July 21, 2003

Mr. Chairman, I want to commend you for holding this hearing on the regulatory status of broadband. I would like to take this opportunity to revisit what has become an all-too- common theme of late: the telecommunications industry continues to suffer, and so does the economy in general.

This is not a coincidence. Telecommunications is a large part of our national economy, and it played a central role in the boom years not long ago. As I have said before and will say again, revitalizing this industry can do a lot to improve this country’s fiscal health. Promoting broadband deployment, I believe, is key to helping this ailing sector, and one way to promote such deployment is to eliminate regulatory roadblocks to investment.

Those companies that have weathered the storm so far have had no choice but to reduce their capital budgets. Investment and capital expenditures have plummeted, as have company valuations. The corporate and economic consequences are grave, but the personal consequences in terms of lost jobs and lost retirement savings are even more profound.

The largest of the telecommunications failures – that of MCI WorldCom – was the result of egregious fiscal malfeasance. But regulatory mismanagement must accept its fair share of blame for the industry’s current state. Applying old rules to new broadband facilities discourages investment. We need to end such regulatory nonsense as we try to transition from narrowband to broadband technologies. DSL has its limits, as it rides over the old copper network. Next-generation broadband services and applications – those that offer high-bandwidth Internet, voice and video services – will require significant upgrades of the current copper-based network.

We in the Congress and those currently at the Federal Communications Commission (FCC) have an obligation to adopt smart policies so that the marketplace can fund investment and reward those companies willing to risk capital. We have a responsibility to our constituents, who can benefit from next-generation broadband services and applications and who often have suffered lost jobs and savings. We must start by freeing new broadband investment from inappropriate regulation, such as TELRIC pricing. We must create a regulatory regime that does not favor any one technology or provider, but instead creates parity.

Other opportunities lie ahead, however. We still await the full text of the FCC’s long-overdue Triennial Review. By all accounts, the decision appears to have made some progress, at least with respect to broadband. From what I am told, when it is finally released one day, it will adopt much of what this Committee tried to achieve in the Tauzin-Dingell bill, by ending outmoded regulation of new fiber networks.

I fear, however, that it does little to rationalize the FCC’s destructive pricing rules. My understanding is that it preserves the so-called TELRIC methodology with only slight modifications. Such a heavily and artificially discounted pricing mechanism only skews incentives. It robs the incumbents not only of a reasonable return, but also of valuable resources they could use to build out robust, broadband facilities. To add insult to injury, it pads the coffers of those who merely sit on the sidelines, doing nothing to improve the telecommunications infrastructure or increase its reach. The FCC should provide for sensible rates. To be sure, those rates will be wholesale, but they should reflect at lease some semblance of a fair-market price.

Further FCC decisions on the regulatory treatment of cable and wireline broadband services are around the corner. The FCC has already ruled that cable broadband falls under Title I rather than Title II. Absent another Triennial-Review length delay, we will soon learn how the FCC will regulate a telephone company provision of DSL. My position on this is clear – if cable broadband deserves Title I treatment, so does wireline broadband.

We will see if the FCC can rise to the occasion. If it does not – we must. I look to today’s witnesses for suggestions on how we can do so.