Letter to the Rules Committee Regarding H.R. 1542, “Internet Freedom and Broadband Deployment Act of 2001”

The following is a letter from CSE president and CEO Paul Beckner to the House Rules Committee urging them to pass out the Tauzin-Dingell “Internet Freedom and Broadband Deployment Act of 2001” without any antitrust amendments attached to the bill.

Dear Legislator,

I write on behalf of the nearly 300,000 members of Citizens for a Sound Economy (CSE) to encourage you to assure H.R. 1542, “Internet Freedom and Broadband Deployment Act of 2001” reaches the House Floor as passed out of the House Energy and Commerce Committee.

As Federal Communications Commission (FCC) Chairman Michel Powell has recognized, the great success of the Telecommunications Act of 1996 is the way it has led to facilities-based competition between cable and telephone companies for broadband services. Unfortunately, the current network-specific regulatory regime undermines investment and discourages advancements in broadband technology and subsequent availability to consumers.

Current FCC regulations on incumbent telephone companies mandate what markets these firms may enter, what prices they may charge, and what parts of private networks must be made available to competitors below cost. Taken together, these regulations have penalized investment, misallocated resources, and undermined Digital Subscriber Line (DSL) technology as a competitive alternative to cable modem service in the marketplace for high-speed broadband Internet service.

Many cable companies have upgraded their networks to provide digital cable and broadband services to consumers, but because the available bandwidth on a cable network is limited, cable companies often must choose between additional digital-cable channels and faster broadband connections. With regulations in place to shield competition from DSL, many cable companies have opted to increase the number of available channels – cable systems now provide up to 275 – at the expense of broadband Internet connections. This is only one example of unintended consequences associated with “planning” the telecommunications marketplace.

Even where DSL is available, it is typically 2-3 times slower than cable broadband. The old copper-wire telephone system simply cannot compete as an alternative to advanced cable without capital-intensive network upgrades. The necessary upgrades to existing telephone plant will not be made if the Bell companies are forced to share new facilities with competitors at below-cost rates. As a result, cable is relieved of the competitive pressure to improve its service.

The Energy and Commerce version of H.R. 1542 would deregulate the market for residential broadband service and spur billions of dollars in infrastructure upgrades. The bill would eliminate the inter-LATA data prohibition on the Regional Bell Operating Companies (Bells) and allow private negotiators, instead of government bureaucrats, to set the terms of access to new infrastructure.

The stagnation of the American economy is directly attributable to the slowdown in high tech capital investment. Consumer spending remains robust, but the Internet equipment industry, which accounted for a third of economic growth since 1995, is in recession. Overcapacity in equipment has deflated prices and forced layoffs. H.R. 1542 would remove the artificial regulatory barrier to capital spending and provide a much-need boost to this industry and the economy as a whole.

But competition from the well-capitalized Bell companies is not in the interest of some industry players. With the help of their allies in Congress, they are willing to do whatever it takes to keep the Bells at a regulatory disadvantage. One effort underway is to amend H.R. 1542 to allow Bell competitors to file antitrust suits in state courts if they do not like the rules implemented by the FCC.

For example, if the FCC rules that collocation must be provided within four months, a competitor could sue in state court to reduce that time to six weeks. As a result, a comprehensive national policy would give way to fragmentation as FCC rules are replaced by decisions reached in various state courts across the nation. This new regulation benefits competitors instead of consumers by creating an environment of uncertainty that would scare away discretionary risk capital. Consumers and equipment manufactures would lose as a result.

In addition, new antitrust scrutiny would give the Justice Department the authority to create criteria on which to base Bell applications for 271 data relief. This ill-advised provision would add yet another layer to the regulatory onion and lead to a schizophrenic regulatory regime with the FCC competing with the DoJ for influence.

Calls for new antitrust scrutiny use the Bells’ dominance of the market for local phone service as a ploy to encumber Bell entry into a distinct market. But worse than just being beside the point, this argument misdiagnosis the problem in the local voice market: as long as most residential customers’ phone rates are capped at prices below cost, there will never be robust competition. Where there is no margin, there will be no investment.

Broadband is simply too important to economic growth to allow the status quo to persist. I urge you to allow H.R. 1542 to come to the floor for a simple up-or-down vote without the retaliatory antitrust amendments designed to cripple deployment. It would be a great misfortune if this bill were to be derailed by industry rivalry and legislative parlor tricks.

Sincerely,

Paul Beckner

President and CEO