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Hearing of the Senate Committee on Commerce, Science and Transportation - Telecommunications Policy Review: A View From Industry

By:
Date:
Location: Washington, DC


Federal News Service

HEADLINE: HEARING OF THE SENATE COMMITTEE ON COMMERCE, SCIENCE AND TRANSPORTATION

SUBJECT: TELECOMMUNICATIONS POLICY REVIEW: A VIEW FROM INDUSTRY

CHAIRED BY: SENATOR JOHN MCCAIN (R-AZ)

WITNESSES:

IVAN SEIDENBERG, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, VERIZON COMMUNICATIONS;

BRIAN ROBERTS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, COMCAST CORPORATION; SCOTT FORD PRESIDENT AND CHIEF EXECUTIVE OFFICER, ALLTEL CORPORATION; GARRY BETTY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, EARTHLINK, INC.;

DELBERT WILSON, FORMER CHIEF EXECUTIVE OFFICER, CENTRAL TEXAS TELEPHONE COOPERATIVE

LOCATION: 253 RUSSELL SENATE OFFICE BUILDING, WASHINGTON, D.C.

TIME: 9:30 A.M.

BODY:
SEN. GEORGE ALLEN (R-VA): Mr. Chairman, I'd like to submit my statement for the record --

SEN. McCAIN: Without objection.

SEN. ALLEN: With a brief statement that first of all commending you for having this hearing which is very timely. The 1996 act was certainly of value, but I think the greatest value have been all the advancements in technology and we, in my view, ought to be doing everything we can to remove burdens on the deployment of broadband, which is going to provide so many more opportunities. Not just telephone lines and cable lines, but satellite, Wi-Fi, wireless, even power lines.

With your help, Mr. Chairman, just a little over a week ago we did the right thing on preventing taxation of broadband, which certainly will provide all the new applications to get out there and provide people the opportunities in commerce and education and access to information. We have obviously key stakeholders here today, I look forward to hearing their testimony as we determine how to, in my view, embrace the power of technology to operate in a free market rather than arcane government regulations that are stagnant, out of touch or inflexible and to the extent that we can look at ways to encourage infrastructure deployment and compelling applications for a nation. I want us to be one of the leaders in the digital information age and look forward to where we can examine the 1996 act and improve it, update it and make it better for consumers.

Thank you, Mr. Chairman.

BREAK IN TRANSCRIPT

SEN. ALLEN: Thank you, Mr. Chairman.

My key concern here is, and view, is that we need to make sure broadband is more available to more people, it benefits consumers, encourages innovation and it stimulates jobs and economic growth. And clearly individual opportunity for consumers, particularly in small towns and rural areas, for those businesses, individuals where they're in schools or telemedicine, a variety of ways, distance learning and so forth. I think that to worry about the telephone aspect is secondary to broadband, because the applications are way more than e- mail and instant messaging. And it's more even than telephone. It is video. It will get competition against the cable, so to speak, but give consumers more choices in it. And, again, it's not just cable modem and DSL. It is ultra wideband, it is the power lines, it is satellites, Wi-Fi and so forth.

Now, we recently passed the Internet Tax Freedom Act extending the Internet tax moratorium, and most of you all supported that effort and I appreciate it. Can you tell me what you think the impact of taxing the Internet would have on the deployment of broadband by your company? If we could go through all of you all, to the extent you all one way or the other are involved in broadband.

We'll start with you, Mr. Seidenberg.

MR. SEIDENBERG: Well, in addition to it being a bad idea, taxing the Internet, I think-I'll come back to my theme. I think it will take all or most business risk associated with wanting to invest in new technologies and frustrate it. I think that, you know, you have a hard job in terms of public policy. You can get revenues into the Treasury by creating growth, or you can tax it. And I think if we tax it, we're not going to get the growth. So I think in this case I err on the side of wanting to see capital formation continue to have people invest. All the services that you talk about will occur. And the investors will flee from this market in a nanosecond if they feel the heavy hand of taxation enters the success formula for these kinds of services.

SEN. ALLEN: Mr. Roberts, while you're not considered by the ones who want to tax it as a telecommunications company, which gave you an advantage over some of those states that looked at loopholes and taxed DSL, one thing we don't want-at least I don't want is an Internet service monthly bill to look like the telephone bill that Senator McCain-and no one can understand what the multiple state taxes, local taxes and federal taxes, including a luxury tax put on to finance the Spanish-American war, that remains there.

What would the impact of taxation be on you all, Mr. Ford, Mr. Betty and Mr. Wilson?

MR. ROBERTS: Well, first of all, we do have local franchise fees so there are taxes at stake in this debate as well because a cable operator gives 5 percent of the revenue to the local municipality, depending how you define --

SEN. ALLEN: Right, but not on Internet service?

MR. ROBERTS: There was some-in the past there has been some municipalities that wanted that, and so that's part of the question. And I think when you create a tax in something that is growing like this, you're obviously going to depress demand. And if you go back to what Chairman McCain said or what the president said, you know, shouldn't we be thinking about growing the appetite, not depressing the appetite? And I would agree with what Mr. Seidenberg said and I don't think that that's in any way going to help grow demand, and I think that's better for the nation as a policy.

SEN. ALLEN: Mr. Ford?

MR. FORD: One comment would be we pay-I didn't realize until the last few weeks when all the articles started coming out, we pay $600 to $700 million in state and federal taxes. I didn't know we were in such a minority just as a nation as a whole. But one of our primary competitors that is trying to sell service promotes having a $10 cheaper price for a similar bundle of voice services. That's because they have about $8.50 of less taxes, fees, surcharges and et cetera on the bill. So, again, it's maybe not just a question of do you tax the Internet and how do you take that interstate tax revenues and balance that. But one set of competitors are being taxed, one set of competitors are not being taxed. Again, I think that's worthy of looking at as you go through your review of this.

SEN. ALLEN: Mr. Betty?

MR. BETTY: Taxes clearly would have the effect of dampening demand. It would make it unaffordable for even that many more Americans.

SEN. ALLEN: Thank you.

Mr. Wilson?

MR. WILSON: Senator Allen, when I go back and I think about our rural cooperative when we deployed Internet back in 1996 -- and I talked to millions of people when they took the service. We have over 3,000 dial-up subscribers and around 300 DSL subscribers. To be frankly honest with you, whether it had been taxed or not I think would have little impact upon people wanting the service. They wanted the service and they needed the service bad.

SEN. ALLEN: What would-let me-beyond the issue of taxation-if each of you could say this: beyond the issue of taxation, what is the key issue facing your company preventing further deployment of Broadband services? We'll go in the same order.

MR. :: Okay, I'll just give two things, and I think Senator McCain said it earlier. I think in our case requiring the FCC to implement the court rules without all these silly pricing distortions, and in treating adjacent industries the same. I think the theme comes out here that-and I didn't make this point-make it a point to come here this morning to comment on this, but there's no question the cable industry with all their success has a different set of rules than we have, and in some cases we provide exactly the same service.

SEN. ALLEN: And they're different kind of taxes?

MR. :: Absolutely. So it's a-you know, I'm not suggesting that they're doing anything that isn't good. They're taking advantage of an opportunity, but the issue is we can't go downstream and have a different set of rules for us and for the cable. It's just not going to-it's not sustainable.

SEN. ALLEN: Mr. Roberts?

MR. ROBERTS: Well, first of all let me just comment on that last part, which -- (laughs.) If you take the video business, one out of every four homes now buy their video products from somebody other than their cable company. There's been several laws about video competition. You have two national competitors. We're not in the satellite business, we're really not allowed in the satellite business. The biggest competitor to telephone is wireless --

SEN. ALLEN: I don't want to get in that whole debate --

MR. ROBERTS: Okay.

SEN. ALLEN: -- if I can --

MR. ROBERTS: No problem. So if you --

SEN. ALLEN: I understand there's competition there. What's the biggest key impediment to you all?

MR. ROBERTS: The biggest impediment would be regulatory instability, and in our case that's here and now and immediate, which would be the so-called Brand X case which Senator Lautenberg was referring to. It is under review and the government is-the question is whether they're going to appeal it to the Supreme Court and the FCC's rulemaking, and I --

SEN. ALLEN: So you're saying legal uncertainty?

MR. ROBERTS: Legal uncertainty.

SEN. ALLEN: Fine.

Mr. Ford?

MR. FORD: Mr. Allen, I'd say that it is regulatory uncertainty as well. The technological advances are hard enough to forecast. We struggle with it every day. But when we don't know what regulatory scheme we would be making that capital investment decision, the only decision we can make is not to push.

SEN. ALLEN: Mr. Betty?

MR. BETTY: Nondiscriminatory open access to the infrastructure.

SEN. ALLEN: I know we could have a good debate with you and Mr. Seidenberg on that one.

Mr. Wilson.

MR. WILSON: As a rural carrier, it would have to be regulatory instability too. We need a stable environment of investment and recovery so we can build up broadband out in rural America. I think it would bring untold opportunities to many of our subscribers.

SEN. ALLEN: Thank you.

Thank you, Mr. Chairman.

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