THE FORUM ON TECHNOLOGY AND INNOVATION
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HIGH-SPEED COMMUNICATIONS ACCESS:
WHO WILL CONTROL THE LAST MILE?
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WEDNESDAY,
MAY 19, 1999
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PRESENT:
SENATOR JAY ROCKEFELLER, Co-Chair
SENATOR BILL FRIST, Co-Chair
MR. DUANE ACKERMAN, Chairman & CEO
BellSouth Corp.
MR. STEVE CASE, Chairman & CEO
America Online, Inc.
MR. WILLIAM KENNARD, Chairman,
Federal Communications
Commission
MR. MILO MEDIN, Founder & Chief Technology Officer
@Home Network
This transcript was produced from a tape provided by the Forum on Technology & Innovation.
I-N-D-E-X
INTRODUCTIONS
Peter W. Rooney . . . . . . . . . . . . . . 3
OPENING REMARKS
Senator John D. Rockefeller . . . . . . . . 4
Senator Bill Frist . . . . . . . . . . . . 7
FEATURED SPEAKERS
William Kennard . . . . . . . . . . . . . . 11
Chairman, Federal Communications Commission
Steven Case . . . . . . . . . . . . . . . . 17
Chairman and CEO of America Online
Milo Medin . . . . . . . . . . . . . . . . . 28
Founder & Chief Technology Officer of @Home Network
Duane Ackerman . . . . . . . . . . . . . . . 33
Chairman & CEO of BellSouth Corp.
CLOSING REMARKS . . . . . . . . . . . . . . . . 84
P-R-O-C-E-E-D-I-N-G-S
MR. ROONEY: I am just going to quickly tell you about our format. It is very simple. The two senators are going to introduce the topic quickly and then introduce all our speakers, up front.
They have brought you a terrific panel today and we want to get right to the panel.
Each speaker will have ten minutes to tell you their view of the broadband access issue. Then the senators will open the floor to your questions.
We have microphones on the floor toward the back. We ask our guests here today to give priority to Congressional staff.
The senators are here, and we are here for the staff and we want to give them every opportunity to ask questions of our panel.
For those of you who are shy, we have green question cards in your packet. Fill those out, hold them in the air, and our staff, who I would like to point out to you, Beth and Chad, will collect them from you, bring them to the front, and the senators will ask the questions on your behalf.
Finally, in your packets are blue evaluation cards. We are here for you and we listen to your feedback. The feedback you gave us last time helped shape this event.
Please take a few moments to fill this card out and drop it off at the registration desk as you leave.
Thanks again for coming.
SENATOR ROCKEFELLER: Thank you, Peter.
We are going to start now. It is just interesting to me that we had 100 people at our first forum, 200 at our second, and we had to shut off registration yesterday, for this one, at 300.
So, pretty soon I think we will be meeting on the Mall.
We have a very contentious subject today, which is very good because we have an extraordinary panel to discuss that. It is all about broadband Internet access.
There is a wide variety of companies using several different technologies who are racing to give consumers, as fast as they can, access to the Internet which is fast and powerful.
Now, everyone seem to agree that broadband will completely change the way we use the Internet. Because the stakes are so high, we have a real battle on our hands to see who, if anyone, will control the broadband market.
Cable companies like @Home were first to offer affordable broadband Internet to the mass market. So, they claim that because they are innovators, spent huge sums of their own money to build their network, and are best able to give customers the on-line experience that they want, that they should not be further regulated.
America Online, however, and some other Internet service providers see the situation very differently. They claim that cable companies are building a broadband monopoly. That, in turns, denies consumers a choice of Internet service providers and lead to the demise of competition in the Internet service market.
So, AOL calls for the government to require open access to cable Internet networks, much like telephone companies must provide open access to their competitors.
Cable companies claim that such regulation would kill investment and would kill innovation in cable broadband, lead to much more regulation at a time when the FCC is supposed to be deregulating, and beyond that, it is unnecessary given their still very small customer base.
They further claim that customers who want AOL can get it over the cable, despite AOL's claims to the contrary.
Yet another dimension involves the digital subscriber line or the DSL, and that allows broadband over regular copper telephone lines.
Incumbent and competitive telephone companies are fighting to deploy DSL as an alternative to cable broadband.
If DSL technology provides an attractive alternative to cable, the whole debate becomes even more complicated since DSL is already regulated by the FCC.
So, this has developed into a real struggle. The FCC and Congress have very hard choices before them and it depends on an understanding of complicated technology and policy issues which is what this tech forum is all about anyway.
So, that is kind of the outline.
Senator Frist will introduce what is an extraordinary panel.
SENATOR FRIST: Thank you, Senator Rockefeller.
In listening to Jay talk, isn't it great that you have two United States Senators, he did his remarks in three minutes, and if I am any good I'll do mine in about three minutes, and the rest of the time you don't have to listen to United States Senators or Members of Congress.
That really is one of the unique things that we try to capture here, not that we have nothing to say. But the purpose of these is really to share information with you, and do it in an objective by-partisan, non-partisan way, and that is really what the purpose of The Forum on Technology and Innovation is all about.
I want to welcome all of you here and thank you for coming. Our real goal is that at the end of an hour and a half we can get as much information to you and also learn from you, in the format of a dialogue of questions and answers that we go to after the initial presentations.
We have a fantastic group today. As Jay said, we will have formal presentations of eight to ten minutes, just going straight down the table, then we will come to the real dialogue.
Senator Rockefeller and I will have to vote beginning at about 1:00 p.m., so we will do some tag team as we stand up and go back and forth.
The panel, starting from my right, William Kennard, Chairman of the Federal Communications Commission, is leader of the FCC at the time when there is such explosive growth of the Internet. Chairman Kennard has seen the de facto and overall Commission's responsibility expand, almost exponentially.
As all members of the Senate Commerce Committee know, this chairman is a dedicated public servant and does a tremendous job.
The chairman is presiding over perhaps the most challenging time in the Commission's history.
He is responsible for insuring that all Americans have access to the technologies that are thriving and are the driving force behind our economy and that are truly reshaping our society, whether in education, job creation, international affairs or the broad economy.
Steve Case, co-founder, Chairman and CEO of America Online, is one of the true visionaries responsible for the phenomenon known as the Internet.
He has built AOL into the global leader of on-line services with over 18 million subscribers. It has a consumer-friendly face right there on the Internet and thus it is really the mass market retailer today that has really stood out in the on-line world.
Steve has helped create a new medium that is as ubiquitous as television, the telephone, and perhaps even more indispensable as we look to the future.
We are fortunate to have Steve with us today.
Milo Medin, founder and Chief Technology Officer of @Home Network helped develop the networking technology that has helped make @Home Network the leading provider of high speed Internet service, with over a half million subscribers.
Prior to founding @Home Network, Milo directed a NASA project that helped deploy a high speed national network connecting major super-connecting and data archiving centers.
He also supervised the build-out of the West Coast Internet Interconnect Network.
Duane Ackerman runs a multi-billion dollar corporation, BellSouth, the world's tenth largest telecommunications company, where he serves as Chairman and CEO.
As the regional Bell serving the Southeast, BellSouth is the leading supplier of DSL, digital subscriber line service, one of the competing technologies that delivers high speed communications access to consumers.
Duane served as chief operating officer at BellSouth prior to becoming CEO so he knows both the technology end and the market end of broadband service.
Chairman Kennard?
CHAIRMAN KENNARD: Thank you very much, Senator. It is a great pleasure to be here with two leaders on this issue.
I commend Senators Frist and Rockefeller for convening this series. It is vitally important that we discuss these issues at this time and I can think of no better people to lead this discussion.
Senator Rockefeller is one of the leading advocates of insuring that the technology that we are going to talk about today truly touches all Americans. Not only in our major cities, but in rural areas, in our inner cities, our barrios, in our Native American reservations.
When I became chairman of the FCC, I decided that I wanted to make those issues the centerpiece of my chairmanship and looked around for leaders on this issue. And believe me, Senator Rockefeller doesn't just talk the talk, he walks the walk.
I appreciate your leadership.
To you Senator Frist, I also appreciate your leadership on these issues. You have distinguished yourself in the health care field, and I cannot think of no two areas that are more dynamic in reshaping our economy that health care and telecommunications. It is a great marriage of two wonderful specialties.
It is very timely that we have this discussion today. As you all know, e-mail and data communications are becoming a fact of life for most Americans. Certainly for all of you who work on the Hill.
I was thinking, not long ago, of the story of the very first e-mail transmission in America. It was an e-mail transmission between researchers, the folks who actually developed the Internet, working with the Defense Department.
The first e-mail message was transmitted a little over 30 years ago between researchers at UCLA and Stanford University.
What is interesting about that transmission is that, we have all heard the stories about the historical first, the first telegraph transmission when Samuel Morse typed the first telegraph transmission, he said something quite prophetic and profound, "What hath God wrought?"
Alexander Graham Bell, after inventing the telephone, had a more practical message. He said, "Watson, come here. I need you."
Well, the very first e-mail transmission, 30 years ago was only one word, two letters, the word, "Lo." They were trying to type log-in and the network crashed.
So, that was it.
Well, as you know, today we rely on e-mail every single day, it is part of our lives. About 53 million Americans have PCs at home, almost one third of Americans are hooked up to the Internet, and it is becoming probably the most driving force, not only in telecommunications but in our economy today.
In about five years about 60 per cent of people will be on-line which will open a whole new horizon for electronic commerce, continue to fuel this economic expansion that is so changing not only our economy but the world economy.
I believe that one of the most exciting developments that we see in the development of the Internet and e-commerce is broadband. And that is what we are here to talk about today.
We are going to focus our discussion here today on the race to deploy broadband over two different platforms.
The telephone platform which is rushing out the DSL product and the cable coaxial platform which is rushing out the cable modem product.
It is a very important issue, a very exciting development because we are starting to see competition take shape in broadband.
But I just wanted to issue, initially, a note of caution. A note of caution because we can't rest with only two broadband pipes in America. It is not good enough. It will be great, it will be exciting, it will greatly accelerate the way that people use the Internet in this country.
But if the end game is to have DSL competing against cable, two broadband wires in every home, we will have failed as a matter of policy. That is what I believe.
Because a duopoly is not competition. We have to have three, four or five pipes into the home, all offering broadband services.
The debate that is raging at the FCC, here in Congress, in the administration, about whether we should use regulatory intervention to pry open that coaxial pipe so that ISPs and OSPs have access to it, well that debate goes away if we have more than two pipes.
That should be our end game, that should be our goal, to have true competition in the provision of this service.
That is why at the FCC we are working hard to pump new spectrum out into the market place. We have had a number options in recent years, new services that can be used for broadband services like LMDS and MMDS. We are giving licensees the flexibility to use these pipes for interactive data so that we have the hope that this debate a few years from now is not about just two pipes, but about several.
I was encouraged when I read, not long ago, that Steve Case had announced a deal with Bell Atlantic where they are going to use the satellite platform to bring high speed Internet access to Americans. That is a wonderful development.
It would be great if we could see broadcasters move ahead with their plans for digital, and include terrestrial broadband pipe for digital broadcasting as well.
At the end of the day, government is not going to build these wonderful networks. It is going to be the gentlemen you will hear from next.
We will help. We will give folks the tools that they need, like Spectrum, for example.
We are going to try to promote as much competition in the provision of these services as possible, then get out of the way and let the market place take over.
So, I came here primarily to listen. I have had the privilege of working with Steve Case, Duane Ackerman and Milo Medin in my job as chairman.
They are truly visionaries. They are not only business leaders in the finest sense, but they are technological visionaries. These are the guys that are going to bring you the technology.
So, I am going to quietly eat my lunch and listen to them.
Thank you, very much.
SENATOR FRIST: Thank you, Mr. Chairman.
Steve Case, co-founder, Chairman and CEO of America Online.
MR. CASE: Thank you all for coming and thank you for hosting this.
If the demand for this was so great, I have two thoughts. One is you should raise the ticket price.
The other is that it is probably symbolic if the number went from 100 to 200 and jumped to 300 and there was demand for more that this is an issue that really resonates with people and there is a growing concern about it. I am pleased to see that there is growing attention being paid to it.
I think if you take a step back and say broadband-shroadband, what is really going on here?
What is going on here is that in the last five years we have seen an extraordinary development with the Internet.
Five years ago, very few people used it, it was kind of a hobby, maybe a few played with it on the weekends.
Now, tens of millions of people are connected and using it habitually. And it is changing their lives. It is starting to change all our lives, and have an impact on the society and the economy in ways that we couldn't even imagine just five years ago.
We want to continue that momentum, continue to build this medium, to build something that we can really be proud of, to build something that has a positive and pervasive impact on our society.
Everything is going pretty well now. There are thousands of Internet service providers and lots of on-ramps, and as a result of that there are all kinds of companies that come out of closets, garages, what have you, almost every day.
The capital is rushing to fund these companies, companies that didn't even exist five years ago, like Yahoo and Amazon and E-Bay are all big successes.
It has all happened because at the end of the day, we have a hyper-competitive market, particularly at the on-ramp. There aren't just one or two or three companies that are providing consumers with service access, but there are 5,000 Internet service providers.
The reason that there are 5,000 Internet service providers is because the telecom policy of this country basically said that phone companies will sell their lines to all comers.
So, anybody can go buy some business lines, some modems and routers, and be in business and voila, thousands of people have chosen to be in business. That has driven up the level of innovation and driven down the price of Internet access, and surprise, surprise, tens of millions of people have plugged in.
So, we want to continue that momentum. So, this fundamentally is about preserving that competitive dynamic that is driving the Internet.
The risk is that there is a world where the market moves to broadband, and there are only two wires into the home that could really work for broadband. There is hope in the long run for wireless, there is hope for satellite, there is some progress on the business side, not so much on the consumer side.
Right now, there are two wires into your home that hold the possibility of giving you broadband access. One from the phone company and one from the cable company.
While two wires is better than one wire and three wires is better than two and four wires is better than three, I would argue that 5,000 access providers is better than a monopoly or a duopoly or a triopoly or an oligopoly.
The underlying dynamics, the momentum, the enthusiasm that happens, all up the value chain, not just in access, but in content, in commerce, in the community context all through the Internet, the ripple effect, the domino effect of that competition is extraordinary.
So, we think it is very important to preserve consumer choice. It is very important to keep stimulating competition at every level of the value chain. That is fundamentally what this is about.
Now, we have been talking about this for a year and half or so, and in that time frame a lot of things have happened.
So, it is pretty clear now to me what the arguments against this are, so I thought I would just touch on them and then give you our response.
The first is that somehow, if we do something here, if we step in, we would be regulating the Internet.
I think that is ridiculous. We aren't arguing for regulating the Internet. I think most people know that AOL, for a decade, has been pretty articulate and energetic in arguing why the Internet should not be regulated.
But it should be understood why this Internet that is so hyper-competitive and giving so many benefits to so many people, is sitting on top of a communication infrastructure, particularly telephone lines, and there is already regulation that relates to that.
It is a question of how the telephone regulation and the cable regulation is harmonized
in a world that is no longer about telephone companies allowing you to make telephone calls and cable companies letting you watch television.
They are both trying to do the same thing which is provide high speed, broadband access service.
So, we are not arguing for regulating, we are not even arguing for putting common carrier telephone regulation on top of the cable industry, we are simply arguing that there needs to be some sort of light touch, some non-discriminatory approach so that the cable companies cannot block access to unaffiliated ISPs.
There are already laws on the books that do this without regulation. Cable companies, for example, if they own part of CNN, cannot block access to CNBC or Fox news. They have to provide access to networks they don't own a piece of.
The same should be true here.
So, that is the first argument. We are not in favor of regulating the Internet. We don't think onerous common carrier regulation is necessary or appropriate. A light touch will work.
The second issue is the extent that cable companies have to open this up and investment will dry up and nobody will get broadband.
This is ridiculous. This is a market place that is fueling Internet companies. Companies I have never heard of are going public with unbelievable valuations.
So, the thirst to fund anything involved with the Internet is quite high and none of those other companies have any kind of monopoly, gate keeper, bottle neck aspect in their business plans.
They are competing on a level playing field, doing quite well, thank you, investment is pouring into this market and will pour into this market, irrespective of how this plays out.
Indeed the history of the PC model versus the cable model says open systems, in the long run, win out.
Windows did a lot better than Macintosh over the last decade, for that reason.
So, investment will continue to flow.
The third issue which is that it is somehow technically impossible. This reminds me a little bit of twenty years ago when AT&T said that it wasn't possible to plug a different phone into your phone net; the whole system would come crashing down.
Of course it was possible and just needed a little creativity applied to the problem.
We actually hired the guy who was the guy who was counter-part to Milo who built Road Runner, as the chief technology officer of Road Runner when Milo was the chief technology officer building @Home Network, and he would be happy to testify, under oath, anywhere in the world, that these systems can be open and should be open and talk about how they can be made to e open.
The fourth argument is we are open now.
I hear this one from time to time, because if you get on @Home Network or Road Runner or some of these systems you can still connect to AOL.
But that is sort of disingenuous. The fact is that if you want to access AOL, or Mind Spring
or Earth Link or some other ISP you have to pay twice. You have to pay for @Home Network and then an additional for that additional service.
It is completely inconsistent and in my vies, even hypocritical for companies like AT&T to say on the one hand that cable should be left alone, and on the other hand, arguing strenuously in front of Mr. Kennard and others why the telephone system should be required to be even more open than it is. It should be selling at even a lower wholesale price than it is today.
We just think some consistency of arguments here would be helpful.
The final argument, and it is a troubling one, sort of a head-in-the-sand argument, a wait-and-see attitude, there aren't that many people connected to broadband, a lot of things are happening, why don't we just do nothing?
Well, I think doing nothing is making a explicit decision to allow consolidation to accelerate in this market. We have seen it in the past year with all these mega-mergers would likely pick up.
The way that Wall Street works is a little bit different from the way that Main Street works. Wall Street tries to predict what the end game is for Main Street and consolidate companies around those likely winners.
So, a game of musical chairs is being played here on Wall Street. It is very important for the government, one way or another, to stand up and say that we are not saying we believe in closed architecture.
We believe in open, competitive systems, we believe in innovation and consumer choice and one way or another we need to be able to be sure that all the wire to the home, are open and competitive.
It is a critically important issue. It is not a technology debate. It is not a debate between AOL and AT&T. It is not even a debate related to the Internet itself.
It is really is a debate that as the Internet becomes more of a part of every day life, as it starts having a significant impact on the economy and society, as it becomes a sign of great promise and momentum for the United States because we are really at the epicenter of this global medium, this global revolution, we need to take steps now so that the wonderful experience of the last five years in this hyper-competitive market, where everything is possible, where everybody has a chance, continues to exist in the next five, ten and twenty years.
It is a very important issue. I am delighted you all took time to be here today to talk about it.
SENATOR FRIST: Thank you, Steve.
Next, Milo Medin, founder and Chief Technology Officer of @Home Network.
MR. MEDIN: Thank you, Senators, and all you folks for inviting me and showing up.
What we are here talking about today is very important. It is about broadband and about getting broadband out to the whole country. Not just major metropolitan areas, large cities, or just the folks who can pay a large amount of money for a T-1 line or for very expensive set of telecommunication services.
But actually being mass-market broadband roll-out is important.
Today, @Home Network has over 500,000 subscribers installed. We are about four years old.
I am serial number one at the company. I have been there to see all the sausage get made over the years.
We pass about 15 million homes in North America. That means if you live in any one of those 15 million homes you can call up and have @Home Network service installed.
If you don't live in one of those 15 million homes today, you can't get @Home Network service installed.
We and the cable industry is building out very rapidly to make these services available throughout the country.
Broadband is very important because it enables all kinds of new applications. It enables people to engage in new types of e-commerce. Being able to sit inside of a car and being able to see what a car looks like and being able to download software, even Microsoft software. You need a broadband network for that.
And all other sorts of capabilities which really just aren't practical on a dial-up network experience.
The ability to integrate digital set-top boxes to address the 50 per cent of U.S. homes that are isolated from the information revolution these days because they don't have PCs.
It is the build-out that will enable all these services.
By the way, those of you here who have no intention on every taking high speed service from a cable operator, you should be all behind @Home Network and the cable industry because it is @Home and the cable industry that have motivated the RBOCs to actually go out and deploy DSL and allowed Steve Case and others to go out and do deals with regional Bell operating companies to provide DSL services.
If it wasn't for cable going out there where cable had no entrenched data market, no data services to cannibalize, you wouldn't see this type of innovation.
This innovation has been enabled because of the stability of the regulatory environment provided by the 1996 Telecom Act.
That act laid down a bunch of ground rules. I am not the expert in that kind of stuff. But what it has done is it has created an environment where the investment that has been willing to fund billions of dollars of infrastructure investment in cable as well as wireless.
Those incentives to build out facilities-based infrastructure are going to generate those third and fourth way into the home with the help of the FCC in opening up those frequencies.
So, you can have true facilities-based competition.
Facilities-based competition is what brings new innovation, real differentiated services, and real value to consumers.
How many here in this room has your voice service from an unbundled loop carrier on your phone line at home?
There is one guy back there. Do you work for a carrier or a telephone company? Okay, yes.
That has not brought innovation and it hasn't brought innovation in rural areas.
I was down in Los Angeles at a hearing recently, and the CEO of a local cable operator called BuenaVision was there.
BuenaVision services mostly a Latino community. In that they have very little PC penetration. He said at the hearing that if he had to deal with unbundling, he couldn't make those kinds of investment relationships with his service provider, which was not @Home, by the way, to be able to actually invest and offer high speed data services to his users.
It is the market place which creates services and creates progress which creates all of this. The Internet is the result of a market place that doesn't have that kind of regulatory scrutiny.
It will change services. If you think that the traditional lines between inter exchange operators and local exchange operators will remain constant when the Internet starts carrying everything, voice, video, telephony, all this kind of stuff, I think you are kidding yourself.
It is a revolution which is driving these new services.
In the last ten years, the Internet has done amazing things in delivering new services and capabilities.
That industry has innovated at a wholly different scale or pace than the telephone companies or the cable companies have.
What we want to see is an environment that creates these kinds of investments to continue and we will meet the phone companies and other people in the market place.
Because the goal is if we don't deliver value to the consumer he is going to go somewhere else. Right?
Thank you.
Thank you, Milo.
SENATOR FRIST: Mr. Duane Ackerman, BellSouth CEO.
While Duane is preparing to make his comments, remember the cards in your folders, you can go ahead and fill out some questions, if you like.
Again, we encourage people to go to the microphones and keep your comment fairly short because we want to get in as many people as we can.
We will go straight to questions right after Mr. Ackerman.
Mr. Ackerman?
MR. ACKERMAN: Thank you, Senator Frist and Senator Rockefeller for convening this forum.
This obviously is an important topic at this time.
When the Telecommunication Act of 1996 was passed companies like our company controlled the last narrowband mile.
I think we have to say that straight forwardly. That facility was durable and reliable.
It was a facility that was good for voice and slow speed data.
But we didn't control the last broadband mile which was used primarily for cable t.v. at that point in time, and we still don't control the broadband last mile.
I think that what is good news for consumers is that AT&T/TCI/MediaOne/Microsoft combination is creating a really robust broadband last mile model.
That is going to provide video Internet access and voice over IP.
I think in the new world of communications it is broadband that will become the desired state for moving information.
To put it another way, the future of communications rides on the broadband last mile.
There has been a lot of talk about broadband and narrowband and I am sure everybody here understands that.
But what we are really talking about is the speed at which we move information. If you are going to send a glossy photograph of your child to the grandparents, if you are on narrowband it may take you a few minutes, if you are on broadband it may take you a few seconds.
If you are going to enter a course, and there are now about 300 universities that provide on-line education, simple charts and simple text, that is fine for a narrowband environment.
But when you talk about a broadband environment you are talking about something that is much more robust. The ability of the professor to deliver the lecture, the interaction of the class, and in some cases, the interaction of the person taking the course with the classroom.
So, I think that we are fundamentally speaking about speed.
When we talk about narrowband we talk about somewhere between 28 and 56 kilobits per second and in broadband we are talking about 1.5 million bits of information per second and above.
Now, I think narrowband was quite fine when all we needed was to talk on the telephone from one location to another.
But obviously that time is past. And it is certainly not up to the demands that have been created by the convergence of the computer, cable t.v. and communications and this evolving world of the Internet which we have heard so much about which requires substantial speeds to move the graphics, the photos and the video.
I think that just as broadband brings a much richer forms of information and it will bring much richer forms of e-commerce and it will bring more powerful tools in day-today work.
When we think about AT&T, TCI, MediaOne and Microsoft, that combination, they are creating an extremely robust broadband last mile.
I think that is not only good news for the consumers, but good news for the policy makers because we now are getting the competition that they have been looking for.
I think the upshot is this. Most American homes are now connected to communication networks through two pipes. Increasingly these networks will offer the same services, cable t.v., telephone, Internet access, fast access, broadband access.
So, I think the pressing question is this: How do we deploy broadband to all Americans as quickly as possible?
I think we all agree that is a worthy aim. It is the right public policy.
Cable companies, software companies, computer hardware companies, Internet access companies, I think everyone wants to see broadband deployed as quickly as possible.
If you run into the world wide wait, as most of us have in working with the Internet, I think we all agree that the broadband pipe is needed and needed now.
Now, in the current deployment of broadband, the cable t.v. industry is ahead of the local exchange telephone companies.
At the end of April, about 700,000 customers were using cable modems, the cable version of broadband, and about 100,000 were using the DSL product which is the technology that works on the narrowband telephone line to generate a broadband channel.
So, I think we all agree on the aim. But how do we do it and what will make it happen sooner rather than later?
Now, a lot of people say that the Telecom Act should have foreseen this and comprehensively addressed it. But I think we all have to keep in mind that as the Telecom Act was being developed in the late Eighties and early Nineties, there weren't many consumers who were using the Internet. It was the province of universities, academicians, scientists and engineers.
It was only as we moved toward the completion of the Act that it became prominent and began to make a stir. That this was ultimately going to be the medium on which information would be moved between people and machines.
As a matter of fact, when you think of the term, Internet, it was only mentioned in two sections. It is only mentioned twice in the Telecommunications Act.
I think, in short, all that says that the Telecommunications Act was more focused on voice than it was on the Internet.
As it relates to voice, the Act is up to the job. I don't think we have to throw the Telecommunications Act out.
But the advance of technology and demand of the market place have created a new world, this world of data.
As you know, this has been said several times today, data is everything from e-mail to music and photographs, downloading video games, x-rays, architectural drawings, most anything that can be digitized. And today, we can digitize most everything.
So, you all know, first hand, what a new world this is. Not many years ago you used the telephone just to talk to people; that was all.
Now, you have your PC. It is hooked into a communications network, either a telephone network or a cable t.v. network, to do research, to e-mail your friends and family around the world, to order books from Amazon.com, to get airline tickets, and all the rest.
The new world calls for broadband. In turn, we believe that the growing demand for broadband calls for new policy to augment the Telecom Act.
We said that we agree that the deployment of broadband is good, but we also stress fast. Fast deployment.
When you add the qualifier, fast deployment or fast as possible, there are, as a practical matter, only two ways to get broadband to all the homes in America, in the near term. And yes, there are various wireless technologies that offer this promise.
Telligent showing what it can do, relative to wireless bringing broadband to businesses. Fixed wireless is promised for residential customers. Satellite has promise. And we haven't forgotten about all the entrepreneurs who are out there delivering broadband content.
As a matter of fact, at BellSouth, we are selling our ADSL wholesale to some 16 ISPs around the region, the latest being MindSpring.
These companies resell that ADSL or that broadband facility and we want to continue working with these customers because we want to be in that space. We think that is the right thing to do.
But if you want fast deployment today, there are really only two paths to get there.
I think these two much quicker paths of fast deployment already reach most of the American homes.
The two paths are an upgraded, rebuilt cable t.v. system and an upgraded, rebuilt telephone system.
On the cable side, I think the course for deployment is clear. A company can invest its money, it can invent the technology that is required to develop new products and services, and serve its customers.
That is an investment-friendly policy that furthers our shared aim of deploying broadband.
Now, we at BellSouth certainly expect that AT&T, TCI, MediaOne, Microsoft as it should, will move aggressively to deploy that capability.
That is on the cable side.
On the phone side, the course is a little bit less clear.
Will data be regulated? How much? If we invest in data will we be required to unbundle the data elements and sell them at a discount so that our competitors can resell them without having to make an investment? Will we be required to have a second subsidiary for data, and if so just how separate is separate? And how much of a handicap will there be to recover the investment?
Now, how much unnecessary cost will that drive into a business case?
As you can see, this environment is not as investment-friendly as the cable t.v. companies are operating in. That includes the formidable combination of AT&T/TCI/MediaOne/Microsoft.
There is a tremendous imbalance in both regulation and risk.
More regulation for us, less for AT&T and other major players.
More risk for us, less for our competitors.
Thus far, AT&T's purchase of TCI has been approved, has no requirement to open its network, to unbundle its elements for its competitors.
We think this will encourage AT&T to deploy broadband rapidly and that is a good thing for consumers.
But the other platform, the upgraded, rebuilt telephone network is not being encouraged in the same fashion. We don't think that is a good thing for consumers.
As a matter of fact, at the Washington Metro Cable Club in November, 1998, Michael Armstrong said the following, "Now, some narrowband Internet service providers want the government to give them a free ride on those broadband pipes. That is not fair, it is not right. Worse, it would inhibit industry growth and competition.
No company will invest millions of dollars to become a facilities-based, broadband service provider if competitors who have not invested a penny of capital or taken an ounce of risk on the investments, can come along and get a free ride.
Now, we happen to agree with that particular assessment.
Such policies do inhibit investment and inhibit deployment and I think that if the goal of public policy is to spur the rapid deployment of broadband, such regulatory policies work against that aim.
We believe that these two platforms should be pitted against each other; less regulation will give America the best outcome. And in less regulation, I include our preference for the forbearance of regulation on AT&T and the other companies, as well as forbearance on regulation for ourselves.
I am not as concerned about what AT&T can do as I am concerned about what BellSouth cannot do.
Consumers will benefit when these two industries are racing to get to the market. The firstest with the mostest.
Line them up, drop the flag, let them race and let us see who gets to the home the fastest.
I believe that this race will have the additional benefit of spurring the development of fixed wireless and satellite broadband pipes.
Again, we believe that fast deployment of broadband to all Americans is a worthy goal. Members of the House and the Senate will be introducing legislation that will be setting this race in motion.
Businesses are already getting broadband. In the next year I think a greater number of affluent neighborhoods will be getting broadband. Densely populated areas will see broadband early.
But not so in rural areas nor is it likely to happen in many of the poorer neighborhoods.
SENATOR FRIST: Mr. Ackerman, we are going to need to speed it up a little bit because we have about 25 questions here.
MR. ACKERMAN: Okay.
However, I think that the rural and the non-affluent neighborhoods will share in the benefits of speeding up this race. To me I think that is another compelling reason for letting the race begin.
So, who will control the last mile? I think the answer lies in --
SENATOR ROCKEFELLER: So, with that in mind, here is a question for Steve Case.
You argue that we will soon face a duopoly over the Internet, run by cable and RBOCs with long traditions of monopoly pricing and blocking competition.
How can we avoid this? What decisions will the FCC and Congress have to confront, and when?
MR. CASE: Well, I think that is the risk, and to some of extent, I think that Mr. Ackerman has articulated the risk.
I think what he was saying is AT&T can do anything that it wants, as long as we can too, which does lead to this kind of duopoly structure and does gut some of the innovation momentum in a structure where there are 5,000 ISPs.
I think there are some big issues and some little issues. I do agree that the Telecom Act, hard fought for many years, did many things well, but did not fully address the Internet issue.
The amount of things that have happened in the last three or four years is really quite staggering. At some point, you are going to probably have to bite the bullet and deal with the fact that there has to be more harmonization of the policy ,and it is not about phone calls and signals, as much.
But I don't think that is necessary or even advisable right now because of the complexity of doing that and doing that well. Frankly, the political difficulties that surround that.
All you need now, as I said earlier, is a simple, what we call a light touch, which is a nondiscriminatory provision that basically says that anyone who ones a last mile wire into the home has to open it up and make it available to unaffiliated ISPs on the same terms and conditions that it makes it available to its own ISPs.
We are not looking for a free ride, as some have suggested. We are willing to pay exactly what @Home is paying the cable company, which means that most of the revenue goes to the cable companies.
So, the economics would be identical. We would just have more people selling it, giving consumers more choices, and have a model that is more akin to the vibrant competition that exists in the PC world, the Internet world, and less akin to what we have seen in the past in the cable and telephony worlds.
SENATOR ROCKEFELLER: At any time, if somebody else on the panel wants to respond, please do.
Please identify yourself, because people in the back can't see.
MR. MEDIN: Sure. This is Milo Medin from @Home.
A lot of folks think our relationship with the cable operators is like the relationship of an ISP with the phone companies. You pay a certain amount for a loop and that is the way you get a certain service, there is a service level agreement on that, et cetera.
@Home works very intricately with the cable operators. We provide second tier customer support; they do first tier. We provide backbone facilities, they provide the last mile. The buy the cable modem equipment but we actually manage it and provision new users on it.
So, when people ask for this light touch, it sounds a lot easier than it is to accomplish, because even if you look at the way @Home's business deal is, no one would argue that the MDA with our cable operators has a fixed price for a loop facility at some clean point that you could somehow snip in there and glue somebody else in.
It is also the case that this mutual exclusive that we have with the cable operator is designed to minimize risk in this new environment for rolling these types of services out.
The cable operators own something on the order of 75 per cent of the equity in my company.
So, when you look at the 65/35 split of revenue, it fails to deal with that.
If Steve would like to hand over 75 per cent of AOL's equity to the cable operators, I am sure they would find it a very conducive discussion.
SENATOR ROCKEFELLER: Your response?
MR. ACKERMAN: Yes, this is Duane Ackerman, from Bell South.
I would just like to make the point that we wholesale our DSL product for our broadband capability to ISPs for the same price that we sell it to ourselves.
The type of regulation that we think needs forbearance, is regulation on top of that in terms of dealing with data, broadband and the Internet.
Such as whether or not you have to have separate subsidiary, whether you have to unbundle portions of the DSL.
So, the type of initial regulation that is being discussed between Steve and Milo is at one place, and what I am worried about is additional regulation being placed on the telephone platform above that.
SENATOR ROCKEFELLER: Okay, Steve Case wants to respond. This is one question, so multiply that out. I have a lot of questions so we have to be efficient.
MR. CASE: I just want to reiterate one thing I said earlier. I think what Milo is saying, if you recall, is startlingly similar to the arguments that AT&T made 20 to 25 years ago that it is just impossible to unbundle these things.
I think it is possible and we have to sit down and talk about how, technically, it is possible.
I think it is very important to have some harmonization of policy here, not have one wire into the home treated so differently than another wire, but that leads you to just a couple of options.
One would be to say that if cable guys can close it up then why don't the phone guys close it up and then you would have a duopoly.
Another would say why don't we have them all open and have the same type of environment, competition and consumer choice that we have today. That is the position that we are articulating.
SENATOR ROCKEFELLER: Okay. I have to then go vote, so Peter, you come over here and work for us.
Incidentally, we apologize about not having a raise dais. In the Congress you know, there is no such thing as a bureaucracy and we were told by the Congressional physical facilities people that we were not allowed to have a raised dais so that you could see us.
Now, this next question is to anybody.
Which regulatory paradigm for broadband will most rapidly close the digital divide between rich and poor consumers, and why?
MR. MEDIN: Again, the issue here is building new facilities that can lower costs in serving these communities.
I will give you an example from @Home. There is a town called Great Falls, Montana, a great town, and that town has TCI, or AT&T, now as its cable operator. They are fully two-way activating that plant with cable modem service there.
The cost of us extending infrastructure out to Great Falls, on the backbone side was very reasonable, something on the order of $2,000.00 per month to expand a 42 megabit high speed facility.
But U.S. West that was the RBOC in question there, to get the last few miles between AT&T in that area to the Great Falls head-in, where the cable equipment is, wanted to charge something like $12,000.00 bucks per month.
That made it non-economic to support Great Falls.
But what happened, because the cable operator had right-of-way and other things, he said he was going to pull fiber. And he pulled fiber direct to the AT&T pop and that has fixed the cost problem.
Unbundling didn't deal with the fundamental issue of how to get that last mile, that last head-in.
Facilities-based competition did, and we are working with a number of manufacturers on wireless devices which can also get that connectivity extended.
I am not saying that U.S. West shouldn't be able to charge whatever they want. But in a free market when you charge a lot of money for that, you generate competition, somebody else is going to come in and offer that service.
That facilities-based network is what is key in being able to support rural markets.
MR. CASE: Let me just add, briefly, I am certainly in favor of competition and facilities-based competition is an underpinning, but I think it is better to have thousands of people selling the stuff, not one or two or three. That is sort of underlying this whole argument.
I think it is a little bit different than the digital divide issue. As it relates to the rural issue, I think it is important to deploy multiple broadband technologies to get maximum reach.
It is true that DSL will not go to every house, nor will cable. If you really are concerned about rural access, you really need to promote multiple technologies and encourage open access across all of them so that there is competition.
That is what happened in narrowband, for example. Ten years ago, rural areas did not have any local access numbers. If they wanted to connect to the Internet, they had to dial long distance.
Now, I think that 96 per cent of the country has one or more local access numbers. That is because 5,000 people emerged and competed.
The digital device, a little bit different, has less to do with broadband and more to do the fact that one-third of the houses are connected and two-thirds are not.
There are lots of things happening and we could talk about them if we had time, to try to make sure that we reach out to the people who are the have-nots and make sure they are included in this new world.
MR. ROONEY: We have a question on the floor. Could you please identify yourself?
AUDIENCE MEMBER: Yes, Irv Chapman, from Bloomberg. I am noting that I am the only microphone occupier.
Mr. Case, would you be kind enough to share with us the kind of business innovations that you described to the analysts across town and tell us your reaction to their reaction?
MR. CASE: I would be happy to do that, though I am not sure everybody is interested on this panel.
We happened to have an investor day; we do that every year. We have it down the street at the Reagan Building, with three or four hundred people there.
We just were talking about our view of the Internet, our view of our business, what we are doing, broadband as an issue, and commerce and many other things are issues, too.
We are just trying to give people some context. So much is happening on the Internet, so much is happening at AOL we just try to knit it together so that people see it as a tapestry.
I would be happy to talk further with you after the forum.
MR. ROONEY: We have another question here. This is for any speaker.
Some assert that neither cable model service nor DSL can supply sufficient band width for quality live video or HDTV quality video.
Some assert that true broadband must wait until fiber to the home is available.
Where do you see broadband service in twenty years.
MR. ACKERMAN: Duane Ackerman from BellSouth.
If you are talking about HDTV quality, you probably are talking about fiber. Certainly from my perspective, our first objective will be to begin to deploy fiber. We will continue to do that over some number of years.
So, if you look twenty years down the road certainly from the pipe that will be developed from the telecom platform, I think you will be primarily talking about fiber for that level of effort.
But if you look at the near term, where we can do so much with the one and half megabits that we have been talking about today, I think it is clear that DSL will do that, certainly the cable modem will do that.
The requirements for band width will continue to go up and there will be an evolution or movement that will go from the technologies that are being put in today, to fiber in the home.
SENATOR ROCKEFELLER: Other comments?
MR. MEDIN: Many people don't realize this, but cable has more fiber closer to more people's homes than any other distribution infrastructure, at least today.
The total amount of capacity available in a cable system can be quite large.
However, you have to make a trade off between video and data, right?
There is a single pipe there, so if you are talking channels off to support data, you have to take off channels that are normally supporting video.
So, to do the kind of pervasive HDTV ultra-high resolution kind of stuff that I think the questions was addressing, I think pushing that fiber even closer to the home and I would tend to agree with Duane that you are going to need that kind of application on even today's broadband network, is probably not going to fly.
SENATOR FRIST: Steve?
MR. CASE: First of all, where you stand depends on where you sit. When I got started fifteen years ago everyone was using 300 baud, and 2400 baud was viewed as broadband.
So, we made a lot of progress from 2400 to 9600 to 14400 to 28000 to 56000. Every couple of years, something happens.
I think that is driven by the inherent innovation that happens in an intensely competitive market.
I would urge you to look at what has happened in the last ten years in the PC world, the Internet world and compare that to what has happened in the cable world. I think it is a dramatic difference.
In the PC world, everybody can decide what PC they want, what monitor they want, what disc drive they want, what modem they want, what software they want, what access they want.
In the cable world, it is sort of their way or no way.
SENATOR FRIST: Okay, thank you.
Let's go to the floor.
AUDIENCE MEMBER: I am Art Brodsky from "Communications Daily".
A question on bundling.
To what extent should the unbundling principle be applied to other pipes into the house; to wireless data, wireless cable, satellite, other things that are coming in.
PARTICIPANT: Again, the question is, if you want to take this unbundling doctrine and apply it to cable, doesn't it make sense that you should apply it to wireless, to satellite, to all of these. If it is good for the goose, it is good for the gander.
I think again, the question is what does that do the incentives to the people in the investment community to actually build these networks and actually generate the real facilities-based competition that brings true choice to people?
So, I think it is logical to go that far. But I just don't think that is going to generate innovation.
PARTICIPANT: First I would say that I am still eagerly waiting to viable mass consumer wireless satellite solutions. We announced a deal last week with DirectTV that I think was misunderstood. People thought that was about broadband. It was really about the television experience and narrowband.
We are looking for viable mass-deployable wireless or satellite solutions.
But if there are some, I think the principle should apply. Anybody who has a last mile facility, until there are sufficient facilities that really result in robust competition, it should have the same kind of open provision.
Right now the only two are telephone and cable, and only one of those is closed.
PARTICIPANT: I would just like to comment from a narrowband point of view, the Telecom Act requires that we unbundle that loop and we do it and we are not asking to back that up.
We are simply saying that when you get into the data in the broadband arena, that to forebear from regulation if you have other alternatives, has a significant impact, not the least of which is the cost of building out this broadband capability.
You don't need any additional cost of regulation more than you must have, in order to penetrate this market as deeply and broadly as we possible can. I am talking about rural as well as disadvantaged neighborhoods.
SENATOR FRIST: Thank you. We will alternate between the cards and the microphone.
For Milo Medin, taking away regulatory mandates. How can you say it is technically not feasible to not open cable network when phone carriers had to find the technical ability to do the same? Are you developing the ability to connect other ISPs?
MR. MEDIN: I don't think anybody can find me being quoted as saying it is impossible. I have never said that, actually. Engineers tend to be a little more circumspect.
When I worked for NASA we had a saying: With enough thrust, anything can fly.
So, if you are willing to make enough changes in the system, I can think of a way to do it.
The question is at what price, and how is that going to retard the growth of cable data service deployment.
We, for the first time, in the cable industry have a standard that is open and non-proprietary for cable modems and anything. The cable industry has usually gone with the proprietary approach which limited the number of manufacturers that could build the equipment.
Now, we have people like Cisco, 3Com, Northern Telecom, Sony, Thomson, a whole set of companies building equipment that is capable of interfacing with the standard.
And the phone companies now have G-Dot Light and so I would expect, sooner or later, you would see a whole lot of G-Dot Light deployment for the same set of things.
We run Internet all the way down, IP packets all the way down in the network. It is not built the way that DSL works. We did it to make it simple. We think we are going to pass telephony and video services on top of the Internet.
So, we use the same technology that is available in enterprise networks and other things.
For those of you who want to get a more localized answer to this question, go back to your offices and ask your LAN administrators to put your cube on a different ISP than the one that the company is.
They will say that it is possible, it will just cost you a whole lot more money to be able to do that.
So, if you want to make sure that affordable access is important, you can't really charge above $40.00 per month.
SENATOR FRIST: Do other panelists want to respond or comment?
MR. CASE: Sure. First of all, I have known Milo for a number of years and I think he is one of the brightest people I have ever met. I guarantee that he could figure out how to do this quickly and inexpensively.
Secondly, the cable industry has come up with this notion called which Milo kind of alluded to which is basically an attempt to commoditize every level of the relationship so that they can monopolize the customer relationship. That is really what that is all about.
All we are really saying is the same notion of non-proprietary, non-discriminatory thinking which they think of as open cable just needs to be moved up one level to make sure that other people can compete.
But I want to reiterate, because it keeps coming up, this notion of investment, that somehow it is going to cost more, it is going to take longer, it is going to chill investment; I think that is ludicrous.
I think there is no evidence to suggest that there is any lack of interest in funding anything related to the Internet, none of whom other than companies like Road Runner and @Home have an exclusive monopoly, gate keeper, bottle neck, whatever you want to call it, on anything.
It is just a free shot at the free market system and Yahoo puts up his hand, Excite puts up his hand and a thousand other people put up their hand, and consumers get to choose.
In fact, I would argue that the telephone industry, though to a degree perhaps have stepped up their investment in broadband because of cable, which Milo said, to a far greater degree have slowed their deployment because of their concern which Mr. Ackerman articulated, of this inconsistent application of policy, and so are playing this waiting game.
If their cable guys can do it this way, maybe we shouldn't make a significant investment until there is a little more parity, for all the reasons he mentioned.
But I actually think a policy of open access put in place two years ago would actually have resulted in more investment and more deployment in the last two years, and a heck of a lot more people would be offering broadband access to far more customers.
But it is not too late.
SENATOR FRIST: Let's go to the microphones.
AUDIENCE MEMBER: Hi, I am Stephanie Woods of the "Nightly Business Report".
I am curious, Mr. Case, if you have considered using your substantial market cap to get together with a company like MCI Worldcom or maybe a Quest to help them build out into the residential market, making it more worth their while.
MR. CASE: Well, we do work with a lot of telecom companies. MCI Worldcom is one of them. There are others as well. We have for more than a decade. We spend billions of dollars to build out communications network. We estimate we will spend over $10 billion over the next five years just on the money we pay to provide our customers with access.
We also recognize that we are the largest company, with millions of customers and a large market cap and some have told us why don't you just cut your deal. You guys are big enough.
Well, I don't think that is right. I think we have an obligation to build a great company and meet the needs of our shareholders and so forth, but also have an obligation to build a great medium. I haven't spent 15 years of my life to simply, at this point in time, figure out a way to have it bottled up and be dominated by a few titans.
I like this competitive market and we can do fine in this competitive market and I want to be sure that this market exists in the future.
So, it is not just about AOL's self-interest, it is also about trying to build a medium we can be proud of.
SENATOR FRIST: Let me switch to technology quickly. The speakers spoke about two wires, the question reads, within the last mile. But there are really three, the third being the electric wire.
There are experiments now to transmit voice and data over electric lines. Do you think electric companies have a place in the revolution of the last mile?
PARTICIPANT: I guess the comment I would make on that is certainly they are welcome.
When we are talking about broadband and the level of capability needed to make all of these applications work, I just don't see them in the near term.
I am sure that because they have access to the house and have right-of-way, they have capabilities, but their technology today over that carrier is not at the level that would be competitive with a good broadband application.
PARTICIPANT: I would just say that technology rolls along and the ability to do that will get better. It is difficult to compete with today's technology in this kind of space if you are a power industry.
But they have the rights-of-way, and the ability to pull fiber along those lines, they maybe the dark horse who gets fiber to the home first.
SENATOR FRIST: I will just pick this question from a Congressional office.
I have heard it argued that cable will have to unbundle cable under the Telecom Act as soon as they begin to provide two-way telephony.
Comments?
PARTICIPANT: Well, I am not the regulatory guy, but I believe all the operators who are doing telephony services are offering you the choice of long distance provider on top of that. I think AT&T has certainly made a commitment to do that. But that is not unbundling, though.
PARTICIPANT: I will leave that one to Chairman Kennard.
CHAIRMAN KENNARD: Having listened to this debate for a while, I wanted to try to put a little bit of historical perspective on this debate and why we are even sitting here talking about whether we should change this disparate regulatory structure for telephones versus the cable plan.
You really have to go back to the period in time when we were designing, in this country, the regulatory structure for telephone lines versus cable.
We developed very different regulatory structures, and both of these industries have very different heritages and we have a disparity and it is clear and it is stark and there is a certain unfairness about it.
That is fundamental point one.
The question is what do we do about it?
If we could go back and remake the world and remake the way that telephones were regulated in the early part of this century and the way we regulated cable toward the middle part of the century, knowing what we do now, we probably would have done it quite differently.
The debates that we are having today on how to promote competition in these market places all evolve from one fundamental decision. That is we allowed people to control the pipe and also to offer retail services over the same pipe. That is the fundamental problem.
Now, we faced that problem with the long distance industry when AT&T controlled both the local and long distance telephony. The solution that we cam up with, which was one of the greatest decisions we ever made in the history of telecommunications policy, was to break it up.
We decided that we would just force AT&T to separate its local and long distance companies and that created a new incentive structure and that is why we have great competition in the long distance industry today.
Well, it is probably not political feasible to think about breaking up the cable industry and requiring that they provide that cable coaxial pipe on a wholesale basis and not be able to provide retail services over it.
Congress has just decided in 1996 that they are not going to do that on the telecom side.
So, we are faced with the problem of whether we are going to regulate up or not regulate at all and just hope for new competition.
That really is the dilemma that we are facing today.
It seems to me that from where I sit it makes a lot of sense to try to promote as much as competitive entry as we can through new pipes and services, so that we can ultimately get out of the business of regulation.
That is the ultimate long term solution. I would think that everyone would agree with me on that. But it is a question of timing and how we get there.
My best guess about what is going to happen on the cable pipe, if we don't have legislation or regulatory solution, we will see replicated in the Internet over cable the same thing we saw with cable programming, where those who had content, those who wanted access with that pipe, had to basically do a deal with the cable MSOs.
If you wanted a new cable programming network in the Seventies or early Eighties, the only way you got it was to go to John Malone or Time Warner and do a deal which usually meant selling some of your equity.
That is why today, when you turn on cable television and watch CNN, Discovery and Black Entertainment Television, those companies are own by the cable industry in large measure.
That is why a few minutes ago when Milo talked about the structure of his company being owned by the cable industry, maybe it is not that infeasible that someday they cut a similar deal with AOL. That is a very real possibility.
So, it seems to me that going forward what we have got to do is focus as much attention on bringing new pipes into the arena as opposed to having the age old debate of who is going to regulate whom. Because we are always going to have this disparity. You are never going to be able to put cable on exactly the same regulatory parity as telcos, unless you have a drastic rewrite of the Telecommunications Act of 1996, which I don't see on the horizon any time soon.
That was probably more candid than I should have been.
PARTICIPANT: I will just briefly respond. I do not envy the job of Chairman Kennard or anybody at the FCC because I do think these are very complicated issues, and the pace at which these worlds of television and telephony are converging is quite startling to watch.
At the same time, I think we need to be careful not to adopt a view that if we can't do everything and get it perfect then we should do nothing.
It would strike me that our whole system over the last 200 years in this country has been about making forward progress. And it seems to me, in this instance, that we can make forward progress.
It doesn't require a complicated, onerous regulatory approach. It simply requires the same kind of simple non-discriminatory approach that actually had to be imposed by Congress because they weren't comfortable that cable had this vertically integrated model and the only way you could get carriage was to give up equity in your company.
They basically said that isn't right for consumers. Consumers should have more than the one news service or shopping service that that cable company has.
There was a law passed, and many of you may have helped make that happen, that basically gave consumers more choice and I think that was good law.
MR. MEDIN: Let me also just say that when you are doing a new enterprise and providing a new set of services and you don't know exactly how the market place is going to develop or work itself out, these sorts of almost joint venture relationships are a way of sharing the risk.
The issue with @Home wasn't so much that they insisted on controlling us because they could have done it themselves, if that was really the case.
But the fact of the matter is that when you bring facilities-based competition, like satellite for video, you can now get coverage if you are not owned by the cable industry on DBS. There are an increasing number of consumers that are choosing that.
If cable fails to deliver the video content that people want, then people will go to DBS.
The market place has ways of working things out providing regulation doesn't get in there and cause negative incentives for infrastructure deployment.
SENATOR FRIST: I think we will go ahead and take a question from the floor.
AUDIENCE MEMBER: My name is David Cowick and I am with BNA.
Chairman Kennard, I hope you can be candid some more here.
I assume you don't really want to say what your judgement is on the final outcome could be, but could you tell us if you think the FCC has the authority to do what Mr. Case is doing, or do we need additional legislation to do that? You sort of hinted at something there but didn't nail it down.
Do you have the authority to do what he is saying, non-discriminatory access for ISPs.
And second, following up, if they decide that both cable and phones should have this open access that Mr. Case is pushing for, I would like to ask Mr. Case and Mr. Medin -- you say that with enough thrust it can fly.
Well, my question for you both would be, if the regulators ultimately say it has to fly is it going to cost more to start doing it now when the systems are not built out or is it going to cost a lot more in three or four years when the systems are built out and you have to go in and re-engineer the whole system?
Can you all compare the costs on that?
CHAIRMAN KENNARD: To your first question, David, yes, I do think the FCC has jurisdiction. It is clearly an area that was not expressly contemplated in the '34 Act or the '96 Act.
But I think there is certainly a very compelling argument that the FCC has jurisdiction in this area.
The more difficult question, in my view, is if we do assert jurisdiction, what do we do?
I don't agree with Steve Case that it is a real easy matter to just craft some regulations that ensure non-discrimination.
I spend a lot of my time at the FCC grappling with those regulations under Title II, and they are very complex. They get into questions of how you define discrimination, of pricing and access to certain elements of the network.
This is difficult stuff.
When we address this first in the context of the AT&T/TCI merger and later in the 706 proceeding, we talked to a lot people who came forward with various regulatory approaches to this problem.
Many of them professed that they had a common carrier light or Title II light that would just work fine. But when you delve into it, you find yourself drawn back into the very complex Title II structure that we have today which we are trying to move away from as we try to break up bottle necks and introduce more competition on the telco side.
MR. CASE: Let me say the way cable modems operate on top of the plant, it looks like a kind of standard video service. The bulk of the infrastructure that MSOs have to deploy, the amplifiers, the fibers and all that, doesn't have to change if you want to put in a technology that is sort of more multi-provider friendly on it.
However, the consumer electronics industry as well as other industries, are building the equipment and significantly cost reducing it.
It took us a good four years to get us where we are. We have the ability to deploy a parallel infrastructure. You could put another technology on a different channel and do that within certain limits.
So, I don't think it is a tremendous change in the future, because the bulk of the billions are going into the underlying infrastructure itself.
All this means more complexity which means more cost and slower roll-out because all those consumer electronics companies you just told you have a standard, may want to wait until the standards settle down.
MR. ACKERMAN: Well, I have a different view.
First of all, it should be clear that the relationship that we are seeking with the cable companies is similar to the relation ship that @Home has with the cable companies. We just want consumers to have a choice and not be forced to choose @Home.
So, we can use a lot of the things like the modems; we don't need to reinvent the wheel.
I don't understand the cost argument. First of all I thought he was agreeing with the point that he didn't think it was very expensive or implicitly all that hard to do. But later, it got a little bit more complicated and I am not sure I fully followed it.
Going back to what the Chairman said, I happen to believe there is an easier route that doesn't require onerous regulation. Indeed some of the deals that @Home has negotiated with cable companies, we will take those deals and use those modems.
But even if it wasn't easy that doesn't mean we shouldn't do it. The question is how do you make sure the Internet really is imbedded in everyday life and has a positive impact. So, even if it is hard, it is still the right thing to do.
MR. MEDIN: Your own head of broadband engineering that I was at three months ago made the statement that it is very complex, it is hard, it can be done, but it is complex.
I think that if you ask the FCC's engineering people that looked into this I think they would share that view point.
So, I think that the view that this is simple and easy, tastes great, less filling, I just don't think stacks up to reality.
The question is sure if you want to stop the train today you can wait until a new standard is developed and all the business relationships are worked out so that Steve doesn't think his company is being treated unfairly compared to @Home by TCI or AT&T.
Can you imagine how many lawyers are going to be involved in that process.
Meanwhile, Great Falls, Montana still has no broadband service.
AUDIENCE MEMBER: This is a question for Chairman Kennard.
I am an economist and investment banker. I would like your statement in terms of deregulation because it seems as though Adam Smith is prevailing here.
It is almost a jurisdictional question when you have these companies headquartered in Bermuda merging with companies in California and Rochester, how is the FCC going to be able to keep up with the technology and innovation in terms of mergers and acquisitions.
CHAIRMAN KENNARD: I think it is a bigger question than mergers and acquisitions. It is how does the FCC keep up in an area that is changing so quickly, when all the rules are being rewritten, not only on the technology side but on the business side.
We basically we keep up by changing with the market place. That is why we are working very hard to remake the agency into much more of an enforcement oriented agency where we are not trying to write every rule in the market place and be the gate keeper, deciding who gets in and who doesn't.
But rather focus on where the bottle necks are. Where are folks exercising undue market power which is depressing competition and innovation, focus there, pry open those bottle necks and allow the market place to drive forward.
I believe that was the vision of the Telecom Act.
By the way, I think the vision of the Telecom Act is playing out in the market place everyday. The fact that we are having this debate today shows that the debate has shifted from whether we are going to have competition in local and long distance, to how are we going to have competition on the Internet.
We are seeing billions of dollars of investment poured into this industry everyday. Everyday, I speak to companies who come to my office and say they wouldn't be alive in the market place, thriving, if it weren't for the decisions that Congress made in the '96 Act. And the decisions the FCC made to implement it in a pro-competitive way.
PARTICIPANT: One other comment. I would suggest to the Chairman, that if the FCC decided to aggressively pursue this issue, I know they are having hearings next week to sort of air some of these issues, I think you would be startled how quickly they could come back with a simple solution as opposed to a complicated solution.
My own view is they do believe that it will be open, but they are just trying to postpone that as long as possible.
SENATOR ROCKEFELLER: Ladies and Gentlemen, let me just make a couple of announcements. We have run out of time. We started right at 12:30 p.m. and finished right a 2:00 p.m. That is out of respect for you.
I want to thank all of our panelists and I want to remind everybody about next month's briefing. It will be on the issue of computer export controls; protecting our security or harming our global competitiveness. It will be held right here in Dirksen 106 on June 16, that is a Wednesday, from 12:15 to 2:00 p.m.
We will be sending out an announcement soon.
Mr. Chairman, Mr. Case, Mr. Medin, Mr. Ackerman, let's all give them a round of applause.
(Whereupon, the forum was concluded.)