Senate Holds Hearing on §706 and Bandwidth

(April 23, 1998)  The Senate Telecommunications Subcommittee held a sometimes stormy hearing on Section 706 of the Telecommunications Act of 1996 and related bandwidth issues on Wednesday morning, April 22.  Industry representatives discussed competing versions of why broadband service is not widely available, and various technologies for bringing broadband service to all users.

§706 provides that the Federal Communications Commission must promote broadband service for all users, and even lift regulatory barriers for this purpose.  More specifically, it requires that the "Commission ... shall encourage the deployment on a reasonably and timely basis of advanced telecommunications capability to all Americans."  It defines "advanced telecommunications capability" as "high speed, switched, broadband telecommunications capability that enables users to originate and receive high quality voice, data, graphics, and video telecommunications."

§706 also gives the FCC several powers to achieve this goal: "price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment."  No one from the FCC testified at the hearing.   The FCC will likely start an inquiry on this subject this summer.

Two panels of witnesses testified.  The first included representatives of Regional Bell Operating Company (RBOC) US West and long distance carrier AT&T, who exchanged hostile criticisms and accusations.  The second panel included industry representatives who testified about emerging technologies relevant to §706.

Senators generally expressed their desire that broadband services be made available soon, cheap, and everywhere.  The telecom companies argued as to why broadband services are not becoming universally available.

Senator Burns

Burns stated that the promises of the Internet risk "being stopped dead in their tracks by a problem caused by the very popularity and productivity of the Internet: data congestion. In short, there is a looming "bandwidth deficit" developing in the public switched network. The reason for this looming deficit is the onslaught of data traffic on the network. Local telephone companies calculate that by the year 2000, they will be carrying as much Internet data as voice traffic. In some areas of the country, this is already the case."

Burns continued that he anticipated this very problem back in 1996.  He said that he "was concerned that we might end up with a regulatory structure that would create disincentives for investment. To address this, I authored Section 706 which directs the FCC and the State Public Utility Commissions to promote the deployment of advanced telecommunications capabilities through deregulatory measures."

Senator Stevens

Sen. Stevens represents a state that benefits greatly from universal service subsidies.   He used this hearing to attack the FCC's April 10 Report on universal service.

"The FCC got it wrong.  In its Report, the FCC insisted once again that "telecommunications service" and "information service" are mutually exclusive.  This Section 706 debate is a perfect example of how the house of cards established by the Commission may ultimately collapse.

... under the FCC's recent interpretation, these [706] services will be considered "enhanced" or "information services."  Under such an interpretation, no contributions would flow to universal service from these enhanced networks and essentially a two-tiered system would develop: on one hand we would have the old, outdated circuit switched common carrier network and the new, private broadband network for information services.  This artificial separation of voice and data will lead to the ultimate demise of the public switched network.  This was clearly not what Congress intended."

Panel One

The first panel was made up of the following persons.  (All links from the panelists' names are to PDF versions of their prepared statements located in the Senate Commerce Committee website.)

• Ellwood Kerkeslager, VP, Technology and Infrastructure, AT&T.
• Charles McMinn, President and CEO, Covad Communications.
• Joe Zell, President, Enterprise Networking Service, US West.

Long distance carrier AT&T blames the RBOCs for being technologically backward and anticompetitive.  It asserts that it is the local loop that is the bottleneck in the information superhighway.  AT&T's Kerkeslager stated that "They have forced consumers to use slower speed modems." 

The solution, according to Kerkeslager, is to "give competitive access to the local loop."  He also said that "the technologies and competitors are at the door, but they cannot get in."  Moreover, he told the Senators that "the local monopolies are not implementing the Act that you passed."

Joe Zell of RBOC US West summarized problem as follows in his prepared statement:

"The providers of advanced data services are serving urban and business customers exclusively and are ignoring smaller and rural communities altogether.  Rural Americans do not have access to adequate data communications infrastructure and are at real risk of becoming technological 'have nots'."

However, he sharply retorted that long distance carriers like AT&T are being hypocritical.  They only want to come into profitable urban areas to "cream skim," while leaving the higher cost rural areas unserved.  He told Senator Burns that they do not want to compete in Bozeman, Montana.

One problem, according to Zell is that providing broadband service in the rural areas across the 14 western states of his territory can be very expensive.  "We are deploying wherever we can make a viable business case to do it."  Joe Zell runs US West's data networking and Internet services.

Zell asserts that another problem is that US West (as well as other RBOCs) are not allowed to build high speed data backbone.  US West has petitioned the FCC under §706 to be permitted to do this.  It wants to carry data across LATA boundaries, and not have to unbundle or resell.

AT&T's Kerkeslager responds that this is a "sham filing."  Bringing high speed Internet service to homes is only a superficial pretext, according to Kerkeslager.  The real goal is to expand their monopoly.

Sen. Stevens said at the outset of the hearing that "I do not believe the FCC has the authority to approve the pending petitions."

Panel Two

The second set of witnesses consisted of representatives of industry who discussed emerging technologies in fiber, aDSL and satellite, which might be used to bring broadband services to all areas.   Tim Corning addressed fiber optic technology.  Russ Daggett and David Finkelstein argued that low orbit non-geostationary satellites could provide high speed access equally in any regions.

The second panel consisted of the following persons.

• Russ Daggett, President, Teledesic Corporation.
• Jeffery Eisenach, President, The Progress & Freedom Foundation.
• David Finkelstein, SVP, Marketing and Business Development, Skybridge.
• Erik Olbeter, Director, Economic Strategy Institute.
• Tim Regan, VP and Director of Federal Gov. Affairs, Corning, Inc.

Senate Telecommunications Subcommittee Chairman Sen. Conrad Burns (R-MT) ran the hearing.  Sen. Ted Stevens (R-AK), who was one of the authors §706, was present early in the hearing.  Sen. Jay Rockefeller (D-WV) was present for most of the two and one half hour hearing.  He preached to the witnesses about the moral virtues of universal service.  Sen. John Breaux (D-LA) and Sen. Ron Wyden (D-OR) also participated.