Room TW-C305
Federal Communications
Commission
445 12th Street, S.W.
Washington, D.C. 20554

Friday,
November 30, 2001

BEFORE: Andrea Williams, Committee Chair Pro Tem

PARTICIPANTS:

JEFFREY KRAMER
AARP

MATT BENNETT
Alliance for Public Technology

DAVID POEHLMAN
American Council of the Blind

MICHAEL F. DelCASINO
AT&T

KATHLEEN O'REILLY
Attorney at Law

ANDREA WILLIAMS
Cellular Telecommunications & Internet
Association (CTIA)

SUSAN PALMER
Cingular Wireless LLC
PARTICIPANTS CONT.:

SHELLEY NIXON
College Student

JOSEPH C. GASKINS
ConnectBid LLC

CLAUDE STOUT (By Interpreter)
Consumer Action Network

KEN McELDOWNEY
Consumer Action

SCOTT MARSHALL
FCC

JUDITH HARKINS
Gallaudet University

DENISE GANT
Hewlett-Packard

JIM TOBIAS
Inclusive Technologies

RAYNA AYLWARD
Mitsubishi Electric America Foundation

KAREN FULLUM KIRSCH
National Association of Broadcasters

GIL BECKER
National Association of State Relay
Administration

LORETTA POLK
National Cable and Telecommunications

SUSAN GRANT
National Consumers League

LEO FITZSIMON
Nokia

MELISSA NEWMAN
Qwest Communications International, Inc.
PARTICIPANTS CONT.:

MARIE LONG
Rainbow/PUSH Coalition and Citizenship Education Fund

VERNON JAMES
San Carlos Apache Tribe

BOB SEGALMAN, PH.D.(By Interpreter)
Speech to Speech

BRENDA BATTAT
Self Help for Hard of Hearing People

PAUL LUDWICK
Sprint Corporation

KAREN WALLS
Telecommunications Research & Action Center (TRAC)

ROBERTA BRADEN
TIA

RICHARD T. ELLIS
Verizon Communications

LARRY GOLDBERG
WGBH National Center for Accessible Media

NANCY BLOCH

STEVE COSTON

STEVE JACOBS

    MS. WILLIAMS: Good morning and welcome to the Advisory Committee. I want to thank all of you for coming this morning and welcome all of you.

    My name is Andrea Williams, and I'm going to be chairing today for Shirley Rooker, who unfortunately -- our leader has been taken down with the flu. I hope that Shirley is going to be better and back on her feet soon. And I'm sure all of you would join me in sharing out heartfelt sympathies with her right now as she tries to battle the flu.

    At this point, I would like to do introductions around the table, and then I'm going to turn it over to Dane Snowden. We have a distinguished speaker with us this morning, Commissioner Copps. Thank you so much for joining us.

    I'm Andrea Williams. I'm also the Assistant General Counsel with Cellular Telecommunications and Internet Association.

    MS. HARKINS: Judy Harkins, Gallaudet University.

    MS. O'REILLY: Kathleen O'Reilly. I'm an attorney, and I represent various consumer groups on telco issues at the federal and state level.

    MR. POEHLMAN: David Poehlman, the American Council of the Blind. Private consultant in disability access technology.

    MR. BENNETT: I'm Matt Bennett from the Alliance for Public Technology.

    MS. WALLS: I'm Karen Walls from TRAC, Telecommunications Research and Action Center.

    MR. KRAMER: I'm Jeff Kramer with AARP.

    MR. GOLDBERG: Larry Goldberg from the WGBH Media Access Group and the National Center for Accessible Media.

    MS. NIXON: Shelley Nixon, Cabrini College student, majoring in human services.

    MR. GASKINS: Joe Gaskins with ConnectBid.

    MR. LUDWICK: Good morning. I'm Paul Ludwick with Sprint.

    MR. McELDOWNEY: Ken McELDOWNEY with Consumer Action.

    MS. AYLWARD: Rayna Aylward with the Mitsubishi Electric American Foundation.

    MR. FITZSIMON: Leo Fitzsimon with Nokia

    MS. GRANT: Susan Grant, National Consumers League.

    MS. BRADEN: Roberta Braden, TIA.

    MR. ELLIS: Rich Ellis from Verizon.

    COMMISSIONER COPPS: Mike Copps, FCC.

    MS. PALMER: Susan Palmer, Cingular Wireless.

    MR. JAMES: Good morning. Vernon James, San Carlos Apache Telecommunications.

    MR. DelCASINO: Mike DelCASINO, AT&T.

    MS. KIRSCH: Good morning. I'm Karen Kirsch from the National Association of Broadcasters.

    MR. TOBIAS: Jim Tobias, Inclusive Technologies.

    DR. SEGALMAN: Bob Segalman, Speech to Speech.

    MS. BATTAT: Brenda Battat, Self Help for Hard of Hearing People.

    MR. BECKER: Gil Becker, National Association for State Relay Administration and the Maryland Relay.

    MS. POLK: Loretta Polk, National Cable and Telecommunications.

    MR. MARSHALL: I'm Scott Marshall, FCC staff.

    MS. WILLIAMS: Thank you. Before we have Bureau Chief Dane Snowden, Scott has a few housekeeping matters he wants to share with us.

    MR. MARSHALL: Just briefly, welcome. And I wanted you to know that the rest rooms are right behind me out this door to my left, across the hall and around the corner. And we also have telephones including TTY-equipped phones in the corridor available for your use. Thanks for coming.

    MS. WILLIAMS: Dane, we turn it over to you right now.

    MR. SNOWDEN: Good morning everyone. Thank you very much for coming and joining us today. We are excited about, obviously, having you with us today. You've picked a good day to come to Washington D.C. in November. It's not too cold; it's not too hot. It's muggy just like we like it.

(Laughter.)

    I want to just give -- more or less , my remarks today are more housekeeping things than anything else. First, this committee recommended to Chairman Powell that we not -- or you not -- excuse me -- accept -- that he not accept the recommendation to three people who -- three organizations who wanted to join the Commission -- excuse me -- the Committee. He has agreed with that, and so you're committee will stay as it is now.

    In addition, you all have received or are in the process of receiving the Chairman's priorities. That is one of the things you asked from the meeting last week -- last time from Marsha MacBride. And you all have received that. And we're excited about the direction that this advisory committee is going.

    Chairman Powell is not available to be here. He is actually giving a speech at the same time right now and could not be here. Commissioner Martin is out of the country right now. Commissioner Copps will be speaking and addressing you in a moment. And Commissioner Abernathy will be down around lunchtime.

    I wanted to also share with you some of the exciting things -- and I say exciting -- it's been very tiring as well -- that are going on in the Commission right now in terms of the Chairman's priorities of reorganizing the agency. Many of you, I'm sure, have read and heard a lot about it from the September meeting that we had where Mary Beth Richards announced the reorganization of the agency. And one of the key parts of that is how it's going to affect the bureau that I happen to be Chief of.

    We have proposed -- and I say proposed because the process that we're going through right now needs union approval, Commission approval and Congressional approval. But I can share you where we're going. We have proposed that our bureau be renamed, for one, to the Consumer and Governmental Affairs Bureau to more -- to better reflect that direction that the bureau is going in. Of course, some of the questions that I typically get, well, what will happen to the Disability Rights Office.

    One of the things that we have done -- and we recognize the great work that the staff is doing in the Disabilities Rights Office -- we will continue. As a matter of fact, I've elevated it to a different -- to a higher level, and we do plan to increase the staff as we move forward. In addition, this bureau, the new bureau going forward, will have a policy arm within the bureau, which is new for this bureau. And so it's moving in a positive direction.

    We will continue to focus and be aggressive in outreach on all issues for consumers. And my goal is to be beyond the Beltway working with consumers. One of the challenges that I see is that we often bring people and meet in this room, and there are certain limitations to that. In addition to the limitations, I think we're only hitting a small cross-section of consumers that we need to hear from. So, as we move forward, hopefully, as they joke with me in the Chairman's office, I'll take my show on the road.

    Recently, we released information on complaints and inquiries that we have received in the Commission. And we released the top five complaints categories across the Commission in the various bureau's from the Wireless Bureau to the Common Carrier Bureau, et cetera. And if you need information or would like information on that, we can provide it to you. One of our goals is to make sure we can educate as many consumers as possible and also make policy changes as we need.

    I would like to also add and encourage your support in a broadband forum that we're going to have on January 24th? I'm looking at Martha Contee. January 24th. What we want to do is take the idea of broadband and hear different voices, and we're calling it Broadband 101. And the goal behind it is to engage consumers in this process of what is working with broadband, what is not working with broadband. And so we encourage you all to participate with us. This is joint project with the FCC and the Local/State Government Advisory Committee as well. So it is my intention to have representation and support from this advisory committee as well.

    I would like to end just by thanking the DRO staff for putting this meeting on. It is a tremendous undertaking, as you might imagine, to have the technological systems all working together at one time. And I want to specifically call out Arlene Alexander, who has been doing a great job. I'm not sure where Arlene is, but she's probably back in the back. She went upstairs to do more work who did a good job. Of course, your fearless leader, Scott Marshall, represents you very, very well here within the Commission.

    So, if there are any questions for me, I'll be happy to take any before I introduce Commissioner Copps.

(No response.)

    You guys are letting me off easy today.

(Laughter.)

    I'm not going to be an idiot. I'm going to take advantage of it. Yes? Oh!

(Laughter.)

    MS. WILLIAMS: You knew it was too good to be true.

    MR. SNOWDEN: Jim.

    MR. TOBIAS: Thank you. I guess the question that I have is do we need to go about some formal process to get a presentation by the Disability Rights Office either to the committee as a whole or to the Disability Subcommittee?

    MR. SNOWDEN: What I would recommend -- actually, let me back up for a second. We take a hands-off -- we the Commission take a hands-off approach to setting your agenda. And so, if you would like that, I encourage you to speak to Shirley or Andrea right now or at a break about doing that. We are definitely -- I would support that idea wholeheartedly for that to happen, but we do not meddle in --

    MR. TOBIAS: Okay.

    MR. SNOWDEN: -- setting your agenda.

    MR. TOBIAS: Thank you.

    MR. SNOWDEN: Just one? Thanks, Jim, for letting me off the hook.

(Laughter.)

    I would like to introduce Commissioner Michael Copps. Commissioner Michael Copps joined the Commission this past spring. He has been an avid supporter of many of the issues that are before this advisory committee, and he plans to stay with us for a good portion of the morning. And, without any further adieu, Commissioner Copps.

(Applause.)

    COMMISSIONER COPPS: Thank you and good morning to everybody. On behalf of Chairman Powell and my fellow Commissioner colleagues and all of us here at the FCC, I want to welcome you all to Washington. I am not here today to give a speech. I'm here to listen, so I am not going to delay the proceedings unduly. But I did want to come and thank you all for coming. And I know it's always a challenge to get here. And, in these times, it's even a bit more of a challenge, but.

    We had a chance last time I was here to get into some of the specific issues that your committee is addressing. And I want to tell you again how much we appreciate the work that you do. Your commitment of time and resources to provide us your expertise is an effort for all of you. It's a real sacrifice for some of you to come here; I realize that. But you should know that your work on behalf of American consumers helps us to make better decisions in the public interest.

    And with your further help, we can advance the goal of bringing the best and most accessible communications system to all of our citizens. And whenever I say that, I always underline the word "all" in all of our citizens and particularly pertaining to those with disabilities.

    Today's meeting gives us a little different opportunity to discuss your work in a broader context, and that context is the 1996 Act. And I think going into this discussion today, we all ought to realize -- and I think most of here do -- that at its heart the Telecom Act of 1996 is a pro-consumer act.

    Now, right to the point, Congress declared that the preeminent goal of the Telecommunications Act was -- and this is a quote right from the legislation -- to secure lower prices and higher quality services for American consumers, end quote. So, as public servants, our job -- and it's more than a job, it's our mandate -- our mandate, if you will, is to put the interest of American consumers front and center in everything that we do.

    In writing the Telecom Act, Congress didn't seek to establish competition merely for the sake of competition. It recognized the power of competition to help consumers, to bring services and options and choices to consumers, choices of services, choices of providers, choices of technology and choices in sources of content. And that sprang from the Congressional realization that where you have these choices, consumers get better services, greater innovation, higher technology, and they also get a more robust public discourse.

    So I look forward to today's meeting, to hearing your views. I hope these discussions will not be just a one-day event because I think you ought to look at what you do against the broad context of that act regularly as we go along and keep the dialogue going.

    Finally, I just want to say I welcome Dane's comments with regard to the future of the Disability Rights Office in the reorganization that is taking place here at the FCC. And I am pleased to learn of his commitment and the Chairman's commitment to maintain that office and even to enhance that office by increasing the staff, by giving it, as Dane said, a further and a wider involvement in the policy dialogue.

    And I like the idea of going beyond the Beltway and making sure we do that outreach, although I also like the idea of you guys coming inside the Beltway and doing whatever you can up on Capitol Hill and elsewhere to advance the causes that you believe in. But, anyhow, that I think can be a good development, and I'm looking forward to working with the Office and with its enhanced resources to make our work more effective.

    And with that, I'm going to sit down and listen. But thank you again all for being here today.

(Applause.)

    MS. WILLIAMS: Thank you Commissioner Copps. First of all, I want to check the phone line. Do you we have any members on the phone?

(No response.)

    I believe Steve Jacobs is supposed to be joining us?

(No response.)

    MS. PALMER: Andrea.

    MS. WILLIAMS: Okay.

    MS. PALMER: Laura Ruby -- I'm not on the mic, am I?

    MS. WILLIAMS: I'm sorry, I can't hear you.

    MS. PALMER: Laura Ruby.

    MS. WILLIAMS: Okay. Laura?

    MS. PALMER: Laura Ruby, unfortunately, can't make it today from Microsoft. She sends her regards. She has an illness in her family. So this is kind of off the record, but if you want to send her note and cheer her up that would be great for anyone here.

    MS. WILLIAMS: Thank you, Susan.

    Also I wanted to acknowledge some new representatives to the CDTAC. We have Melissa Newman from Qwest and Marie Long from Rainbow/PUSH, Denise Gant from Hewlett-Packard Corporation, and I also I understand that Claude Stout, my dear friend Claude, is joining us as representing Consumer Action Network.

    I'd also like to acknowledge and thank Verizon for breakfast and lunch today. Rich, we appreciate your baking all last night.

(Laughter.)

    MR. ELLIS: I personally checked to make sure everything is fresh over there, so it --

(Laughter.)

    MR. ELLIS: -- possibility if I'm up to it. Thank you.

    MS. WILLIAMS: Also to Paul Ludwick -- I don't if Paul is here, I haven't seen him this morning -- from Sprint -- oh, there you are, Paul -- I'm sorry -- for teleconferencing services. And also for Ideal at NCR for funding travel expenses for some of our CDTAC members.

    Steve? Steve, are you on the phone?

(No response.)

    Well, let the record note that we appreciate Ideal's at NCR, their efforts on this.

    As we move along in terms of the agenda for today first of all, I would like to thank Shirley and my other colleagues of the subcommittee's chairs, Micaela Tucker and Leo Fitzsimon, who has been sitting in for Micaela who did have her baby in October, a little girl. And also Ken McEldowney and myself in terms of putting together, developing today's agenda.

    One of the things we came back from the last advisory committee meeting in terms of where we talked -- had a day-long discussion really about universal service issues. One of the things that became very clear at that meeting was that we had different representatives at different levels of understanding of what universal service and it made, as we found out, the discussion very difficult and challenging.

    So one of the things that Shirley and the subcommittee chairs discussed that perhaps it would be best that before we try to tackle these issues that we educate ourselves. And that is the purpose of today's meeting. What we are going to be looking at is competition in the local exchange and long-distance markets, and has it really benefited consumers. We have an illustrious panel today that's going to be moderated by Edie Herman this morning.

    What we anticipate on a going forward -- that the future -- at some of the future CDTAC meetings, we will look at various issues within the Telecom Act and various services -- telecommunication services, whether it's wireless, broadcasting, cable, also looking at Section 255 so we can better educate ourselves so that we can have a dialogue, a constructive dialogue, where everyone is talking with one another rather than at each other and on different levels of understanding.

    With that said, I am going to ask Edie Herman to come forward and our panelists. And while they're coming forward, because I know these are very, very busy people, and I'm -- one thing Shirley has taught me is to stay on-task and on-time.

    We have with us today Edie Herman, who -- Edie? She's associate managing editor for Warren Publishing, which, as many of you know, the publisher of Communications Daily, which, for those of us in the industry and even for some of the -- and for many of the consumers is the must-read. She has been at Warren Publishing since November of 1993. She is associate managing editor at Communications Daily and also reports on telecommunications regulation. This is her second tour of duty at Warren Publishing. She worked there for three years in the early 1980's covering Capitol Hill and was on the founding staff of Communications Daily.

    And, Edie, at this point, I'm going to turn it over to you to introduce our panelists. Again, I want to welcome our panelists and thank you very much for taking time out of your busy schedules.

    I want many of you to know that these folks that we see on this panel, we are very, very fortunate. Many of them were involved in helping to write the Telecommunications Act of 1996. They were there on the ground level as we would say. They were on the battlefield, the front fields. And, hopefully, with their insight, they can give us and tell us a little bit about what Congress had intended for industry, consumers. And, Edie, take it away.

    MS. HERMAN: Thank you very much for hoping that we can be helpful as you make your recommendations to the Commission on various telecom issues. We've been asked to discuss the consumer benefits that were promised in the Telecom Act and whether those benefits have actually occurred.

    Panelists will talk about things like whether there is actually choice, whether the business, especially the local telephone business for residential users, is as competitive, whether prices have come down. Some of these panelists will probably tell you that it's too early to decide whether the Telecom Act was successful. Some may say that it would more successful if there was more enforcement of some of the competitive requirements. Some may say it was too ambitious. And, of course, the recent economic downturn also has to be taken into consideration when judging how many competitors there are.

    I will introduce everyone in the -- I guess in the order they're sitting, or maybe I'll introduce them in the order they're going to speak because that's how my papers are organized.

    The first person who will speak is Debra Berlyn. She co-founded the Competition Policy Institute in 1996, and she serves as the executive director of this non-profit organization. Before creating CPI, she served as executive director of the National Association of State Utility Consumer Advocates, NASUCA, for six years. And before that, she worked for several public interest organizations.

    I'll go ahead and introduce them all, and then I won't be interrupting them as they speak. They'll each speak for a few minutes, and then we can have questions. I can ask some. I'm hoping you all will have questions.

    Howard Symons, right here, has nearly 25 years' experience in telecommunications law. A partner in Mintz, Levin, Cohn, Ferns, he represents cable, wireless and telecommunications companies and their trade associations. Before joining the firm, he served as senior counsel to the Subcommittee on Telecommunications in the U.S. House of Representatives.

    Lauren Belvin, who we all know as Pete and many of you may also know her by that name, is Vice President of Federal Relations for Qwest Communications. She is responsible for Qwest's business here in Washington with the FCC and Congress. She worked for three years as Senior Majority Counsel in the Senate Commerce Committee's Subcommittee on Communications and was the principal advisor on telecommunications to the Commerce Committee's Chairman, Senator John McCain. And, before, that she worked in many senior executive positions at the FCC for 20 years.

    Brad Ramsay, who is next to Howard there, is general counsel of the National Association of Regulatory Utility Commissioners, which represents the interests of state utility commissions. And he brings to us today the state perspective. He's been there for 11 years. Before that, he was, for three years, at the Federal Energy Regulatory Commission and also was an associate with a Washington law firm before that.

    And finally, Gene Kimmelman. He is co-director of the Washington office of Consumer's Union which publishes Consumer Reports magazine. He's an expert on deregulation, consumer protection issues, especially for telecommunications. Before joining Consumer's Union he served for two years as the chief counsel and staff director for the Antitrust Subcommittee of the Senate Judiciary Committee. And, before that, he was legislative director for the Consumer Federation of America.

    As I said, each one will give a short talk. And the first person will be Debbie Berlyn from CPI who will give us a historic perspective and make other comments she thinks is appropriate.

    MS. BERLYN: Well, thank you, Edie, and thank you all for inviting me to come and speak before you today. As I look around the room, I realize that in addition to the five of us sitting up here, many of you around the room also worked on the Telecommunications Act of 1996. So I will try and keep my remarks brief so we can engage in a discussion.

    The Telecommunications Act of 1996 was the result of probably more than decade of debate and haggling. And it came out of drafts and discussions and legislation that went through chambers for votes. But we didn't get to the point until 1995 when we actually had legislation where all parties were ready to sign on the line.

    One of the fun things about thinking about the Telecommunications Act and its development and its passage was looking through some of the articles that came out in January and February of 1996. And in reading through that, there was a tremendous feel of optimism, lots of promises, lot of predictions. And I pulled a couple of those out to share today.

    First, AT&T's, CEO Bob Allen, predicted that AT&T would capture at least a third of the 90-billion dollar local telephone market within five to 10 years beginning as early as the summer of 1996.

    Vice Chairman of Bell Atlantic Corp., James Cullen, said he hoped to win such approval, and here is was referring to section 271, which would allow the regional Bell operating companies into long distance. He said he hoped to receive such approval so Washington area telephone customers could choose Bell Atlantic long distance service as soon as a year. We want to get started immediately he said.

    Deloitte & Touche consulting group predicted that we're going to see major industry groups with enormous resources begin to penetrate each other's markets.

    And, finally, on February 16th, right after the Act was passed, a Washington Post article stated that the ink wasn't dry on the bill deregulating it before free-for-all competition broke out in the telecommunications industry. Bell Atlantic Corp. said it would test the waters by offering local service in five states outside its home territory.

    Well, for most of you around the room, you know that many of these optimistic promises and predictions didn't come true and have not come true yet. So what's happened?

    Well, in the five-and-a-half years following the -- almost six now -- passage of the Act we have a slightly different landscape. And several thorns have happened in the side of competition over the past five years. What are some of those barriers?

    Well, first, you remember the predictions about competitors, strong competitors entering each other's markets? Well, one of the great hopes was that strongest competitors of all in the local market, the regional Bell operating companies, would compete in each other's markets. Well, what happened? And if you could show my overhead please.

    This is a cartoon. For those of you who may not be able to see it, I'll tell you what it is. There are four babies in a playpen each holding a knife and fork, and on the diaper it says Baby Bell. And there's a gentlemen looking kind of like Uncle Sam there saying, honey, didn't we used to have seven.

(Laughter.)

    Well, that refers to the fact that there were seven regional Bell operating companies in 1996, and lo and behold, they were quickly reduced to four through mergers and acquisitions. So rather than compete with one another, the Bell companies consolidating into stronger, larger monopoly companies.

    Second thing that happened is that every decision that was made to implement the telecommunication, just about every decision, was taken to the courts. So, the mantra of the day became appeal, appeal, appeal, creating uncertainty and slowing down the advent of competition.

    The third thing that has happened, and this is something that has happened more recently, is that the number of competitors out there to the local Bell operating companies has started to lessen. Whether it's shrinking capital or faulty business plans or perhaps rules in the marketplace that have been more advantageous to incumbents, there are fewer competitors out there. And some of these competitors have had to scale back very ambitious plans to enter greater number of local markets.

    With all that said, in spite of these obstacles, competition is developing. And the Competition Policy Institute believes that consumers are starting to see the benefits of competition. The FCC local competition report, which was released in May 2001 based on figures from the year 2000, provides some show of how competition has developed. At the end of the year 2000, 8.5 percent of local access lines were served by competitors. And that 8.5 percent at the end of year 2000 has obviously grown since that point. But one thing to note is that the number of lines served by CLECs actually doubled from 1999 to 2000.

    Sixty percent of these lines, according to the FCC report, are large and medium-sized businesses. So the balance of 40 percent is residential and small business. And the other thing to note is that the mode of entry utilized by competition local exchange companies, by CLECs is spread fairly equally between use of owned facilities which is 35 percent, resale, which was about 40 percent and 25 utilizing unbundled network elements.

    Finally, I want to conclude by just saying that we believe that if the Act is adhered to, if we continue to enforce section 271 and keep the markets that have already been opened open, we do believe that consumers will start to reap the benefits of competition which should be prices, innovative services and higher quality of services. So, thank you.

    MS. HERMAN: Thank you, Debbie.

(Applause.)

    I have to tell you it's really neat for us to be sitting up here. We're sitting where the Commissioners usually sit. That's a very interesting view. I notice like there's little TV screens, so that's how come they don't have to turn around and look at the big screen behind us. But, anyway, it's just cool to be sitting here.

(Laughter.)

    Next is Howard Symons.

    MR. SYMONS: Thank you, Edie, and thanks for the opportunity to address this task force and also for the opportunity to sit up here.

(Laughter.)

    Commissioner Copps, it is a nice view. There's no doubt about that.

(Laughter.)

    COMMISSIONER COPPS: It's fine if it's not all that close.

(Laughter.)

    MR. SYMONS: Well, Edie didn't tell you, we're not actually watching the meeting on these little TVs.

(Laughter.)

    There's some entertainment for us up here.

    I think in trying to evaluate whether the 1996 Act succeeded for consumers you've got to look at the question through a couple of different prisms. I think let's get something out of the way right away, and that is all the rosy predictions from February of 1996 suffer just the sort of fate rosy predictions always suffer. Debbie pulled out a couple of quotes that look a little bit silly in hindsight. Many of us could pull out many more quotes. Some of probably are guilty of having uttered some of them at the time and even thereafter.

(Laughter.)

    So I think it's indisputable that the extent of competition that was predicted at the cutting edge in 1996 has not come to pass. Most of us don't have a choice of local phone company. The telephone companies did not get into the video business. In fact, they pulled back from that.

    The overall market downturn of the past year and certainly the past couple of months has taken a disproportionate toll on the telecommunications industry and its economic prospects. Each day there's another dismal story about a once vibrant competitor now limping along. There's no doubt that that trend is not going to be reversed in the next couple of months.

    But I think that you also have to step back and look at what has happened and what continues to happen despite the economic downturn. Five-and-a-half or six years ago, there really was not a CLEC industry at all. To the extent that there was local competition, it was available only to the largest businesses who use dedicated lines to avoid or, as we say, bypass the local phone company for their long distance service. Now there are competitive local exchange carriers, and they do in fact offer service to residential customers.

    Cable companies alone, for instance, offer local telephone service to over a million residential customers. Wireless companies offer multiple choices and face vibrant competition in the marketplace. Broadband capable plant passes upwards of 70 percent of all homes. The take rate is very low for a variety of reasons, but the plant is there.

    So there are some successes in the marketplace. There is growth and development along the lines contemplated in 1996.

    I think one way to think about whether the Act succeeded or failed, and my own view is it's too early to tell. I think Edie jumped -- you know, stole all my thunder of my modest point. One way to look at it is to ask four questions about the Act. One, did it embody sound policy? Two, has it been effectively implemented? Third, has it been obeyed? And, finally, has it been enforced? Let me take each of those one at a time briefly.

    Is it sound policy? The underlying theory of the 1996 Act was that competition would serve consumers better than regulated monopoly. My own view, speaking only for myself and not for my clients of course, is that competition is the soundest policy, the best way to encourage people to provide the widest variety of services at the best price. It doesn't always work, and it's a lumpy process, so at any given point in time it may not be delivering optimally the range of services and the price of services that we want. But it is better and much more efficient than intensive government regulation and supervision.

    Competition was the hallmark of the policy in the 1996 Act applied to the local exchange marketplace, to the video marketplace and to the wireless marketplace. It remains, I think, the best policy. It has a ways to go before it reaches full fruition, but I think the underlying framework of the 1996 Act, the choices Congress make remain sound.

    Second, has it been effectively implemented? There's continuing controversy over this question. It manifests itself in various bills pending before Congress now over whether the unbundling requirements and the interconnection obligations imposed on incumbent local exchange carriers are appropriate. The FCC was handed a very difficult task in 1996. It was required to implement the market-opening obligations in the '96 Act within six months. The FCC responded with a 1,000 page order, which has been the subject of much litigation, many reconsiderations in the years since.

    But by and large again, I think the implementation decisions that the FCC made were sound. They recognized that to get to the kind of competitive marketplace Congress envisioned, the incumbent local exchange carriers had to be required to open up their markets and share their networks. The controversy surrounding those decisions and the ongoing implementation of those decisions has generated endless controversy. And I think any decision the FCC would have made with respect to the extent of unbundling, the degree of regulation or the degree of forbearance from regulation will generate that controversy. But by and large I think the implementation was true to the spirit of the '96 Act and pushed the industry in the direction of openness.

    Has there been compliance with the 1996 Act? Here again controversy is probably the only thing that everybody would agree on. There has been controversy over whether there has been compliance with the Act. Pete probably has a different view of this than Debbie does, for instance. Brad probably has a different view of it from a jurisdictional standpoint at least than some of the rest of us up here.

    I think, from my own perspective, compliance, there has been compliance, but it has been grudging compliance. And I suppose we shouldn't be surprised by that because so many of the requirements of the '96 Act were not consonant with the economic interests of the people who were required to comply with it. It's awfully hard to get excited when the primary requirement you face in a statute is to open up your network to your competitor, and yet that was the requirement of the Act. And, surprisingly perhaps, there has been as much compliance as there's been.

    There's been a lot of fines. There's been a lot of foot-dragging. There's been a lot of litigation, and there will continue to be such. But there has been at least enough compliance to produce the kind of market entry in the competitive local exchange carrier business that Debbie outlined in her remarks, and I think that's progress.

    Has there been enforcement? There's been as much enforcement as there can be under the 1996 Act and the 1934 Communications Act. Could there be more? I think in view of the foot-dragging, yes. I think that requires some statutory changes. And the Chairman of the FCC has noted that and requested that of Congress. We'll see if Congress can turn around that request. But I think there's at least been an awareness here of the people who really sit here, not us make-believers, that there needs to be an ongoing vigorous enforcement of the Act if it's to really take root and flourish.

    Overall, I think the Act will be a success. I think that's an appropriate sentiment. I think it is too early to say whether it has been a success or failure. And I think it's possible in hindsight in a few years we make look back and say it was overly ambitious or that it ignored market realities and economic realities. But I think -- I'm an optimist. I think it will be a success. I think that it will begin to accomplish -- it has begun to accomplish some of its goals. It will accomplish more of them going forward.

    I would close just with this. Just when you think you're working in an obscure corner of the world like telecommunications policy, along comes someone like Oliver Stone, noted director and paranoid.

(Laughter.)

    I don't know how many of how you read, or, as my aunt used to say, take the New Yorker, but there was a little clip a couple of weeks ago where Oliver Stone was appearing at a conference and he whispered conspiratorially you know, he said, the 1996 Telecommunications Act was written and passed in the dead of night, in the dead of night he emphasized.

(Laughter.)

    Well, you can say a lot of things about the 1996 Act, but I'm here to say, and Pete can vouch for me, I think everybody else can, that there wasn't a single person with the most tendentious claim to being a telecommunications policy person who wasn't involved at some or many points of the ten or twelve-year process it took to produce the 1996 Act.

    In fact, if there's a criticism of the Act, it's that it is the product of compromise and, therefore, largely unenforceable. I think, you know, we're all the better for the large participation in the Act. I think, you know, producing statutes of this complexity always takes compromise. But I would take issue with the fact that the problem with the statute was that it was passed under the cover of darkness.

(Laughter.)

    MS. HERMAN: Thank you, Howard.

(Applause.)

    The Act did -- the effort to write the Act did go on and on and on. Next is Pete Belvin from Qwest.

    MS. BELVIN: Thank you, Edie. And still goes on and on and on and on in other contexts. I find myself in the uncomfortable and unfamiliar position of agreeing with a lot of what's been said already, but let me try and just put a slightly different tilt on it.

    Perhaps we shouldn't spend so much time in retrospect and foresight looking at what's happened already. I would agree with both Debbie and Howard in their characterization of how successful the Act has been, you know, to borrow a phrase that I've found very useful from the Carter administration used in describing the disastrous and totally failed attempt to rescue our hostages in Iran from the Ayatollah Khomeini. I will never forget the day a State Department representative came before the cameras and declared that disaster an incomplete success.

(Laughter.)

    And I think what we're dealing with here, and certainly not a disaster, but very definitely an incomplete success.

    Let's take a look at the format that Howard gave us for a minute because I find that a useful form of analysis. Is the policy on which the Telecom Act was based sound? You bet. Competition is a good thing. Anybody needs any evidence, let's take a look at where competition has actually broken out. Let's take a look at New York and Texas.

    In New York and Texas, long distance rates have dropped between 10 and 20 percent to the average consumer. And even local telephone rates have come down four percent. What's wrong with that? Absolutely nothing except for the fact that competition hasn't broken out in more places than it already has. Now again, looking back for just a minute, why can we say that even though the policy is great it has been, as I said, an incomplete success.

    That's because, you know, Howard and Gene, you know, who have worked on the Hill will agree with me that, you know, one of the principles of statutory drafting and enactment is where the facts are inconvenient, ignore them. And one of the uncomfortable facts about local telephone service -- and, after all, bringing competition into the local telephone market was the warp and woof of this act when you come right down to it -- local telephone service is not a profit center. It is subsidized very heavily as you all know by a very intricate system of subsidies, internal and external. So let's see what framework this statute sets up to bring about competition.

    One the one hand, the incumbent phone companies who run that local market are supposed to, as Howard said, open their markets, which is not, you know, a natural thing for them to do. Shareholders tend to not like competition. But they do have a quid pro quo, and that is that they have a chance to get into the long distance market. Now I can tell you from the perspective of Qwest that's something we very much want to do. And, obviously, our cousins in the RBOC industry would like to do that too. The hang-up you have is the folks in the long-distance industry, okay.

    In 1996, when this Act was passed, they actually had a profitable market. Yeah, it had a margin of about, you know, 10, 12 percent or more profit unlike the local market. Now, ask yourself, what incentive did those folks in the long distance market have to let us come in and compete with them just so that they can get into our market where the profit margin was about two percent. The answer is they had less than no incentive.

    And we can sit here and we can talk about whether there's been enough compliance and whether we need enough enforcement. But unless and until we recognize the fact that long distance companies were given a big incentive of getting into a two percent profit local market in return for opening up their 12 percent profit long distance market to competition, until we recognize that didn't make any sense we're not going to understand why there's been a lot of litigation and not a lot of competition.

    I can tell you though that there have been -- and I'm sure Brad is going to echo this, at least I hope he will -- there have been very earnest efforts at least on the part of our company to come into compliance with the terms of the Act and get into long distance competition. We know that that's the key, not just for voice because the one thing about telecommunications is it never sits still long enough for you to take a photograph of it. We're now way beyond worrying about the voice market. We're obviously worrying about the advanced data market, the benefits that can provide to consumers.

    And the uncomfortable fact that Howard avoided alluding to is that the cable monopolies control 70 percent of that market. Thanks to 271 of the Act and other requirements, local telephone companies, which are ready, willing and able, at least I can speak for my own company, to roll out DSL service pretty widely tomorrow are largely restricted from doing that because of the requirements in the Act adopted to take care of the local voice telephone monopoly. This doesn't make a lot of sense.

    But we are working hard to comply. We have 3300 collocation agreements in-place in our region. This gives CLEC access to about 90 percent of all the residential and business telephone lines in our region. Now that having been said, residential and small business subscribership by CLECs is something under two percent.

    So the issue, I would submit to you, when we're judging the failure or success of the Act is not whether, at least judging from Qwest's experience, our market is open, whether competitors can come in and compete, the issue is whether they have the economic ability to come in and compete. And that, in turn, as Debbie has said, is a function of a lot of things. Some of them are themselves built on the fact that they don't have economic business plans. Some of them who have marginal business plans have been disastrously affected by the economic downturn. All of these things affect competition currently.

    But we can talk about this endlessly, and that's not nearly as productive as the last point I want to leave you with, which is whatever our experience in the past, in our judgment of all points, we have to avoid porting that over to this new market for advanced telecommunications services. Our companies can begin rolling out a mixture of multi-channel video, voice and data services tomorrow. Keep in mind, Qwest is already a CLEC outside our region, unlike the other regional Bell operating companies. We serve 25 cities outside our in-home region. We're ready to build on that but for the fact that legacy of the '96 Act raises huge practical business questions to whether we can in fact provide those facilities and provide them on an economic bases. Unless and until the regulation that impedes that roll-out is modified, you're going to have a perpetuation of the situation where incumbent cable monopolies build on their existing 70 percent of the market for advanced data services.

    So I would urge us at some point in this program and beyond to really focus not so much on the local market. I would say from the perspective of Qwest these requirements are not easy but we understand them. We're not as interested in trying to change the law for the local voice market, in fact not at all since we're almost there in compliance with it, as we are in terms of looking at the lessons we can learn, plus and minus, from our experience in local voice monopoly and breaking it down, repeating the successes and avoiding the failures when it comes to advanced network deployment.

    Thanks alot.

(Applause.)

    MS. HERMAN: Gene Kimmelman will be our last speaker. And oh my gosh, I'm sorry, but Brad even has some Power Point things to show you. I'm sorry. Brad is next from the state regulatory association, NARUC. Sorry.

    MR. RAMSAY: You know, I was going to say I was really excited because I wasn't last on the panel. They usually put the state regulators last, but she's forgetting me.

(Laughter.)

    MR. HERMAN: It's not easy.

(Laughter.)

    MR. RAMSAY: Anyway, are my -- can you -- yeah, there we go. I did this real fast. I know realize I'm never going to do a PowerPoint presentation again. When you come fourth or last or not at all on a panel --

(Laughter.)

    -- frequently everybody's said pretty much what you wanted to say. We got a list of questions from Ms. Rooker that we were supposed to try to answer, and I did try to do that. And I thought a little bit of graphics would help. The other concern I had when I walked in here though was I actually did not know who was on this panel. And I assume from the questions that it would be a much less knowledgeable group of people. I recognize all the people around this table so forgive me for bouncing through these slides extremely quickly, most of them covering information that previously people have probably already said or addressed. And I want to get back to the tail end of my -- my last two slides are the things that I'm the most interested.

    Anyway, the first question we were asked were what was Congress' guiding principle. I've got three there: eliminate entry regulations, substitute market forces for regulation, protect and expand universal service. A lot of the problems come in with the tension between two and three, the tension between allowing full market forces and continue to protect universal service.

    There was a missed opportunity in the Act to fix the universal service system, I think. And this again is not NARUC's but my view that there should have been a more targeted effort toward life-line linkup, individually targeted type programs and less emphasis on the traditional modes of high-cost funding of companies. But that opportunity was missed, and we're stuck with the Act like it is. And I'm one of the many in the room that don't want to see Congress meddle in this again any time in the near future.

    What were the mechanisms that Congress was relying on to get this jumpstarted? As mentioned by two of the other speakers, earlier speakers, ILECs are supposed to be charging into video. They had a slightly abortive attempts with some satellite ownership. It didn't really happen. Cable's supposed to be getting into voice. And about every two years they tell me we're going to have voiceover IP two years from now. And I asked Rick Zimmerman I think at the least meeting, when are you going to have voiceover IP, when am I going to see, you know, substantial roll-out here so I've got another facilities-based carrier for voice and maybe a potential for some little competitive pressure there. And he said two years. So I suppose when we ask him a year from now, it will be two years. If and when that does happen, that's a good potential for entry.

    Voice, obviously, also mentioned ILEC into ILEC. We ended up with mergers, and Debbie's cartoon is much better than my little printout here.

    How fast? As is usual, Congress -- one of the questions that she asked was, you know, how fast did Congress expect all this to take place. As is very typical with our men on the Hill -- men and women on the hill, they had a completely unrealistic expectation of how fast this would roll-out.

    If you compare this to the roll-out of competition in long distance telephony, you can say that that started in 1978 with Execunet or a little bit earlier, or you can say that it started in 1982/83 with the breakup of the Bell system. But if you use either one of those dates, it took twenty years almost before AT&T go to where they had right about 50 percent of the market and got non-dominant status.

    Now the long distance market doesn't have the infrastructure barriers that the local market does. Putting up two microwave towers to connect two cities gets me into the long distance market at least for those two cities, and I've got scope because I can link into the distribution network and pick up a lot of customers and make some money. To get into the local market, you've got to rebuild a line to everybody's house or find an alternate way in. That's a much bigger barrier.

    So to think that we're going -- the quotes that Debbie mentioned earlier, I am happy to say that I was not one of the ones that thought it was going to happen quickly. I am happy to say I can pull out speeches that were using this very analogy the year after the Act because on every anniversary people say why is it not here yet. And if you look at the market penetration, it's actually a little ahead of where I'd expect it to be.

    Did the consumers -- the next question we were asked: did the consumers have unrealistic expectations? Well, yeah, but you were keying off of Congress. And anybody that listened to the press and the hype anticipated that things would happen a lot more quickly than they have.

    What is the state of local competition? Debbie mentioned this. The only thing that I add is my guesstimate for what the FCC will be saying in December. These are the 4.4 from 1999 which increased 93 percent to 8.5 penetration in year-end December 2000. We're not anticipating because of the economic downturn that started in October of 2000, or at least I'm not anticipating it's going to be much over 10.2 percent penetration now. My guesstimate, and it's always dangerous to guess, but if things stay stable, which means my guesstimate is worthless because we know that's not going to happen, I'm figuring within a five-year timeframe we could be anywhere between 25 to 40 percent of market penetration. I don't see more rapid. I did see another very optimistic group put out a suggestion that they think there will be 65 percent market penetration last month, and they were saying more like a three or four-year timeframe.

    This is a typical split. This is kind of a average of what you'd see in terms of the different methods of entry. There's resale, the leasing of the network and facilities-based entry, and this is the general split that I would expect you'd see.

    I'm going to bounce through these. Consumer benefits. As Pete alluded to, there have been some toll and some local benefits in the first states to get 271 approval. I do believe that the '96 Act and the tech boom generally that the '96 Act contributed to the economic expansion and kind of prolonged it a bit, so there was a benefit there. Wireless prices obviously have come down significantly. That probably would have happened without the '96 Act. Most of these benefits though have focused -- you know, if you were doing a balancing act the business users have gotten significant benefits out of this. I don't think there's a whole lot of doubt about that. The local residential service, it's premature to see if it's going to work, and it's premature to say that there are tremendous benefits for the residential market.

    These were a couple just for comparison purposes. I want to put them up here so you can see the people that litigate one side of the issue versus the people that litigate the other. On one side I have all of the Bell operating companies and their relative market capitalizations, and on the other side I have, as of year-end 1995 just before the 1996 Act, the market capitalizations for AT&T, MCI-Worldcom and Sprint who are the -- had a lot of the money and spent a lot of money on the litigation here on implementation and at stateside.

    AT&T's market capitalization was, what, 100 -- that's million or billion. I can't even -- billion, yeah. And then, here we are -- in fact, I actually think this one's a little high. AT&T's too high. This one we've got AT&T up at 39 or 38-billion. And, of course, the Bell company market caps if anything have gone up.

    The last question that was asked in the letter I received was do we really need more federal legislation. And those of you that can see this, I have no with three exclamation points, and that's probably not enough. The only possible exception for that -- I advocate at the state and at the federal level. I do believe that the FCC needs higher fining authority. Right now, their fining authority is -- is it at 1.2 million, something like that? It's fairly low. I know Chairman Powell's asked for more. When you consider that for most of the Bell operating companies their quarterly revenues are somewhere between 10 to 15 billion, a million dollar fine is next to nothing. And most state fines, which are -- and those that have them are in the 10 to 30,000 dollar range are next to nothing either.

    One state that's done something fairly good recently, Illinois a couple of months ago gave their state the ability to fine a carrier a quarter of a million dollars basically every day for a potential violation, which I think would make the local/state guy in charge of operations wake up and notice if he's losing a million dollars every four days.

    The focus has to be on enforcement. I think that what is most important and what can be done without new legislation is stabilizing the regulatory environment so that the market entrants have some reasonable idea of the rules they're going to be playing by instead of bouncing back and forth because they keep having to change their market entry strategy. And it should come as no surprise to you that the way that that can be done in my view is even closer cooperation between the state regulators who are on the front lines in terms of implementation and the FCC who provides an extraordinary amount of sometimes welcome and sometimes unwelcome guidance to the state commissions in getting their job done.

    Examples. Perfect examples of where this is possible. We spent and other people have alluded to the fact that there was enormous amount of litigation. A lot of that litigation was over whether or not the FCC had authority to impose a particular standard. TELRIC. I've got two missed opportunities here where we've already had -- there was an opportunity for the FCC to do what I consider to be the right and the proper policy thing, and they didn't.

    One was imposing -- they mandated a pricing methodology on us right after the Act was passed, and we're still litigating whether that should be -- you know, this is I think the second time we've been to the Supreme Court. And after this decision, no matter what the Supreme Court does, there's going to be a host of additional action at the state level as a result of that litigation and more fallout, and, from my view, more waste of taxpayer dollars. Your state commission has to spend a lot of money to do it. The FCC's got to spend a lot of money to do it. And the companies that are involved have to spend a lot of money to do it. And guess who pays for it? You and I do.

    Now, what could they have done? They could have given a non-binding guideline. They could have come out with TELRIC and said this is the guideline, we think that this is a good idea. A lot of the states would have followed that guideline or come close to it. A lot of states would have appreciated that and come close to it. In fact, the FCC has now said in several public statements most of the states did pretty much what we wanted to do. And my question is so why have we been litigating this all this time.

    Immediately after the Act, the first arbitration items that went to court where the states had done pricing methodologies, almost all of the pricing methodologies were more or less in large part upheld. That part of the argument would be over. Reciprocal compensation is another place; we're in court now. There are a few states that have already gone to a bill and keep regime. We have the opportunity to see if that's working.

    The FCC has imposed effectively kind of a binding, overlying guideline when they could have simply given non-binding guidelines, and we would not be in court now litigating this. And whatever happens from this litigation, all of the state commissions wouldn't be in another rulemaking or litigation cycle as a result of it. My view is if the bill and keep approach works or if the approach that the FCC has suggested here works, which some states will follow, the ultimately, even without it being binding, the other states, for their own economic benefit, will fall in-line.

    Future opportunities. And this is critical and a place that should be of interest to all of you sitting at the table. The FCC is anticipated at the upcoming meeting to be looking at the UNE-P platform list, the list of items that are required to be unbundled.

    Now, they can do two things here. They can come up with a minimum list and they can say it's binding on the states and the states can't put anything more to it and the states really can't take anything away. In my view, that would be a mistake. Already, in a previous enactment in a previous FCC order, they said, guys, we're going to give you a minimum list but you can add to it. And I think that was the one right thing to do. I would hate to see them now take something away from the list without giving the state the first shot at it.

    In this circumstance, if they're going to make a decision that the federal minimum list goes down, there should be something in that order that says if -- you know, you've got to go to the state commission first and make sure that in the market conditions that exist in that state and the roll-out of competition in that state that it's appropriate for that to be removed from the minimum list in that state. It's a very, I think, factually-sensitive inquiry and important that the state have a shot at that.

    Performance measures is the same thing. And I actually am optimistic that this is the way the FCC is intending to go on both of these. But the Chairman had approached NARUC and the NARUC leadership quite some time ago to discuss the performance measures NPRM. And, again, there, guidelines for the states rather than instigating any litigation over any performance measures that the state commissions have already put in-place.

    Final comments. So far -- we've got a brand-new FCC. I've been extremely fortunate so far working with two offices in particular, Commissioner Copps' and Jordan Goldstein on numbering issues a number of times have been extraordinarily helpful. And Commissioner Martin and Sam Feder have been extraordinarily helpful on numbering issues. And the joint board procedures that the federal and the states are involved in on universal service and separations issues, the new commissioners that have joined those boards have made extreme and welcome advances in bringing the state commissioners more into the process, and that looks very good too.

    The only area that I have a little bit of concern is accounting reform, and because I know I've talked longer than I'm supposed to already, I'll save that for another day.

(Applause.)

    MS. HERMAN: Well, I'm the first to admit that we would have missed out on a good presentation if I really had skipped Brad.

(Laughter.)

    And, in a minute, we'll hear from Gene Kimmelman. This is Gene Kimmelman.

    DR. KIMMELMAN: One of the benefits of going last is I can try to borrow Brad's PowerPoint. If we could put back -- he's got the relative market cap in 2001 that he had before. That's great. Now, see, if I really could do split-screen, I'd take Debbie's cartoon --

(Laughter.)

    -- and put it next to that.

    Wow, I really don't know where to begin at this point.

(Laughter.)

    Just look at that market cap. Please look at it and think about the consolidation.

    Howard, how is it too soon for -- the only thing it's too soon for is a burial when the reg guys go underneath.

(Laughter.)

    I mean, I guess they still pay their lawyer's bill, but my goodness.

    Howard, talked about 10 or 12 years of deliberation, and it was very public in a lot of ways. A lot of the media couldn't seem to figure out how to cover it because it involved a lot of deregulation of media companies. It's funny how all that open debate didn't get on nightly news a lot. And Pete mentioned the ease at which we disregard convenient facts in the legislative process. Promises, predictions.

    You know, I think we really ought to get away from expecting our policymakers to be treating major laws like 11 year olds on the playground fighting over who is winning the ballgame. It seems to me that the predictions -- I mean, just imagine if we'd had every witness come in and basically sign a bond for the amount of benefits, savings, earnings that they were promising. Imagine that. I mean, it sounds silly, but you know what? This is what the American people deserve from people who are the experts in the fields, who understand markets.

    Did the courts get created on February 14th, 1996? I believe they were there before. Was someone going to litigate? Everyone knew it. Was this an infrastructure shared by all these services where there were always ongoing fights about costing proceedings whether you call them UNE's or reciprocal comp? Certainly, ever since I started doing this work there were fights. It's never changed. All of this was known.

    When you deregulate, opening the door to consolidation, did anyone predict consolidation? I believe they did, maybe not exactly in the form that the little cartoon shows it but it was all there. These are not just unfortunate results. Very seriously, this is a fraud on the American people. This is intentional misrepresentation of known facts about the markets, about their structures, about what was going on.

    All I can say is if someone as stupid as me could put out a press release in February 1996 predicting consolidation, higher cable rates, higher phone rates, less long distance competition and no meaningful local phone competition in a foreseeable future. And God knows, no one should be thinking about 20 years when you pass legislation. Our antitrust officials won't even block a merger if they can't delineate within three to five years what it will and the courts won't uphold anything beyond that.

    Surely we can't be passing laws saying the manana 20 years hence, so no one's accountable. There has to be some accountability. I won't repeat all the facts. You've seen it, consolidation, and just look at the market cap. But here are the facts that come home for consumers.

    Local phone rates are up, not because of what state regulators have done but all because of what federal regulators have done in deregulating and passing through costs to consumers. Long distance rates are up, up in every measurement you can imagine. Compared to the 10 years before deregulation, compared to the five years before. Any way you want to do it, those long distance rate reductions people had hoped for aren't there, and these are the companies. Look at the market caps.

    In the mid-80's -- well, we can go through it. Are cable rates up? Yes. DSL, cable modem service, anything new? Is it getting cheaper? No, no, no. Anyone noticed inflation in our society lately? It's down below these lines. It is deflation. Costs are not going up for many services. Your gasoline prices gone up lately?

    I agree with Howard's principle of competition. And in the mid-1980's there was a Senator who introduced a bill basically just handing over markets to the Bell companies, and I was vigorously against it following the principles that Howard articulated about competition and choice. Pete probably thinks I'm thinking of Senator Dole. I'm not. Senator Gore introduced a bill that basically just said the Bells have to turn that subscriber line charge, then called access charge, into a big goose egg, zero, and they'll be allowed into all these other markets.

    Now, let's just take that as a counterfactual of what the world would like today. Instead of five or six dollar subscriber line charge on your first line and even higher one on your second one, it would be zero. The Bells would be a local phone monopoly. They might be almost a long distance monopoly because it's hard to say whether long distance companies could have survived in that. Go back and look at the market cap, how are they doing today.

    Would we be better off or worse off? I can even show you where for a majority of consumers -- long distance companies would say but our costs wouldn't have come down, your long distance rates wouldn't be as low. I can show you for a majority of consumers, the consumers who do less than a hour worth of long distance calling today, those rates probably would be almost the same as if they hadn't gotten any of the old pass-throughs when the subscriber line charge went up. These are people still on-average if they use any rate plan out there from basic on up with its three, four, five, six dollars a month fee who are paying 15 to 30 cents a minute for long distance calling. Great competition, huh?

    I think I can show you how, despite my principles of believing in competition and choice, that almost every consumer and disability benefit I have seen in the last 20 years comes from regulation or a specific mandate on a company not from deregulation. Those long distance rate reductions that we saw from the mid-80's on all were pass-throughs from the rising subscriber line charge. A little bit on the margin from competition, very little.

    The local competition we're seeing in New York and Texas is from all government-mandated network sharing. As the slides before indicate, fewer than one percent of people have a facilities-based competitor for local phone service. When you don't have that, it means everyone's sharing the Bell's monopoly network. It is at a regulated price.

    The internet explosion that all of us have experienced, that great consumer benefit comes from the fact that anyone can pick any Internet provider on our public switched telephone network. Those providers have just exploded. The choices have exploded for consumers, and that great market benefit is called common carriage, non-discrimination requirements, everyone gets on, everyone can use what he or she wants. That's regulation.

    I forgot one thing. There have been enormous benefits to cable customers. Cable modem service didn't exist before a lot of new programming. Unfortunately, the comes from a deregulation with enormous price-gouging for basic and expanded basic cable services, prices that are up 35 percent from where they were when we passed the Act in '96. I'm not sure that's the kind of trade-off we want from deregulation.

    So the Gore bill may not have been so bad, everybody saving six to twelve bucks a month on their local phone bill, the Bells would have dominated local phone services, they would have dominated long distance. Would long distance prices be down? As far as I can tell, the driving force in pushing long distance prices down any more in our market come from wireless plans, big buckets of minutes. Now, again, this isn't that bottom half of the consumer market I was worried about. But the high end would still be getting enormous market pressures to bring down long distance rates. So anybody here who's worried about being on the phone for more than an hour or two for long distance, there would still be competition. That Gore bill may not have been so bad.

    I think at this point what's clear is whether or not you want Congress to do anything, there's really only two ways to get clear consumer benefits and benefits to disadvantaged groups out there. They're not from the marketplace. Some would call the first one, to use a more positive term than I'm going to use -- I just don't like it -- and I'd call it greenmailing. You can bribe the companies and say, we'll support this legislation or we'll support that deregulation, or we'll support whatever you want if you just give us x or y or z. And it works.

    Often for a company that could see enormous benefits of less public oversight in other markets, it's a good quid pro quo. You give something to consumers or those with special needs and you make more money elsewhere I don't think it's very good public policy.

    The other choice I think we have is simple, old-fashioned regulation. If you want prices to be lower, you're going to need regulation. If you want prices to be about where they are, you're going to need regulation. If you want greater access to remote areas, to people of lower income, to people of lesser means, to people to do not have enormous market demand, you need government intervention, you need regulation. There's just no way around it. I think that's the reality we face.

    While I don't entertain the possibility of new legislation being any more fun that the last go-round, at a certain point you do have to bury those companies that just really are not able to deliver any more for consumers. And nothing against those companies; they all tried. I'm not trying to demean them. It was a law that was doomed to failure because it never got the market economics right, it never got the understand of the market accurate, it never was willing to impose the right constraints to deal with the obvious disputes that were going to arise, and, therefore, I don't think it is in any way the solution for serving consumers needs or the needs of the disabled community in the future. Thank you.

(Applause.)

    MS. HERMAN: I was wondering if anyone on the Committee had any questions. Some of the comments were somewhat provocative, especially Gene's at the end about regulation being the -- I don't know where to start. I think, Kathleen, I saw your hand first.

    MS. O'REILLY: As we heard from Commissioner Copps, the preamble promised consumers that we'd get lower prices and higher service quality. And I know that in the time that you were allowed there was not time to touch on everything. But one of the things that strikes me is how service quality has declined very, very dramatically. And not only is that a broken promise, I think it's an indicator of lack of competition and lack of a sort of a perception on the part of the ILECs that they will have competition. And I wonder if you could comment on where you see service quality decline in the whole mix.

    And also for you, Pete, when you talk about local rates you seem to assume they're -- a general assumption that local rates are subsidized. And every state commission that has looked at this using ILECs own sworn-to as truthful data has concluded that it's just the opposite whether you look at Washington, Indiana, Georgia. And it reminds me of the old myth at the time of divestiture when we were told that local rates were subsidized by long distance, and those of us who fought that finally won that battle a few years later. But I think that's a complete myth that local rates are subsidized. If anything, residential rates are the biggest, biggest subsidizing rate across the board and that an awful lot of bad public policy and implementation come from that, you know, misunderstanding of reality. And it touches on Gene's point that local rates -- and for most American families before and after the bill the biggest check they write out every month is for their local service, not long distance. And local rates have certainly not gone down.

    And there's been such a distraction with the state and federal proceedings mandated by the various providers, the 271 proceedings and so forth, that the core issue of residential ratepayers, lower rates, better quality of service, has not made it to the priority list. And I just wonder if the panel might address those two consumer aspects of the bill.

    MS. BELVIN: Yeah. Let me start. And perhaps I should have been more specific when talking about subsidies. I'll, you know, talk with Gene and I'll talk with Brad and Howard and everybody else, but it does seem to me that it has been and it continues to be the case, although less so given the advent of competition, that local residential rates, at least in our company, have typically been below cost. They have been subsidized by business small and particularly large.

    You have a two or three part problem it seems to me. With the advent of the '96 Act and the coming of the CLEC industry, for the economic reasons that Gene and I talked about, it was perfectly rational to expect that whatever competition occurred would go after the fat margins in the local market first if not exclusively, and that has been primarily big business. Small business to my knowledge is not faring nearly as well as big businesses. Once you take away some of the profits from some of the customers that we get from big business, that exerts more pressure on the residential rates that traditionally we have subsidized with big business.

    Our company faces a specific problem out in, you know, those big, square states where there's lots of space and not too much people. And that comes from another problem that's been touched on by Gene, and that is the failure of the FCC, I would say, to handle the issue of universal service as the Act directed. As soon as you introduce competition, whether it expectably hits big business and not residential consumers first or whatever, you absolutely attack that subsidy system. And it becomes necessary to get to the subsidy system and rebalance it.

    I think what Gene would say is precisely the reason that low-volume, residential consumers, okay, in long distance are paying higher rates today is sort of the same reason that residential consumers locally their rates have not gone down. It's because the competition has bled away the local profit that was subsidizing them and the universal service subsidy hasn't basically been rebalanced.

    We've, you know, created funds for wiring schools. We've done some other things. But we haven't gotten to the fact that an extensive subsidy system is incompatible with the notion of competition. That has to be fixed in some way. That for all of the things that we're talking about, all of the problems in the '96 Act this is by far the most difficult to do because -- and this is my opinion only -- when you come down to it it seems to me the only system of subsidies that exists in a perfectly competitive market, which is what we would like to get to I think, is one where the subsidies are targeted to the user that needs them, not to companies, not to geographic areas or neighborhoods. And that, you know, I'll defer to Brad to talk about is how difficult that would be to achieve.

    So, let me just be more precise on the subsidies, at least as how I understand them and how they work out where we are.

    MS. O'REILLY: I agree with that last piece. And there's no time to debate, but I think that consumer advocates in Qwest states would take issue with your conclusion on subsidies for those states.

    MS. BELVIN: They do about many things.

(Laughter.)

    MS. HERMAN: Does anyone up here want to talk on that issue? Brad or --

    MR. RAMSAY: Well, the only thing I'll say is I'm actually shocked that I do agree. God, I can't even say this.

(Laughter.)

    I agree with a lot of what she just said in terms --

    MS. O'REILLY: The last piece, yeah.

    MR. RAMSAY: -- of the disparity between the business and the --

    MS. O'REILLY: Targeted subsidies.

    MR. RAMSAY: -- residential rates because they're priced differently, and there is kind of a death spiral inherent with the target competition going after the business users. And I do agree with the last piece.

    The other issue that's raised by your question that you're not -- that I want to briefly speak to that's here is the reporting requirements and the service quality reporting requirements that apparently are being considered. There seems to be some concern here at the FCC -- and this is a proceeding that NARUC cares about -- that the RMS service quality reporting requirements may or may not be needed for now. And I've always kind of wondered about that. Because if you're a company and you're in a truly competitive environment, you're going to be monitoring your service quality and you're going to have some troubleshooter out there to save yourself money by saying, okay, we're having this type of problem 15 times, there's a problem, let's see if we can fix it so it doesn't reoccur.

    So, if you're in a competitive environment, you're going to be keeping those statistics anyway. And if you're not in a competitive environment, we need the statistics to make sure that service quality doesn't fall below an acceptable level. I agree with your preamble statement that since 1992, which is the last time we had a big outrage in Congress about service quality, if you look at the general trends of the data that the Bell companies have filed, generically its service quality across the board according to those measures has been more or less trending downward.

    MS. HERMAN: I thought I saw a hand.

    MR. LUDWICK: Paul Ludwick with Sprint for Brad.

(Laughter.)

    Brad, one of your slide showed a percent right around 8.1 percent I believe today with access lines in competitive hands --

    MS. HERMAN: Paul, can you speak into the mic.

    MR. LUDWICK: Sure.

    MR. RAMSAY: Actually, it's 8.5, and that's the FCC's figure.

    MR. LUDWICK: Okay. My question is on your prediction earlier or forecast for an increase to 25 to 40 percent in the next five years. That's an increase of about 300 to 500 percent over what we're at today. What's going to change in the landscape in your opinion that's going to generate that kind of slope.

    MR. RAMSAY: Well, actually, the -- am I on? Yes, I'm on. The stuff that I'm reading now suggests that possibly at the latter end -- we'll be out of the recession by the end of 2002, and there are people that are predicting that next year might be a good market for the telecommunications industry.

    This is just kind of a -- what I did -- and that's kind of an old prediction from me. But when I did it I was just kind of looking at the span how long it took get roll-out in long distance and kind of looking at how fast we got a little bit more roll-out. We actually got faster roll-out it looked like to me -- I did this about five months ago -- faster roll-out in the local market relatively speaking than we did in the long distance. And so, that's why my guesstimate was what it was. I mean, I'm just guessing based on what happened in long distance.

    As with most predictions, usually whenever I'm asked to do predictions it's always a dangerous thing. Anything that's more than a year out is probably going to be wrong. I've been doing this for 12 years and one thing that I've figured out early on is almost all of our predictions, if you're doing more than a year or a year or two out, you're usually wrong.

    But I do believe that if we keep creeping along at this pace that we should in five years be up to 25 percent. Yeah, I think that's a reasonable figure, and it's a guess.

    DR. KIMMELMAN: I'd just like to -- could I raise two things about that? Number one, the pace at which the roll-out has occurred was during the dot com boom.

    MR. RAMSAY: Right.

    DR. KIMMELMAN: That was certainly not predictable in the '96 Act. I don't think anyone predicted that. So, I'd say that was an accelerated pace that you are very unlikely to see continue in the future. And if you do the comparison to long distance, you did -- it was fifty years, right? If you do the comparison --

    MR. RAMSAY: It was 20 years, but that's okay.

    DR. KIMMELMAN: Was it 20?

    MR. RAMSAY: Okay. It doesn't matter because what I'm going to say is the first ten of those were full, absolute regulation, NFEA rates. And you're not going to get a full ten years of regulation that way for local access pricing unless Pete's worst nightmare comes true. And so, I don't think you can anticipate that kind of public intervention that brought us that very stable growth pattern in long distance that we saw.

    MR. RAMSAY: Let me hedge again. I also recall now that the reason the -- I was also relying on some predictions in part by a CLEC in the last couple of months. I'm trying to think who it was who had testified and suggested --

    DR. KIMMELMAN: Does it --

    MR. RAMSAY: Pardon.

    DR. KIMMELMAN: Does it exist?

    MR. RAMSAY: Probably not. No. But I mean I was looking at one -- the other thing that I did at the time when I was trying to figure out how things would go was I did a literature search to see what other people had said. So it was a combination of those two things. But we were already in the economic downturn. I mean, things were already sliding down.

    MS. HERMAN: I should probably look over there, a gentleman in the gray shirt.

    MR. TOBIAS: Thanks. We've heard, I think -- I had to step out of the room for a minute, so if this was touched on I apologize in advance. I was conducting my own experiment on the decline in customer quality in the telephone networks --

(Laughter.)

    -- finding it almost impossible to make an international call no matter who I chose and what form of payment I was willing to use.

(Laughter.)

    But, at any rate, we've been focusing on sort of side-by-side competition of equivalent products over equivalent networks, in other words company A offering POT service and company B offering POT service. And I think that's less and less relevant to the real issues that consumers -- and I'm not only talking about consumers with disabilities, but that is my principal area -- what consumers are experiencing and want to experience.

    You touched on it a little bit with references to wireless service and it having an effect on usage and prices and what have you and somewhat of an expansion of the range that consumers have with some accessibility issues and what have you as well. You talked about it also with respect to voice over IP, which maybe I'm reading the wrong kind of magazines, too many technical journals, but it's my impression that voice-over IP is tremendously successful in organizational settings in businesses and large organizations that can afford the investment. They save, you know, tremendous amounts in international calls and what have you, but, at any rate, we haven't seen it yet in the residential market.

    My main concern is competition between media that are not at all the same, that we are using -- as end-users we're substituting one form of communication for another: I am choosing not to make a phone but sending e-mail; I'm choosing not to send e-mail but to page someone. And that takes us perilously close to the issue of what is the Commission's jurisdiction or what could be Congressional action. But I think it needs to be in your thoughts when you're talking about competition not just to focus on existing traditional view of it but, you know, looking at consumers.

    For example, you know, the fax. I don't know what your fax machine is like, but mine's real dusty. Fax peaked at some point a couple of years ago, and I think the fax volume is declining. Will we see the same kind of decline at some point in POT service as people abandon it for, you know, whatever else they're using. If we are not continually focused on users and a statistical and economic model of what people are doing and want to do when we talk about competition, our conclusion will be more and more irrelevant to the needs of the consuming public.

    So, I'd be interested in hearing what the panelists think about that and especially how we can direct the activities of the Commission to address that issue.

    MS. BELVIN: That's an excellent statement. I couldn't agree with you more. One of the more amusing events that I had recently was at the recent Aspen Institute Annual Teleconference event, which Dr. Kimmelman was also at. We had one breakout session where we were talking about precisely what you're discussing now. And one very learned former state commission person and academic who shall remain nameless for obvious reasons was inveighing about how consumers really didn't have an alternative for local phone service, just didn't have it.

    And my point was, well, you know, ever pick up a cell phone, you know. And this gentlemen just, you know, wouldn't acknowledge that the cell phone was competition until Dr. Robert Pepper's 14 year-old son who was keeping notes was invited by Dr. Pepper to make a comment, and he said, sure, none of us kids ever use a landline phone, we all use cell phones.

(Laughter.)

    And I want to take that one step further and relate back to Gene's recommendation. First of all, this is just amazing, and this is why Gene always had a seat at every Senate Commerce Committee hearing that John McCain chaired. And that's because, I think, we can agree -- we agree on our diagnosis of the problems. We couldn't agree less on our solutions. Gene loves more regulation. I think competition, unless and until it can be shown to fail, is the way to go.

    And why is that the case? Because of what you just said. The former silos of regulation where wireless is over here and cable's over there and, you know, oh, a hundred hears ago U.S. West was a local phone company. So now, if it wants to offer cable service, ooh, we've got all this stuff we've got to borrow from the '96 Act and graft onto that maybe. It doesn't make any sense any more.

    In point of fact, all of these companies, thanks to the blessings of digital, you know, technology and conversion are capable of offering all of these services. So not only from the consumer perspective, where you're using different services provided by different people, but also from the public policy perspective, you've got to break down the balkanization of regulation we've had where we're tasked more than cable is because of our telephone company heritage even though our networks do precisely the same things fundamentally. And that, in turn, is going to bring about a heck of a lot more benefits in terms of service assortments and pricing for consumers than all of the regulation that good Dr. Kimmelman, with all of his best intentions, is going to dream up.

    DR. KIMMELMAN: Can I say, I hate regulation. But the one thing --

    MS. BELVIN: You wouldn't have known it from you said.

    DR. KIMMELMAN: -- the one thing I hate more is fraudulent misuse of good concepts like competition. Competition is wonderful, absolutely fabulous, much better than regulation where it works. If people keep trying to pretend it will work places it won't, it will undermine the viability of that very concept. I would have said the telecommunications industry was very high up in achieving that goal, but the electricity industry beat them out. I mean, there are tremendous opportunities in our marketplace to use competitive forces. This one is wrought with all kinds of inherent problems based upon the economics of telecommunications infrastructure.

    I totally agree that we should be looking into what consumers do and don't do, what they want, what they don't want. That should be a driving force, and the Commission should focus on it.

    But I think it's also important that you have to make clear decisions in policy as to whether cultural heritage -- not the heritage of the phone company, but cultural heritage like ubiquity of a wire line system is in the public's interest, in the national interest or not. Does it matter? Does it matter to the culture? Does it matter to the society that we live in? If it doesn't, you can throw it out and experiment with all kinds of marketplace activities.

    But if people had been honest when they passed the '96 Act, they would have probably said in doing so, we are leading to the process of a doubling or tripling of your local phone bill, your cable bill, world rates will go up, we'll need an enormous universal service fund, it is unclear whether long distance competition will survive, but welcome to the brave new world, you'll have e-mail. If they had said that, I would have loved to see the American people vote. And if that's what they want, that's perfectly fine. I think a lot of people in conjunction with their desire to have marketplace solutions also care an awful lot about the heritage of our society, the culture we've built on talking a lot over the telephone.

    Just one final point. Cellular I hope -- I hope wireless will really become a local competitor. Do you know how many minutes the average American family spends on the telephone for local phone service each month. I'll let you buy the biggest bucket of minutes at the lowest possible price, and given the average 1400 minutes of local airtime on wire you are not going to save money; you're going to spend three times as much as that lovely local phone bill. So you've got to take everything into account, and please look at the numbers.

    MS. HERMAN: Howard and both Debbie would also like to comment I think.

    MR. SYMONS: You know, so much of the dialogue here suggests, implicitly at least, that the issues here present an all or nothing proposition, and they don't. I think Kathleen's point about service quality and Mr. Tobias' point about intermodal competition that you might not even think of actually come together if you believe that the alternatives are not simply, you know, deregulation read-in tooth and claw or regulation where there is no -- or deregulation on one hand without any kind of constraints or regulation on the other hand without any chance for the development of competition.

    In fact, in a market like the telecommunications marketplace you often need regulation to engender competition. I think you can't just take all the brakes off -- and here I would disagree with Pete -- I think you just can't say, well, let's deregulate now and hope that that's going to promote competition. There's still even now too much of a legacy of incumbency to permit that to occur responsibly.

    On the other hand, I guess I disagree with Gene that regulation needs to be a persistent state extensively throughout the telecommunications industry. There will always be a role for regulation. Sometimes the regulation will be necessary to promote competition, to break open monopolies. Sometimes regulation will be necessary because there is simply market failure or an unwillingness or inability of market participants to meet the social goals Gene suggests without a government-imposed requirement. Sometimes there are going to be issues like service quality or truth in billing that simply do require persistent regulation.

    I think the important thing for the policymakers is to be able to open up their toolbox and pick the right tools to achieve these goals and knowing that sometimes the tools are going to regulatory tools but sometimes they're going to be deregulatory tools or just the willingness to step back and let the market take hold. It is unlikely, in a fully regulated environment, that you would get the kind of innovation, for instance, in services and technology that you get in a market with multiple players who will all have different ideas or some of whom will have different ideas, different technologies to marshall, different service packages to offer. You want to encourage that.

    And a regulated environment -- and it's sort of an admission of utter failure. And a reliance on regulation, I don't think produces that outcome as well as a mixed bag.

    MS. HERMAN: Debbie.

    MS. BERLYN: Thanks. I knew one of the challenges of being on this panel would be getting a word in with my colleagues here.

(Laughter.)

    And I want to just -- I'm glad Howard went first actually because you said exactly what I was going to say which is that this is not an absolute regulation or competition. And one of the questions we had was also kind of what the pace of deregulation should be. And, most certainly, it should track the pace of competition, that as competition develops that's when we should start to roll-back some regulations and not before that point.

    But also to comment on Jim's point before about other technologies, wireless, satellite services, internet telephony, whatever we look at, I think that there is a willingness I have heard on this commission to take a look at what other technologies can offer in terms of services for consumers. And I know that my organization -- I'll put a little -- I'm sorry -- a little advertisement in here right now. Our organization is holding a conference next week, and one of the panel sessions that we are having is entitled, Will New Technologies Come to the Rescue of Competition. And I'm inviting everyone here to attend, and fortunately I can say that without too much guilt because for consumers it's free. You can see me afterwards. But that is one of the questions that we're taking a look at because I do think that that is an important point.

    MS. HERMAN: Andrea, we're running behind.

    MS. WILLIAMS: Yeah. We're going to take one more question down here -- David -- and then we'll let you wrap-up.

    MR. POEHLMAN: Good morning. It's David Poehlman with the American Council of the Blind. And, first, I'd like to say this has been a stimulating, informative and instructive time period.

    One thing that's been touched on slightly -- and I do have a question, but I want to preface it. One thing that's been slightly alluded to here in a couple of respects such as, for example, the dot com taking hold and pushing things up and the depressed economy and that short of thing is the attitude or, shall we say, the, you know, reluctance at this point of lots of people to take up and buy services in certain areas. You know, we're talking about little people like me, for example. And I think there's an overall climate of sort of a little doom in that area right now. And it's exemplified by the fact that last spring I was notified that if I wanted to continue paying my old-fashioned telephone bill in the old-fashioned way I've been paying it for more years than I care to count, I've got to pay a $1.50. And I guess my question is, given my lack of prowess with the high degree of mathematical capability to figure this out, why is it that if we have an act that is pro-consumer and is promoting competition that I now have to pay an extra $1.50 to pay my phone bill? Thank you very much.

    MS. HERMAN: Who would like to --

(Laughter.)

    -- David, everyone's sort of passing this on to someone else. Gene. Gene.

    DR. KIMMELMAN: You're lucky it's not higher.

(Laughter.)

    That's a bargain, come on.

    MR. POEHLMAN: If you have a question about the question, I'll be happy to ask --

(Laughter.)

    MS. HERMAN: Well, one of you I guess should -- well, how about the regulator in the audience -- that are on the panel I mean.

    MR. RAMSAY: In my view that's a question for the FCC to answer.

(Laughter.)

    MS. HERMAN: I don't think you're going to get too much more out of this panel on that.

    DR. KIMMELMAN: I'd just like to say one thing. That's reflection of straight economics. Any economist would stand up very honestly and say this is market segmentation where you deregulate markets, you have people looking for the customers they really want, the high-margin customers. I guarantee you -- I could almost guarantee you if your bill were big enough they would waive that $1.50 like they waive a lot of other things. So, it is a way without directly charging people differently based on what they look like, what they seem like. It's a way of discriminating based on economics.

    And that -- by the way, I don't mean that pejoratively. That's what markets do. That is exactly what markets do.

    MS. WILLIAMS: Edie, we have one more question. I understand Bob Seagalman is on the phone. Oh. I'm sorry. Bob, you're here. Bob had a question.

    MR. JACOBS: Steve Jacobs is on the phone.

    MR. MARSHALL: Steve Jacobs is on the phone.

    MS. WILLIAMS: Steve, are you on the line?

    MR. JACOBS: Yeah, I have been since 9:00, but we've been having a few technical difficulties that have been worked out. And everything is fine, thank you.

    MS. WILLIAMS: Thank you, Steve. Bob.

    DR. SEGALMAN: You've all been talking about competition, and a lot of people around the table are interested in relay. California has been experimenting with competition in multi-vendor environments with the relay for a couple of years. And I was wondering if you could comment on that kind of competition.

    MS. HERMAN: I don't know. What you've got here, I'm afraid, is an inside-the-beltway crowd.

    MR. RAMSAY: Well, actually, I'll --

    MS. HERMAN: Maybe Brad, yeah.

    MR. RAMSAY: -- about it. I have not seen or am not aware of there maybe other states that are doing experimentation in that area, but I'm not aware of any others that are. It's unusual. I don't know what to say about it other than California's experimenting with it. I guess California's one of the bellwether states. So, if it results ultimately, I guess, after a few years in better service to the disabled community, then it probably will spread because I -- you know, I believe the way it's structured, and you can correct me if I'm wrong, is -- and I'm sorry. I don't know. Did --

    MS. WILLIAMS: Brad, let me help you out.

    MR. RAMSAY: Help me out on this one, yes. Thank you.

    MS. WILLIAMS: With the multivendoring basically you have more than one telecommunication relay service provider, and a consumer gets to choose which service provider rather than having their local telephone company.

    MR. RAMSAY: But how's it funded? Do you remember how they split the money up?

    MS. WILLIAMS: I know that is an area that they're looking at in terms of the TRS fund here at FCC. I'm not sure how that is --

    MR. RAMSAY: Done stateside.

    MS. WILLIAMS: -- on the stateside how that is working. I know that there has been some billing issues and problems with the multi-vendoring, and that's why I think it's still in a trial period. And that's pretty much where it is right now. I don't see other states -- I haven't seen other states yet taking on -- maybe Brenda or --

    MS. BATTAT: Some of the states are looking at it, but California's has a lot of problems. It's very unsatisfactory, and they have just come out with a new request for proposals and trying to put in an infrastructure. One of the big problems they're looking at is the 7-1-1.

    MR. RAMSAY: All right.

    MS. BATTAT: You call in with 7-1-1. You know, how does that all --

    MR. RAMSAY: How do you split that all -- divide it?

    MS. BATTAT: -- get sorted into how gets paid. The other problem was that while they were using it they had a primary provider which means they had access to the state 800 number, which means what incentive is there for anybody to compete because they can't publish the number. They have to really go out to make themselves known that, hey, we're here also. Multiple problems in California. So, they're trying to work through those, and other states and kind of watching on the sideline.

    You know, a lot of -- there's a split right now in the community, the same as what's going on here is a lot of people who are deaf and hard of hearing say competition is what we want, it has to be better. And there are other groups saying that has never proven true for any disability group. We can go back years and years and years and show you what any access that we ever got in any area of telecommunications has come about as a result of regulation. So there are definitely two camps in the disability community regarding multi-vendoring,

    And right here in Maryland now we're looking at that and trying to over the next two years to research it. We just don't want to jump into it because we're not convinced that it's the answer to get better service. It certainly has not proved better service in California. The whole service really went down the tubes.

    MR. RAMSAY: Which is why I'm glad I'm a states rights advocate --

(Laughter.)

    -- because I believe that the theory the laboratory of the states is actually one that works. And so, when you have -- you know, the California regulators you can call them a lot of things, but they're not stupid people. And yet, if you look at their -- I don't know how many of you are familiar with the electric dereg plan that they put into place.

(Laughter.)

    Some of us that read it had some questions about the sanity of the people involved, but that's why you don't want one regulator establishing a uniform plan for the entire country.

    One thing -- if you watched the evolution of regulation over the years, we almost always get it wrong the first time and have to go back and adjust it. And it's better if it happens in one state than in 50 at the same time.

    MR. SYMONS: Unless you're living in that state.

    MR. RAMSAY: Unless you're living in that state.

(Laughter.)

    MS. WILLIAMS: Edie, Howard, Brad, Gene --

    MR. RAMSAY: But if you have the FCC, you can't get away from it.

    MS. WILLIAMS: -- Pete and Debra, I just want to thank you on behalf of the Advisory Committee for sharing your morning with us, which I think was -- has enlightened all of us particularly in terms of where the Telecommunications Act came from, where we're going and really gave us some basic understanding, as we have our deliberations here, in terms of advising the FCC with respect to consumers and disability issues in terms of telecommunications access. Please join me in thanking them.

(Applause.)

    Before everyone jumps up to use the ladies' room and the men's room, due to time restrictions we're going to have a little change in the agenda. Why don't we take first a ten-minute break, come back here, and we're going to take care of some committee business that we weren't able to take care of earlier. That will probably take us to 12:00, so that means the subcommittee breakout session we will defer that until the afternoon, and we will have lunch at 12:00. So if everyone can take a ten-minute break and come back here, and we will resume and discuss some committee business.

(Whereupon, a recess was taken.)

    MS. WILLIAMS: Okay. We're going to get started. I know we ran a little over this morning, but I hope everyone on the Committee found the discussion enlightening and useful. As I said earlier, our goal is to have these type of discussions and panelists to provide us with some understanding of some of the subject areas that we will be dealing with as a committee so that we can make our recommendations to the Commission and have a more constructive dialogue when we're all, as one person said, singing from the same hymnal with respect to our knowledge of the subject area.

    We're going to have a little change in plans. What we're going to do now is there's some Committee business that we need to take care of. If we get through this, I don't think that's going to leave us much time for the subcommittee breakout session I. So what we're going to do is move that to this afternoon and sort of combine at 3:30 not only to continue your work on the statements of your priority issues but also look at those priority issues in terms of the impact of local competition issues that were discussed this morning and will be discussed this afternoon.

    Scott, I think you had --

    MR. MARSHALL: I did. Two brief items if I may. I would like to introduce Yanic Hardie who recently joined cgb and is our lawyer. She is assigned to this committee. Yanic, are you still here.

(No response.)

    She must have stepped out. At any rate, it's great to have her on the team. And this is the first time I've ever had a lawyer on retained and also the first time I never had to pay for one.

(Laughter.)

    And, secondly, I wanted to mention also that in your packets today you'll find an article that I just discovered like a day-and-a-half ago from the Kiplinger personal finance magazine. In fact, Karen Walls from TRAC sent me an e-mail about it. It profiles four consumer advocates. And one of those consumer advocates is our own Shirley Rooker. And she really was -- protested a lot when I came up with the idea of distributing a copy of it to you all, so I said I would take the blame. But it's a really, really nice article about her organization and her effectiveness as an advocate. Thanks.

    MS. WILLIAMS: The first matter of business is the minutes from the August 6th meeting in terms of approval. Are there are edits? Judy.

    MS. HARKINS: A very small one, but I was here.

    MS. WILLIAMS: Ah.

    MR. MARSHALL; That's very significant. Sorry about that, Judy.

    MR. HARKINS: That's okay.

    MS. WILLIAMS: Jim.

    MR. TOBIAS: Just as small, not only was I here but I'm not even listed as absent.

(Laughter.)

    MR. MARSHALL: Okay.

    UNIDENTIFIED SPEAKER: I want to say something.

(Laughter.)

    MS. AYLWARD: Actually, I don't have a change to the minutes, but I just wanted to make sure that there was something --

    MS. WILLIAMS: Rayna, talk into the mic, please.

    MR. AYLWARD: Are mics considered telecommunications issues?

(Laughter.)

    There we go. One point of the minutes that I hope we will carry over into our subsequent discussions was Commissioner Copps' recommendations that we stick to three or four issues each year in terms of our recommendations rather than a whole span of different kinds of topics.

    MS. WILLIAMS: Thank you. Are there any other changes, comments? Rich?

    MR. ELLIS: I was here as well.

    MS. WILLIAMS: Boy. Is there anyone else we missed?

(No response.)

    Okay. Could I get a motion to accept the minutes with the modifications?

    MR. TOBIAS: So moved.

    MS. WILLIAMS: Jim. All those in favor of approval of the minutes.

    ALL: Aye.

    MS. WILLIAMS: Any opposed?

(No response.)

    Abstaining?

(No response.)

    MS. AYLWARD: Second.

    MR. MARSHALL: That was Rayna seconding.

    So moved.

    One of the business matters that Shirley wanted to take care of today was to solicit volunteers to examine or recommend changes to the Advisory Committee's structure and operating guidelines. You may recall this was raised at the last Advisory Committee meeting. Shirley would like, rather than taking the time of the entire Advisory Committee to address this issue, she would like to have a small committee where they would review the guidelines and bring a proposal to the Advisory Committee for the next meeting.

    Do we have any volunteers? Rich. Kathleen.

    MR. MARSHALL: I'm sorry. Who was --

    MS. WILLIAMS: Rich Ellis, Kathleen O'Reilly.

    MR. MARSHALL: Okay. Susan Palmer.

    MS. WILLIAMS: Susan. Okay. Bob Seagalman. Okay. So I have Rich Ellis, Kathleen O'Reilly, Susan Palmer and Bob Seagalman and Jeff Kramer. Great. Okay.

    Is that David?

    MR. POEHLMAN: Yes.

    MS. WILLIAMS: That's David Poehlman. Okay. Thank you very much. I'm sure Shirley will be back in touch with you in terms of scheduling a meeting time and date.

    At this point -- I didn't think we were going to get through the committee business so quickly. If we want to -- if you want to break out into the subcommittee we at least have about 20 minutes -- 20 or 40 minutes. Let me ask Leo -- what happened to Ken? Susan? Excuse me. Susan Grant, I understand that you're going to be heading up the subcommittee in David's -- I mean, in Ken's place?

    MS. GRANT: Actually, I have to leave at 12:30, so I could do it if we do it now. If we do it later, I can't.

    MR. MARSHALL: Ken should be back.

    MS. WILLIAMS: Well, he should be back. Well, Leo, do you think your subcommittee could get work done in 20 minutes?

    MR. FITZSIMON: Yeah, I think we could in --

    MS. WILLIAMS: Okay.

    MR. FITZSIMON: -- and then --

    MS. WILLIAMS: Let's break out then in terms of subcommittees.

    MR. MARSHALL: Wait.

    MS. AYLWARD: Do we have -- one possible topic, not right now, but I thought it would be good if it was brought up at some point today is what happened during an emergency in terms of communications, specifically on September 11th. I have some anecdotal reports that some of the broadcast, the audio and TV broadcasts, were insufficient for people with disabilities in New York and that some people were actually totally unaware of the situation for many hours and that there was some breakdown in the communications network there. And I know that there were problems overall with some of the phone companies and the cell networks and whatever. And I just wonder if we can not discuss it now if that area will be touched on at any time today.

    MS. WILLIAMS: Well, we had that planned as part of the agenda, if there is time, for discussion at the end of the day that's something we can discuss. Let me ask you in terms of framing the issue, are you framing it in terms of the lack of telecommunications or the breakdown in the telecommunications infrastructure on September 11th?

    MS. AYLWARD: I think it's in terms of not so much analyzing what went wrong that would be part of the discussion, but in terms of planning forward because many of us in different agencies and in the private sector are now looking at emergency planning/crisis management. And there certainly needs to be some special considerations for people with sensory and mobility impairments, and that's framing it in terms of regulation versus competition. This is one area where I think it does need to be on the regulatory side because there's not a competitive interest or incentive to do that kind of planning.

    MR. MARSHALL: Could I make a comment. This is Scott Marshall. Rayna, I think this is certainly, as you know from reading the Chairman's Priorities, a concern of his is the homeland security issues and how the network -- all networks are operating during times of an emergency. I do believe, and I could be mistaken about this, that we have another advisory committee or task force established to look at emergency communication. There's many issues involved there, things like interoperability between fire and police, making sure they can talk on the same frequency and so forth.

    Maybe one thing we can do, and I can investigate some of this and get back to you, is make sure that that group -- and I'm fairly certain that we have it established -- make sure that that group does get some feedback on the disability aspects of the problem.

    MS. WILLIAMS: I do know that the FCC's part of an interagency task force that's been established by the administration on homeland security, and that they're looking at a multitude of issues in terms of telecommunications infrastructure, duplication of that infrastructure, whether it's, you know, wireless, wire line, cable, getting that information. And I assume that as part of that discussion will be the discussion individuals with disabilities, how do we get that emergency message to them.

    It's my understanding that all of this is coming under emergency preparedness. And, as Scott alluded, the Chairman has already -- if not, I know it's in the works that I've heard --

    MR. MARSHALL: It's in the priority statement.

    MS. WILLIAMS: -- in terms of a task force or advisory committee that's already addressing those issues.

    One of the things I think we could perhaps suggest to the Chairman is making sure that those issues are addressed at the task force and that advisory committee.

    MS. KIRSCH: If I could add, the FCC does have a task force under --

    MS. WILLIAMS: Karen, raise your hand because the mic is not going on.

    MS. KIRSCH: Hello. Testing, testing. Hello. The FCC does have a task force. As a matter of fact, Marsha MacBride, who is the FCC's Chief of Staff, is heading up that task force.

    MS. AYLWARD: That's fine with me as long as it's on the agenda to be discussed and being taken care of. Thank you.

    MS. WILLIAMS: Yes, Kathleen?

    MS. O'REILLY: There's one aspect that I suspect may not be part of the task force agenda. The Network Reliability Steering Committee had its quarterly meeting all day yesterday, and I'm the residential rate pay representative on that. And it's an industry group that the FCC have observers and so forth.

    Interestingly enough, even if you look at what happened on Howard Street in Baltimore, for those of us around here back in the summer, where for days and days and days there was no telephone service. That doesn't even rise to the level of being considered a quote, unquote outage for reporting purposes because it affected less than 30,000 customers. And so that doesn't even get on the radar screen.

    And the conclusion of the Network Reliability Steering Committee third quarter report is that there was no effect on 9-1-1 as a result of the World Trade Center effect because their explanation was that, you know, both buildings collapsed so there's nobody in the buildings to be calling 9-1-1 and that the industry volunteer effort they immediately set-up an emergency location so that with the use of wireless and so forth that this was not a problem.

    I'm in no position to evaluate whether that's the case or not, but I think that there's a whole Network Reliability Steering Committee framework that would be good to have -- interact with that because I think there's much that both entities can learn from each other. And to me it's just illustrative of the ludicrous standard we've had for years that if it doesn't affect 30,000 customers it didn't happen.

    MS. WILLIAMS: Well, it's my understanding that's being reevaluated under this whole homeland security task force. They're looking at everything, and one of them is the whole issue of the network reliability. So I anticipate that Marsha is going to be --

    MS. O'REILLY: Right. But if the emphasis remains on quote, unquote terrorism or national security, we will have missed the broader issue. And that is if the system breaks down for whatever purposes if even, you know, fewer people are affected, or I just downloaded the stuff from the FCC website just for the last three months because of the issue on 9-1-1.

    One outage in Dubuque, Iowa in July had 284,000 people unable to call 9-1-1 for 20 hours, and there are dozens of these examples every year, and it's for a lack of diversity which is an industry standard. But that isn't being addressed by any regulatory body in the country. And so that's an existing problem just on 9-1-1, a dark hole that existed way before the World Trade Center.

    And my concern is if the definitional focus and standard is too closely bound or narrowly bound to national security, we will have missed a huge source of the problem that has existed for years.

    MS. WILLIAMS: But it's my understanding that the Network Reliability Council will be making those recommendations to the FCC that that's an issue that is being resolved or at least addressed at the advisory committee or task force.

    MS. O'REILLY: They don't seem to know that. I was at their meeting all day. I mean, that wasn't even hinted at.

    MS. WILLIAMS: Well, --

    MS. O'REILLY: But I will talk to that Chair and see.

    MS. WILLIAMS: Yeah, yeah.

    MS. O'REILLY; Okay.

    MS. WILLIAMS: What I would suggest is that we perhaps write a letter to the Chairman in terms of making sure that these issues are addressed as Rayna pointed out in his new task force. Do I have a motion?

    UNIDENTIFIED SPEAKER: So moved.

    MS. BATTAT: I propose that a letter come from this committee to the new task force to ensure that the issues that we're concerned about be addressed, the disability and the number of -- I don't know to word this, Kathy -- and the number of outages or whatever that -- I mean --

    MS. O'REILLY: Would you entertain a friendly amendment? I would suggest that your motion embrace having the letter addressed to the Chair of the FCC and with copies to the other Commissioners and to the task force recommending that the issues with respect to reliability that include and go beyond national security be included and use several of the examples cited.

    MS. WILLIAMS: We have a motion that's been amended on the table. I need a second.

    MS. NIXON: I second it -- I second it.

    MS. WILLIAMS: Shelley, are you seconding?

    MS. O'REILLY: Yes.

    MS. NIXON: Yes.

    MS. WILLIAMS: Okay. Thank you.

    All those in favor say aye.

    ALL: Aye.

    MS. WILLIAMS: Opposed?

(No response.)

    Abstentions?

(No response.)

    Motion so carries.

    I will get with Shirley, and we will draft a letter from this committee with these issues in-mind.

    Now we only have 10 minutes.

    UNIDENTIFIED SPEAKER: -- more pointed discussions.

    MS. WILLIAMS: David? Kathleen?

    MR. POEHLMAN: This is Dave Poehlman of the American Council of the Blind again. We may take 10 minutes to discuss this, but I want to point out a landmark event occurred. Fox Broadcasting broadcasted the first, prime time ever commercial television audio-described motion picture. I won't name the motion picture. It also broadcast a background piece on the making of R2-D2. Whoops, I did say something about it, didn't I.

(Laughter.)

    The reason I raise this is not just to congratulate and applaud Fox and hope we see more of this but also to point out that several of the local affiliates did not carry the audio description on the separate audio channel. Some of it may have had to do with capability, some of it may have been due to somebody not flipping a switch. But the point is that it didn't happen.

    Now, how this falls into the current situation with regard to descriptive video service on commercial television, who knows. But I thought I would at least address the issue here and, you know, perhaps we can discuss it or move on to something else if you'd rather.

    MS. WILLIAMS: Let me ask you, David -- I'm a little perplexed in terms of what -- what are you putting on the table in terms of discussion with respect to descriptive audio?

    MR. POEHLMAN: I guess I could pose a question in that if audio description is available, what is the responsibility of the local affiliate with regard to carrying it? This was a national broadcast. It was available to any of the local affiliates. Consumers who are under the coverage area of those affiliates who had no choice other than those affiliates were denied the access to the available programming.

    MS. WILLIAMS: Larry.

    MR. GOLDBERG: Larry Goldberg. Clearly, we're very interested in this issue. We are looking at what rules there are under the must-carry -- cable must-carry rules because many of the breakdowns in Fox delivering the descriptions to consumers happen because of cable systems. We know that there are some circumstances when it was a broadcast problem as well. The video description mandate that the FCC has pending right now does have regulations that will require that, but that has not been enacted until next April.

    In the interim, I need to go back and study the must-carry rules for cable in any case in terms of passage, what's called pro rem-related information for people with disabilities. It's in the regs, so we're going to take a look at that. And there will be a lot more description on commercial broadcast and cable.

    You may know that Rugrats is presently described on Nickelodeon, and most consumers can't get it because of problems with cable. So, it's a big issue. I think we could take it up in our subcommittee.

    MS. WILLIAMS: Okay. Rich.

    MR. ELLIS: I'll eat up 30 seconds of our ten minutes or five minutes we have left just piggybacking on Rayna's comments. We at Verizon have got a lot of questions about the recovery efforts after September 11th, and we did prepare a CD-ROM of an employee report. So if anybody wants to get a copy of that, you can just kind of get a first-hand look at what happened in our central office and how it was fixed. I'd be happy to get that for you.

    MS. WILLIAMS: Thank you, Rich. Jim.

    MR. TOBIAS: Yeah. I wonder if this wouldn't be a good time -- and I don't mean to put Larry on the spot -- but we had identified that there was some interest in Larry who serves on the FCC's Technology Advisory Committee to present at least to the Disability Subcommittee but it might be valuable to the other members of the whole committee. So, again, I don't, you know, know what the time requirements are or how ready you are, Larry, but it seems like a good use of time right now.

    MS. WILLIAMS: What I --

    MR. GOLDBERG: It would only take a couple of minutes if you're interested.

    MS. WILLIAMS: Sure. Go ahead, Larry.

    MR. GOLDBERG: The FCC has established this -- let me get my notes here -- Technological Advisory Council. It's a different kind of set-up to advise the Commission on new and emerging technologies and issues that they need to understand that might be emerging over the horizon. This is now in its second phase of two years of existence.

    The membership of that Technological Advisory Council are very high-technology chief technology officers, CIO's of many companies. There's very little participation from consumers or non-profit organizations, but it has had a mandate to look at disabilities issues since it was established under Gregg Vanderheiden, who many of you know, to look at those issues.

    When the CAC was reestablished, first meeting June 13th, 2001, it looked at -- tried to establish a small collection of issues it wanted to take up in its next term. Those issues emerged as spectrum management, a great deal of concern to industry on interference in essence and how all the different kinds of uses of spectrum are being management.

    Optical networking, an area that was of interest due to incompatibility between different kinds of equipment. A great deal of optimism about optical networks being a wonderful boon to consumers but not being taken advantage of yet because of incompatibility problems.

    Access to telecommunications by persons with disabilities, and I was asked to chair that. And joining with me is Dr. Paul Leow of Panasonic, Gregg Vanderheiden, Doug Sicker, an academic and a corporate representative from Denver, and a couple other names I'm forgetting at the moment.

    And two more issues that were put on the agenda. Consumer and home networks. A very interesting issue for anyone in this group on how those networks are going to be built, how they're going to be interoperable, how they're going to have compatibility for residential systems and intelligent network gateways and appliances. These are issues that no one necessarily knows how or if the FCC should even take them up. But when the discussion is who owns the home network, is it your supplier, is it you and who can regulate it and who can maintain it.

    And the final issue was network security. It hasn't met yet, but it is very interested in the issues of robustness, integrity and confidentiality of communications. And I think in many ways that's now being taken up by those other groups that we were just talking about a couple of minutes ago.

    Just like our own subcommittee on disability access, we were asked to come up with some priorities on things that we wanted to study and recommend to the Commission. The four issues that in many ways touch on everything else and in many ways are just one big issue that came out of our Disability Access Working Group of the TAC was that we first and foremost wanted a mechanism to make sure that the disability access group interfaced with all the groups because disability issues touches every one of those other ones, so that as they make their recommendation we would have a chance to look at them and enhance them with certain caveats about disability access, especially the home networking one which is of vital interest to people with disabilities.

    The second one, since people were surprised that such things happened like closed captions don't reach the destination or video descriptions don't, we were asked to delineate how people with disabilities may be affected by lack of attention to accessible design in the other ares of study, and can we in some way put together a document red-flag because in many ways it all comes down to lack of awareness.

    A subset of that is could we create a list of features or functionality that need to be preserved or adequate replacements found as technology advances; that is don't leave behind what you've already accomplished and what can we do to remind people who are developing these new technologies that there are things they might just be forgetting and then to disseminate that quite widely.

    And the final one is determine how awareness can be raised regarding accessibility issues so that future technologies can be launched with accessibility built-in from the start. It seems to be the key issue for anyone working in this field is that we're always playing catch-up, things are always failing once they're already introduced into the marketplace. So we're trying to come up with some strategies using the bully pulpit of the FCC, if not their regulatory authority, to make sure the word does get out.

    We will be starting with a journal article being authored by a number of volunteers on the committee that will be taking off on a document that the previous committee was developing called Don't Regress When You Compress.

(Laughter.)

    The notion that as our analog technology has moved to digital, you might be leaving things behind. You might be causing problems with hearing aids or with closed-caption data. And we're looking to see if the FCC will help us get this published in a very high-profile manner in the kind of journal that would have research life to it not just published one day and forgotten the next.

    And those are the kind of awareness activities that this group wants to take up within the TAC.

    MS. WILLIAMS: Thank you, Larry. Are there any questions, comments for Larry?

(No response.)

    Why don't we break for lunch at this point. Let me remind you that Commissioner Abernathy will be joining us at lunch at about 10 after 12:00 so don't stray too far, and have good lunch.

(Whereupon, at 12:00 p.m., a luncheon recess was taken.) // // // // // //
AFTERNOON SESSION

(12:17 p.m.)

    MS. WILLIAMS: May I have everyone's attention. Commissioner Abernathy has just joined us. And I know that Dane is going to be introducing her. But we are very, very pleased to have her with us today, and I know she has some inspiring words for us as we deliberate today through -- in our meeting.

    Dane, I'm going to turn it over to you to introduce Commissioner Abernathy.

    MR. SNOWDEN: Thank you very much. Hope you all are enjoying your lunch. Thank you for allowing Commissioner Abernathy to come in at the lunch hour versus the beginning moments. She has rearranged her schedule to come join us today.

    As most of you know, Commissioner Abernathy was nominated May 1st, 2001 and confirmed May 25th, 2001, sworn-in on May 31st, 2001 to be a Commissioner here at the Commission. Before coming to the FCC, Commissioner Abernathy was Director for Government Affairs at Broadband Office. She was a partner in the Washington, D.C. law firm of Wilkinson, Barker & Norr, Vice President for Regulatory Affairs at U.S. West, also known as Qwest Communications, of course, and Vice President for Federal Regulatory at AirTouch Communications. She is probably not an unfamiliar face to many of you as she has been here at the Commission before as a legal advisor to FCC Commissioner Sherry Marshall and, of course, to Chairman James Quello.

    It is with pleasure that I introduce Commissioner Abernathy.

(Applause.)

    I forgot one thing. She has actually said that she would love to take some questions afterwards as well, and she's going to join us for a little while. So let me turn it over to Commissioner Abernathy now.

    COMMISSIONER ABERNATHY: Thanks, Dane. And thanks to everyone for letting me come by today and particularly this afternoon because I had hoped to come by this morning. I forgot it was my daughter's sixth birthday, not a good thing not to be there --

(Laughter.)

    -- in the morning. I know, really bad form on my part. However, I recovered nicely. Presents were given.

    But it's just been a whirlwind here, and so I think my remarks are probably more aspirational than inspirational. It goes more towards what I think we can be doing and how important I do believe this group is. So it is a tremendous pleasure for me to be here. This is my first one. I was out of town the last time, so I'm sorry I missed all of you. But I'm glad to be here today.

    As a public agency, I believe that it's critically important for the FCC to focus on our primary customer base and that is consumers. And that includes me and my family and my mother as she reminds me regularly when she calls to complain about what we're not doing right. This is not an easy task, and that is why the public/private partnerships I believe are an essential piece to ensuring consumers -- and that's all consumers, people with disabilities, underserved populations, those located in parts of the community that do not receive the best and greatest technology -- that we ensure that they're represented in the Commission's activity.

    So today I wanted to talk a little bit about what both sectors can do to ensure that consumer stay number one at the FCC. We're very fortunate to have Dane on-board, just so you know, heading up the Consumer Information Bureau. He's entirely, completely devoted to his job and devoting the resources to implementing all of our policies and projects, so I'm thrilled that we were able to lure him over to the high government salaries that we have, so.

(Laughter.)

    First, I want to emphasize the point that Congress has told us time and again that whenever possible the FCC should ensure that all people have access to telecommunications. And I think this message is particularly clear in section 255 of the Communications Act where Congress instructs providers of the actual services to ensure that their service is accessible to and usable by individuals with disabilities if readily achievable.

    I believe that my primary responsibility as an FCC Commissioner is to faithfully implement Congress' priorities such as this one. It's in the Act. It's what I should do. And I should focus on those goals and priorities as opposed to what I might think is a higher priority because I'm an appointed official; I'm not an elected official. And I have to look to Congress for guidance about what they believe is most important to their constituents, to the consumers.

    To this effect, this month the FCC released a notice of proposed rulemaking to explore whether it should require mobile phones to be compatible with hearing aids. This is a measure that should have been conducted years ago. And if you look at the Act, Congress directed the FCC to periodically review our exemptions to cell phone providers. But 12 years passed without such a review. It's timely now. We've seen tremendous advances and changes in the cell phone industry. I believe the cell phone industry is interested in exploring these issues themselves and being responsive to the community. I'm just disappointed that it took us such a long time to get here.

    Over the years, we've seen that wireless communications has continued to grow in importance, and it provides and essential means for connecting employees, friends and family members. But for many of the 28-million Americans with hearing loss, access to these new communications networks is sometimes denied.

    We have to remain vigilant, and this is very, very important that this not get lost in all of the other activities we have. We have to remain vigilant to ensure that, whenever possible, all consumers have access to telecommunications services. Furthermore, our outreach to the consumer population should extend beyond the simple rulemaking process. We have to make sure that we educate and empower consumers. This is what Dane's group does through fact sheets and information websites. We distribute information to the public, and, in addition, we're able to get feedback that helps us better prepare and respond to consumer needs.

    However, improving consumer's access to telecommunications is not a task that we should enter into by ourselves. We don't have the expertise. We don't have the capabilities to do it on our own. Organizations outside the government are critical to us in carrying out this mandate.

    I was reminded of this quite clearly early this month when I visited Pennsylvania's Initiative on Assistive Technology at Temple University. It's an amazing place. The staff is so dedicated. And it gave me a brand new appreciation of the importance of wireless communications to users of assistive technologies. More specifically, sometimes it's a life and death issue. And the ability to be able to communicate if the electronics go out in your van or if your wheelchair fails and you don't have an aide with you is critical. And so wireless offers -- can offer a new amount of freedom for many of these people who rely on assistive technology.

    As many of you know, it's also about informing people about the potential benefits of assistive technologies and in helping individuals choose what technology is right for them. And the institute that I visited is clearly dedicated to all of these activities, and we're going to be talking with them some more about ways to improve communications between the companies that manufacture the assistive technology devices and the companies that manufacture wireless devices because sometimes there's compatibility issues there that I think if they're addressed early-on in the process would be much less difficult than they are the back end.

    We have a lot to learn from each other. And I encourage you to reach out to all of us at the Commission. I applaud your efforts today, that all of you come here and spend time working with us. Shows just how important this is to you, and we should easily put in as much time probably more than you do. Please, in the future, feel free not only to contact the Consumer Information Bureau but my office and my staff. I have a website, and on the website are phone numbers for all of my staff members and my phone number as well as a web address. So let us know.

    The improvements in access to telecommunication it's an uphill climb, but we're making some progress. And we need your help. I do think together we can improve access for all Americans across the country. And I think that thanks to technological developments, the freedoms that can be given through communications technology to all consumers, both with and without disabilities, is phenomenal. And I know as a working mother who sometimes forgets things, I have found that my wireless phone is a critical part of my life.

    So thank you again for taking the time to come here today. Thanks for letting me address you, and I am happy to take any question if you have any.

(No response.)

    It's a quiet group.

    MS. WILLIAMS: I can't believe there are no questions especially from this group. Bob.

    COMMISSIONER ABERNATHY: Well, they're eating lunch.

    DR. SEGALMAN: You mentioned the --

    COMMISSIONER ABERNATHY: I'll repeat the question.

    DR. SEGALMAN: -- Pennsylvania Initiative. Did they tell you about Speech to Speech? That's the new telephone relay for people with speech disabilities. I can call a toll free number and reach an operator trained to understand difficult speech. She makes the phone call me for me and repeats what I say. It makes me independent on the telephone. I wanted to make sure you knew about Speech to Speech.

    COMMISSIONER ABERNATHY: I had just briefly been made aware of Speech to Speech, and I hadn't really understood how it worked. So thanks. That's another great opportunity that's out there. One of the other things that we talked a little bit about was some of the community hadn't appreciated that there are wireless phones that are speakerphones. And when you can't lift up the phone and hold to your ear, the speakerphones also provide just another tremendous freedom that you might not otherwise have.

    But I hadn't understood how the Speech to Speech works. So that's great. I'm glad that's out there too. Thank you.

    DR. SEGALMAN: Thank you.

    MS. WILLIAMS: Jim.

    MR. TOBIAS: Thanks for coming here today. And I'm sure I'm speaking for all of the members of the committee when I wish your daughter a happy birthday.

(Laughter.)

    One of the questions that not only has to do with the disability aspects but also the general aspects is the status of the internet or internet-based services with respect to Commission jurisdiction. Those of us in the Disability Subcommittee are very clear on the importance, the, you know, almost, life and death importance of guaranteeing that internet-based services are as accessible as possible. But we also do recognize that the history of the Commission's jurisdiction and industry pressure and other, you know, perfectly understandable reasons are holding the Commission back.

    Can you give us some idea of two things. Will the Commission in a relatively near timeframe come up with a firm decision about its jurisdiction, or is it possible that the Commission will establish some partial jurisdiction with respect to accessibility?

    COMMISSIONER ABERNATHY: Good question. And understand that I've -- you know, I haven't really talked to anyone else at the Commission about this, so this is just from my perspective and based on what I understand of the statute and our jurisdiction.

    I believe it's very, very difficult for us to assert jurisdiction over any piece of the internet. It doesn't fall within the statutory definitions as I understand them. So I guess the question is though, is there something based on the statutory obligations about disability access to new technology, does that somehow create some sort of other limited opportunity to deal with the disability access to the internet. And, frankly, I've never really thought about it, nor have I talked to anyone that's really focused on it.

    So I guess what I'll have to say at this point I'll have to look into it further. I hadn't really thought about it. I'd been focusing on the, you know, telcom and telcom devices. But appreciating that the internet is, you know -- talk about an ability to free you from the confines of wherever you are because all of a sudden you're able to communicate with the entire world. So, I get it. I just haven't really thought about whether or not there's a little niche opportunity for us there. But I will look into it further.

    MS. WILLIAMS: Brenda.

    MS. BATTAT: This is along the same lines and that is the relay service it is now possible to do it through the internet.

    COMMISSIONER ABERNATHY: Wow.

    MS. BATTAT: But it's being held up right now because of exactly -- it's up and running except the issue of how to fund it has to be resolved by the FCC. So that's something that we are sort of waiting on to find out what the response to that will be.

    COMMISSIONER ABERNATHY: Is there an ongoing proceeding based on how to fund this that's already pending here?

    MS. BATTAT: Yeah, I don't remember the number of it, but I --

    COMMISSIONER ABERNATHY: That's okay. I don't need the number. I can look.

    MS. BATTAT: -- okay. Yeah. So this is -- you know, this is something that we're interested to know what the outcome will be.

    COMMISSIONER ABERNATHY: Okay. What I will do is have someone from my office contact you, okay.

    MS. BATTAT: Okay.

    COMMISSIONER ABERNATHY: And then maybe you can make sure that it -- just to give you, at a minimum, a status update. And almost all proceedings are on some sort of timeframe, so I can find out, you know, is it planning on coming in the first quarter of next year, you know, where is it. Okay. Anything else?

(No response.)

    Well, thank you very much for -- oh, was there another one?

    MS. WILLIAMS: Is there another question?

(No response.)

    Thank you so much Commissioner Abernathy for joining us today.

    COMMISSIONER ABERNATHY: Thank you.

    MS. WILLIAMS: We appreciate your comments.

    COMMISSIONER ABERNATHY: Okay.

    MS. WILLIAMS: And we will be in touch.

    COMMISSIONER ABERNATHY: Thank you. Bye.

(Applause.)

(Whereupon, a recess was taken.)

    MS. WILLIAMS: We have a few housekeeping matters --

    UNIDENTIFIED SPEAKER: We can't hear you.

    MS. WILLIAMS: Can you hear me?

    MR. MARSHALL: Can we get the mic on?

    MS. WILLIAMS: I can talk loud. I have children.

(Laughter.)

    If I can yell over the Backstreet Boys, I can just -- just about anything.

    A few housekeeping matters. The transcriber has asked that when you get ready to speak please, one, use the mic, give them a few minutes -- a few seconds to turn the mic on.

    I'm sorry, I don't think this mic is working. Is it working now? Can you hear me? Can you hear me now? I was just saying the transcriber can't -- can you hear me on this -- the system doesn't like us. How about this? Can you hear me now? Okay, great.

    I was just saying that the transcriber has asked us to please when we get ready to speak to use the microphone, give them a few seconds to turn the mic on and indicate your name so that they can get the information. Okay.

    We are fortunate to have with us this afternoon, John Stanley, who is the Assistant Division Chief of the Policy and Program Planning Division of the Common Carrier Bureau. John, since May of 1999, he has served as Attorney Advisor in the Policy and Program Planning Division where he has worked on section 271 proceedings, telecommunication mergers and advanced service issues.

    If you look at your agenda, we've asked John if he could spend some time with us in terms of giving us the regulatory framework and the basics in terms of looking at local competition and long distance and local exchange competition just to give us a regulatory framework in which telecommunications companies have to deal with.

    John. There you go. I hope you don't have to -- can he use this mic? I don't want you to have to stand there the whole time.

    MR. STANLEY: First of all, before I get started, I'd like to apologize in advance for not staying to hear the rest of the panel. Even though I know it's a very distinguished panel. It should be very interesting. My excuse is my wife and I just had baby twin boys, and I have to get home.

(Laughter.)

    And I'm also sleep deprived, that's right.

(Laughter.)

    Some of you might ask, including my wife, what I'm doing here, why I'm not at home. I told my wife -- and this is the truth -- I made the commitment to be here. I really wanted to come and give this regulatory overview sketch for you all and also an opportunity to be on a panel as distinguished as this in a program that just looked to be excellent, today's program, I really wanted to participate. But, between you and me, I'm here for the break, so.

(Laughter.)

    And let me also give one more caveat before I get into just 15 minutes on the basic regulatory framework of local and long distance competition. There are a lot of things that the FCC does that relate to local and long distance service and local and long distance competition that I won't have a chance to mention. Hopefully, you can direct your questions to the panel. I know there's been a lot of other panels today. So please excuse my omissions, but I hope can give a useful overview in the time that I have.

    The regulatory framework when you're looking at the local telephone market and the long distance telephone market, it starts with the fundamental regulatory distinction between local and long distance service. This has been around since before 1984. Well, not before 1984. I'm sorry. Before 1984, the Bell system did everything, one-stop shopping, local and long distance shopping. There were some independent phone companies, but they also could do local and long distance service.

    I believe you heard this morning about the period between 1984 and 1996. There were protracted legal proceedings that eventually ended up splitting the Bell system into a local segment and a long distance segment and also dividing up the local companies into seven baby Bells. Today, there's four baby Bells left. There is SBC, Qwest, Verizon, Bell South, and there are still also independent local phone companies especially in some rural areas.

    So, where are we today? Well, the 1996 Act is still the fundamental guiding legal framework. It's the course charted by Congress. The FCC has been very busy implementing the '96 Act. Many of you might have seen this. This is a copy that a lot of us may have on our desks. This is some federal statutes that includes the '96 Act. In the scheme of things, it's not very big. The '96 Act is just part of this. The regulations that the FCC has been doing implementing the '96 Act I could not fit on my desk. Nobody could. Far more extensive.

    A lot of this work the FCC has been doing fleshing out the '96 Act has centered around three subjects. Some people have called it the competitive trilogy. There is access charges, reforming the system of access charges. Those are the system of payments between a local phone company and a long distance company when traffic is sent over long distance. There's universal service. That's the structure -- the financial structure with the goal of making local service affordable for all Americans, kind of balancing out the difference between some high cost and low cost areas.

    I'm not going to talk about those two legs of the so-called competitive trilogy. What I will talk about a little bit is the third leg of the trilogy, which is basically competition and the local competition orders that the FCC has done. So let's look at competition in the long distance market and competition in the local market.

    Competition in the long distance market is not something that was really changed by the 1996 Act. The long distance telephone market is for all intents and purposes a competitive market. There are no real barriers to entry. There's plenty of capacity. There's a lot of consumer choice, many different competitors offering service. And I haven't been looking at the prices, but my sense as a consumer is that prices have been stable or falling, and that's been good for consumers.

    What the FCC has focused on and what the '96 Act focuses on is competition in the local market. The local telephone companies, if it's a baby Bell or if its an independent local phone company, basically controls the bottleneck of facilities. Some people call this the last mile. It's the wires running down the streets and the wires running to everybody's homes. It's the switching equipment in their central offices in every -- every city has several central offices. Every town has a central office. So it's all of the facilities the last mile to the home. And these are controlled by the local phone companies.

    To make the monumental step of opening up this type of market, it required a shock to the system, and that's what the 1996 Act did. The two most important provisions of the '96 Act that shocked the system and enabled competitors to offer local phone service were section 251 and section 271. Section 251 imposes obligations on carriers, particularly on incumbent local exchange carriers. In other words, companies that were in-place in 1996, not the competitive carriers. It places obligations on these carriers that enables competitors to offer local phone service. And section 271 provides a special incentive for the baby Bells, and it enables the Bells to apply for permission to offer long distance service.

    First of all, section 251. It creates obligations for all carriers. All phone companies have a couple obligations in section 251. One of them is to interconnect directly or indirectly with the facilities of other telecommunications carriers and the obligation not to install network features or capabilities that do not comply with the Act. That's a basic obligation to have interoperable equipment. No company can go off and create their own exclusive system that can't connect with other carriers' systems. It's just a basic underpinning of a competitive market. That's the obligation on all carriers.

    There are obligations on all local exchange carriers including the new competitive carriers and the incumbent carriers. These obligations are to permit resale of their services; provide number portability; provide dialing parity; provide access to rights-of-way, phones, ducts, conduits, the telephone poles; and to establish reciprocal compensation arrangements. That's the very complicated system of who pays what to whom when traffic goes from carrier's system to another. So those are the obligations on all local exchange carriers.

    And then section 251 also has specific obligations on the incumbent local exchange carriers including the baby Bells. These obligations include the obligation to negotiate interconnection agreements in good faith, to provide interconnection to other phone companies, to allow the physical collocation of equipment in their -- the central offices in every city and town. The incumbent carrier has to allow competitors to come with a lot of conditions on it. They have to allow a competitor to place equipment in their central offices. And, finally, the obligation to provide access to so-called unbundled network elements at cost-based prices.

    Now, in that string of obligations, there are three major modes of entry for competitive carriers. Three main ways that Congress envisioned competitors getting into the local market. One of them is facilities-based entry. Any competitor can go lay their own facilities, start offering service. They still rely on section 251. The obligation of incumbent carriers to allow interconnection you can't lay your own facilities without being able to interconnect with some of the incumbent carriers' facilities. So that's an important obligation for even facilities-based carriers. There's interconnection. There's arbitrating interconnection agreement disputes. There's also collocation.

    The second mode of entry would be resale. All local exchange carriers have to allow competitors to resell services. That's something that a lot of carriers are doing across the country is reselling the baby Bells' phone service.

    And the final mode of entry is unbundled network elements. And let me just talk really briefly about the unbundled network elements. These are the piece parts of the -- you could call this the piece parts of the bottleneck facilities. Incumbent local exchange carriers have to allow access to their loops, which are the wires that run to the home, to the subloops, network interface devices that side on the side of everybody's house or in the basement of every apartment building, the switches, the interoffice transmission facilities, signaling networks, operations support systems and the high frequency portion of the loop.

    So these are the unbundled network elements that the FCC has identified, and incumbent local exchange carriers have to enable competitors to purchase these piece parts of their system at cost-based prices. The competitors can cobble together these unbundled network elements perhaps with some of their own facilities to offer service to businesses and to residential customers.

    So that's section 251. And these are obligations that are in-place today that Congress designed to enable local phone competition. How are these enforced?

    Well, these obligations these are enforced by state commissions, by the courts and mostly by the Federal Communications Commission through the complaint process.

    Section 271. Let me just say a couple things about section 271. Complying with section 251 is -- everybody would acknowledge is costly and difficult for incumbent carriers. Section 271 provides an added incentive. Section 271 -- well, remember that the baby Bells are prohibited from providing long distance services that originate in their territory. But section 271 allows them a way out. If they can demonstrate to the Commission -- to the FCC that they have sufficiently opened their networks to competition, then they're allowed into the long distance market. And this is done on a state-by-state basis by filing applications with the FCC.

    Congress identified a 14-point checklist. Fourteen different items that are pretty much based on section 251. They refer back to section 251. If the Bell company can prove that they have satisfied each of those 14 checklist items, they're allowed to offer long distance service in that state.

    To date, long distance authority has been granted to Verizon in New York, Massachusetts, Connecticut and Pennsylvania; to SBC in Texas, Kansas, Oklahoma, Missouri and Arkansas; and there are a couple applications that are now pending. I believe the only ones are Verizon's application in Rhode Island and Bell South's application in Georgia and Louisiana. This is a rolling process. The Bell companies set the timetable, and they decide when to apply for section 271 entry in the long distance market. But we're anticipating a lot more applications in the coming year. By the end of the year 2002, there very well may be additional states where a single consumer can purchase local service and long distance service from the Bell company.

    Just to sum up, here's just a couple numbers. Competition in local markets definitely has been increasing in recent years. As of December of 2000 - and I'm sorry it's about 11 months behind, but these are still good numbers. As of December 2000, competitive local companies provide service on about 16.4-million lines across the country. That's about 8.5 percent of the nation's lines. And that figure is just about double from the year before. In December of '99, competitive carriers provided service on about 8.3-million lines. I actually have no idea what the numbers are going to be for December of 2001, but I'll be very interested to find out.

    This level of competition as of December of last year, 60 percent of these competitive lines were provided to medium or large businesses, institution or governments compared to about 20 percent of the incumbent company's lines that go to those big customers. So you see there's definitely a trend of the competitive companies focusing a little bit more on the medium and large-size businesses. But the flip-side of that is 40 percent of the competitive lines are provided to either very small businesses or to individual consumers.

    And just another interesting number. One-third of all competitive carriers' lines are served over that competitive carriers own loops. Competitive carriers have been -- if you've driven through Washington, D.C. in the last couple of years you'll see where the trenches have been dug in the streets. There's definitely a lot of facilities deployment going on. So, as of December of last year, one-third of all CLEC lines were provided over their own loops.

    Just one more thing. What's next at the FCC? Well, Chairman Powell has said that we're now moving into Phase II of implementing the 1996 Act. Phase I was the initial implementation, getting ahead of the ball, trying to set the rules for competition. Now in phase II the FCC can take a look at what has worked, what has not and really focus on actual experience, what's actually going on in the marketplace.

    Chairman Powell identified three major proceedings that will be active in this phase II. One is performance measurement and enforcement proceeding, looking into the possibility of setting-up kind of national standard for how phone companies deal with each other. For example, when a Bell company provides an unbundled network element to a competitor, what's the quality of that loop, was it provided on a timely basis, is it more mistake-prone than the incumbent's own network So that's a proceeding that has just kicked off. It was an NPRM. It was notice of proposed rulemaking. So that's going to be going on in the very near future.

    The two other proceedings, the triennial review in which the FCC will evaluate its policy on unbundled network elements. And finally, a proceeding to look at how the FCC distinguishes between dominant and non-dominant carriers.

    That's the end of my introduction. Again, there's a lot of ground that I didn't cover, but I hope that's been a useful framework. And I hope you enjoy the panel coming up. Thanks very much.

(Applause.)

    MS. WILLIAMS: Thank you, John. I'm going to ask our panelists to come up to the dais. And while they're doing that, I'm going to introduce the moderator, Mr. Leithauser. For all of you -- I'm sure many of you know Tom Leithauser if not by face by name. He's a senior editor at Telecommunications Report which is another leading provider of telecom industry news and analysis since 1934. He is also the 2001 recipient of the Society of Professional Journalists Washington Newsletter Reporting award. And he provides occasional commentary to public radio's marketplace. And he was also previously a staff writer for the Orlando Sentinel. And, Tom, I'm going to turn it over to you in terms of introducing the next panel of speakers.

    MR. LEITHAUSER: Okay. Thank you for that introduction, and thanks everyone for attending this session on competition in the local exchange and long distance markets.

    I don't think anyone has to be told the competitors in the telecom sector have -- lots of them have gone out of business and others are struggling quite a bit. In fact, I heard a joke the other day that sort of illustrated that point.

    It seems a telecom executive was praying in his office, praying for divine intervention that would save his company. And God suddenly appeared before him, and the executive was somewhat taken aback but said, God, you're so powerful, I was wondering, what does a billion years mean to you. My child, God said, a billion years to me is like a second. God, the executive said, what does a billion dollars mean to you. A billion dollars is like a penny God replied. God, the executive asked, could I have a penny. Sure, God said, give me a second.

(Laughter.)

    So neither divine intervention nor anything else necessarily is going to swoop down and rescue the new entrants in the telecom industry.

    But with us today to explain how we got here and what might happen next is a distinguished panel of experts. First, on my right, is John Conroy, Vice President of Regulatory Matters for Verizon in Massachusetts, the second Verizon state to be granted long distance authorization by the FCC. He has a bachelor of arts degree in economics from Stonehill College and has almost 30 years of experience in the telecommunications business.

    Next is Allan Bausback, Director of the Office of Communications at the New York Public Service Commission. The Office of Communications has primary responsibilities for the regulation of telephone and cable TV utilities operating in New York. Mr. Bausback has a bachelor of science degree in electrical engineering from the Polytechnic Institute of Brooklyn and has been with the New York State Department of Public Service since 1965.

    Next on our panel is Mark Cooper, Director of Research for the Consumer Federation of America and President of Citizens Research, an independent consulting firm. Dr. Cooper holds as Ph.D. from Yale University and is a former Yale University and Fulbright Fellow. He has published numerous articles in trade and scholarly journals. As a consultant, Dr. Cooper has provided expert testimony in over 250 cases on behalf of people's councils, attorneys general and citizen intervenors before state public utility commissions in over three dozen jurisdictions.

    John Nakahata is a partner in the Washington law firm of Harris, Wiltshire & Grannis. His practice focuses on the development of competition in telecom markets and the convergence of communications technologies and services. He is also a co-chair of the Federal Communications Bar Association's FCC enforcement practice group. Mr. Nakahata spearheaded the creation of the CALLS plan, the first ever joint effort by local exchange and long distance carriers to reform telecom subsidy mechanisms and interstate access pricing. I should add, however, that Mr. Nakahata is not appearing today as a representative of the CALLS group. He formerly was Chief of Staff here at the FCC.

    Next is Carol Ann Bischoff, Executive Vice President and General Counsel for the Competitive Telecommunications Association. Based in Washington, CompTel is the premier trade association representing the interests of the competitive communications industry. Ms. Bischoff also served on the Rural Task Force to which she was appointed by former FCC Chairman William Kennard and the North American Numbering Council. Prior to joining CompTel in 1996, Ms. Bischoff served as Telecommunications Counsel to Senator Bob Kerry.

    I'm now going to ask our panelists to make some opening remarks, and then we'll engage in some questions and answers with them. Mr. Conroy.

    MR. CONROY: Sure. Thank you very much, and thank you for the opportunity to be here this afternoon. I've always enjoyed coming to Washington except in August. It's a little too hot for me in August.

(Laughter.)

    I do have a slide presentation. I'm not sure if it's going to work. But if we could put up the opening slide. How about that. I noted -- and this also keeps me off of the TV screen which is beneficial from my perspective.

    I noted in the material that I received for the meeting that the theme for today's Committee meeting is competition in the local exchange and long distance markets, has it worked for consumers. Well, let me not keep you in suspense. My view of the answer to that is a resounding yes.

    It is a fundamental in economics that competition in any market benefits consumers from a number of perspectives: price, quality, innovation, choice, just to name a few. That fundamental is no less valid in telecommunications, and you don't have to believe me. Let's just look at some of the results of some independent analyses. If we could put up the next side.

    The Telecommunications Research Action Center or TRAC has recently conducted three reviews analyzing the impact on consumers of increased competition in the telecommunications market. In New York, TRAC looked at competition 15 months after Verizon received approval to enter the long distance market. The study concluded that residence customers will save up to 284-million dollars a year after switching long distance companies and another 416-million dollars after switching from Verizon to another competitor for local service, although why anyone would switch from Verizon is beyond me.

(Laughter.)

    That equates to each customer saving between $84 and $324 per year.

    The second TRAC study concluded that in Florida, Illinois, Georgia and Pennsylvania, customers would save between 203-million and 730-million dollars in long distance charges and 304-million to 1.07-billion, yes that's with a B, in local service.

    And finally, TRAC's most recent study analyzing the benefits for consumers in California predicts long distance savings of between 89 and 354-million dollars a year and savings on local service of between 54 and 527-million dollars a year.

    It's clear that consumers get the benefits when telecommunications companies compete for their business. Now with that national look as a backdrop, I'd like to tell you a little bit about what's happening back home in Massachusetts.

    We received FCC approval to offer long distance in April of this year after a two years process at the state level. During that process, our state commission, the Massachusetts Department of Telecommunications and Energy took an exhaustive and sometimes, for those of us involved, an exhausting look at every aspect of our competitors' ability to serve customers. They found that the local market was indeed irreversibly open to competition.

    But let's go one step beyond that. The market is more than just open. It's hotly contested. And if we could put up the next slide you'll see that there are literally hundreds of telecommunications providers that are authorized to offer telecommunications services across the state. They include providers of long distance, resellers of local service, voice carriers, data carriers, competitive access providers and wireless providers. Some offer a full sweep of voice, data and internet services. Others are focused on just data. And these carriers are growing their capabilities and their market presence every day.

    Now, in all candor, most of our competitors began with a focus on business customers. Why? For the same reason that Willie Sutton robbed banks: that's where the money is. But from a business perspective that makes perfect sense. If you're going to enter a new business you go for the highest profit margins first and then you use your earnings to expand. But our experience in Massachusetts is that competitors are branching out from their business base and attracting more residential customers.

    The infrastructure that Verizon in Massachusetts has built to accommodate the growth of competitors is robust. Between 1998 and 1999 Verizon nearly doubled the number of facilities used by competitors to interconnect with our network. That growth continued in 2000 and as well so far in 2001. In fact, today competitive carriers have grown so much that their combined network is over half the size of Verizon's network in Massachusetts. Let me put that in perspective for you. In about a decade, competitors have created a network over half the size of Verizon's network that Verizon built in a century.

    Now let's take a closer look at what the market looks like with the next slide. When we filed our first application at the FCC in September of 2000, we estimated that competitors were serving about 731,000 lines in Massachusetts. In January of 2001, just four months later, competitors were serving over 850,000 lines through various forms of competition. By May of 2001, that had grown to 964,000 lines, an increase of over 30 percent in less than a year. And you can also see in this slide what's happening to Verizon's lines. And for those of you that are straining, in September of 2000 Verizon had 4.4 million lines, and in May of 2001 we had 4.2 million lines. We still have a lot of lines, but they're going down.

    As you know, our competitors have several options available to them. They can create their own network from the ground up and then just connect to Verizon. They can build part of a network and lease the remainder from us. Or they can simply resell our services with their own brand name. And competitors are using every way possible to serve customers in Massachusetts.

    In January 2001, the 54 resellers offering services in Massachusetts provided services to almost 270,000 lines. And while that's a large number, what is even more significant is that in every city and town in Massachusetts, there is a reseller providing service to a customer. And, in fact, across the state, in all of our central offices, over 80 percent of those central offices have ten more resellers actually providing service to customers in that central office. And the focus is not just large cities. In several of our smaller towns, resellers serve over 20 percent of the number of business lines served by Verizon. In several exchange, that figure exceeds 30 percent. With the capability under the Act to resell Verizon's services, resellers can reach any customer with any service offering that Verizon currently offers.

    Network-based competitors are serving customers as well. Between January and May of this year, the number of lines served by network-based competitors grew from 582,000 to 729,000 across the commonwealth. In fact, one competitor alone, AT&T, has a very broad reach in Massachusetts. AT&T broadband provides cable television service in municipalities covering over 86 percent of Verizon's business lines and 80 percent of our residence lines. So they have an excellent infrastructure in place. AT&T broadband is providing its own digital telephone service in municipalities where we have over 40 percent of our business lines and 30 percent of Verizon's total lines in the state. So clearly, they're putting that infrastructure to good use. And because they are packaging telephone service with cable service, they can focus and are focusing on residence customers.

    But competition isn't just coming from traditional sources. A consortium of business, cultural, academic and community leaders in the western part of Massachusetts has succeeded in attracting new players like Global Crossings which has teamed with a microwave provider to offer customers in the state's most rural county alternatives to Verizon's services. In February of 2000, the consortium known as Berkshire Connect chose a partnership of Global Crossings and Equal Access to establish a new facilities-based high-speed network.

    This partnership of community leaders and telecommunications providers is the first of its kind in the nation that we're aware of, one which creates a market by aggregating demand within a geographic area from many different customer groups. Berkshire Connect says that its members from Clarksburg to Sheffield, Massachusetts -- and there's 10 dollars waiting for someone who can point those towns on a map of Massachusetts -- can receive prices for high-speed access at rates that are up to 70 percent less than they were when Berkshire Connect was founded. With the success of Berkshire Connect, other consortiums are also being developed across the state.

    What does this all mean for consumers? It means lower prices. Since 1996, Verizon has lowered its rates for in-state long distance service for residence customers by over 45 percent. And our residence local measured service rates have decreased by over 30 percent.

    Competition also means innovation. While I'm not certainly not aware of every offering that is made by our competitors or every promotion they make, the competitors tariffs that are on file with our commission contain a range of offerings that are available throughout Massachusetts to both residence and business customers. Although some competitors focus on particular niche markets, such as high-speed services to business, many offer a full menu of telecommunication services.

    For example, AT&T offers both residence and business local exchange service. I spoke to Mike DelCASINO from AT&T earlier, and I'm going to ask him for a referral fee because I'm spending so much of my time advertising for AT&T. But AT&T residence offerings include a one line package for $26.95. And if we can put up the slide I can show you that. A two line combination package for $40.95. Each package provides the customer with additional features such as call waiting, speed calling and caller ID and is discounted even further if the customer subscribes to AT&T's cable service or their internet service.

    AT&T also offers a number of optional services such as voice mail and wide-area calling plans. This compares to relatively new Verizon packages that range in price from $23.95 to $52.95. AT&T business, local service offerings also package dial tone local and long distance usage.

    This is only a small example of competitors' offerings. If one were to review the tariffs or even pick up the Boston Globe, you will see the extent of competition in Massachusetts today. And Verizon is stepping up to the plate too, giving customers benefits that are a direct result of competition.

    For example, in Massachusetts and in New York, we recently unveiled our One Bill, which is exactly what it sounds like, one bill covering local telephone service, long distance service, internet access and wireless. And that was done for one main reason: that's what customers told us they wanted.

    These examples illustrate that the Act and its implementation by the FCC and the Massachusetts Department of Telecommunications and Energy have enabled competitors to enter the Massachusetts market with vigor. And they are active in both residence and business markets throughout the state. Our markets have attracted competitors who are giving Massachusetts customers increasing choices for the telecommunication services. Customers are saving millions of dollars as companies fight for the telecommunications business. As Massachusetts markets continue to mature, consumers will have an ever-increasing number of providers, technologies and services to meet their needs. Competition is working, and consumers are benefiting. Thank you.

(Applause.)

    MR. LEITHAUSER: I should -- I'm supposed to limit the opening statement to eight to ten minutes each, so --

    MR. CONROY: How'd I do?

    MR. LEITHAUSER: A little bit over.

    MR. CONROY: Sorry.

    MR. LEITHAUSER: I know Ms. Bischoff will want probably equal time with that.

(Laughter.)

    MR. BAUSBACK: I'd like to, you know, thank you for the opportunity to come here and share with you the experience we've had in New York state, you know, on the road to competition. And you were all nice enough to send a comprehensive list of interesting and quite lengthy questions. But I find the most interesting questions are the ones that lie between the lines of the questions that are on the papers.

    Like your first two questions are, you know, where are we down the road to competition and what obstacles are there. It sort of has a message that there's a perceived schedule for competition and that somehow obstacles have put us behind that schedule and that we're perhaps a little disappointed in it. The last two questions are what's the prognosis for competition in the future and do we need to change some legislation. Again, the message is that perhaps the prognosis isn't so good and that something's broken that needs to be fixed. And I'd like to address both of those issues.

    And before I get into where we are at in local service competition, I'd like to take just a minute or two to go back from a 50,000 foot type of view on our past experience in competition in a couple of other arenas, and maybe we can draw some parallels to where we are now and maybe put all of these issues that you might have been confronted with, might have heard about into some sort of perspective.

    One arena is called customer premises equipment; that's the phone in your house. They used to be under the complete control of the telephone companies, and now it's totally deregulated. Probably the opening round, at least the one I like to point to, happened in about 1950 in something called the Hush-A-Phone matter. It was some upstart competitor wanted to put a little plastic cup over a telephone so that you could hear in noisy conditions, and, of course, that was quite illegal. You know, that was under the sole purview of the telephone companies. That eventually went to the U.S. Court of Appeals, and they won the right to do so.

    Next decade, there was another landmark decision called Carter Phone where networks could get interconnected although through acoustic coupling devices. And then, in 1976 we were allowed to actually buy your own phones and hook them to the network directly. And by 1984 everything had been, with the divestiture of the Bell system, it all had been deregulated. So go back. It's the fifties, sixties, seventies, half of the eighties, 35 years from start to finish.

    Another arena was long distance service and probably the starting point, at least the one I would refer to is something called the FCC's above 890 decision in 1959 where private customers could actually build their own networks without having the telephone companies do it. And a decade later, MCI came along and was allowed to actually provide these private networks for unrelated customers. And, another 10 years later, MCI was allowed to provide everyday toll service. And, in 1984, there was the divestiture of the Bell system and competition in the interexchange market became a little more robust. And by the mid-nineties, the FCC had declared all of the carriers to be non-dominant. AT&T no longer had a dominant stature.

    So, counting back again, we have the sixties, seventies, eighties and half of the nineties. Again, 35 years from start to finish.

    Now we're in local service competition, and I like to point the beginning date of that as 1985. That's when cellular telephone was emerging. That's when local service resale first appeared at least in New York state. And that's when some outfits, most notably one called Teleport started constructing facilities in the local arena. Now we're at about almost 2002. Let's see, that's 17 years later. Looking in the past, that would put us about halfway there in local service competition. So let's be a little realistic. You know, the thoughts that we're supposed to be all the way there and something's wrong and it's not working are just not in-line with, you know, realistic expectations.

    As far as obstacles, we could use those same, you know -- same examples over the years to point out some events that actually have some application today in the arena of local service competition. And looking down from the 50,000 foot level maybe you can see some similarities -- and if you can't I'll certainly point them out to you -- that you can use to put issues that are, you know, thrown at you from time to time in some sort of a context.

    The road to competition wasn't a team effort by any means. There were proponents for competition and opponents of it. And, obviously, the opponents would do everything to delay it, and the proponents would do everything to accelerate it. And there's nothing wrong with an opponent opposing it. And, obviously, the incumbent telephone companies were not too enthralled with competition, and they still aren't. There's nothing wrong with, you know, them taking positions that would retard. But probably what would be wrong is for the opponents not to see the real, you know, essence of the issues and know what they are when they come along.

    Most of the issues thrown out in the early years in the consumer -- in the customer premises equipment was it's going to damage universal service, it's going to, you know, increase local service rates, it's going to degrade service quality, and actually it was going to threaten health and safety over -- you know, over that period of time.

    In the interexchange arena we saw the same kinds of things: that it would increase local service rates; it will result in D-average toll rates -- that was something that, you know, got regulators all uptight; and it would maybe even cause the loss of toll services in rural areas as competitors would just choose the more profitable routes to, you know, provide it.

    And during that period of time in the seventies when both terminal equipment or customer-premises equipment and the interexchange market was rolling along, there was a push for legislation. It was called the 1976 Consumer Communications Reform Act and also called the Bell Bill. It was really the Bell system's last effort to put competition to rest and have a national policy that there be one provider and that, of course, the one provider be the incumbent telephone companies. That bill failed, and after that everything came unraveled.

    Now we're in the local service arena, and, you know, what kind of issues have come up there. In the early years, in the mid-eighties, again it was universal service, things called cream-skimming, competitors are just going to come in and take the profitable customers away and the unprofitable ones are going to experience rate increases. There were other contentions of I guess loss of service in the, you know, rural areas once again.

    The emphasis shifted into a new type of mode of battling against the, you know, growth of competition. And it's one that I would call -- what I call the Music Man gambit. If you remember the play Music Man, Robert Preston comes to town and River City needs a boys band and convinces everyone it does and, of course, sells them the equipment. In around the late eighties, early nineties it was you need a fiber network, and have I got the provider for you to do it, and why not form what we can call a social compact between the regulators and the then incumbents to bring this about. It was a state-by-state effort. And in New York state it was a big issue and finally rejected by our state. Pick no winners, pick no losers, let's use the competitive market to, you know, do that work.

    So the issues more or less died away. Of course, having a compact between regulators and the monopolies means there's really no room for competition. In fact, now the government would have to ensure that the monopoly would be fiscally solvent so that they could provide all these wondrous things they promised. That sort of went away, or I should say it went into remission because I think it's back.

    If you look carefully at some of the issues and they're not all packaged very, you know, clearly, but right now we have legislation that's knocking around, still hasn't gotten out on the floor that would more or less accomplish the same thing. It would alleviate the existing companies from the requirements of the Act to open their networks. It would, you know, allow them to construct inter-LATA facilities without opening the networks to competition. And it would tend to protect those facilities from any kind of, you know, competitive inroads.

    Getting to where we were in New York so far. Before the Act, we had determined that resale of the incumbent companies' facilities, either through resale of the services directly or for access to what we call network elements, bits and pieces of the, you know, incumbent companies' networks so that a competitor could use those to supplement its own facilities, it was of paramount importance for the development of competition. And we pursued and finally it got implemented starting in 1989 and finishing in 1991 something we call collocation, and that would be interconnection points of competitors at the company's local central offices where they could gain access to these critical network elements.

    We also determined that in order to have an effective use of these elements and resale of facilities that companies would need to have a commercial, volume-ready method of actually providing them to competitors. This later became known as operational support systems. And in about 1995, the PSC had ordered New York Telephone to implement such a system that would allow electronic access and ease of ordering by competitors by the end of '96.

    And then along came the Telecom Act of '96. The Telecom Act of '96 codified everything that was going on at the state level including New York and other states and filled-in all the blanks that were missing and made it the law of the land that there shall be competition, provided some framework of exactly how all these things, you know, should play out.

    But that automated ordering system was the -- you know, still the thing that was probably responsible. In New York it was responsible for the time it took from 1996 until the time that New York Telephone Company now called Verizon New York received approval to get into the long distance business which was in the beginning of the year 2000. It took about four years. And it's that -- you know, that system that was the most critical or is the critical path to that.

    Since that period of time, which is just really, oh, about a year-and-a-half now that -- well, a little more than that -- that competitors could actually, you know, have a robust entry means into the market. The penetration grew to about -- it's between 25 and 30 percent right now overall, and it's over 20 percent even in the residential market. The lion's share of that penetration comes through the use of what we call unbundled network elements, either in bits and pieces or in combinations. About a third of the -- or a quarter, maybe just 25 percent of that penetration comes from what you might call complete facilities-based competition. In other words, competitors that are providing those lines through their, you know, own constructed networks.

    Over the course of this year, the growth has declined considerably. And it's obvious why. We're in a -- if you hadn't heard there were rumors. But I think the government made it official we're in a recession, and most of the competitors are in financial trouble. They're on the brink. They can't raise capital. Many of them had extended themselves, you know, deeply to gain the entry that they have so far. So we're on this balancing mode. We're in neutral. We're coasting. Let's see if we can get through it.

    It also provides a great opportunity to those who would like to see competition go away to increase the pressure on the competitors. Maybe now is the time to do them in now that they're half down and out.

    So that's the, you know, the issue of the day, and you'll see that coming in different packages: don't make us open the market; America would be better off if we were, you know, allowed to do certain things that were prohibited now without opening the market; what's all this fuss about resale anyway, why can't we just do away with that, what we really want is real full facilities-based competition and resale is just standing in the way. You'll see those issues, you know, coming along.

    And I just, you know, would like to leave you with the -- you know, with the view that when you hear all these things, take that 50,000 foot step back and see, you know, how that would fit into the model of is this just another, you know, ploy of opposition or is this something good.

    I guess in summary I think we're right on target. Unfortunately, we're in a little bit of a recess because of the financial condition as far as the growth of local service competition. And I don't think anything's broke, and I'd be very hesitant to engage in any kind of fixing right now. Thank you.

(Applause.)

    DR. COOPER: As someone who has participated in every federal proceeding on 271 except for one and a number of the major states beginning, middle and end; I was an expert witness for the Oklahoma Attorney General in the first round in Oklahoma -- I think it took three or four in Oklahoma -- and I participated in the collaboratives in New York, California and Texas, the interesting question of has it worked for consumers, the answer seems to me to be it has worked for consumers where regulators make it work, and that's the fundamental lesson of opening a monopoly is that you simply cannot assume the market. You have to make the market work. And that may sound strange, but I think that's the lesson.

    And it's a lesson that -- it's interesting that the Chairman of the Texas Public Utility Commission, Pat Wood, who is now the chairman of the Federal Energy Regulatory Commission, when he was nominated for that job he said on their best day regulators cannot deliver benefits to consumers as well as a functioning market can. But he added, but we have to make sure the market works. And so that's what distinguishes him, as I like to say, as a Republican regulator, someone who believes in markets but also recognizes that you have to create the conditions to make markets work.

    And if you get a chance, you should look at the things he's done over at the Federal Energy Regulatory Commission. He has definitely told a lot of big players who simply said let us free that, no, we have to make sure the market works first.

    And I remember a day in the Texas collaborative. We sat there for six days in the heat of the end of June and it was a Saturday afternoon and we finally got to section 272, which is the one that comes after 271, and we were debating the affiliates of SBC and the head of the long distance affiliate said, well, our headquarters is in St. Louis and the general counsel stood up and says, no, no, no, our headquarters is in San Antonio. And Chairman Wood couldn't believe that after six days of the Texas heat they couldn't decide where their headquarters was of their long distance affiliate.

    Subsequently, the Commission come out with 129 things that they said SBC would have to do before the Commission would let them get in. And SBC shot back 117 of those are not on the table. And the Commission came back and said 129 or you don't get in. And two years later, they finally got in.

    A similar process went on in New York, and we participated there. And as you've heard today, New York is the success story far and away. Fully a quarter of the residential customers between a fifth and a quarter have changed their phone companies in New York. And some people say, well, it's only a quarter. And my answer is that compared to the rest of the country where it's at most a twentieth, maybe a fifteenth, a quarter is an awful lot. And it turns out in New York, that much switching gets you a lot of benefits.

    So how did we get there in New York. We got there in New York in a simple fashion. Bell Atlantic, at the time, was told, or maybe it was NYNEX at the time. It was one of those companies. They change their names every six months. But one of those companies was told they simply would not be allowed in until they did it right. And it's a great personal -- I take great personal pride in the fact that when the people talking about it in New York finally decided that they thought they got it right, my name was listed on the bottom of the press release from the Public Utility Commission in New York saying if you want to ask people about the pre-filing statement go ahead and call Cooper because he's been involved in this process. We thought we got it right in New York, and by God we did.

    Unfortunately, there are 46 other places where we're nowhere near what we did in New York. So regulators have to keep on working hard if we're going to get those benefits. And how do we get those benefits? There are four things you have to do.

    You have to have a fair price for using the piece parts of the network. Nobody can build a ubiquitous competing network that took a hundred years to build that rests on right-of-way and a variety of other things. So we're going to have to share parts of the network. And if the prices are not right, you will not get competition.

    Because this is an interconnected network, of necessity we have to treat people fairly in handling orders, in handing people off between one another. We call that OSS. Congress had the foresight to talk about parity, which is a pretty strong term. Parity says you have to treat me similarly, equally, almost the same. And the companies have had difficult doing that.

    We need to have fair business practices, and we've developed some very nasty winback programs where 20 minutes after you tell your phone company you want to switch, somebody calls you and beats you on the head about it. Most businesses don't work that way. It's tough to compete when somebody has the advantage of when to countermarket.

    And we also have to let people have access to all of the product. If you cut-off the DSL service and say, you competitors only get a chance to share the network for the old, slow stuff, they're not going to be there because everybody wants to sell everything. And if you can't sell the package, it won't work.

    So we believe you have to do those four things. And, as I say, there are very few places in this country where regulators are actually holding the feed of the incumbent to the fire to get those conditions in-place.

    The interesting thing is is you step back and ask yourself how did we get into this mess, why it didn't go faster, well, some would say it was a mistake to think it could go faster. On the other hand, we think there were key policy decisions made that created a severe problem.

    The single most important policy decision was made by the incumbent telephone companies. And it was clearly a self-interested decision in which they said we will not allow any competitors to use our legacy support systems, that is the existing computerized electronic systems that we use to handle customers, nobody is allowed to have access to it; that is, they can't come in the front door. And the FCC accepted that decision for a bunch of bad reasons, but they accepted it. And the incumbents said, we'll build a back door for the competitors to come into. The problem was the back door had to work as well as the front door.

    That single decision has been the five years of developing a second set of operating support systems that will treat competitors fairly. But that's critical. And the critical aspect of that is performance; are they treating these people at parity? And when you sit in New York and you arm wrestle over a performance assurance plan that will actually make sure your back door work as good as your front door, it's a long, hard process. But it's worth it because if you don't go through that process then the competitors won't be treated fairly and they will not be able to attract the business.

    And so we are now at a critical moment where we have some people coming forward with weak tests and weak performance plans saying, well, we look just like New York. But they don't. They haven't tested their systems. They haven't built-in penalties that will elicit behavioral responses that will keep these markets open.

    And the Commission is now about to start thinking about that. And if it makes another mistake, it probably should have required access to legacy systems. If it now turns around and says, and you know what, we won't even require the back doors to be as open as the front doors, these folks will go away. So you really do have to open this market.

    The great tragedy of the first six years of implementation of the Telecom Act is that regulators let the competitors down. They raised billions of dollars in the belief that regulators would open this market quickly. And with a couple of exceptions, the regulators have failed to insist that the Bells provide fair pricing, parity for support, decent business practices and access to DSL. And so they have spent their billions of dollars beating their heads against regulatory obstacles. And so regulators bear a significant responsibility for not doing the job that Pat Wood did in Texas and has described at the Federal Energy Regulatory Commission. You have to make markets work when you are opening hundred year old monopolies.

    If you do -- and I actually generally agree with the TRAC numbers. Actually, some of those numbers are our numbers, and I think we developed the original methodology. But I disagree with their analyses on one and only one point. They take New York and say, it will happen in the other states. But they forget to say regulators have to make it happen.

    And so, the companies in those states pick these numbers up and say, see, it worked in New York, let us in and it will work here. If you don't set the conditions beforehand, the competitors will not come. If you lose money every time you win a customer, that's not much of a business model. And so they won't come unless you give them fair prices and fair treatment. And if you do, we believe that this is a model that can work, and we take New York as the example of how it has worked. Unfortunately, there's not too many other places that have gotten to that level. Thank you.

(Applause.)

    MR. NAKAHATA: It's always fun to go after Mark. He's always so lively.

    Thanks for inviting me to join you here today. I wanted you to know at the beginning part of the reason why I asked that I be explicitly identified as not being here representing the CLLS coalition is because that was a very narrow coalition in terms of what it addressed. And most of my practice is involved in representing non-incumbents. And so, I wouldn't want my remarks to be in any way attributed to the members of that coalition. And so, that's why I asked that I just be identified as myself for today.

    I think it's worth as everybody else does -- I don't know that I'm actually going to disagree with the fundamental message you've heard at all here which is that competition works. And I think if you're looking at what has been the effect of the '96 Act, I mean it's good to take a step back and let's look at some of the numbers here.

    We've had new products introduced like high-speed internet access. You know, as of last year that was seven-million lines, 5.2-million for residence and small business. That's a new product that didn't exist in 1995. And those -- the pack of networks that are supplying that are going to be alternatives ultimately to the circuit-switched networks that we have deployed out there today.

    The second -- a second key benefit has got to be wireless. In 1995, there were 28-million wireless subscribers. Today that's 130-million. In between then and now we've seen one rate plans develop. Wireless substitution is a real marketplace phenomenon. Wireless is being used for long distance service by a lot of consumers.

    Third, traditional long distance. Those rates have continued to fall quite dramatically. The consumer price index for long distance service has fallen every year since 1996, and there have been very sharp drops both for interstate and intrastate long distance.

    Choices are available. Before I came here today, I went on the internet on Yahoo and typed in the words "long distance", got to a rate calculator that showed me I could sign up for a plan that was as low as 2.9 cents a minute for interstate traffic with no monthly minimums. I just had to sign-up with my credit card. You know, those are offerings that didn't exist in 1995 and wouldn't have existed without what we've gone through since 1995.

    The other big change that you see in the long distance market is that the number two -- if you look at the FCC's statistics, the number two provider of long distance service in the United States is a company called "other."

(Laughter.)

    What we've seen is tremendous growth in small long distance carriers that are the ones offering some of these tremendous deals. That makes it really important for consumers to go shop around for their service.

    The downside that is there is that a lot of these small carriers that have these aggressive price plans don't serve rural areas in part because that's how they get the cost advantage that gets them to be able to offer 2.9 cents or 4.9 cents a minute. The larger carriers have to average their rates.

    So, you know, that is -- but that is something that we've seen develop since 1996.

    Last and what this panel's obviously focused most on has been local competition. You know, I don't think anybody would say that we'd be -- if we were sitting here in 2001, almost six years after the Telcom Act, that we'd be, you know, happy with the level of local competition that we see today. But there's clearly, you know, as I think you've heard from everybody here signs of good hope. You know, local competition does work. It does deliver better value for consumers.

    One example I'd use that is probably one of the most competitive markets in the country is actually not New York City but Anchorage, Alaska where CLECs have 45 percent share of the market. In Anchorage, Alaska, the price of the most commonly purchased local service, which includes the local service and some of the more common popular vertical features, has dropped 30 percent as a result of the entry of competition.

    So competition does work to deliver value for consumers in the markets where it happens. And we've seen competition growing, as everybody else has said, around the country as markets are opened up, and, as Mark said, in the areas particularly where regulators have taken the steps to open up the market.

    That much being said, it's hard to say that the future is all bright. The capital drought that we have and that will probably persist for the foreseeable future means we aren't going to see the alternative new facilities networks being built for the mass markets as you think you might have heard people say that were going to be built if we'd had this conversation 18 months ago. People who are going to build alternative networks to the cable networks and to the wire line telephone networks have pretty much gone by the wayside in the last 18 months.

    And cable telephony roll-out, while it's certainly occurring in some areas, it is in a go-slow mode in many others, particularly if it's a company that's not AT&T that's trying to roll-out the service. And so that, I think, is, you know -- it's a caution sign.

    You know, interestingly, as other panelists have said, one of the key things that has to be out there is you have to have the tools to enter the market. And it's interesting that, well, at the end of last year there were probably about just under seven-million residential and small business lines being served by CLECs. That number is sure to have grown this year. But a huge amount of those lines are being served by the combination of all network elements called the UNE platform, probably over five-million if you take the six states with the most UNE platform lines. So that tells you that while there's competition and choice of merging, it's still in a fairly nascent and early stage. And that competition and choice is not necessarily available everywhere.

    Issues that I think we have to look at as we go ahead looking forward in terms of making the Act continue to work better for consumers. No doubt competition and maintaining the conditions for local competition are top of the list. Provisioning systems did take a long time to build and obviously have been an important part of having local competition.

    There's no question that -- well, let me step back. The second point I think I'd say is that for rural long distance customer, until we straighten out our system of toll averaging for long distance rates and rationalize the subsidy systems there, we're not going to see rural areas, rural America having the same types of choice in long distance plans as you see in urban areas. The economics won't allow it. That's unfortunate. So it means it's a job that the FCC has to step up to. Unfortunately, they didn't earlier this year.

    Third point I think I'd say is that we have to expect that the products and offerings that we're going to get are going to continue to change. I mean, we've seen some change in the retail products and the packages that consumers get offered over the last several years. But I think there's going to have to be more. We started out with a system of retail pricing that had very little to do with market economics. And as that system gets -- has to be sort of realigned, ultimately there's going to be more realignment of the retail pricing system. That's not bad. I think what we'll see is that it will open the door to other types of creative packages

    You know, in the wireless market where these types of legacies didn't exist, we've seen tremendous growth in popular one rate package plans where you buy buckets of minutes, local and long distance, and, you know -- while I don't think that necessarily you can apply that model fully to local, the idea that you would buying a combination of local and some bucket of long distance minutes probably is something that we will see as the markets continue to develop. But to do that, we're going to -- I mean, we're going to have to tolerate the fact that marketplace is going to be changing. The types of telephone offerings that we get are going to continue to be evolving.

    That puts a premium, a real premium on consumer education. And if you don't go -- know to go on the web and look for the tremendous long distance deals, you're not going to find them. We have to do a better job of educating consumers to be smart shoppers. It shouldn't be hard to do that, but it's going to take effort. You know, there's nothing harder in this country than probably buying a car with all the options and features that go into that, but everybody learns how to do it and everybody does it. And I don't think that it's going to be as hard to buy a telephone service as it is to buy a car, but we do have to get out of the mode that, well, you just go one place and that's it. You've got to go shop for it like everything else.

    I guess the last point that I'm going to plug is that, you know, we do have to do a better job of educating the world about the Lifeline offerings that are there to help support service for low income consumers. And if the members of this committee, and especially for this committee, if you haven't done so, you should go to the website, www.lifelinesupport.org, which is a website that was put together by the U.S. Telephone Association. It is part of an effort to do consumer education and outreach on lifeline.

    It's a tremendous resource because what it does is you can click on your telephone company in your state and get the Lifeline offering for that company. Lifeline is so complicated and so different from state to state and, in some cases, even from carrier to carrier within a state that it's almost impossible to do education over. So in terms of helping improve people's awareness of Lifeline, I urge you to take advantage of that resource.

    So I think the overall assessment, I'd say, is, you know the '96 Act is working, competition clearly works. We need to continue to allow it and to make it work, and that's going to require effort and time, but it will ultimately deliver us good consumer benefits.

    
(Applause.)

    MS. BISCHOFF: Good afternoon. I also have a slide presentation, if it could be put up on the screen now. I've distributed -- my colleague has distributed copies to everyone.

    Good afternoon, and thank you so very much for inviting me to speak with you today. It truly is a privilege and an honor. And I just wanted to tell you a little bit about my personal background with the 1996 Act. As was stated, I was Telecommunications Counsel to Senator Bob Kerry of Nebraska. As a result of that, I had firsthand experience over a three-year period with the debate that led to ultimate passage of the '96 Act. I was one of the very first staffers who worked on the e-rate which hooks up schools and libraries to the internet and which also provides telemedicine to rural healthcare facilities. I was part of the original Senate Farm Team staff of six who were concerned about affordability of rates in rural America, and, as was stated, I served on the rural task force. I also met my husband through the process. He was counsel for the House Commerce Committee, and he likes to say that our marriage is probably the only part of the '96 Act that is not in litigation.

(Laughter.)

    A little bit about CompTel if my slides could be put up, please. For those of you who don't know, CompTel is a 20 year old trade association. We participate in every venue where important communications and issues about competition are considered. Our members, some of which fall in the other category really are those who battled AT&T 20 years ago in order to break down the barriers for long distance competition.

    Next slide. We participate in a number of forums as you can see just to give you some idea of the breadth of our representation.

    Page four, please. Next slide. Basically, our mission is to advocate for competitive communications providers on the key policy and regulatory issues of concern whether local, national or international, and I'd like to speak just a little bit about that today at one point in my presentation.

    Next slide, please. We are focused on ensuring that competition extends to every corner of the market, particularly local access which is why we're so happy to be invited to speak with you and to join the panel today.

    Next slide. To give you an idea of our members because some of you may be familiar with CompTel as representing the smaller long distance carrier. Our membership today really has evolved to over 300 companies, and we really represent the gamut of competitive providers: CLECs and ICPs, long-haul broadband, international, internet and the energy companies, many of whom as you may know are getting interested in entering the telecom services market and who could provide a competitive choice to consumers.

    Next slide, please. Basically our view is that more competition means more technological innovation. Since the divestiture of AT&T, as you know, U.S. consumers have benefited from the most robust competitive, long-haul and data transport network in the world. And, in addition to AT&T, WorldCom and Sprint, which are household names, CompTel members include Broadwing Cable and Wireless, Global Crossing, Level 3, Williams. These carriers are building the next generation networks that are providing the packetized services that Mr. Nakahata referred to in his presentation.

    Next slide, please. It's been shown that competitive long distance and long-haul products benefit U.S. consumers in a variety of ways. And those are not only because they provide service and price competition. There are ramifications as a result of America's competitive telecom environment for increased business productivity. For example, since passage of the '96 Act, telecommuting has increased dramatically. Lower telecommunications prices enables U.S. businesses to have lower costs for the goods and services that they produce. And finally, at least historically, the telecom sector really provided for jobs growth. As was noted, the economic climate is somewhat different now and so conversely it has been shown that reductions in the telecom workforce disproportionately hurt the economy.

    Next slide, please. In addition to the benefits on long distance competition and many of the rates and plans have been discussed by the previous panelists here, American consumers today are seeing increased competition for international services. And at least some of the folks on the council remember when placing an international call was a big deal. I mean, some on the panel might remember when making a long distance call domestically was something that you did on Sunday nights and then only after 5:00 and then only for three minutes. But since 1996, the FCC's International Bureau Telecommunications Division has reported that average international consumer prices have fallen 31 percent and the call volume and capacity is increasing as well.

    Next slide, please. So how did we get to the '96 Act? My former boss, Bob Kerry, used to say, Carol Ann, you know, when I go home for town meetings, people talk to me about the Farm Bill, they talk to me about the economy, they never talk to me about inter-LATA relief. But he was a pioneer in telecom from his days of being the governor in Nebraska and saw it as a tool for economic growth. And so, he understood what many in Congress later did, and that is that while the consumer price index in this country had risen 73 percent since 1984, which is around the divestiture of AT&T, and while during the same period long distance prices had dropped by 34 percent, local service, which was still a monopoly service, actually had increased 70.2 percent. And so, the '96 Act was intended to address this very issue, the lack of competition in the local market. Members of Congress wanted consumers who were familiar with the benefits of long distance competition to experience them in the local market as well.

    Next slide, please. So where are we? As has been previously discussed, section 251 and section 271 for the Bell companies governs the opening of local markets. And the FCC' Local Competition Report which was released earlier this year indicates that as of year-end 2000 CLECs had gained 8.5 percent or 16.4-million of 194-million nationwide local telco lines.

    Next slide, please. If I could only leave just one point with you today, it would be the following. And that is that where the greatest competitive activity exists is where the Bell company has complied with the open marketing requirements of section 271. And, again, I think I'm reiterating some of the comments that have previously been made. The FCC's statistics show that 20 percent of the lines in New York where Verizon is the Bell have become competitive; 12 percent of the market has been captured by CLECs in Texas. And so, for the reporting period the FCC covered, it showed that New York and Texas, which are large states, which have urban areas but have a large rural populations as well, they were showing, 135 percent in the case of New York and 45 percent in the case of Texas, higher incidence of local competition than the national average. We think that these are the states that the other states should look to.

    Next slide, please. I'm sure you're concerned about residential and small business activity because sometimes people think that those are kind of the lost beneficiaries of the '96 Act. The CLEC share of residential and small business customers increased almost 45 percent over a six-month period from June to December of 2000. One important reason for that is the third entry vehicle of the '96 Act which has to do with unbundled network elements, and, in particular, something called the UNE platform. In CompTel's view, the UNE platform is critical to serving consumers and small businesses which are the mass market. And it's been shown, both in the case of New York and in the case of Texas, that UNE-P is robust in those states.

    Next slide, please. More competition means customer service innovation. Again, not only does competition allow for pricing competition. We have a member, a company called Z-Tel. It provides services using the unbundled network element platform or UNE-P both in New York and Texas. And it adds its own artificial intelligence to provide a unique suite of intelligent calling messaging features that basically allows you to do all sorts of great things. They serve residential consumers almost exclusively. You can use your phone to check your e-mail messages to do all sorts of very fancy things with your phone that really help you in your life. And that's a product offering that isn't offered by the Bell company. So, it's a situation where a service is being created by an innovative, entrepreneurial company. We think and have always thought that that's the hallmark of competition and is one of the benefits of the '96 Act.

    Next slide, please. Since the Act was passed, out of the 50 states, section 271 LD entry has been approved in nine: Verizon in New York, Massachusetts, Connecticut and Pennsylvania; SBC in Texas, Oklahoma, Kansas, Missouri and Arkansas. There are two applications pending. These were mentioned earlier: Georgia, Louisiana. The statutory deadline for the FCC to act on that application, which would be the first in Bell South's territory, is December 31st. Moreover, Verizon has an application, which I'm sure Mr. Conroy is familiar with, for Rhode Island. The FCC is required to act on that application by February 24th of next year.

    Next slide, please. What's needed for local competition? Quite simply, in CompTel's view, we believe that all providers must have equal access to the first mile with access to unbundled network elements at economic cost. And we are battling to secure this, you know, at the FCC and at the states and on Capitol Hill where there is legislation being considered in the House that might threaten that as also was previously mentioned.

    Next slide, please. Some of the impediments to local competition that CLECs are fighting with dwindling resources as has been discussed also previously today are unbundled network elements including provisioning and pricing, UNE combinations, collocation, special access performance metrics and access to new networks. And there are a variety of proceedings underway at the FCC addressing all of these matters, and CompTel is participating in them.

    Next slide, please. You heard earlier about Chairman Michael Powell's three major initiatives that are under way right now. One of those is the triennial review, and the Commission will be meeting in this room at this dais next Thursday to issue an NPRM initiating this review. The purpose of this is to take a look at the unbundled network elements that the Bell companies and ILECs are now required to make available to competitors and to see whether or not they should stay on the list. We, of course, believe that they should.

    But I mention it to you in your role in representing consumers and individuals with disabilities because it's CompTel's view that because of the -- and critical role that states such as New York and Texas have played in advancing local competition that as part of the triennial review, the FCC should convene a federal-state joint board conference on unbundled network elements. We think that the state regulators are closest to consumers and to folks with the experience about how competition is progressing in those areas. Moreover, with everyone's dwindling resources, we think that it's critical that the FCC consider the important role that the states have had in promoting competition in those states where competition is working.

    Next and last slide, please. What about the future? Policymakers are at the crossroads. And there is some talk in some states and in Washington that maybe competition is not going to be coming, as historically has happened in the long distance market or in the international market, from within services, but instead that the best competition for consumers would be what is called inter-modal competition, which is to say a wire line provider competing with a wireless provider competing with a cable provider competing with a satellite provider.

    In my view, in CompTel's view those are imperfect substitutes and in some instances are the same company. Those are large monopoly companies that are not necessarily bad but do not offer consumers the innovation and flexibility and quickness to market that historically has come from the entrepreneurial small carriers.

    And so, the choices that regulators are making at the FCC and at the states today will pretty much determine the kind of world that we have in the future and whether or not that world is one of large monopolies or whether it's one which continues to allow for the entrepreneurial spirits that will provide U.S. consumers with multi-vendor, multi-user, multi-protocol networks, products and services.

    Thank you very much for inviting me here today.

(Applause.)

    MR. LEITHAUSER: We're a little bit over. Is that okay? All right. I thought I would give the committee members a chance to ask some questions of the panelists. I could ask questions too, but it's your meeting. So if anybody has any questions for the panelists? Do we have microphones?

    MR. McELDOWNEY: Hi. It's not even on. It is on? Yeah. Yeah.

    I'm with Consumer Action. Our primary focus has been on landline, voice-grade phone service being primarily used by low to moderate income consumers. And I guess we have not seen the benefits of competition that people have been talking about so far.

    Our long distance surveys over the last 15 years have seen rising basic rates, sharply higher fees and surcharges. Our latest surveys show that AT&T, MCI, Sprint, SBC and Verizon are all offering virtually identical seven cent a minute flagship calling plans, and the average per minute rates of these flagship plans have in fact increased since last year. There's a drop in the local access charges. Many CLECs have gone out of business that were on the ropes. And the long distance revenue of the big three is dropping 10 to 20 percent a year which has led to great media speculation as to which RBOC will buy which long distance company first.

    And I guess the question I have is sort of despite all of what's happening at the regulatory level both in Washington and at the states, exactly who's going to be left to compete with the remaining RBOC's in a year or two?

    MR. CONROY: I'll start since I'm the RBOC here. And I can speak for Massachusetts and address a couple of your points.

    First of all, in Massachusetts, our local basic exchange rates have been frozen since 1995. So those rates have not gone up. And, as I mentioned earlier, our in-state long distance rates have actually gone down. In terms of Verizon's long distance rates, we do have a plan that's seven cents a minute or eight cents a minute or nine cents a minute. It hasn't been in Massachusetts for that long, so I don't believe that those rates have changed.

    In terms of who's going to be around to compete, I see competitors virtually every day in Massachusetts. And I know that we talked earlier about some -- the country being in a recession. Our growth in competitive lines is huge. We are looking at 30 to 35,000 lines a month since we were allowed into long distance earlier this year going to competitors. So there are a number of competitors out there offering both local and long distance service.

    So I think that they are going to be around. There are a number of them that are very strong. And while there may be some consolidations as we move forward, I think that's a natural function of the economic principles of supply and demand.

    DR. COOPER: Let me both agree and disagree. And since Ken's on my board, you have to be careful when you do this.

(Laughter.)

    MR. CONROY: Does that mean you're going to agree with me and disagree with him?

(Laughter.)

    DR. COOPER: No. I'm going to agree and disagree with him. And the answer is that if you live in California it's pretty bleak. But if you think about what California would look like if it looked like New York, if regulators in California did what they did in New York, it might be a little bit brighter. I mean, and that's my answer is that California got UNE's that are awful, rates are too high so people can't compete, OSS doesn't work and the DSL folks are getting killed by a variety of back room bad business practices. So, there is not a lot of competition in California.

    And I sat in editorial board meetings with independent ISP's who had wonderful business models for the narrow band world, had built a tremendous business and now they can't get high-speed. They are blocked legally on the cable system and illegally on the telephone system, and they're going out of business. And that's the reality that Ken sees.

    On the other hand, if you look at a place like New York, Ken asked the question basic rates have been going up. The irony is that's where the competition in long distance took place in New York when you had entry; that is, people competed down the basic rates significantly. But it was not only basic rates for long distance, but we had product and tit for tat competition in New York.

    When the competitors introduced a radical concept in New York City known as flat rate service, which the incumbent had never bothered to offer for a couple of decades, lo and behold out rolled a flat rate package which we consumers loves in New York for local service. Competition got you that.

    So Ken's view of the world is and mine are in a certain sense exactly compatible except I live in New York, that is I work in New York, and he lives in California, and he lives in one of the forty-plus states where regulators have let consumers down.

    MR. McELDOWNEY: Mark, I guess one question back to you is just in terms of --

    UNIDENTIFIED SPEAKER: Mic.

    MR. McELDOWNEY: -- I'm sorry. It's just in terms of with the long distance revenue dropping 10 to 20 percent a year, how are they going to have the strength to compete with the RBOC's?

    DR. COOPER: Ken's doomsday scenario -- and I think you heard it from Kimmelman this morning as well although I hadn't thought -- I didn't hear what Gene said, but he did say he attacked the Act. Ken's doomsday scenario is serious. What happens if we get the remonopolization, AT&T gets bought by one competitor, MCI gets bought by another and we have not a national monopoly but a essentially a balkanization in which each regional company has bought the most compatible long distance company after they get into long distance and we essentially have three super megacarriers around the country.

    That is a very scary prospect. To me, one of the cornerstones to that is if we get real market opening as the basis for that, I think other competitors will come into existence. Who's going to compete? AT&T is not driving competition in most states. It turns out it was other folks who are getting lots and lots of local customers. That is if you look at the market share of non-AT&T customers in a place like and New York and compare it to their market share in long distance, the competitors have done a very good job. Other folks have a done very good job.

    So, in my -- and, again, -- so my view is that if we could work hard for a New York-style entry -- and I will agree, Ken, they haven't done you right in California -- we could have a competitive market. And if we don't, your horror story will in fact come to pass. And then, we will be back here.

    And this is maybe the best lesson of what Pat Wood is doing at the Federal Energy Regulatory Commission. He is now having to try and reconstruct the conditions for relying on markets in electricity. The public has lost faith in that market.

    And if regulators let Ken's worst nightmare come to pass, we will go back to an old system in which we are not relying on markets. Some consumer advocates like that idea. CFA has been pro-competitive throughout its history, so. But make no mistake, 40-plus states are living in Ken's nightmare. And if regulators don't do a good job, policymakers are going to have to go back and redo the whole thing.

    MR. LEITHAUSER: Anybody else want to take a crack at that question?

    MS. WILLIAMS: We have a question over here from Bob Segalman.

    DR. SEGALMAN: I want to ask Allan. You've said that competition works when the regulators allow it. But, as far as I know, the state of New York has refused to -- the state of New York has refused to spend money to educate people with speech difficulties to use the telephone with Speech to Speech, and almost nobody is using it. If you talk to -- if you don't talk -- if you don't do some regulation to educate people with speech disabilities to use Speech to Speech you are wasting the hundreds and thousands of dollars that you are spending to provide it. Can you comment on that?

    MR. BAUSBACK: I'd like to try it. Am I on?

    UNIDENTIFIED SPEAKER: Yeah.

    MS. BAUSBACK: I'd like to, you know, try to comment on that if I understood your concern. Obviously, we'd like to educate everybody about everything, you know, Speech impaired consumers, hearing impaired consumers, non-impaired consumers on, you know, how to use the network and how to get the best deal out of it.

    But we don't have a, you know, an education budget. And I certainly don't see one coming forth. We do have some outreach and education programs going on, but they are really highly targeted. We have a group of people that go out and meet with, you know, all kinds of groups. And I'll certainly, you know, bring your issue to them to see what we can do. But we don't have a, you know, mass campaign budget to take out TV ads or, you know, radio ads to, you know, to do that.

    MS. WILLIAMS: Judy Harkins.

    MS. HARKINS: I had a question about innovation because one of the byproducts of competition is supposed to be innovation, an so I was curious . I heard a couple very small examples, a flat rate plan, you know, if that's an innovation, you know, for that area it was. But any technological innovation that's significant as a result of the places were there is competition?

    MR. CONROY: I'll give it a shot to at least start off with. I think what we're seeing in Massachusetts anyway is technological innovations that are not necessarily specific for customers or customer groups but instead innovations by the competitors to make the service that they are providing better and less expensive. So, it's not necessarily a product that is coming to the customer, but instead innovation by the competitors to do a better job, provide better service, provide a cheaper service to customers. At least that's what we're seeing at the beginning part.

    MS. BISCHOFF: And you can look at this historically, if I could add to that. I mean, MCI, the "M" stood for microwave because that was what MCI invented. Sprint. As a result of Sprint, we now have fiber networks. Net-To-Phone was responsible for IP telephony. Octel for voicemail. You know, those are the types of technological innovations that have come from the competitive side.

    DR. COOPER: Let me -- I want to underscore a point that Carol made, and it's very important because we are at a very critical moment here. And you hear a great deal about the preference for dominant facility owners, the cable companies, the telephone companies, these large substantially monopolists to say, well, they need the additional resources to do the innovation. And making them, quote, share their networks blunts their incentive to do so.

    I want to offer two observations. If you go back and think about the internet, clearly the most dramatic innovation of our time, that was accomplished by a combination of making the monopolists share their lines. The phone companies were held down screaming and kept out of that business and hundreds and thousands of entrepreneurs, to use Carol's words, atomistically little guys thinking up the ideas. If you ask yourself why don't we have a killer application for the high-speed internet, I will give you an answer. Because you have let monopolists who have strategic interests to control those networks to kill innovation. Why do you want to invent when you can't get on one wire and the other guy'll steal your ideas. These are strategic actors.

    So that if you look -- and that is the choice you have, you can choose to go with the big monopolists and say give them more rents and see what they'll do. And we know what monopolists do. They don't innovate. They extract the most that they can, and they exploit their market power. Or you can keep these networks open so that thousands of people, little guys are thinking about applications and don't have to go through the gateway and pay the toll of the strategic monopolists.

    And so, my answer to you is that if you close these networks, which a lot of people are talking about, you will be back into the old days of AT&T saying you can't plug this in.

    MS. HARKINS: Yeah. My reason for asking was precisely that.

    DR. COOPER: Yeah.

    MS. HARKINS: You know, there are services in these large networks that, for example, are inaccessible to people with disabilities and a little company could come in and provide an alternative. And I just don't see a lot of innovation even when you're starting to get competition that looks like it's all price point types of innovation to drive down the cost, not new services and so on. So that's why I was asking about it. It's like the public doesn't expect it anymore of the companies. They expect it on the internet.

    MR. NAKAHATA: But I think that, you know, Carol Ann gave a good example in terms of the Z-Tel product where you have a company coming in and adding features together, voice and information service products. At least, in terms of the circuits which network it's not sure -- I mean, it's not clear that you have a platform that's going to be able to do a lot more than that.

    MS. HARKINS: No.

    MR. NAKAHATA: But as you start merging the power of the internet and packet technology, I think you're going to see products that are wildly innovative, allow you to do many more things, sort of like the difference between having a word processor and a desktop computer that can do spreadsheets and all sorts of other things.

    MS. WILLIAMS: David.

    MR. POEHLMAN: Sorry. David Poehlman, American Council of the Blind. I like that one bill plan. As I mentioned this morning to the other panel, I have one bill. And, prior to this Spring, I was quite happy with my one bill. But this Spring I was told that in order to keep my one bill I had to pay $1.50, or, if I wanted avoid paying the $1.50, I had to get two bills. Well, you know, so I'm in old-fashioned guy, I like to pay things with one bill if I can.

    But the point I want to address is I want to be New York. I want Maryland to be New York. What can I do to monitor and assist in directing and help other people to do the same thing for this process to move forward in Maryland so that we don't face the 46-plus doom that we will surely face if this continues.

    DR. COOPER: Well, I have visited with the members of the Maryland commission. I am a resident of Maryland, so I get a double hit on them. Again, this is a political process, make no mistake about it. We like to call it economics or something else, but regulators have to feel the political pressure of requiring genuine market opening in your state. So the answer is get the local group that you represent and start complaining.

    There is no reason -- and we've done a document that looks at Maryland. And we have filed a document -- that document at the Maryland PUC. Now, we do as many states as we can. We tend to focus on the big ones, so we're there in Florida and California right now. But the answer is that you have to complain and exercise your rights as a citizen of the state and insist that the Public Service Commission make it clear there is not going to be entry into long distance until there is legitimate market opening in local

    MR. CONROY: I would disagree with Dr. Cooper on only one word that he used, and that is complain. I would certainly agree that you should be involved, but I don't necessarily think that that means you have to complain.

(Laughter.)

    MS. WILLIAMS: Brenda.

    MS. BATTAT: I just have a question about -- we've talked a lot about the relative success in Texas and New York, and we've related it to choice and cost. But has there been any study in terms of like satisfaction with quality? And, I mean, how satisfied are the consumers and what is the quality level of the service?

    MR. BAUSBACK: If I could comment on New York. I can't comment, you know, beyond that.

    Depending upon the mode of entry, you know, a large of that part of the competitive offerings usually use the incumbent's facilities as a primary platform of delivering those facilities. And we sure have measures in-place that the quality of service is on parity between the incumbent and all the competitors using that. But usually the service quality there is going to be no better or no worse than the, you know, incumbent's to the degree that the facilities are used.

    We do -- we monitor the, you know, service results of all of our competitors. And by and large, I can report that it's good. I mean, we don't really have any service quality problems that are specifically oriented to, you know -- at competitors.

    One problem we do have as of late unfortunately, is, you know, is a lot of companies are going belly-up. And we have a lot -- a lot of small competitors or a number competing carriers actually number close to a thousand in New York state. Not all of them are even actively in business or are very large, but many of them are. And it's a transfer of customers to a -- you know, a surviving carrier that's a challenge as of late.

    But service quality-wise we're -- we don't have any, you know, problems to report on.

    MS. BISCHOFF: There have been some problems related to mergers and predominantly in the SBC territory where they have acquired Ameritech Operating Companies. There have been some consumer complaints there about waiting times to get installed new service, and that had a lot to do with the way that merger went through.

    MR. CONROY: And I think in Massachusetts you've heard from other folks about New York and Texas. Let me kind of put a plug in for Massachusetts and say that most of the numbers that you've seen from New York and Texas were kind of early-on in 2001 end of 2000 numbers. The numbers that I showed you -- and we were not in long distance in Massachusetts at that timeframe. The numbers that I showed you earlier showed that we're getting towards the New York and Texas numbers.

    And certainly on the quality of service side, we have the same quality of service plan in Massachusetts that is in New York. Absolutely the same. And we are monitoring that. Every month we file reports with our commission, the Department of Telecommunications and Energy, and, knock on wood, there haven't been any major complaints.

    DR. COOPER: An observation, and this goes back to a point. I believe the New York plan has 1100 performance measures, little itty bitty discrete measures. And when I say that, people say, my God, is that any way to run this business. But the answer is that is the necessary result of the mistake that was made about legacy systems. Once you say separate and equal, you've got to make sure it's equal. And in order to produce equality, you have to monitor this incredibly complex network.

    And so, having made a policy decision to say separate and equal, then you have to deliver the equal part. The separate part we know they stuck us with. Delivering the equal part takes a thousand measures, or else you will discover that, well, you know, this guy doesn't get as good a service, he gets dropped for a day and they lose their business. And they say, well, it was his fault. No, it wasn't his fault.

    So, in point of fact, if you're -- people are relying on the network and they have had a rigorous test and now there's a question of what happens when they flunk the test. Well, the answer is the test was too hard.

    In New York there was a good military test, and they passed it. And so, the answer is you're likely to be getting approximately the same service, which is what the word parity means.

    MS. WILLIAMS: Vernon.

    MR. JAMES: Thank you, Andrea. Good afternoon.

    MR. CONROY: Good afternoon.

    MR. JAMES: My name is Vernon James, and I represent the San Carlos Apache Tribe. My question this afternoon is directed to John Nakahata.

    John, you made a comment about long distance, some carriers providing these cost plans in metro areas but not in rural areas. Now, I come from a reservation which is probably rural America, and sometimes I get frustrated when I see these ads. Because I watch television that gets its signal from a satellite. And I watch this beautiful picture and this beautiful person that comes on and tells me I can save a lot of money if I join their particular service.

    And I know that many other people in rural American are also frustrated because when they call-up they're told they can't. So how can rural America get policymakers or lawmakers to force these cost plans to rural America? Why is rural American kept from participating in these plans? Thank you.

    MR. NAKAHATA: I'm glad you asked me that question. And let me be clear about what I said earlier too. It's not that I don't think that companies like AT&T are complying with the requirement that they offer their plans everywhere. I think they probably are.

    But the problem is that the way that the market is set-up right now you have a four cent a minute access rate in a rural area. If you're offering a nationwide plan that's seven cents a minute or you're only offering a service in -- let me take a different example. A small company, one of the others that's offering a 4.9 cent a minute service if you happen to live in an RBOC territory but never ventures outside of the RBOC territory. You know, nobody's going to offer a 4.9 cent a minute long distance service in any area where they're going to be paying four-and-a-half cents a minute in access charges. You're not going to do it. So the long distance carrier that's offering the 4.9 cent a minute plan is not going to go out to the rural areas to offer that service. Okay. How do you solve that problem?

    One would be to say, well, we're going to try and force -- we're going to force somebody, you know, the nationwide carriers to try and do that, and we do that. The problem is the nationwide carrier is not going to offer 4.9 cents a minute. Their flagship rate's going to be seven cents a minute, and they might have some promotions or meeting competition offers that they can offer in areas where they're facing the guy who's got 4.9 cents a minute out there.

    So, how do you solve that problem? The way you have to solve that problem is attack it at its root, to say, okay, if we have a nationwide -- a policy that we want to have lower toll rates for rural areas than would otherwise happen if we just left the market to its own devices, and if we want these rates to basically be the same offerings and plans that are going to get offered in urban areas, we've got to step up to the plate and create some universal service support for it. We can't expect this money in this highly competitive marketplace to be just generated by AT&T, Sprint and WorldCom. They don't have a license to print money.

    So, we have to create a subsidy that will do that. It has to target providing the high cost parts. It has to support the local companies providing the access in those areas, which is what costs four cents a minute. And if you do that and bring the charge -- the access charge to the long distance companies down by subsidizing it, then you will create an environment where both the AT&T, Sprint, WorldCom's of the world and my little other carrier that's offering a 4.9 cent a minute plan all have incentive to go out and offer service in that rural community.

    Notably, the FCC had the opportunity to do this when it considered the MAG order just a month ago and didn't step up to the plate. It decided, well, maybe we can just pretend that this system of implicit subsidies will continue to work. It won't work. You cannot get people to offer below cost service in a high cost area. You've got to address it the only way that everything else is addressed where we want to create a below cost price, create a universal service support. If you do that, you'll get the economics right, and you'll address the problem that you talked about.

    MS. WILLIAMS: Paul.

    MR. LUDWICK: Paul Ludwick. I noticed that on the two panels we've had today, we've had representation from local exchange carriers, regulatory folks and consumer organizations, but we've had no representation from competitive local or long distance carriers. Would anybody care to speculate --

(Laughter.)

    -- oh, I'm sorry.

    MS. BISCHOFF: That would be me.

(Laughter.)

    MR. LUDWICK: I didn't get that out of your presentation. But that being said, would anyone care to speculate on how their perspectives might be different might from those that have been expressed in this panel?

    MR. CONROY: I can't believe they'd disagree with me.

(Laughter.)

    MS. BISCHOFF: And I think they would agree wholeheartedly with me.

    MR. CONROY: But we didn't disagree.

    MS. BISCHOFF: No. To be clear, the trade association of which I serve represents competitive local carriers, CLECs, long distance carriers, internet providers, global carriers, I mean, basically, everybody who competes against the Bell companies.

    MR. LUDWICK: Well, let me I guess be a little bit more direct. We've had really a very good local exchange story on both panels. And I'm just wondering if we had brought in a representative from one of the companies for the long distance carriers or the CLECs, how would their response be to those stories? Would they have a dissenting opinion so to speak?

    MR. BAUSBACK: I could probably take a guess because we hear from lots of them back home. No. They'd be largely in agreement except maybe stress different areas that, you know -- than individual panelists have stressed here. I was attempting at least, probably inartfully, you know, to point out that, you know, use of the incumbent's local network to provide, you know, local service presence is, you know, extremely important. It's important not only for being a local, you know, competitor but being a full -- what I would call a full service provider, which would include the long distance companies.

    Well, it's no secret that the largest, you know, local competitors in New York state are AT&T and MCI. And the reason they're, you know, desperately in that mode of operation is that's a vehicle for them to preserve their long distance service by having a customer presence. So, I think really it's an emphasis from those two carriers on, you know -- on affordable provision of incumbent telephone companies' what we call network elements to them as a vehicle to, you know -- to have that full presence.

    DR. COOPER: I can offer a couple of observations. For instance, they would definitely say in New York and Massachusetts that unbundled network element prices have to come down. That's a pending decision in New York, and Massachusetts and New York tied them together. So they'd definitely say those prices are too high. And actually the Commission has been working on that for far too long, but they've been working on it.

(Laughter.)

    The interesting one is AT&T because AT&T will -- it depends on which company you're talking to. In Massachusetts they've got lots of cable wires, and so they tend to be quiet since they do cable. And in New York, they don't have cable wires so that they scream about UNE's in New York and they will pursue their interest.

    The irony is in a place like Texas where -- or other places. Their problem is that they want the telephone wire open where they don't have a cable wire, but they certainly don't want the cable wire open where they do. And so, that tends to undercut their message a little bit.

    They certainly -- so the answer is that in most places they are completely dependent upon UNE's, especially on the platform. And they will tell you that if that platform goes away, their local competition goes away as well. And that is the simple fact of the matter, especially for residential customers.

    People are not building a ubiquitous competing telephone network. It remains to be seen whether the cable network can really work for local telephony. The rest of the industry other than AT&T is not aggressively doing circuit switch telephony. They're hoping that the internet telephony will come along or packet telephony. And so, they are dependent upon that traditional circuit switch access to that network. And so, they would be more strident if anything about UNE-P.

    MS. BISCHOFF: And that goes to the first question that was asked about what will these carriers do with declining revenues. The importance of UNE-P increases. So that one possible result would be that you would see a dichotomy among the states. I mean, you will see states where the regulatory policies are auspicious for competition and the competitors will go there. But with the capital markets being what they are, they won't go to the other states. And at some point possibly, you know -- down the road, you basically have the states looking at other states and, at that point, competing as it were for a more hospitable telecommunications climate. That happened in the eighties when we were building out fiber.

    MR. LUDWICK: As Mr. --

    MR. CONROY: I --

    MR. LUDWICK: -- I'm sorry. As Mr. Cooper said, would the local or competitive locals and the long distance carriers agree that in a great majority of the country, 46-some states, conditions aren't correct for competition in the local loop.

    MR. COOPER: Someone will say it's more than 46, but the answer is yeah.

(Laughter.)

    I mean, look, if you want to come to California and look at what's going on in the proceeding or Florida, you know, this is a battle that has been going on for six years, and it has not stopped. And the point we make when we go into these places is that if you look at the telecommunications market in California there is -- it is at least as attractive as New York. Why are there five times as many people switching in New York as California? It's a high income state; it's an intensive telecommunications state; it's a low cost state. There is one and only one difference: regulatory policy. And so, in those kinds of places that is the message: we will compete here if you give us a chance.

    Rural states may be a little different. The lower density states may look a little different. But there are a dozen states, and that's what we've looked at, that it makes the difference between having 10 or 15-million residential customers served by competitors, which makes the base for an industry that you can support, or three or four-million, in which case it's not going to be much of a place for people to have to build a business model.

    MR. CONROY: Let me give you a perspective from Massachusetts anyway and from an incumbent carrier. And I don't necessarily disagree with anything anyone has said.

    But from Massachusetts and looking at what's going on in Massachusetts in the regulatory arena, we're in front of the Massachusetts Commission a lot. And I mentioned earlier that there were over 54 resellers -- or 54 resellers in the state providing service to customers. None of them, at least in the last six months, have come before the Commission complaining about anything.

    There are a dozen or more network-based competitors in the state, and there are a handful of those that come to the regulatory commission to participate in our proceedings. My view of that may be different than others, but my view of that is they're out in the marketplace fighting us. And that's where we belong fighting, not in the regulatory arena.

    MS. WILLIAMS: Shelley.

    MS. NIXON: Yeah.

    MS. WILLIAMS: Do you have a question?

    MS. NIXON: I'd like to add a comment. I'd speak to one of your -- the words of support promised from this -- I recognize that there is a motive for profit, but I also recognize that there is an awful lot of underdeveloped talent being offered for non-profit. Thanks.

    MS. WILLIAMS: Shelley, are you asking -- are you making a comment, or you would like the panel to comment --

    MS. NIXON: No.

    MS. WILLIAMS: -- on your statement?

    MS. NIXON: I'm supporting him. I'm just making a comment. I don't expect an answer.

    MS. WILLIAMS: I'm sorry. I couldn't hear you because the mic was not on yet.

    MS. NIXON: Okay. I'm just making a comment. I don't expect an answer.

    MS. WILLIAMS: Thank you.

    Well, I have a question that I wanted to ask the panel. I guess -- can I change hats?

    MR. MARSHALL: Sure.

    MS. WILLIAMS: Yeah, okay. This is great.

    I've heard everyone up here talking about how great New York, Texas and Massachusetts -- is really the way that we should be going. So how do we get the other states to fall in line? Mark gave us some suggestions in terms of the whole political process and making sure regulators provide the, I guess you would say, the environment to allow competition to work.

    But one of the things that I'm also hearing from Carol, John, everyone on the panel is that we have an issue of economic viability of some of the competitive companies, and, at the same time, we have a process in these states that are taking two years if not longer. As Allan said, you know, we're looking at a 35 year process. How do you bridge that gap? How do you help the FCC and state regulators to bridge that gap because I don't know any competitive -- any CLEC that can wait 35 years or two years before they're allowed entry into the local market?

    MR. BAUSBACK: When I was pointing out the, you know, the 35 years to give some context to, you know, what a reasonable expectation is. I didn't mean to imply that the 35 years was all caused by regulatory delay by any means.

(Laughter.)

    We have a general philosophy, and I think we're pretty true to it. Mark would probably disagree here and there that we don't want to be on the critical path as far as the regulator goes. We don't want our decisionmaking process to be the thing that governs the length of time that something happens. We have our processes, but we like to complete them, you know, in time for, you know, the natural course of, you know, action to flow.

    So I think from a, you know, regulatory perspective that they key is don't be on the critical path, be the, you know -- complete your processes in a timely fashion and let, you know -- let some other natural thing, you know, govern what -- how much time it might take.

    What I was implying is that, you know, the real impetus or what you hear, read in the paper or hear in little bits and pieces is that what we really need is, you know, a full facilities-based competition that -- using the incumbent's network to any degree isn't really going to, you know, to do the trick. And I would like to achieve that myself. And I think you'd find that New York commission is pursuing that.

    It's that piece of the pie that's going to take some time. Remember, it took a hundred years to build the network we have, and it's not going to be, you know -- a competitive substitute is not going to be there, you know, overnight. But the process of getting there is going to be stepwise, and we're on a very important, I think, probably multiple steps but a very important first step.

    DR. COOPER: I have two answers. One, remember, and it's a truism people like to say in antitrust, this is about competition, not competitors. It's competition that matters in any particular company. And I'm sure CompTel's members don't, you know, want to hear this, but, you know, it's not -- they can disappear and all change their, you know -- and be a different set of companies. It's about competition. That's the first answer.

    And so, will capital markets come back and start devoting capital to competition. People who say they want to compete, yes, as long as you think you have a chance of competing. And that's where I think the harm has been done in terms of letting these folks.

    But the answer, I think -- and if you look back at the history of how 271 has unfolded, you may recall, or I certainly recall Ameritech, which had negotiated a deal with the Department of Justice to waive through the ban on long distance before the '96 Act was passed, and, in a certain sense, the '96 Act screwed up a good deal from our point of view because we actually talked to people about it. But they filed their first application nine months and one day after the Act was passed because they thought there was legislative history that was going to automatically get them in. And they filed an application in which the interconnection agreement was actually the wrong one because it hadn't been agreed to. And so, they thought they were going to get in nine months after, and the FCC said no.

    And then, for the next 14 months, we had a variety of applications come forward, all of them in a distressing state of disrepair in which commissions had done almost nothing. We had Oklahoma. We had Louisiana. And they kept sending this junk up here. Let's be blunt. And the Commission kept saying no.

    And then came the New York pre-filing statement. And the pre-filing statement came out in April of '98. And you know what, the next month Bell Atlantic issued a press release, we're getting in the next month. And the New York Commission said no. And it took another 18 months before they finally got in.

    So, the answer is just say no --

(Laughter.)

    -- until they get it right. But that's the point is that we're now with another series of applications in which they have not met the standards set by New York and Texas and they think, well, maybe we can get it through this commission this time. And if you don't say no to some of these inferior, inadequate applications then they'll come back with lots of junk and then we won't have the competition.

    So the commissions, both the state and the federal commission, have to know what the conditions for competition look like. And we think we showed them in New York. And if they establish those conditions for competition, the competitors will come. And so, the answer is we have to say no to some of these applications that don't meet the standards of New York and Texas.

    MR. CONROY: Why does he always point to me when he says don't meet them.

(Laughter.)

    DR. COOPER: Well, we -- no. Because Massachusetts was -- the pricing was bad in Massachusetts. We did not complain about the other stuff.

    MR. CONROY: I have a comment on your question, but I can't let that one go. Our prices are the same in Massachusetts and New York, so if they were good enough for New York they must be good enough for Massachusetts

    I'm not going to totally disagree with Dr. Cooper to answer your question. But I have a little different view of it, and it's a little bit of what Allan said as well.

    After the Act there was confusion. People weren't exactly sure what it was going to take to get into long distance. The FCC was clear in New York. They were clear in Texas and Oklahoma. They were clear in Massachusetts. They now seem to have set-up a model, a template if you will. And I think what you're going to see now -- because in Massachusetts we struggled with that. We weren't sure what we had to hit. Now, I think the FCC has set that, and I think other states will see it.

    The key is to not keep moving the ball.

    MS. WILLIAMS: I was going to ask you that question --

    MR. CONROY: Once you set it and if people meet it, then you can't say, yeah, but I want a little more. I've got five kids, and they always do that to me.

(Laughter.)

    I want a little more. And you can't do that. You've got to set it and have that work that way.

    And I think with that you will see more applications coming in. And, hopefully -- and this is where Dr. Cooper and I probably agree, they will meet that mark. And if they don't, then they should be sent back.

    MR. NAKAHATA: But also I think if we have a basic toolkit that's taken six years to develop, you have to do two things. You have to keep the tools sharp. That means you have to enforce the rules and the commitments that get made. The other thing you have to do is be really careful about when you decide to take tools out of the toolbox, you know. And one of the things the FCC is going to be considering is, is it time to take tools out of the toolbox. And that's obviously going to be something that is going to generate a lot of controversy and could have a real effect on whether consumers are getting choices or not.

    MS. BISCHOFF: I mentioned earlier that triennial review petition that CompTel has filed. And we basically make an argument that John suggests, and that is that this NPRM which is coming out next week should not be a message to any of the companies who haven't gone through the process that they can now foot-drag because they will not be required to unbundle to the extent that Verizon has in the states where it has achieved 271 entry. And so, we're concerned about the procedures.

    You know, we think, particularly because of the lack of capital that we have and the lack of resources that we have to litigate even compared with what we had three years ago, that we need some certainty with regard to the process. They shouldn't be allowed to ex parte the process, they meaning, you know, the Bell companies to death because that kind of protracted prosecution at the FCC thwarts entry by the CLEC industry.

    MS. WILLIAMS: Are there any other questions? Al? We'll take -- yes, we'll take -- could we have an interpreter? Raise your hands.

    THE INTERPERTER: Okay. Can you hear me alright?

    MR. SONNENSTRAHL
(BY INTERPRETER): My name is Al Sonnenstrahl, and I'm with Deaf Seniors of America. I have enjoyed hearing all of you speak so far. And I have question for Tom about the 14 points, that checklist.

    My question is does that list, the 14 point checklist, does that include disability-related issues? My rationale is that the relay service has an agreement actually with all the carriers, all the providers with the consumer of choice. And there are 300 or so service providers or carriers, and 25 of them have made these agreements with the relay services. So the relay service user does not actually have access to all of those carriers.

    So what I'm wondering is, is it possible that we bring up this issue of the carriers with the relay services and that we -- that all of the carriers have had the agreements with the relay services? And if not, maybe that should be added as a 15th point.

    MR. LEITHAUSER: I may defer to Mr. Conroy on that as he's been through the process, and I'm just a lowly journalist here. The relay service, I don't think, is part of 271. Is that correct?

    MS. WILLIAMS: No. No, it's not.

    MR. CONROY: It is non-specific, no.

    MS. WILLIAMS: The 14 point that you referred to, Al, that is part of section 271 where Congress has actually laid out what the 14 points -- what I call the 14 marks that RBOC's who want to in terms of -- what RBOC's must attain in order to get into long distance markets. So that is something that is set by Congress which the FCC would have to -- well, what it would require to get a 15th point is to go back to Congress to seek legislation which the FCC does not have the authority to include -- to add-on to a 15th point. There's been some discussion about some of the other things they have added on and whether those may end up in court.

    MS. BISCHOFF: On the other hand, and not to interrupt, there is a public interest prong of the long distance entry test which the FCC has required to comply with. That was a provision that was fought very hard for in the United States Senate. But prior to that, an application goes before a state public utility commission. And as Mr. Conroy can tell you, in a number of the state proceedings there have been negotiations and concessions obtained from the Bell companies in order to obtain long distance entry.

    I'm not suggesting that this is one that would be included, but, you know, that is the method by which something like that could be proposed.

    MS. WILLIAMS: John.

    MR. CONROY: Yeah. In Massachusetts specifically that -- it was not raised. And I think perhaps part of the reason it was not raised is that we have a relay service in Massachusetts that is state-of-the-art. And I also know that anyone using that relay service can use any carrier that they wish, so it really wasn't an issue in Massachusetts. It certainly is --

(Some audience members nodded negatively.)

    Well, I'll agree to disagree.

    What I do know about the other state -- or about Massachusetts in terms of negotiations, nothing like that occurred. And I agree with you, Andrea, that it would take an act of Congress to include a 15th point.

    MS. WILLIAMS: I'm going to take a -- I think it's time for us to take a break. I would like to first thank our panelists and our moderator, Tom. If you don't mind, I know there's maybe a few more questions, if our panelists -- I know you have a very tight schedules. So if you have any questions that you would like to ask them directly, we can get their e-mail address, and I'm sure they would be happy to respond to us.

    But I -- again, I would like very much to thank the panelists and the moderator. You did an excellent job. And we really appreciate you coming and sharing the information with us as an advisory committee so that this will help us in terms of making our recommendations to the FCC in terms of where the consumers' priorities are with respect to accessibility and also consumer issues to the Commission.

    Thank you very much.

(Applause.)

    After the break -- before everyone leaves, after the break we're going into breakout session into our subcommittees. Scott, can you tell us where we will be meeting.

    MR. MARSHALL: Yes, I can. This is Scott Marshall. Am I on here? Okay. There I am. This is Scott.

    We have three breakout groups paralleling our three subcommittees. The Disability Subcommittee will stay in here in the Commission Meeting Room. The Affordability Subcommittee -- I believe all of you are in the purple -- will go across the hall to 402-442, literally just out this door and across the hall on your left. And the Consumer Committee in the pink will go to 438-468 which again is out this door, up the stairs, take a right and it will be on your right.

    And we'll be back here at 4:30 with report-backs from the groups. Thanks.

(Whereupon, a recess was taken.)

    MS. WILLIAMS: Okay. We're just going to run about maybe five or ten minutes over if we can start the subcommittee reports.

    The charge to the subcommittees is to assess the impact of local competition, the discussion we had this morning and this afternoon in terms of our priority issues. Ken, how's that for startling?

    MR. McELDOWNEY: Well, especially since we didn't do that.

(Laughter.)

    But then again, we've always been -- our committee has always been a little weird.

(Laughter.)

    I guess one of the things that we sort of talked about was sort of the presentation and sort of how we thought that discussion sort of fit into the role of the committee has a whole and just in terms of -- and sort of talked some just about the -- what we saw maybe the committee should be doing as it moves ahead.

    So, there was general agreement that the dialogue was good, that the issues were laid out well and fairly, and it was a very balanced presentation. But I guess that there was a concern that while the information was useful to folks, at the same time it was sort of -- in some ways, for folks who have been around for awhile, it was sort of rehashing what people have been saying before. And so, it was almost as if the different sides were sort of -- you know, had been hammered into place over the years. So that was part of that.

    So I think the big question that people had was just in terms of what was talked about today about local competition and the larger than local competition issues what as a committee can we really do about it. And I think that what folks thought was that it was such a big issue, and there's real questions in terms of whether or not this committee can deal with such complex issues when the folks around the table have already in a sense -- they're representing both, you know, disability and consumer groups but also company positions that are all pretty set.

    And so, I guess what we sort of -- came out of it, I guess, was sort of a recommendation in terms of looking forward. And I think we sort of reflected on sort of the advisory committees that, one, the companies that were on the subcommittee have and also that the, you know, consumer representatives sit on. And I think what we were coming up with was thinking that what might be more productive in the future would be maybe a combination of things.

    One would be presentations by FCC staff that were relatively short that sort of spelled out something that was before -- that the Commission was dealing with at that point in time with some specific questions where they wanted some input or specific areas where they wanted input, where they thought that would be valuable. And then, at the same time, that ideally there would be other issues that were percolating up through the subcommittees where the subcommittees would then be making specific recommendations to the full committee.

    And I think there we were thinking about -- that ideally what would happen is that a subcommittee would, you know, fully discuss a particular issue and the presentations to the full committee would be basically saying the arguments were this on this side, that on the other side, and we recommend this. The full committee would not sort of rediscuss the issue but would pretty much just, if they felt that the presentation, the arguments and the recommendations from the subcommittee were basically solid, that the full committee would in essence endorse that position without thinking they had to reinvent everything all over again.

    So I guess it's -- so I guess that's sort of what we came up with, sort of, I guess, asking a little more direction from the Commission, which I realize is a problem but that ideally the agendas for the meetings would be sort of a combination of specific things that were coming from the Commission where they wanted some feedback and, two, the issue areas that would be coming out of the subcommittees with specific recommendations that then the full committee would act on.

    MS. WILLIAMS: Thank you, Ken.

    MR. McELDOWNEY: And I'm sorry we didn't follow the rules.

    MS. WILLIAMS: Well, that's all right. But I think that what your committee did provide would be very, very useful in the task force that Shirley wants to discuss in terms of the CDTAC's structure and also the operating guidelines. So that is very, very helpful.

    As a matter of fact, you're not on that committee, Ken.

    MR. McELDOWNEY: I wasn't here, but I would be more than happy to be on it --

    MS. WILLIAMS: Okay.

    MR. McELDOWNEY: -- to make amends for not following the directions.

(Laughter.)

    MS. WILLIAMS: Judy. I know you're reporting on behalf of Leo and Micaela.

    MS. HARKINS: I'm the tenth choice. I'm the tenth choice person to chair the committee. And everybody else, that shows how far down the totem pole you are.

    But I think I would like to follow on Ken's remarks because we have some in that -- in the area of the program too and then go onto -- because we also did talk about what we were supposed to.

    But we had a lot of discussion about the program not really touching on disability issues that could have been incorporated into these presentations pretty seamlessly. And we would like to ask that at the next meeting we can get into some areas that we have growing concern about because we have not had -- at our last meeting, we said that we would like to have a report on section 255 enforcement and complaints, for example.

    There's a reorganization under way, and we would like to know how it's affecting DRO. Mr. Snowden mentioned that it was going to be elevated and expanded, but we would like to know how that's going to play out.

    And we had a recommendation related to that issue kind of that we would like to make today, and that is the FCC has taken off of the DRO website the address "access at fcc.gov" that many of us have been disseminating to consumers very actively. And I don't recall receiving any request for input to take that down or to merge complaint processes with other complaints or even a notification of it. So that's a strong recommendation we want to make that that be reinstated right away and that the next program include some disability access issues.

    On a more positive note, we did want to applaud the FCC for its proceeding on hearing aid compatibility with digital wireless phones and its reviewing of that exemption which has been a long time in coming. And we're very happy to see that.

    Okay. We have a lot, so I'm not going to go through all of the points. Those are the main ones under "other." On the items where we were asked to look at competition's effects, one point that came across is that competition alone will not provide accessibility for people with disabilities unfortunately. We need to enforce the regulations that are in-place. And when you have situations like state-by-state decisions about how competition will be realized, the markets in those states then become kind of segmented. They are small markets within markets for people with disabilities. So it even decreases the likelihood that competition would provide new accessible services.

    And what we would like the FCC to do is to remind new entrants and others about section 255 and that plans for entry into the marketplace should include on all these many points in the different plans that are put forward checklists that are put forward that disability access should be in there. Claude Stout reminded us that there's no private right of action under section 255, and so the FCC's action is vitally important to making sure that it is realized.

    Another area where competition affects people with disabilities is in the area of telecommunication relay services. And there are basically two pieces to this. One is that allowing consumers to choose the relay provider that best meets their needs is advantageous because not all relay providers excel equally in all of the services that are available. For example, one relay provider, and I will mention it, Sprint, has a good Speech to Speech service, but a person may not be able to choose that service because the person's state has chosen another relay provider for intrastate service.

    There is also the issue, an important one that was raised, by Al Sonnenstrahl that carrier of choice is being denied to TRS users because not all of the competitors in the marketplace are following ICCF connection recommendations. According to Paul Ludwick, that's the key piece that would allow them to connect to the relay service and to participate in the billing activities of that.

    There was a public notice about this that did not have any effect. And going state-by-state with each PUC going to all of these carriers and trying to make them aware is too laborious. This brings in several pieces of policy, but all of them are within the FCC's jurisdiction.

    And so, we would like for the FCC to tell us, to report back to us what their authority is to make sure that these carriers are participating in relay so that people who use TRS can have a carrier of choice.

    The other item related to competition had to do with awareness within the companies; that local and long distance companies should have disability experts in their customer care operations and that public utility commissions should take on some responsibility for educating these companies about what their requirements are. I know the FCC probably can't do much about that, but that was one of the points that came up.

    So those were our main points with regard to the effect of competition on people with disabilities.

    MS. WILLIAMS: Thank you. The last subcommittee is affordability. A little awkward here.

    What we did is we went back through the list of -- our initial list of priorities and sort of revamped and reprioritized. I must say that we did not have a full subcommittee, so this is a very initial report of -- an interim report. It is -- what I plan to do is put this on our listserv to get more input from other subcommittee members who could not participate today or who were not able to attend.

    But in light of today's discussion it was very apparent to us that two of the major issues that we would like to see the FCC tackle is, first, broadband in terms of affordability and availability to rural tribal lands -- availability and deployment to rural tribal lands, high cost areas and previously unserved markets.

    The second was local and long distance competition to rural areas and tribal lands, again looking at affordability, availability of equitable services in terms of what urban areas are receiving including enhanced services and 9-1-1 services. As part of that, we see -- we'd like the Commission to look at universal service fund as a mechanism to providing these enhanced services. And, again, there still continues to be this ongoing need for public education about the Lifeline and Linkup program. From what I understand from some of my members on the subcommittee, the word is just not getting out there.

    We also looked at this whole issue of balancing FCC regulation with competition and had a discussion about this whole aspect of inter-modal competition; that the FCC needs to seriously look at this in terms of regulatory parity and coming up or finding a regulatory scheme that will get service to rural areas. One of the things we point out that where a land line company may not feel that it makes good business sense to go to rural areas, there needs to be an incentive for maybe a wireless or CLEC or satellite service to serve that area. And one of the ways to look at that regulatory scheme is looking at universal service.

    And there was also an issue in terms of full disclosure to tribal lands and rural areas in terms of the business decisions that those communities would have to make in terms of -- you know, if it's a land line service how much that service is going to cost in comparison to a competitor. Sometimes, from what I understand, there's not full disclosure, so a business decision is made that perhaps in the long run it may be beneficial for that community to decide on using another type of service.

    There was also the other issue we think is a priority is revisiting the MAG order which is the order that recently the multi-association group put before the Commission dealing with -- was it universal service, the MAG order? Yes. And also, the FCC revisiting spectrum allocation and licensing with respect to the treatment of tribal lands as sovereign nations.

    Two areas where we did -- I briefly covered in terms of the FCC information on complex issues and bilingual services in terms of educational outreach especially in Spanish, we wanted to note that the FCC has made some strides in this area and they should continue them. Just because they're not high on the priority list, does not mean that they're not important. The FCC should continue and improve upon those services.

    And that was pretty much what we had. And, again, as I said, it's an interim report until all the subcommittee members can have an opportunity to comment. And I'm sure by the next meeting, we will have some other changes for you.

    Are there any questions regarding the subcommittee reports?

(No response.)

    Okay. At this time, I would like to open the floor to comments from the public.

    MS. FREY: Good afternoon. Microphone?

    MS. WILLIAMS: Could we have the microphone for the public turned on, please.

    MS. FREY: Hello? Okay. Hi. My name is Brenda Kelly Frey, and I work with the Maryland Relay Service. And I also am a board member of TEDPA which is Telecommunications Equipment Distribution Program Association. And I would like to express our interest in becoming a member of your group. I understand that you had a discussion at your prior meetings and that you've closed membership. However, if a vacancy should become available, we would be definitely interested.

    It's a national organization that represents administrators of programs that distribute assistive technology to individuals who are disabled throughout the United States. Okay?

    MS. WILLIAMS: Thank you, Kelly. I will pass that along to Shirley.

    Are there any other comments from the public?

(No response.)

    In terms of our next meeting, I'm sure Scott will send out an e-mail trying to find a convenient date for everyone. I just want to thank all of you for bearing with me today and also to wish all of you a safe and wonderful holiday season. And we'll see each other in the new year.

    This meeting's adjourned.

(Applause.)


(Whereupon, at 5:07 p.m. the committee was adjourned.)