell SBC Communications Inc. just
hiked its rate to $50 a month.
Broadband is clearly the next big thing in the info-tech economy.
Cell-phone and handheld-device manufacturers, Internet infrastructure builders, server
makers, content providers, software writers, advertisers, and others in the IT
sector are betting on broadband…But regulators will have to do their part as
well. If consolidation produces more
monopolization of the telecom market, America's high-tech economy will suffer.”
At a time when competition for
local broadband services is beginning to take off, I don’t believe the nation
can afford to return to a monopolized local telecommunications network.
The process that
Congress put in place in 1996 is working – the FCC has not rejected a single RBOC
long distance application since 1998, and the Bell Companies have announced
plans to submit dozens of applications for approval this year. By year-end, it is expected that half the
nation’s population will be able to buy long distance services from their
monopoly phone company. Removing this pro-competitive provision from the Act
would return the nation and its broadband consumers to a monopolized local
market -- but no provision of the bill will harm consumers more than the
elimination of line sharing.
Covad
has more experience competing in the last mile of the local market than perhaps
any other carrier. We’ve competed in
local broadband since December of 1997, when we began providing service in San
Francisco. We deal with each of the
four Baby Bells, and can offer service to nearly half of the homes in
America. It is this long history and
experience that leads me to believe there are indeed steps that Congress can
and should take to further the goal of local competition. I don’t believe they
will come as a surprise to any Member of this Committee.
The
Telecommunications Act provides a tremendous framework to induce competition
into a monopoly market. It comes up
short, however, on enforcement. Only
the rigorous enforcement of the law and of the Telecom Act will promote the
deployment of broadband. Not only do
competitors continue to receive poor wholesale performance from all the Baby
Bells, we are without an effective means to have our concerns addressed by
policy makers. The current fine
structures that regulators possess are wholly inadequate. I believe that FCC Chairman Powell said
essentially the same thing in his testimony here in March.
“After two years of staggering
sales increases, the world’s major fiber-optic companies are experiencing
growing pains, as a slowdown in telecommunications spending hurts components
and systems makers alike….The big domino in all of this is the lack of funding
for start-up phone companies. Funding
began to dry up in the middle of last year.
The start-ups, which were building optical-telecommunications networks,
no longer have the cash to spend on optical equipment, and some have declared
bankruptcy. As a result, the large
incumbent phone companies, which had to spend aggressively to protect their
customer bases, have curtailed their own spending plans…”
The message from this article is
clear. Competitive deployment drives
the Baby Bells to spend and deploy.
Further, outlawing local competition, as Tauzin-Dingell does, will have
serious repercussions on the economy as a whole.
I look forward to
working with you to see us through this process. The story of Covad is one I believe you all envisioned back in
February 1996. Unfortunately, I fear
our story, and the story of all competitive providers of broadband services, is
lost amid the hype about “leveling the playing field” of pseudo-competition between
the Bell monopolies and the cable companies. Competition and innovation brought broadband to the masses. The real beneficiaries of this competitive
policy have not been companies or shareholders. Instead, the beneficiaries have been consumers and constituents who
have reaped the benefits, in the form of new services and – for the first time
– a choice in a local provider. Please
do not eliminate that choice through your actions.
Thank
you very much, and I would be happy to answer any questions you might have.
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