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Hearing of the Subcommittee on Telecommunications and the Internet of the House Committee on Energy and Commerce - Digital Future of the Unites States

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Location: Washington, DC


Hearing of the Subcommittee on Telecommunications and the Internet of the House Committee on Energy and Commerce - Digital Future of the Unites States, Part VI: The Future of Telecommunications Competition

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REP. CHARLES W. "CHIP" PICKERING (R-MS): 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 and began working on telecommunication 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. We look at the Ukraine, we look at Eastern Europe.

But if you look at Russia, we could probably say that we have seen some setbacks or rollbacks. And just like in economic policy or political policy you can have success or you can -- or progress, or you can have failures, rollbacks, setbacks.

So if 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 markets, increasing competition towards freedom.

If you look at wireless, a fairly strong, healthy vibrant competitive sector.

But if we go forward, how do we assure or guarantee that we don't have rollbacks or setbacks as far as economic freedom, telecommunication competition, and choice?

And before us we have some key policy areas that I think that 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 that competitors now have to the last mile and to the last loops, then we could see, just like we lost in the early part of 2000 an entire sector of telecommunication long distance, we could see the lost of the C (phonetic) 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 facility based competition and 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.

So if you look at that market, we could say there's actually less choice today than we had when the reform was adopted in 1999. What do we need to do to make sure that special access stays competitive and economically priced?

As the FCC looks at forbearance, I'd like to ask I guess 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: Well, our business model would be decimated. Without the local loops we cannot offer service. We have no -- 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're paying. We pay Verizon alone $72 million a year. So it is -- it is just to eliminate competition. We have no other choices. We tried wireless. We tried WiMax. We tried -- we've 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 OCM services.

In the case of Ethernet services, today we have been unable to buy -- to get any agreement the various different incumbents, large incumbent carriers, to be able to buy wholesale Ethernet services. And in fact the prices that they're charging, which were on the slides that I showed earlier, are higher than the retail prices that we're seeing them charge to retail customers in the market.

So it's 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 -- (audio blip) -- connected with fiber. We are feverishly making investments every single day to build more fiber in 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's in Fargo, North Dakota, or if it's in Boise or whatever market, if we're 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 telecommunication service.

REP. PICKERING: Mr. Tauke, one of the points of your testimony was on broadband and our 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 wire line capability.

But you support a cap or a reverse auction. Wouldn't that actually restrict wireless broadband, especially in small and rural markets, eliminating competition and choice in broadband, 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's the problem that we face today. You have in many areas of the country now four or five, six, in some cases nine and 10 carriers who are receiving universal service support to serve hard-to-serve areas, okay.

The -- generally the amounts that each carrier receives is based on the costs to the wireline carrier. So let's say there is a community with 500 lines. The wire line carrier, when it had 500 homes, maybe was receiving $10 a month in subsidy. As other carriers come in and take customers from the wire line 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 amounts of money that is going into the community. The community obviously isn't that hard to serve, because that 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'm not saying it's the only one by the way. And I think that, you know, I think that you raise a point that should be taken into consideration when we look at a reverse auction.

REP. PICKERING: A reverse auction could go to just one carrier. Would you agree that the only thing worse than 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 -- the objective of universal service has been to provide service to areas. I don't know that you -- how many carriers you think would be sufficient. But I do think that in a town of 500 people or many of the communities that we are familiar with in our native state, that four, five, six, seven carriers in the community makes no sense, economically, only if supported by the strangeness of the universal service fund.

REP. PICKERING: Mr. Chairman, my time is up, but I do hope 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 at have policies that promote from multiple choices for the greatest degree of economic freedom in telecommunications.

Thank you, Mr. Chairman.

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