In Re Applications of: ) CABLE SERVICE BUREAU )MM CS Docket No. 99-251 For AT&T-MediaOne Public ) Forum ) Pages: 1 through 246 Place: Washington, DC Date: February 4, 2000 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D. C. 20554 In Re Applications of: ) ) )MM CS Docket No. 99-251 CABLE SERVICE BUREAU ) AT&T-MediaOne Public Forum ) Commission Meeting Room The Portals 445 12th Street, S. W. Washington, D. C. 20554 Friday February 4, 2000 The parties met, pursuant to the notice of the Cable Service Bureau, at 9:05 a.m. BEFORE: Deborah Lathan Chief, Cable Services Bureau APPEARANCES: James W. Cicconi, General Counsel, AT&T Frank Eichler, Executive Vice President, MediaOne Group Priscilla Hill-Ardon, Senior Vice President, SBC Communicatios Inc. Andrew Jay Schwartman, President and CEO, Consumers Union Gregory C. Simon, OpenNet Coalition Diane Linderman, City of Richmond, VA Christopher Melcher, General Counsel, RMI.net Khalil Munir, Executive Director, TAP Francois Bar, Asst. Professor of Communications, Stanford University Gregory L. Rosston, Lecturer in Economics & Public Policy, Stanford University C O N T E N T S Hearing Began: 9:05 a.m. Hearing Ended: 4:05 p.m. Recess Began: 10:30 a.m. Recess Ended: 10:45 a.m. 2:40 p.m. 2:58 p.m. P R O C E E D I N G S (9:05 a.m.) JUDGE LATHAN: Good morning. Welcome to the FCC Cable Services Bureau's public forum on the application of AT&T and MediaOne to transfer licenses and authorizations in connection with their proposed merger. Before the Commission can approve this merger, it must determine whether AT&T and MediaOne have demonstrated that the merger would serve the public interest. The public interest analysis involves a balancing that -- a balancing on the process that weighs the potential public interest harms of the proposed transactions against the potential public interest benefits. As is the case for any merger under review at the FCC, the applicants bear the burden of proving that the proposed transaction on balance serves the public interest. We have invited panelists here today to provide information that will assist us in our analysis. And I want to thank all of the panelists for coming out, especially since there's a dusting of snow and I have learned what that means in Washington, and I'm from Chicago. So, I found it an amazing discovery. And so I'm looking forward to discussing some pretty important issues this morning. I want to apologize on behalf of Chairman Kennard. He cannot be with is right now, but he will join us this morning, and hopefully, will have some questions for you, as well. The applicants tell us that the proposed merger of AT&T and MediaOne is first and foremost about the promise of local telephone competition for residential customers. And we have some questions about that. Will the merger deliver on this promise? Will it bring the real choice in local telephone service to all Americans, how could this merger include AT&T's ability to deliver services it sought by acquiring TCI? These are some of the questions that I very much am interested in hearing answers to. Other questions also come to mind. Will the merger produce benefits in addition to local telephone competition? If so, what are they? How and when will they be achieved? Will they be available to all Americans? I know that our panelists will tell us also about some of the potential harms that this merger could produce. Do these potential harms outweigh the promised benefits? We would like also to know how the merger would affect consumer's choice of providers for broadband services. Will the merger narrow a consumer's access to diverse video programming and reduce the number of video competitors to AT&T? How will the merger affect the consumer's choice for high-speed internet services? In short, how will the merger affect the consumer's access to diverse selection of content and other information? I'd like to talk a little bit about the process that we're going to go through to try to get some answers to some of these questions. We have today two panels, and the first panel will run from this morning until noon. We will take a fifteen minute break. And each panelist will be given five minutes to give us a presentation of their choosing. We have a timekeeper and she will hold up a sign telling you when you have one minute remaining. Will the timekeeper -- here she is right here. Okay, one minute, the orange card. And after the orange card goes up, the pink card goes up. And after the pink card, we've got somebody with a hook, okay? After the five-minute presentations which we will do by each panelists, we will then have questions and answers from the bench here. I would now like to introduce some of our panelists who have been gracious enough to come here today. Representing AT&T, we have James Cicconi. He's General Counsel and Executive Vice President -- Executive Vice President, Law and Government Affairs. Representing MediaOne, we have Frank Eichler, the Executive Vice Present, Law and Public Policy and General Counsel and Secretary. Representing SBC Communications, Inc., Priscilla Hill-Ardoin, Senior Vice President - Federal Regulatory. Representing the Consumers Union, Andrew Jay Schwartzman, President and CEO. Representing the OpenNet Coalition, Mr. Gregory C. Simon. And we're going to begin with Mr. Cicconi. Thank you, Jim. MR. CICCONI: Thank you, Deborah. Good morning, my name is Jim Cicconi, I'm AT&T's General Counsel and Executive Vice President for Law and Government Affairs. I appreciate very much the opportunity you've given us today to discuss AT&T's merger with MediaOne and the benefits it will bring to American consumers. When Congress passed the Telecom Act in 1996, it sought to provide American consumers with choices in telecommunications services. Unfortunately, the plain fact today is that still over ninety-six percent of America's residential customers get local telephone service from their incumbent provider and have been denied the benefits of choice. AT&T is leading the effort to change that fact. AT&T is committed, a commitment, I might add, that is backed by many billions of dollars to providing residential customers with a choice of local telephone and broadband service. Our very business plan is to do so over cable facilities wherever possible. And we've made considerable progress toward that end. Since acquiring TCI, AT&T has spent over 2.7 billion dollars to upgrade its cable systems to provide telephony services, and we are well on track to having more than eighty-five percent of the TCI network upgraded by the end of the year. In 1999, market trials of telephony services were launched in the Bay area, Chicago, Pittsburgh, Dallas, Denver, Seattle, Salt Lake City and Portland. Today, AT&T's actually marketing and selling its telephony services in thirteen cities in California, Illinois, Texas and Colorado. Because of AT&T's capital and telephony expertise, we're able to accomplish this much faster than TCI could have done on its own. Customers in these cities are starting to see real benefits in the form of choice and lower prices. For example, AT&T in Fremont, California offers second and third telephone lines for only $5 a month. That's a significant discount off back Bell's second line rate of $10.69 a month. And because most of AT&T's customers order two lines or more to accommodate computers, fax machines and the ever-present teenager, this benefit is being widely sought and enjoyed. The pending merger between AT&T And MediaOne is yet another step in this effort. Together, MediaOne and AT&T will bring video, voice and data services to more communities more quickly and more cost-effectively than either one of us could do on our own. For its part, MediaOne is contributing to the merger the all important facilities to homes that AT&T could not duplicate without considerable expense, inefficiency and delay. MediaOne is also bringing to the deal considerable technical expertise in the delivery of phone services over cable and the technological upgrading of cable networks. AT&T will bring its brand name, resources, reputation and unparalleled experience that will insure that telephony deployment over MediaOne facilities is more certain, more imminent and more successful than if MediaOne had continued on its own. Surveys have shown that consumers are much more likely to purchase telephone services from a long distance provider than from their cable company. In fact, more than three times more likely. This reflects a very strong consumer preference for phone service with the highest levels of quality and reliability. Attributes with which AT&T has become synonymous. Thus, having MediaOne's facilities in AT&T's hands will insure that they realize their full competitive potential more quickly and more broadly than if MediaOne continues to operate independently. The combined resources of AT&T and MediaOne will also create an entity which will have both the size and scope necessary to truly compete with the incumbent local phone monopolies. We've seen clear indications in the market that they're taking us very seriously as a competitor. For example, in August, SBC announced that it would be offering discounted packages that bundled voice, internet and satellite TV services in Fremont, California and in Dallas, Texas. The selection of those markets is hardly a coincidence. Those are two markets in which AT&T is today aggressively pursuing facilities based broadband local entry strategy for residential customers. Similarly, the local monopolies have sped up the introduction of high-speed DSL services in an unquestionable and direct response to AT&T's roll out of high-speed cable modem internet services. By the end of 1999, the Bells and GTE expanded the reach of their DSL services to forty-six million homes. SBC alone is investing six billion dollars under its Prontal project to reach seventy-seven million customers, or eighty percent of its customer base, with DSL services by the end of 2002. I'm proud of AT&T's unparalleled commitment to building a competitive marketplace, particularly for the residential customer. We know that the FCC is similarly committed to fostering a robust competitive environment, and we urge you to approve this merger quickly. We've seen it in long distance and we've seen it in wireless, and we are now seeing it in areas where AT&T has launched its cable telephony services. We'll soon see it across the full range of telecom services if the Commission continues to support pro-competitive mergers like the one being discussed today. Thank you, and I look forward to answering your questions. JUDGE LATHAN: Okay. Okay. Our next speaker will be Mr. Eichler from MediaOne. MR. EICHLER: Good morning. My name is Frank Eichler, Executive Vice President for Law and Public Policy and General Counsel for MediaOne Group. Let me echo Jim's remarks and thank the Commission, again, for convening this panel also on a snowy morning, which I know is difficult for a lot of people. I'd like to show to you this morning why the merger of AT&T and MediaOne makes sense for consumers, for local phone competition and for the converging communications marketplace. By combining the skills, resources and footprint of AT&T and MediaOne, we will create an entity to offer consumers true choice in their local phone service. Let me start with a quick background of MediaOne. In 1992 we saw competition and convergence merging and concluded that the future of communications lay in transforming traditional one-way cable pipes into interactive high-width, band-width platforms. Thus, we began investing in cable's broadband future through partnerships, acquisitions, system trades, and, more significantly in 1995, in embarking on a massive seven billion dollar capital upgrade project to transform a one-way cable networks into two-way broadband networks. Today, the communications revolution, media solution vision is underway. The '96 Telcom Act accelerated the convergent race to the consumer. And by doing so, created a competitive environment where size matters. The marketplace reality facing MediaOne today is that we are just too small to compete in a move away, particularly with the incumbent local phone companies. When you only look at some of the announcements over the last year to witness this phenomenon. SBC is merged with Ameritech and now controls fifty-eight million access lines. Comes Sprint on the process of merging and will have a competitive broadband play, including a national wireless footprint. And most recently, AOL and Time Warner announced the largest merger in U. S. history. MediaOne simply cannot meet these competitive challenges on its own. Although we passed 8 1/2 million homes with a subscriber base of about five million customers, this represents just the ante in today's communications playing field. In every single one of our markets, we find ourselves dwarfed by the competition to local phone companies. Our largest market in New England is a great example. We serve 1.3 million customers. And on head to head competition with Bell Atlantic, which has at least ten times as many residential lines in that market alone. And the obstacles we face are further compounded by widespread consumer skepticism over cable companies' ability to provide telephone service. MediaOne has launched facilities based residential phone service in nine markets, with prices well below comparable services offered by the incumbent LEX. Yet our own penetration rate is less than three percent. Another way to put it, three out of every potential customers are signing up for service. The slow penetration is driven primarily by consumer reluctance to purchase basic telephone service from a company without a established reputation for providing reliable, life-long communications services. Our experience is confirmed that even a well-established and respected cable company faces a major hurdle in generating consumer confidence as a provider of telephone service. Enormous advantage enjoyed by the incumbent, LEX over all cable companies, including MediaOne, is both stark and undeniable. Even they don't consider MediaOne a competitive threat. In fact, Bell South actually raised its prices when we launched local phone service in Atlanta. Converse, AT&T has launched its broadband and local telephone service, SBC announced it would begin offering a competing video voice and data product. AT&T's established reputation and brand with some of the highest consumer confidence ratings in the industry, would dramatically improve and accelerate overall penetration rates in a way that MediaOne could never hope to achieve on its own. Moreover, AT&T has already has a sophisticated engineering expertise, customer care and infrastructure and communications experience needed to respond to large scale consumer demands. MediaOne brings to the merger state of the art broadband networks. By the end of the year, fifty-nine percent of our cable plant will be telephone ready and seventy-five percent will be high-speed data ready. We're among the first cable companies to acquire the skills and knowledge needed to deploy phone service over broadband. This experience will be invaluable to AT&T after the merger. Combining AT&T's unmatched brand, customer care and engineering expertise with MediaOne's sophisticated cable infrastructure, would jumpstart the market for competitive local phone service. A combined AT&T, MediaOne will be uniquely positioned to lead the charge and bring real choice to consumers faster and more effectively than either AT&T or MediaOne could do alone. Thank you for the opportunity to address you this morning and would be happy to answer any questions. JUDGE LATHAN: Thank you. And now we will hear from Priscilla Ardoin. MS. HILL-ARDOIN: Thank you very much. I'm pleased to be here and participate in this session. We're here today because this merger between AT&T and MediaOne is no garden variety merger. Through its acquisition, AT&T is positioning itself to dominate the cable industry through ownership interest and systems passing nearly sixty percent of the homes in this nation. This merger would put AT&T at the center of an extensive web of relationships that stands to form a TCI, MediaOne, Time Warner Entertainment and other major cable companies. Their web would extend to both video programming services and leading cable equipment manufacturers, as well as two major cable internet service providers. Furthermore, their ownership stake in Time Warner Entertainment puts them squarely in the middle of the merger between that company and AOL. Throughout the country, AT&T will own or control the cable pipe into consumer's television sets, much of the content being through the pipe and the high-speed internet services consumers use to surf the net. If this merger is approved, their grasp on the American consumer will be far reaching and unprecedented. Put, simply, AT&T has embarked on an aggressive strategy to dominate the way Americans communicate. If allowed to proceed, AT&T would end up serving sixty percent of the homes passed by the cable industry. It would control ninety-eight percent of the high-speed cable internet subscribers, and nearly eighty-five percent of the total internet -- of the total broadband market. AT&T would have interest in approximately sixty percent of the most popular cable programming and it would have substantial equity relationships with General Instrument, Microsoft and Leading Electronic Guide Services. This merger would bring together a varitable web of who's who of leading cable companies, programmers, broadband internet service providers, software companies and hardware providers. On its face, it shadows the Commission's cable cap rule limiting the number of subscribers a single provider can serve. On its face, AT&T's inconsistent demand for access to ILEC facilities, a demand made at the same time that AT&T has closed the door to its own second wire to the home. By any reasonable measure, this merger does not satisfy the Commission's standard for concluding that the public interest benefits outweigh the inherent and well-documented anti-competitive effects. More specifically, I'll take a few minutes to address the key topics identified for this forum. Those being public interest, video competitive effects and the broadband market effects. AT&T will say that we're here to block local phone service competition. Simply put, this merger is not about local phone service competition. It's about AT&T's attempt to dominate the cable and the web. SBC is in the cable business. SBC is in broadband. And we welcome competition in each of these markets, as well as the local phone market. As long as competitors are treated equally. Despite their repeated public professions, neither AT&T nor MediaOne has made specific, tangible, verifiable commitments to actually roll out local telephone service in any market. In marked contrast to commitments made by SBC during our recent merger with Ameritech, as well as those being considered for Bell Atlantic-GTE merger. AT&T and MediaOne have given no reason to support their claim that they will offer local phone service. In fact, in talking to Wall Street, the company's discussions about the merger have centered on leveraging their cable pipe into the house and to control over consumer's access to internet highways and internet content. More importantly, AT&T and MediaOne have not shown that but for the merger they would not have competed in the local telephone market. Which is the only purported benefit that they hold forth in this merger. Each is developed plans to provide cable telephony. AT&T has spent billions of dollars to acquire TCI and upgrade its systems. And MediaOne has already pursuing cable entry in local telephone. And doing so more aggressively and more successfully than AT&T. As a consequence, there is no new benefit to offset the serious deleterious effects of this merger before you. The Commission has adopted and recently revised rules to insure competition in the video marketplace. Those rules include a cap on the number of cable customers a single entity can serve. AT&T and MediaOne initially tried very creative interpretations of the rules to avoid the obvious reality that their merger shatters the ceiling. More recently, however, they have acknowledged a problem and they have belatedly asked for a waiver to let this merger proceed. The Commission for its part, should not embark down the path of cable cap gerrymandering. The cable cap was required by Congress and developed by the Commission to precisely prevent the kinds of problems raised by this merger by its very nature. The cap only applies to the very largest transactions. And if AT&T is allowed to circumvent the cap, then I ask you, what meaning, at all, is the cap? It's quite meaningless. AT&T has wasted untold resources and years of effort in supporting horizontal ownership limits. Finally, AT&T continues to support a regulatory -- time's up. Finally, AT&T continues to support a regulatory model seeking to assure that they will have competition to the ILEC's wire into the house. Simply put, I think when we look at what it is going to take to spark competition, we should consider not favoring any particular competitor over the other, but having equitable parity in order that this may occur. Thank you very much. JUDGE LATHAN: Thank you. Mr. Schwartzman. MR. SCHWARTZMAN: Thank you very much. Is this on? JUDGE LATHAN: Oh, we hear you. MR. SCHWARTZMAN: I'm glad. Although maybe you're not going to be so glad. I'm afraid I'm not going to be the warm and fuzzy Andy Schwartzman today. You've got the petulant, angry Andy Schwartzman here today, I'm afraid. There's a lot of things been said already that I have a lot to say about. And I'm sure we will have a chance to discuss these substantive things over the course of the morning. But I regret that I have to devote much of my time today to discussing procedural matters. But said factors were not being treated fairly, and I have no choice but to explain why. We've already had to take the Commission to court, challenge its unjustifiable handling of AT&T, giving it four additional months to come into compliance with rules of which it's been aware since 1993. And I'm instructed to tell you that we will aggressively seek judicial review of any decision approving the proposed AT&T-MediaOne transaction, conditionally or otherwise. First, there's a huge pink elephant that's about to walk into the parlor. And that is the proposed AOL-Time Warner merger. As you know, MediaOne and Time Warner are 50-50 partners in Road Runner, the number two cable internet service provider. AT&T owns some fifty-eight percent of Excite, the number one internet service provider. And we've been complaining that this combination will monopolize the market for delivery of internet services. It will inhibit free expression on the internet. The possibility that AOL, by far the largest internet service provider, will now share ownership of Road Runner, would give these companies even greater incentive to act in concert. Our position is that these applications need to be reviewed with an eye towards what the partners are doing in a 50-50 partnership. In fact, these mergers may well be mutually exclusive. And I call on the Commission to solicit comment on the impact of the AOL acquisition on the AT&T-MediaOne merger. You will not have a complete record unless you do. And if we have to take it to court, we will. Second, I want to ask the Commission to refer our October 7, 1999 complaint against AT&T to the Enforcement Bureau. It's painful for me to sit in front of the Cable Service Bureau staff and complain about the way this has been handled. But I have to. AT&T repeatedly violated the Commission's horizontal ownership reporting requirements. The very rules which it's seeking to have waived. And it has repeatedly failed to comply with them. The Bureau was aware of these violations and did nothing. The violations continue. Attachment B to my testimony is a violation which occurred just three weeks ago. Contact with staff tells me that no action is contemplated on this complaint. It's basic communications law. The Title 3 applications raising questions going to the character of the applicants have to be resolved before the Commission can make the requisite public interest determination. The Cable Service Bureau's handling of these complaints and handling of the repeated pattern of violations and the misrepresentation about those violations, its acquiescence is part of the case. You do not have the distance to consider these complaints. Perhaps that's why you put them in the deep freeze I ask that this be referred to the Enforcement Bureau for a fresh look. I also want to complain about the waiver of ex parte restricted class treatment of this case. There have been sixty-five meetings between AT&T, MediaOne and Commission staff. Typically, they're memorialized by one page letter. I've got quoted an example in my testimony. This is unprecedented. We complained about it, we got a letter back which I can only characterize as snide. The Federal Communications Bar Association advocated retention of restricted ex parte treatment for judicatory proceedings. The Commission, on the basis of that, decided to retain those rules, even though the proposed to go otherwise. It affirmed that just three months ago. Yet you've lifted the restricted treatment that the Federal Communications Bar Association advocated for this case. How they've used this extra freedom? They've used it by filing a waiver request on Page 30 of a forty-five page pleading the day before Christmas, two days before Christmas. The substance of this case is being discussed in secret. This is no way to treat the public. I've also complained about the web page which is an advertisement for AT&T's position. The Cable Service Bureau's web page has all of AT&T's pleadings and none of the objecting pleadings. After I complained this week, at least a link has been made to the ECFS system. Now, you have T1 lines. People with 28a modems -- have you tried downloading from ECFS with a 28a modem? I might add as a personal note, Mr. Cicconi's letter explaining his agreement with Mind Spring on open access is on that page. Oh, I've requested that my letter explaining my reservations about that agreement, be placed there. It hasn't been placed there, either. You're presenting one side of the story in a rushed come to judgment on this case. Wall Street expects it to be done by the end of March and it looks like the Commission staff has read the Wall Street Journal and decided that's what it has to do. We want you to slow down and give this record a full and complete look. We deserve nothing less. Intentions do not matter as much as appearance. I personally believe we're going to get a fair shake. Many of my clients don't. Even if our challenge will receive objective consideration, it doesn't change the fact that there's an appearance of unfairness and a pattern of unseemly favoritism towards AT&T. This undermines public respect for the integrity of the Commission's processes and needless lends comforts to the enemies of the FCC's public interest jurisdiction who now lead to seek to limit the FCC's merger authority. Thank you. JUDGE LATHAN: Thank you, Mr. Schwartzman. Mr. Simon, please. MR. SIMON: Thank you for inviting me on behalf of the OpenNet Coalition to be here today. The OpenNet Coalition is an organization of over nine hundred ISPs around the country. Ten of them are large companies, eight hundred ninety of them are not. But they all have a common goal, which is that consumers should have a choice of how they access the internet over high-speed cable networks. We believe that the Commission should implement a national policy of open access to cable broadband networks for three reasons. Number one, it is irrefutably the policy of the Telecommunications Act, the FCC and the Department of Justice that open networks are better than closed networks. Secondly, open networks benefit consumers by promoting investment in innovation, improving quality of service, lowering prices and stimulating competition in new applications in services. And, finally, the growth of the internet itself depends on a competitive environment in each technology upon which the internet rides. The history of telecommunications in the United States from the telegraph to the internet, shows the importance of open competitive networks. That is why in 1994, Vice President Gore laid out open access as one of our five principles for the National Information Infrastructure and for the Global Information Infrastructure. And, in fact, open access is the key to the success of the other principles of universal service, flexible regulation, private investment and competition. The Government has had an undeniably significant role in opening monopoly networks in our history. It is fashionable today, as Professor Lessick and Professor Lumbley wrote, to argue that innovation is assured that the Government simply stays out of the way. We believe this view is misguided. It ignores the history that gave the internet its birth and threatens to reproduce the calcified network design that characterized our communications network prior to the internet. The benefits of open access to society and the economy are best understood by comparing an open network to a closed one. In an open network, such as the internet has been, anyone can invest in innovative technologies, applications and service, with confidence that they can succeed or not based on their success with the consumer that they can reach through an open network. In a closed system when the owner controls access to the network, fewer people will invest in innovation because of the increased risk that they cannot gain access to the network or to significant numbers of customers. We have over six thousand ISPs in this country offering a range of services to a range of customers over several different kinds of networks. These ISPs are engines for innovation and they represent potential vertical competitors with cable owners. But the architecture proposed by AT&T-MediaOne for their broadband cable service threatens this vertical competition by bundling internet service with access and not permitting users to select another ISP. Now, closed networks also deny consumers the benefits of technology. It would be the height of irony for the Commission to allow the cable internet market to remain a monopoly for internet access at the very moment that advances in cable technology are capable of promoting competition in access, unbundling of services, decentralization of programming control and providing abundant capacity where once there was scarcity. Yet, that is exactly what the cable industry is seeking. Now, in terms of the future of internet. As one analyst said, the beauty of the internet is that it is a universal language that links any type of device over any type of network to communicate any type of data. It is delink from the underlying technology. It is a language. But the cable industry is now trying to reverse thirty years of separating the language from the network by claiming that its infrastructure and the internet are one and the same. Some argue that competition in cable access does not matter because other broadband networks are available. And others argue that while open access is a good thing, requiring it is a bad thing. Well, how does it make sense that because there's competition in some parts of the internet market that we shouldn't have competition in all of the internet market? AT&T used to argue that it was a crime - and it was - for others to innovate and introduce new technologies into their network. Now, on the same vein, they argue that it's a shame if others were to innovate and introduce new technologies into their network. In reaching a national policy to foster the growth of the internet, this Commission must follow a principle. The internet's openness is that principle. And those who would abandon that principle by closing their networks or opening them only to a few, have a burden of persuading the rest of us while the internet's open past should not be prologue. Thank you. JUDGE LATHAN: Thank you. Thank all of you. This was some very interesting comments. I have a question of Mr. Cicconi. Both you Mr. Eichler argue that you have to be bigger in order to compete in telephony and that certain synergies, AT&T's brand name and MediaOne's expertise in the cable business, and these things combined will bring benefits to the American consumer. And the argument was made that you have to have size in order to be able to do this. My question is how big do you need to be, really, and how big is really too big? MR. CICCONI: Well, I think the key here is question about the ability to own facilities. As you all know and this Commission has fostered, the idea of ownership of facilities and facilities-based competition is probably the most viable sword. When one is attempting to compete against incumbent monopolies, other forms of competition have been found wanting. You're either depending on the incumbent's facilities, you're depending on their pricing or you have some other dependency which makes that ability to compete at least suspect. We're attempting to do so, as this Commission knows on a variety of levels. But I think the Telecom Act and the Commission have long since concluded the facilities-based competition is first and foremost the most desirable way to do it. What this merger does, is it allows us to get a level of facilities-based ownership to deliver that competition. From there, we feel it would be possible to move out and be able to conduct the type of penetration that telephony to deliver competitive local phone service across the country. In terms of the, what we bring to the MediaOne market, which I think the first part of your question there, I think as Frank pointed out in his statement, and I can certainly let him expand upon it from MediaOne's standpoint. But I think what we've seen from the marketing information from MediaOne's own experience, is that AT&T, both its brand name, its resources, its reputation as a telephone company and its focus as a communications company as opposed to a cable company, would allow quite faster penetration. I think our estimate, I believe we put this on the record with the Commission, is that we believe in their territory we could achieve a thirty percent penetration level within the first three to four years. And MediaOne's current estimates is that it could take them up ten years to achieve roughly half that penetration level. So, this would deliver competition more broadly and much more quickly than would otherwise be received. What that means in practical terms is that millions of Americans who don't now have a choice of local phone service would get a choice, and they'd get it faster and it would mean lower prices. JUDGE LATHAN: So, it is your position, then, that you two combining you would bring, you would deploy faster and that cost savings would be passed onto consumers because of the synergies that exist between the two companies and that going your separate ways, these benefits would not be realized? MR. CICCONI: Exactly. And I think that's clearly in the information we put on the record. And in addition, it's our experience in the deployment that we're putting forth today, as I said in my statement, we would offer -- JUDGE LATHAN: Okay. MR. CICCONI: -- competitive local phone service over our facilities in cities where we're deploying currently at cheaper rates, lower prices than the incumbent monopolies are putting out there. JUDGE LATHAN: Excuse me, but have you done any studies that, you know, would bear evidence or give any evidence as to how big a cable company would have to be in order to compete on the local telephone market? MR. CICCONI: I think we've put information on the record in terms of the market penetration that would be necessary in the importance of ownership of the facilities to be able to achieve that. I mean, we're cognizant of the ownership limits here, if that's what you're getting at. And we understand that there will be a limit beyond which we would not be able to go in terms of -- JUDGE LATHAN: So, to try to understand the basis of the conclusion that by the mere combination these synergies exist and, therefore, consumers are going to have more choice and better savings, versus if you went on your own because MediaOne was aggressively rolling out their local telephony prior to the proposed acquisition. And so we just wanted to be a bit more concrete, as opposed to, you know -- MR. CICCONI: Well, again, we've put on the record the synergies that would be achieved through the merger and those savings in the cost of deployment would, of course, affect the cost and delivery of the service. Secondly, we've put on the record that the penetration levels that we expect to achieve. And I think there's adequate, there's ample evidence on the record that we'd be able to penetrate these markets and provide more effective competition to monopolies much faster in the MediaOne regions. So, I think that information is clearly on the record today that we would be able to bring competition in telephony to these markets much faster than MediaOne could do on its own. JUDGE LATHAN: Ms. Ardoin raises the flip side. She argues that you're going to dominate the last mile to the house, to the home and the real purpose of the merger really is not local telephony, but to be able to dominate the American household in terms of the provision of voice video and data to the home. Could you respond to the accusations made by SBC, please? MR. CICCONI: Well, I think that first of all, it's not going to be possible with an acquisition that, at most, involves 8.5 million customers to achieve any level of dominance. Secondly, the ownership limits the Commission itself has put on the record would limit the ability to control cable. I think what this merger's really about is competing with companies like SBC, who in their regions today do have dominance. In fact, in their merger with Ameritech, they have monopoly position, local phone service in a third of the nation. Now, what's really going on here is SBC has a concern about competition. In fact, in the areas where AT&T is deploying its local phone services, SBC is rushed to get out there with a more attractive offer to compete against us. I heard Priscilla's statement about how they don't feel we're committed to it. They must feel we're committed to it or they wouldn't be going into the very territories we're piloting. And, in fact, that territory they're running ads criticizing the quality of our local phone service. So, if somebody didn't view this as a competitive threat, I don't think they'd be running full page ads in the territory criticizing our product. I'd also point out, again, that the benefits of this in terms of trace and lower prices are something that one couldn't expect any monopoly to appreciate because it would force them, of course, to compete where they don't now have to, and to lower their prices where they don't now have to. But that is the upshot of this merger, particularly in those territories where the monopolies have dominance to that. MR. JOHNSON: Can I try another version of this size question, which I think is always asked at these hearings. And Mr. Eichler sort of raised of this. You need to get bigger to compete with the other participants in the market who are getting bigger, which creates a dynamic for unending mergers and concentrations in the market. Is there a logical place to decide enough is enough, or is that dynamic inevitable? MR. CICCONI: I'll have to let Frank answer for what he says in his testimony. But in terms of the size there, obviously, this is not about size, per se, for AT&T. This is about acquiring the facilities to compete and provide a viable competition against incumbent monopolies. I would think that this Commission at some point, may decide that question. But if one looks at the Telecom Act and the record of that Act, it's very clear that the incentives in the Act, and, in fact, the incentives from the Commission, have been to encourage the cable companies and the acquisition of cable in order to provide competitive local telephone service. Today, three and half years after the Act was put in place, the local monopolies still dominate to the tune of ninety-six percent of local phone market. Ninety-six percent of Americans still don't have a choice in local phone service. So, I think what I'd say the point at which to answer that question about size is perhaps when the Commission concludes that there is sufficient competition at the local level to the incumbent monopolies and sufficient percentage of Americans actually have a choice in local phone service. Maybe that's the point at which to answer that question. JUDGE LATHAN: Yes, ma'am. MS. HILL-ARDOIN: MediaOne has indicated on the record and re-enforced today, its ability to be a facilities-based competitor. The argument that's being made here is simply one of having to have this size and scale. A question that I have some interest in is couldn't you get that same benefit by AT&T or MediaOne licensing with AT&T. What AT&T brings to the table, as has been described, is its formidable, and I might add as an industry participant, inviable brand recognition. Couldn't they achieve the same result by having MediaOne licensed from AT&T? And you have the technology, the capability, the expertise, the acumen that MediaOne has already demonstrated in the marketplace. And seems like they could still give us a run for our money. JUDGE LATHAN: I'll let Jim respond to that and then Andy I saw your hand go up. MR. CICCONI: Actually, I think since the point was about MediaOne's ability to do that -- JUDGE LATHAN: Oh, I'm sorry. MR. EICHLER: Sure, let me try. Part of the issue I think here is how fast do you want Telcom deployment and how fast do you want to go ahead and offer consumers choice. And would MediaOne go ahead and do that alone. I will tell you that based upon our current penetration levels, as Jim said, we were anticipating on our own, it would take us five to ten years to get to a fifteen percent level of penetration. When we had looked at some type of arrangement with AT&T, we concluded that if there was -- and this was prior to ComCast and/AT&T taking a look at us. We concluded that with their brand, with their service, with everything that they brought to the table, that that penetration could easily be doubled in a much shorter period of time. In essence, we felt that there could be probably thirty percent penetration of local competitive service within three to four years after we had some type of arrangement. Now, Priscilla brings up, you know, the concept well, let's talk about some type of licensing arrangement. As most of you probably know, joint venture details are very, very difficult to negotiate. Most joint ventures fail. And part of what you're talking about here is when and how long does it take to negotiate something with another company. When and how long does it take it then to go ahead and deploy. And part of what you're looking for is, as we were looking for, is how fast can we offer choice. One of the things that we as MediaOne take a look at every year, and have looked at, as well, is where we at with respect to Telcom penetration. I will tell you that our board looks at that on a regular basis. And I will also tell you that we're not -- we would not have continued spending hundreds of millions of dollars a year if we didn't get to certain levels of penetration. At least on a break-even basis. Offering choice, even if it's a lot of choice, offering Telcom service on a losing basis is not a good business decision. We wouldn't have done it. And, so, part of what we were looking at was what do we need to do in order to get to a certain level size, to get the scale, to get the brand, to get the services to go ahead and offer Telcom choice. Our brand we think is a very good brand. I will tell you we've been brand services and looked at it. And people rarely know who we are when it comes to telephone service. If you want to go ahead and market a telephone service, marketing as MediaOne telephone service doesn't work as well as marketing as SBC or PacTel or AT&T. And so it's easy to go ahead and have SBC say, sure, let them do it on their own because they're great. Making sure we don't get into the local phone service. JUDGE LATHAN: Okay. MR. EICHLER: In fact -- JUDGE LATHAN: Let me just ask one question, though, because in the record is stated -- I want to get -- you state that it's deeper penetration but you're not intending to expand your geographical scope. I mean, I want you to answer, but what we have in the record is you stated that it is not anticipated that the merger would accelerate the number of metropolitan areas covered by the roll out. Rather, the merger will enable AT&T and MediaOne to achieve faster and deeper penetration in each market. Is my understanding correct that you just are going to go faster and deeper in the markets that you're currently in and you don't expand -- you don't expect a greater geographical expansion of that? MR. EICHLER: I think what we're saying when you say faster in the markets that we're in, that means we're going to be basically, by the end of the year, we're going to have -- at the end of our, in our company alone, we'll have fifty-nine percent of our homes will be telephone ready. We're not just going to continue marketing in only the nine homes that we're in. The nine markets that we're in. As markets become telephone ready, we start marketing those. There's a continuation of rolling those out. I think what we're talking about is on a combined basis and when you're together, you roll out deeper into those markets. When you're building a market out, you're building -- for instance, in Atlanta, we're going to continue to build out Atlanta. When Atlanta, different areas of Atlanta, we're going to continue marketing telephony service in Atlanta. All over that. As we build other markets to be telephone ready, we will market to those areas. MR. CICCONI: If I might, I think that -- JUDGE LATHAN: I think -- MR. CICCONI: I think the point about -- may I just try to -- JUDGE LATHAN: Follow up on this? MR. CICCONI: Answer to this question here because I think your point about going beyond the MediaOne markets I think is important here. Clearly we intend to build out in the MediaOne markets. The question of going beyond those markets really means going beyond the MediaOne geography there. And, obviously, that's something that's limited by cable ownership. Our ability to own more cable. I think it is important to recognize that AT&T is committed, is committed to this Commission. It intends to provide telephone competition everywhere it can by whatever means it can. Obviously ownership of facilities and delivery over cable systems is we feel, the most efficient, cost-effective, fastest way to do it. At the same time where we do not own cable, we've committed publicly that we're going to provide, find other means of delivering that competition. We've just announced and launched a major initiative to deliver telephone competition locally over fixed wireless systems. This is specifically designed for those types of areas where we do not own cable. So, we're going to be coming in there. And I think the commitment of AT&T as a telephone company with sixty million customers currently with a long-distance base, to protect there. You certainly have adequate indications, and we have every incentive to enter those markets. And in terms of cable concentration, which I keep hearing from SBC here in the testimony, I dare say that SBC isn't a cable company. When they've done their acquisitions, they've actually divested themselves of cable locally. They're really, I think, not interested in cable concentration so much as they are competition from cable. And I think what's going on here is that they have a concern about that being delivered over cable. That the type of ads here that they're running in Pacific Bell territory currently in California, is specifically designed simply to prevent customers from switching to a pilot offering. They seem so threatened by a pilot project that's going on currently in Fremont, taking customers from them, that they're running full-page ads being very critical of our service, I might add, indicating to me that they have quite a bit of fear of competition from cable even when it's in its formative stages. When we get this accelerated and scaling with lower prices for second lines that are half the level they currently offer, of course they have a concern about competition from that source, which is why they would attempt to stifle it through opposition to this merger. MR. JOHNSON: I can't honestly see that ad. Could you describe what -- MR. CICCONI: Well, it's a criticism, actually, of the original way we rolled out the system. But it says if you're considering switching your local phone service to AT&T, you should know the drill. And, of course, it makes a point of criticism within certain of the initial installations. We're actually having to install a battery pack for power back-ups that, as you all know, moved beyond that to line powering and it, of course, made it a considerable investment to do that. But when we were actually in the early stages in Fremont of doing battery back up, they ran a series of ads criticizing that and criticizing, in fact, the quality of our service. And, obviously, we feel the criticisms are unwarranted and they're certainly out of date by now. But I think the mere fact that they would actually to go to the time and expense of running ads to combat a pilot project in Fremont, California, is indicative that they take this seriously, and well they should. MR. SCHWARTZMAN: These guys from Texas really know how to filibuster and divert. Mr. Cicconi's just spent five minutes trying to divert you from the question that wasn't answered, talking about newspaper ads having nothing to do with the question. I got five points, I think I can make them real fast. JUDGE LATHAN: Okay. MR. SCHWARTZMAN: Number one, every major cable network is a joint venture. DOX is a joint venture, CSPAN is a joint venture, CableLids is a joint venture. The cable industry is built on joint ventures. AT&T has done telephone marketing deals and reseal deals for years. And Mr. Eichler tells you it's easier to do a multi-billion dollar transaction which busts the 1992 Cable Act than it is to enter into a marketing agreement. Number two. It does bust the 1992 Cable Act. If Congress wants to amend the 1992 Cable Act to let this transaction go through, then they can go ahead and do it. But they're asking you to waive it. Number three. You don't need to have AT&T buy MediaOne to do this deployment. Paul Allen can write a check. Brian Roberts was standing there. He didn't have a check, he had a VISA card, but he was ready to do it, too. You don't need somebody to bust the cable cap in order to bring deep pockets in to deploy video and to do so very aggressively. I certainly agree that national branding through an agreement, having AT&T national advertising on the Super Bowl and stuff would be terrific way for the cable industry to collaborate and do marketing, but they don't have to own the systems to do it. Number four. Let's talk about deployment. As I understand it, there's about ten thousand AT&T residential telephony customers on the former TCI cable plant one year after the merger. Now, I'd like to tell you what the record shows about the promises that were made to this Commission when it approved the merger on the basis that it was going to accelerate the deployment of residential telephony. All of that, of course, is under protective order. I urge you to go back, I think Bill remembers what those numbers are, and take a look at promise versus performance. They're standing here making the same promises. They haven't come close to saying what they were going to do. And if AT&T wants to get the protective order lifted so everybody can see what those promises were, I invite Mr. Cicconi to do that. Finally, you're being tough, but you're not being tough enough. In the October 1999 third report and order on cable horizontal ownership, I want you to ask Mr. Cicconi whether he accepts this as binding precedent. Commission said, cable operators have presented no credible evidence that a larger size is necessary for the deployment of advanced technologies or telephony. Moreover, we note the possibility of cooperative arrangements among operators to offer coordinated telephony services through their cable systems so that a cable operator does not necessarily need to grow in absolute size beyond the limit in order to participate in the offering of a national telephony service. That's the Commission's established policy. Let's ask Mr. Cicconi how he comports this merger with that. JUDGE LATHAN: Thank you, Mr. Schwartzman. Yes, Mr. Cicconi? MR. CICCONI: Well, the short answer is we're going to comply with the limit, Andy, and we've indicated on the record we intend to do that. We indicated when we filed this merger we intended to do that. So, I think it really is a moot question. We're going to comply with the limit, period. JUDGE LATHAN: I'd like to ask a question about the compliance and the request for an eighteen month waiver. And the question is both for Mr. Schwartzman, actually, and for Ms. Ardoin. And the question is that as you know AT&T has requested an eighteen month waiver to come into compliance with Commission's horizontal ownership rules. And let's just assume for the sake of argument that that waiver were granted. And I say for the sake of argument make that assumption. Do you have any concerns about the proposed measures that AT&T has offered us to protect against video harms? Are you familiar with their proposal in that regard? MS. ARDOIN: I am. JUDGE LATHAN: And if you have concerns, I'd like to hear what your concerns are. MS. ARDOIN: I think the, if I'm referring correctly to the video harms to which you're speaking, the fact that they're insulation criteria and is programmed based. AT&T owns not just a little bit of Liberty. AT&T owns one hundred percent of Liberty. Liberty, under this proposed merger agreement, will sell to another entity. I think that is outside of what the Commission contemplated, I think it is contrary to the rules. And the fact that AT&T wants to dismiss it as -- JUDGE LATHAN: It's a request for a temporary waiver, so my question goes to they've offered up some safeguards during the eighteen month period. Do you find those safeguards acceptable? MS. ARDOIN: I do not find those safeguards acceptable. I don't think that they provide -- while the insulation -- I'm sorry, while the safeguards are there, I don't think that they provide the kind of certainty that influence will not result to the harm of other competitors in the marketplace. I think it gives them a disadvantage. AT&T has known for a while what the Commission's rules were. And to come in at this hour and say, well, in case you still think your rules are right, in the alternative, we'd like to have this eighteen month waiver, I think takes advantage of the situation and abrogates the public interest. MS. TRUONG: May I impose that AT&T briefly summarize your proposal for an eighteen month waiver so that we can have a more grounded discussion? MS. SCHWARTZMAN: Ms. Truong, I was asked to address that question. JUDGE LATHAN: We just ask -- we get clarification, then they know what you're addressing. That's the only reason. MR. SCHWARTZMAN: In the interest of time, we have Attachment D to my testimony today, is a thirteen page statement discussing the very question you asked. Pages 8 and 9, in particular, go to the question you asked. The short answer is you want us to believe that John Malone has never met Michael Armstrong. It decries credulity. Why do they need eighteen months in addition? Originally, the Commission said you have sixty days and we mean it. Then the Commission said we'll give you 180 days. They want eighteen months past that 180 days to violate the 1992 Cable Act. And the Commission just adopted an order and attribution rules, including broadcast cable attribution this past August. We quote from the eloquent statement of the chairman, from the other commissioners saying enough of this waiver stuff. We're not going to do regulation by waiver anymore. We're going to adopt rules, we're going to adopt reasonable limits and we're going to stick to them. Now, you adopted rules, you adopted reasonable limits. You did much more. You went from 60 days to 180 days and now they want eighteen months more. It's just not justified. It's not justified on the record and it's not justified by the fact that they just don't need to buy these systems. Poor Allen will buy it, poor Allen will deploy the telephony; Brian Roberts will buy it, Brian Roberts will deploy the telephony. JUDGE LATHAN: Mr. Cicconi, would you comment on the waiver issue, please? And, first, clarify what your proposal is with respect to the safeguards. MR. CICCONI: Certainly. First of all, it's not eighteen months beyond the 180 days that the Commission has already discussed. It's eighteen months from closure of the transaction that we have requested. And I think the Commission itself has already acknowledged that it would have some issues there in the fairness dictated, giving companies a period of time in which to comply. And it is already allotted six months in that period. So, obviously, the six months would be part of the eighteen we had asked for in those circumstances. But it would be eighteen from the closure. I think that the rationale for the request is fairly simple. First of all, I think we can cite some significant overall benefits to this transaction that would argue for a waiver. And that is, obviously as we discussed earlier, telephony competition that would be provided to millions of Americans who currently don't have a choice, among other benefits we've put on the record. Secondly, I think in terms of safeguards, I think the Commission in its ownership rule, new ownership rule, laid out as its primary concern, concern about the influence in video programming involvement, material involvement in video programming. And on that core issue, AT&T is very clear and I think the record is very clear, that we have absolutely no material involvement in the programming decisions within the TWE partnership. And that really is the core issue. So, I think that the Commission, even during waiver period on the core issue about which it was concerned in its rule, has that protection. This is really about a sub-issue. It is a factor. And that is the sale of programming to TWE. Now, keep in mind that, again, we're not able to influence and do not have influence or involvement in the programming decisions in TWE. This is really about whether there is any sort of influence inferred within that partnership from the sale of programming entities in which AT&T has an interest, however attenuated. And that is really the issue or the factor around which AT&T feels it's fair to ask for an eighteen month waiver. In order to come into compliance there with that requirement AT&T may have to divest certain assets or interests. This Commission in the past has recognized that where divestitures may be entailed to comply with certain requirements the Commission has put in place, it is granted such waivers. I think four or five have been granted in the last five years. And those waivers have ranged from eighteen to twenty months. So, there's ample precedent on the record. And these have involved RBOC's and other entities. They've involved cable broadcast cross ownership, and things of that nature. So, we're asking for eighteen months within which to make that decision and to effectuate that type of divestiture if it proves necessary. We feel it's also a matter of fairness because the rule itself was put in place after the merger was filed. The merger was filed with this Commission in early July. I believe the rule was actually put in place the end of October. And, of course, the interpretations that have come forth about the influence that the Commission staff is concerned about through the sale of programming to TWE, is really a development that followed the enactment of the rule in October, as that has become clarified in the course of our discussions. So, it really is, again, we feel a matter of fairness since the rule was adopted subsequent to the merger filing. MR. JOHNSON: Could you just describe a little bit what's going on during this eighteen month period? I presume the way it's phrased, you don't immediately set off to achieve compliance with the rules because there's a period of waiting for THE decision and then there's a split in the road involving certain IRS rulings. Could you describe -- I mean, is it eighteen -- your own process starts later in the eighteen month period? MR. CICCONI: No, Bill, I think -- I mean, we understand what the rule is. We understand that interpretation the Commission has put on it. We're asking for that period of time within which to make the decisions, some of which are difficult, some of which may involve tax interpretations and tax issues, things of this nature. As well as effectuating those decisions. They're a multitude of options. And, obviously, I'm not prepared to go into those in the course of this proceeding. But they're a multitude of options raised that we feel we could come into compliance. We're determined to do so, but we're not going to wait on that process until THE decision comes down. Obviously if THE decision comes down, it could impact the rule itself, but we're not certainly asking for that period of time within which to wait for THE decision. We're going to proceed from the point of closing to try to analyze that decision, make those decisions and, frankly, consult with the Commission about how to do that. But we are determined to do it. We indicated when we filed the merger in July that we would comply with whatever rule the Commission put in place. And we intend to do that. We're simply asking for a period of time beyond six months that the Commission has already acknowledged. So, I think the Commission, by stating that, that there would at least be six months following the decision to begin enforcing the rule, that there is a fairness issue here within which companies should be given time to come into compliance. And obviously that issue is compounded when a merger like this is taking place. MR. JOHNSON: I guess what I'm getting at is how much of the time is occupied with making the decision what to do and how much is occupied with achieving the result of that decision. MR. CICCONI: I can't begin to quantify that for you right now, Bill, because obviously the answer to that would depend on the options that we conclude are most viable and how easy or difficult they might be to effectuate. Some might involve fact issues, others might not. JUDGE LATHAN: Assuming for the sake of argument that a waiver were granted, and also assume that for whatever reason you were not able to come into compliance after eighteen months, what should the Commission do if after eighteen months you are not in compliance? What should, if any, the enforcement action of the Commission be? MR. CICCONI: Deborah, we've said we'd be in compliance and we will, period. JUDGE LATHAN: Mr. Schwartzman? MR. SCHWARTZMAN: Here's the choice. We want certainty. We want to deploy broadbands. You should let somebody else buy MediaOne or you can let AT&T buy MediaOne. At that point, eighteen months commences with stay lanxes of tax lawyers, Wall Street analysts, meetings - can we do it this way, can we do it that way, how about this one, how about that one. And then as you hypothesize it, quite possible at the end of eighteen months they might not quite make it. And then what does the Commission have to do? If you want certainty, if you want broadband deployment, don't approve this merger which busts the law and requires a waiver. I would note, also, that the concern that Mr. Cicconi has 'cause there's something new here, is that the Commission liberalized the rules in October, and they're not liberal enough. Until October, they couldn't even begin to try this kind of maneuver and it's not good enough. They want to go further. Why undertake all of this? The hypotheticals you're asking prove the point. You're opening up a Pandora's box in order to accommodate a company that just comes in here and says we'd like to do it and you immediately say, oh, yeah, well, all right, we'll think about it. Well, don't think about it. It's violating the law. Say no and let's move on. JUDGE LATHAN: Thank you, Mr. Schwartzman. MR. CICCONI: Could I just respond to the point about the liberalization? 'Cause I think that creates a false impression, at least from our standpoint. I think in some respects it can be argued that the Commission may have liberalized the original rule. In other respects, it clearly does not. We felt that the original transaction would have qualified and we could have qualified it to the Commission's satisfaction under the insulated limited partnership exception. That was eliminated under the new rule. So that, itself, is not a change that I would view as a liberalization. In fact, it's complicated. And, secondly, the market factors that Andy pointed out and the complications there I think are an indication of how difficult such a decision, particularly if it involves a sale of assets for several interests, could become. And I think fairness dictates, again, that particularly since rules adopted following the July filing of this merger, that we be given some time to comply. Lastly, again, precedent. This Commission has looked at situations like this in the past, particularly in the last four or five years. And when it is involved divestitures of this nature in order to come into compliance, the Commission has given eighteen to twenty month waivers to other parties when they've come in here. So, this is not in any way, shape or form an unusual request. In fact, it's very much in keeping with precedents that the Commission has acknowledged. THE: Mr. Cicconi, can you clarify what you meant when you said that the October '99 rulemaking eliminated the insulated limited partnership exemption, or otherwise tightened the ownership rules? MR. CICCONI: We felt that under the original rule, the definition of insulated limited partnership would be one that we could come into compliance with. That definition was changed. I think we've indicated on the record that the rulemaking itself some concerns about certain of these issues. The fact is that change is something that would not allow us that avenue under the true partnership. This becomes much more now an issue involving the material involvement in video programming, and that really becomes the operative standard there. And, again, the sub-issue that being the sale of programming to TWE. So the core issue for us during the eighteen month period is not compliance with any of the other standards in the rule. The core issue now for us becomes the issue of the sale of programming from other interests that AT&T has an involvement in, even if it's attenuated to the TWE partnership. And that is really the core issue, the single factor that we would be seeking to address within that eighteen month period. Because it calls into question our involvement in these other entities that, again, however attenuated they may be, they're selling programming to the TWE partnership. And that is something that we feel will require some thought. And we have a number of different options. And during that period of time, we would have to make some decisions. Probably have to divest some of those interests in order to come into compliance with the interpretation of that rule by the Commission. MR. JOHNSON: Could I try one, one just question? Maybe we should have started earlier with this, but what do you see the real role of these rules playing in this analysis? In light of the fact that the rules are not enforced? And, particularly, Mr. Schwartzman, I know you'd like the rules to be in effect, but is it appropriate to make judgments based on rules that aren't in place? Or should we make judgments as if there were no rules and proceed on that basis? MR. SCHWARTZMAN: Well, your question may be one of relative short duration. I think there's a pretty good chance that the Commission at a Court of Appeals is going to issue forth before the Commission can get to it. Especially if the Commission heeds my request to solicit comment on the effect of AT&T, the AOL-Time Warner merger on this transaction. Because as I said, I believe they are mutually exclusive and we intend to press that aggressively. You have to develop a record on that. So, the first level I'm not sure there's a problem. At the second level, even -- look, the Commission did not need the 1992 Cable Act to impose horizontal hardship limits. It did them under the authority of the public interest standard. It still has public interest authority. If the Commission has conducted a rule making and found that thirty percent is the appropriate limit, it would be arbitrary and capricious not to use that as a principle, the loadstar for determining what is in the public interest. Which is the determination the Commission still has to make. If they want to make it as an applied challenge to that in court afterwards, fine. But I think the Commission has no choice but to apply that limit. It's forcefully and vigorously defended. The legitimacy and the soundness of the decision-making process and finding that thirty percent is the right number. I don't see how it cannot. MR. JOHNSON: -- lend them to us which is that they will comply with the rules if the rules exist. JUDGE LATHAN: And to trust them that they'll do that. MR. JOHNSON: Well, that's another issue. I mean, I'm sort of getting at the more structural problem if how can we -- it's sort of a hypothetical merely if we're using the rules which may disappear, wouldn't it make more sense to ignore the rules and come up with an answer which would exist regardless of the rules? MR. SCHWARTZMAN: How can you ignore your own rules? MR. JOHNSON: Because they're stayed. MR. SCHWARTZMAN: You're staying them. First of all, you're flipping back and forth. And when the stay gets lifted and we're trying to help you out in that regards. But, second, it's the basic reference. If you didn't have the '92 Act, you'd be making the same determinations. I just don't see how you can say we can pay no attention to it. MR. JOHNSON: Well, that's why I guess shouldn't we just be making the basic determination? MR. SCHWARTZMAN: But the basic determinate is going to start with you conducted this huge proceeding. You've told THE of Appeals that this was the right answer. This is, this is the sweep spot where competition becomes problematic. MR. JOHNSON: Well, presumably -- MR. SCHWARTZMAN: Would be arbitrary and capricious if a different number. MR. JOHNSON: We would come to the same conclusion if the analysis was the same. MR. SCHWARTZMAN: You sure would, especially since you'd be writing them all. MR. JOHNSON: The decision wouldn't be based on a -- decision wouldn't based on rule, it would be based on a specific analysis, which would then endure regardless of the rules. MR. SCHWARTZMAN: Well, certainly the specific analysis has that always taken into account the overall video market. I don't see how it's going to come out differently. Thirty percent is either going to be too high or too low. MR. JOHNSON: Could you respond, Mr. Cicconi? MR. CICCONI: Well, I -- believe me, I recognize the conundrum. I think we're operating under the assumption that there will be a valid rule in place. That we're not submitting this request, nor are we operating with the Commission in this area on any sort of assumption about THE case. I think that's certainly something we all recognize that's out there, it's something that could affect what's going on, could affect the Commission's rule. But I think we have to operate on assumptions. The assumption we're operating on at AT&T is that the current rule the Commission adopted and put in place in October is the one that we would be asked to come into compliance with. And we're asking for an eighteen month period from the point of closing within which to do so, Obviously if a court decision comes down that affects the rule in some way, the Commission first and foremost will have to figure out how to address that. And, of course, we'd work with you to do so. Whatever rule is in place, AT&T will come into compliance with. We said that on day one of the merger. Again, we're in a not dissimilar situation in July when we filed the merger. The old rule, now superseded, has been under suspension for I guess four or five years at that point. Or had been stayed for four or five years. We were on notice that the Commission intended to put a new rule in place at the time. We didn't really know what it would say. The Commission didn't know what it would say. But we indicated at the time we filed whatever it said, we would come into compliance. MS. HILL-ARDOIN: It was before, actually, the AT&T proposed merger was announced that the Commission warned, and I'm quoting, interested parties, including in particular parties that are now entering into business arrangements that would violate the rules, but for the existence of the stay, should be well aware of the existence of the rules. And, thus, have a full opportunity to be prepared to comply with them. Perhaps now it might be held that this eighteen month waiver is that full opportunity to comply with them. And in explaining why the waiver would be justified, Mr. Cicconi went back to what was going to be happening and focused on the benefit that were going to be delivered as a result of this merger. And he spoke about telephony competition. His commitment as he has stated here to telephony competition, and I'll quote as best I can with my shorthand, that AT&T intends to provide telephone competition everywhere it can by whatever means it can. That's the commitment. It is not specific. I would like to see the Enforcement Bureau have a run at whether or not they have competed in telephone competition everywhere they could by whatever means they could. MR. CICCONI: Can I respond to that? Because first of all, we are out there competing today. I think the ads I've held up here are a little dose of reality here. And SBC comes in and says one thing, competition isn't occurring, AT&T isn't delivering. The fact is we are delivering it out there and they're running ads to counter it out there. If it wasn't in existence, they wouldn't be doing so. Secondly, I think it's more than a little disingenuous for a company that during the Telcom Act in 1996 assured the Congress and this Commission of its intention to be unleashed to compete everywhere against every other RBOC. Three years later we're still waiting. In order to get their Pac Bell merger approved, they made, they gave assurances to this Commission and to the California Commission about their commitment to compete outside the region. Again, this Commission has seen absolutely nothing from them on that. And to the point where in order to get approval of the Ameritech merger, they were held to account on that. Finally, for SBC which has yet to demonstrate after three or four years of promises any desire to compete anywhere in anybody else's territory, I'd like to see the SBC marketing ads in other RBOC territory looking to compete and providing local phone service. We aren't seeing any of that. Again, after four years of promises. So, I think it's more of a little disingenuous for people that we're actually seeking in the market today to compete against to lecture us about providing competition when they've so badly failed to meet any of the commitments they made previously. MR. KENNARD: Actually, I think it's wonderful to hear SBC welcoming new telephony competitors in the marketplace. I've never seen that before. MS. HILL-ARDOIN: We are indeed doing that. We are not shrinking from competition. However, we do have some concerns that might taken up about how competitors enter the market, the rules by which they have to live and this whole issue of disparate regulation. But we, in fact, do welcome regulation. I enjoyed -- I'm sorry, competition. I enjoyed that jaunt down memory lane, but when we talk about mergers, rather than going back to the '96 Act I think with reference to SBC, we can focus rather recently on our merger with Ameritech. And I can tell you that this Commission did not approve a merger in which we committed to compete everywhere we could and whatever means we could. Our commitment to competition is specific, it is verifiable, it is enforceable and it is being aggressively executed. And probably if I didn't have a bad back, I could have hauled those conditions in here. JUDGE LATHAN: Andy. MR. SCHWARTZMAN: I'd like to observe that this is the third time, by my count, that you've asked Mr. Cicconi a question about AT&T and he's given you an answer about SBC. This is about SBC. Now, if he wants to talk about -- THE: You mean AT&T. MR. SCHWARTZMAN: If he wants to talk about -- thank you. If he wants to talk about commitments, first as I've already pointed out, there's ten thousand residential telephony customers in TCI and you know what the promises were made. That merger's a year old. Second, when they talk about we'll come into compliance, just trust us, I'm pointing out to you that we filed a complaint alleging repeated violations of the reporting requirements involving these very rules. And misrepresentations about it. And as I got Attachment D in here, just three weeks ago, they filed another, consummated another transaction without submitting the required certification. And that complaint filed on October 7th sits in your bureau. Mr. Chairman, I've asked that that be referred to the Enforcement Bureau because it's supposed to be firm, fast and flexible and we're not getting firm, fast and flexible on this. JUDGE LATHAN: Mr. Simon. MR. SIMON: Yes, I wanted to interrupt the conundrum about cable ownership just to make a point. In the Cable Bureau's broadband report, Ms. Lathan had the parable of several people feeling the different parts of the elephant. MS. HILL-ARDOIN: The blind men they were. MR. SIMON: The blind men. Let me back up and look at the whole elephant just for a minute. And I want to -- well, I'll hold that. Mr. Cicconi says that he needs to join the cable monopoly club because he needs to fight the incumbent Bell monopoly club. Now, he then says that acquiring facilities to compete with incumbent monopolists is critical. And before he changes that hat, and indeed his entire suit, I want to embrace him because that is what we have been saying. That unless internet service companies in this country are able to acquire through open access the facilities to provide broadband internet access, how are they going to compete with the incumbent cable monopoly? So, when we're talking about the battle for local phones and the battle regarding the cable ownership, horizontal limits, keep in mind that during the eighteen month waiver, that is a sub-set of the two and a half year period that Mr. Armstrong says he intends to maintain his monopoly on internet access over his cable system. In internet time, that's about eight years. That will discourage investment by untold thousands of people in innovative internet applications that would never see the light of day in that network. JUDGE LATHAN: Okay. I think on that note, I'd like to take a break. And when we come back, we are going to talk about video, potential harms, programmers and broadband. And so let's just take a ten-minute break, and thank you so much for the spirited conversation this morning. (Whereupon, a brief recess was taken.) JUDGE LATHAN: Okay, we're back in session. Please take your seats. We have only about an hour and fifteen minutes left, and so I want to make certain we're able to move to the other issues, such as the broadband issues and the video issues. But, first, Quyen Truong would just, she has just one or two wrap-up questions with respect to the benefits of the merger and then we will move on. Quyen. MS. TRUONG: AT&T and MediaOne have submitted independent deployment plans showing how each company would provide local telephony and other new services in their respective areas absent the merger. But we obviously have not seen anything on your plans for deployment once a merger was to go through. And I would like to hear from Ms. Ardoin, as well, on your perspective of trying to develop that kind of post-merger plan since SBC in seeking its approval for its merger with Ameritech, did have plans showing how the merger could accelerate the deployment of new services. Could AT&T and MediaOne discuss for us what impediments there may be to your developing those post-merger plans and how we can evaluate the extent to which the merger would accelerate deployment absent a comparison of the post-merger plans with the plan for deployment if there was no merger. MR. CICCONI: I'm not sure how much I'm able to help you on that, but I'll at least try. There are some impediments on us, as I understand it, in terms of joint planning at this point. I think that's been one of the main issues in terms of being able to submit any sort of joint plan to you about how we would deploy going forward once we closed the merger. I think that's probably the primary answer to your question. I don't know if Frank can -- MR. EICHLER: I agree. MS. TRUONG: Ms. Ardoin, can you address how SBC was able to provide post-merger plans? Were you doing it independently or based on cooperation with Ameritech? How was that done? MS. HILL-ARDOIN: Some limited cooperation with Ameritech, however, there were certain prohibitions against joint planning at the time. And I have to say that that does have a real impact on the ability to analyze the situation you're going into, to make commitments and to get very specific plans about what you will do. However, we were committed to broad-based competition. We were committed to spurring competition in the local competition market and the local service market and entering into long-distance. And lots of long, sleepless nights, lots of operations, people focusing on the details is what it took. It's not impossible. MS. TRUONG: Okay. Going to the other part of what you have submitted from AT&T and MediaOne, your studies of the synergies estimated from the merger, including both dollar saved and the increase in market penetration from the merger, are based on the explicit assumption that the merger will accelerate the deployment of new services, especially in MediaOne's regions. Will you be submitting evidence to show that that assumption is correct? For example, the assumption that the merger will cause MediaOne's market penetration to be thirty percent by the year 2004, as versus sixteen percent absent a merger. Especially when we consider that, according to your own representative, MediaOne's market penetration is actually higher than AT&T's in areas where each have provided local telephony so far. MR. CICCONI: I'm not aware of that information. I'll let Frank speak to the MediaOne projections. But we did put into the record a projection, market projection that we would achieve thirty percent penetration by 2004 within MediaOne markets, which I think MediaOne is also indicated is quite a bit faster, I think up to three times faster than they would be able to achieve the same levels. In terms of the synergies that would be possible on lower cost, I believe all that is in the record. I realize that since July there's been thousands of pages that have gone in there and there's quite a bit that's been put on the record. And investment banker's information may be particularly indecipherable, but I think it's roughly about a billion dollars in savings and about five hundred million dollar impact in EgodDod that was put on the record, if memory serves me. But we'd be happy to point out those portions of the record. Obviously those lower costs would be benefit to the merger that would help drive deployment at a faster pace, too. MR. EICHLER: With respect to penetration, I think it's important to recognize that we started marketing telephone service a lot earlier than AT&T. We started in Atlanta three years ago. I think that was our first launch of competitive telephone service. And so we have been rolling out as markets become, basically they're built out and they become telephone ready, that's when we start to market them. And, remember, we're still in the process of building those systems out. We still have a couple billion dollars to spend in the next year and a half or two years to get the rest of our markets even capable of marketing for telephone. I think by the end of this year, we anticipate under our current plan, that the MediaOne systems are going to be approximately fifty-nine or sixty percent marketable for telephone services. Only seventy-five percent marketable for high-speed data. So, we still have about a year and a half left to get them all up and ready before we can even start marketing. You have to do the build-up first. MS. HILL-ARDOIN: I might add one of the things that causes you to have to think very carefully about what you're going to do on a post-merger basis is when the Commission requires those plans to be very specific. So, I think we're energized by that, put a lot more energy into it. And when you have to make particular investment commitments, when you have to talk about the number of markets that you're going to be in by a particular time, causes you to have to get down into the details that are being referred to here. But without that, I think the process has no definite end. The benefit has no time that it is assured to come into the market. And there are no consequences for that public benefit not being delivered. So, I think post-merger planning is something that the Commission should continue to be concerned about and appropriately incent parties to think as deliberately as is required to, to make those commitments. JUDGE LATHAN: Thank you very much. Anything else, Quyen? Mr. Cicconi, in your filings you state that it is crucial -- in fact, imperative that AT&T be allowed to keep TWE. That the merger would not be effective unless AT&T was able to keep its interest in TWE. Would you please explain that? And by that, I mean Time Warner Entertainment, excuse me. MR. CICCONI: Time Warner Entertainment partnership. Well, obviously, it's a major portion of the interest that MediaOne holds. And the partnership agreement itself is extremely complicated. And I'm not sure even if one wanted to get out of it how possible that is. But I think the larger point is that this is an essential component of MediaOne, that interest. And we feel it does represent not just an investment, but by becoming a partner with Time Warner, we hope that it provides certainly a better incentive for Time Warner to take seriously local telephony. To date, this has really not occurred at the residential level in their territories. And we're obviously hoping through that partnership to have some impact on that type of approach. AT&T being a telephone company, being a communications company with its primary motivation being to deliver those telephone services, has, obviously, every incentive to further those ends with the partnership. So, clearly we feel that that interest is one that could be used to further the cause of local telephony deployment. THE: But it's our understanding, and please correct me if I'm wrong, but it's our understanding that MediaOne does not have any governance or management rights in TWE. If that is correct, then how would this help you further your local telephony interest with Time Warner? MR. CICCONI: We have -- obviously the investment interest itself, being the partner in TWE would have, obviously, some effect in terms of aligning the interests of the parties there. So I think that's one part of the answer. MS. TRUONG: You've announced, I think previously, that prior to Time Warner's announcement of a planned merger with AOL that you expect to finish a joint venture agreement with Time Warner within the next few months. And you've also indicated that you've reached an agreement to provide phone service over ComCast cable systems. In addition, we would also hear about how there is at least a tentative agreement between MediaOne and AT&T to share switches in a box in Atlanta. Now, given all of those existing and potential agreements, why is it necessary for AT&T to have an ownership stake in the Time Warner Entertainment Partnership and to own MediaOne in order to provide phone services instead of going through these types of arrangements? MR. CICCONI: Well, I think you said it yourself; the potential agreements. We have not been able to conclude any of them. We did announce, for example, the intention to conclude a joint venture with Time Warner quite a bit ago, I think about a year ago. And we have not, to date, been able to conclude such a joint venture. We haven't been able to with other cable companies, as well. And I think there's a couple reasons for that. But, obviously, one conclusion that can be drawn is that ownership of the underlying facilities obviates the need to conclude such agreements. They are complicated to conclude. It is difficult to bring the interests of the parties into alignment. The interest of the different parties in delivering telephony can be very different. We've run into issues in terms of the term, in terms of pricing, in terms of actually who controls the underlying facilities, who delivers what services, the extent of those services. Whether, for example, those services will be voice only. For a long period of time. Or whether they could include developments of video telephony when they came across. None of these issues have actually been as soluble as we had initially hoped. We do believe that the demonstration, particularly in the MediaOne territories, but also in the TCI territories, of the power of AT&T's brand, of its investment commitment in terms of those penetration levels and the revenue that can be derived from that, will help spur some interest in joint ventures. But I think it's the cart before the horse. I think it's very easy to conclude that there may be an alternative there in terms of joint ventures, but we simply haven't been able to effectuate that. And we have tried. We do believe, very clearly, that the acquisition of MediaOne is something that simply poses no impediments to delivering those services. We're going to get them done. Just as we are in the TCI territories. So, I think the acquisition of MediaOne actually will help us in terms of being able to bring about subsequent joint venture arrangements with cable companies that we haven't been able to conclude to this point. But they are extremely difficult arrangements to work out, we found. MR. SIMON: Can I make a comment on that before Andrew does? We hear a lot about market forces, and yet, Mr. Cicconi from one of the largest companies in the world, just said that because they have trouble working out a deal with cable companies they had to go buy them. How in the world do you expect Peria 51, ISP in New Mexico under market forces, to negotiate its way onto a cable network if AT&T is justifying this merger because it's too frustrating to negotiate a joint venture agreement with other cable telephony providers? Market forces have their limit. If AT&T has to buy into the cable monopoly because it can't negotiate an agreement, how do you expect your local ISP to negotiate an agreement unless they have a right of non-discriminatory access? JUDGE LATHAN: Mr. Cicconi, we can't wait for your answer. MR. CICCONI: Well, I think it's an interesting way to shoehorn open access into this session. JUDGE LATHAN: That's my job. MR. CICCONI: And you do it well. Frankly, I think it's a fair question, and I think the answer is very clear that we've made a commitment to do so. We've made that commitment in writing to this Commission with a fair degree of specificity. We're under, we're in the process of negotiations with ISPs right now, large and small ISPs, and we hope and expect to be able to conclude agreements with them. We have indicated publicly, as I think a particular sign of our intentions on this, that we do not intend to extend current exclusivity arrangements. We will provide a choice of ISPs on this system. That is clearly our intention and we're seeking to carry that out now. We're also in the process on our fixed wireless systems where we don't have any exclusive contracts, of conducting those negotiations for media carriage. We are looking to provide that choice, not just to be responsive to the consumer desires, or frankly, even Greg's desires, but from a business standpoint we've concluded this is also good for AT&T and its shareholders. If our customers want a choice of ISPs on our platform, we feel it is in our business interest to deliver that. If they don't get it from us, they'll go somewhere else. And we want them on our system. Let's keep in mind, too, that we're trying to attract people to our platform for the provision of telephony services against an entrenched monopoly that has upwards of ninety percent market share. We've concluded that if we in any way are restricting consumer choice on that platform, that we would be doing something that's extremely counter-productive. So, I think the short answer to Greg's desire, to OpenNet's desire for us to deliver a choice of ISPs to our customers, is, yes, we intend to do that. We have heard you and that's what we're going to do. JUDGE LATHAN: We will turn to -- we're going to return to the open access issue, but I want to finish up some TWE questions, Time Warner Entertainment questions, and we will come back to this issue. And, Mr. Simon, I'm going to actually ask you a question that doesn't deal with the access issue, and I'd also like Mr. Cicconi to answer this question. In your view, if AT&T insulates TWE under the new attribution rules, would the merger have an adverse impact on independent programmers and smaller purchasers of programming? And I'd like for you to specifically answer questions such as would independent and start-up programmers be able to survive if AT&T does not carry their programming? Would AT&T's competitors in the video distribution market, overbuilders, wireless, cable operators, DBX, et cetera, would they able to obtain desirable programming to offer their viewers if AT&T enters into exclusive contracts? And let me stop with those components. Could you just address those issues for me, please, starting with Mr. Simon and then Mr. Cicconi. MR. SIMON: To begin with, the question regarding whether AT&T will have dominance in the programming world, affects investment in people who are going to be creating programming to compete with existing cable video programs and existing methods of delivery of cable video programming. I am no expert on attribution rules, I'm no expert on program carriage economics, but I can tell you this. The internet provides the best opportunity for new companies and new investors to provide competition to existing cable video programming over high-speed broadband networks. And it is no accident that wherever cable monopolies have the chance, they block streaming video that could compete with regular video. Whatever technical arguments exist today will not exist tomorrow. But if the owner of the network continues to have a chokehold in the access point, why would people invest in putting internet video into a system in which sixty percent of the homes can't get it? They get cable service from people who control internet service providers over the network. So, whether or not AT&T has an attributable interest in Time Warner Entertainment, if they continue to monopolize access to the network and not allow cable technology to carry new types of video programming, people will not invest if millions of households won't be able to see their product. Or they'll be forced to go to less effective technologies or technologies that are farther down the road. Now, when you talk about can the overbuilders obtain programming. Well, you know, it's been a long battle to get the Commission to make certain that competitors to cable could obtain programming in the first place. And if anybody here thinks that cable does not have a dominant position today in video programming and that they leverage that position to keep people in line on other issues, then ask yourself why are there no media giant companies as members of the OpenNet Coalition. They have an interest in providing their programming to consumers. Right now, cable video programmers have a chokehold on new shows coming onto cable channels. So, when we talk about whether there's going to be a problem with a monopoly network in the video market, I tell you that there is a problem today with cable monopolists in the video programming network. This will not make it any easier. JUDGE LATHAN: Thank you, Mr. Simon. Mr. Cicconi and then Mr. Schwartzman. MR. CICCONI: I think Greg's statement is simply unsupported by any facts. There aren't any records that I'm aware of, and certainly unsupported by anything that's ever been filed with this Commission. The fact is that there is no chokehold today. If anything, the ability of cable to have any influence in this area is becoming more limited by the day. DBS is certainly coming in like gangbusters. They have a growth rate now that's doubled what cables it is in terms of deployment. So, there's absolutely no chokehold in terms of distribution. And, in fact, as cable goes digital, you have a hundred stations going to a thousand stations. Content itself is going to be even more in demand than it is today. I'm unaware of anything that is on the record at this proceeding from any programmers indicating any sort of fear about any sort of chokehold. I'm also unaware of any sort of complaints at this Commission from programmers indicating that cable, in general, is exercising any sort of chokehold or somehow denying them access. In fact, I think what we see occurring today is that programming is proliferating and programmers are able to, in fact, exercise some degree of market power of their own. You have about two hundred and eighty programmers out there today, I believe. And what you're seeing in the marketplace is that popular programming, and ESPN is certainly one example I can cite, but there are many, many others are able to demonstrate who has the power in this relationship simply by the fact that they can raise prices at will and sustain it. And the cable companies are forced to pay it in order to be able to carry their content. This is what's happened with ESPN. Frankly, it's what happened to us in our territories with the Chicago Bulls. And, unfortunately, those costs have an affect on cable rates. But it's the programming that is actually in demand today. This is not a capacity issue. Law of supply and demand is actually working here and the programmers, frankly, are the ones that seem to be having the best of it in terms of that relationship today. I'd also add this. That I certainly don't think that Michael Eisener or Sumner Redstone or Rupert Murdoch are sitting there in any sort of fear of any sort of cable chokehold. Far from it. They seem to be doing quite well, thank you, in being able to exercise a high degree of control over their perimeter. They seem to have absolutely no difficulties in not only getting their programming on, but sustaining that programming. I think as far as the independent programmers, all you have to do is flick on any local cable network anywhere in the country, or DVS, and you'll find that the programming from independent producers is very much in evidence. In fact, a high degree of local programming is also in evidence. JUDGE LATHAN: Andy? MR. SCHWARTZMAN: Yeah, I know Mr. Cicconi is new to this part of the game and he's not really familiar with a lot of the jurisprudence, a lot of the history. As far as I know, there is material on the record complaining with those kinds of things. And I think Seren Communications -- JUDGE LATHAN: They'll be in this afternoon. MR. SCHWARTZMAN: -- has filed stuff. So, I encourage Mr. Cicconi to stick around. I also encourage you to read Section 19 of the 1992 Cable Act and the, as Bill Johnson will assure you, voluminous issuances that the Cable Services Bureau on program access complaints. They're filed every day, people are complaining. Maybe they don't win, but there's a lot of people out there who sure think that there's chokeholds. I'm not going to regale everybody with the quotes that come out. Every now and then a CEO forgets that they're not sitting around at the closed doors at the MCTA and they're at a convention and they speak truth that I'll be gosh darned if I'm going to let them get onto my cable, spend fifty billion dollars on it, then everybody says, oh, he didn't mean it. The video streaming issue is important and it's prospective. You don't know how the technology is going to work out, I don't know how the technology's going to work out. We do know that everybody's cross purposing and cross branding and trying to find multiple platforms and all sorts of interactivity. And what this reminds me of is PrimeStar. If you combine Excited Home and MediaOne Road Runner, forget about AOL. But if you really want to bring in AOL, you're creating exactly the circumstance, a cable industry distribution channel on another medium used to leverage the other. This is a high-tech PrimeStar that you're facing on the video side. Why let it happen? MR. CICCONI: Can I just -- the one company Andy mentioned here, Seren, is not a programmer. And in his entire response, I didn't, frankly, hear the name of one programmer that's having any difficulty with access to the cable systems. Including our systems. Seren is not a programmer. MR. SCHWARTZMAN: Classic Sports Cable. There's case, after case, after case, after case, Jim. MR. JOHNSON: It's sort of a generic question which comes up in this and other proceedings is which is increasing faster, program supply or channel capacity. I think we have heard both answers in various proceedings. MR. CICCONI: I think that -- it's a very difficult question. Obviously it's something that's involving a prediction of technology and the ability of the market to respond. But it seems to me, frankly, channel capacity is not only increasing exponentially, but is about to go even beyond that as it goes digital. And I think if this Commission's record and proceedings don't find any evidence of any sort of programming access difficulties today that they found actionable, then certainly as we move to the greatly increased capacity of digital cable with a thousand stations instead of a hundred and twenty, that, frankly, my belief is that, and I think my company's belief, is that we're going to be crying for content, frankly. MR. JOHNSON: Does that include digital must- carry signals? MS. HILL-ARDOIN: Is that -- MR. JOHNSON: Yes. MS. HILL-ARDOIN: Ms. Lathan, a short reply to your question about whether or not overbuilders could obtain programming. As an overbuilder, I'd say certainly we can obtain programming, but at significant cost, and therefore, a high interest area. Our experience has been that we pay roughly two months of our cable revenue to secure programming on an annual basis. That's upwards of fifteen percent, and that's a significant concern. And an ability of overbuilders to make this business and manage it as a going concern will certainly go to managing the program cost and being able to acquire programming at a cost that would be, let's just say, the same as would be available under this proposed merger. MR. CICCONI: I think, by the way, though, that point with respect, Priscilla, makes the argument that programmers are not in any way disadvantaged here. This is about programming. If your programming costs are that high, it certainly indicates that the programmers are able to extract that kind of cost from you and indicate your desire to carry their programming. It doesn't indicate, in fact, any ability on the part of either of our systems to block that programming. So, I think it does make the point that the weight in the relationship, frankly, shifted pretty dramatically toward the programmers and away from the distributors. MS. HILL-ARDOIN: I think it certainly demonstrates that if you're going to compete in the cable business you can't do it without programming. So, paying that cost comes along with the territory. And it is something that is going to have to see a lot of significant downward pressure. MR. SIMON: Mr. Johnson, I think the question the bureau should ask itself is how many new programs are coming on that are not affiliated with the cable owner. That's the test. ESPN is not the problem. It's the next new channel, the next history channel that wants to get on that's not affiliated with the cable owner. So, ask yourself how many truly independent programs do we see joining the cable networks. JUDGE LATHAN: That was precisely the question I asked. I asked for independent and start-up programmers be able to survive, and I guess I would like to hear more. MR. CICCONI: The overwhelming majority of the programming carried on our systems today, has absolutely no affiliation with our cable company. And that would be the case following this merger, as well. I just -- I don't see the relevance of that point. It seems to presuppose some sort of ownership stake here that is non-existent. There's no evidence of it in the record. Fact is that these systems are open to all manner of programming today. The programmers are certainly not complaining about it. They have not complained in this proceeding. There's nothing on the record indicating any sort of concern from any programmer about access to the system. And, in fact, all you have to do is flip through the channels or look, in fact, in TV Guide today and you can see the evidence of that on any cable system in America, not just ours. MS. TRUONG: Focusing on the issue of affiliation, AT&T has argued that we should not attribute Liberty to AT&T in considering AT&T's horizontal reach in the digital market and in considering the mergerous impact on the video programming market because AT&T does not influence Liberty. I'd like to hear from Ms. Ardoin, Mr. Schwartzman and Mr. Simon as to whether you agree with that position with AT&T. To what extent -- and if not, to what extent you think AT&T has influence over Liberty, and vice versa. And apart from the issue of influence, are there other concerns that we should look at here in assessing the impact on the video market. MR. SCHWARTZMAN: Well, we addressed that in our witness submissions and I am -- the way everybody is afraid is the case I could run on that one for a very long time. I'll touch on one or two points. First of all, AT&T and Liberty are tied together entirely its tracking stock. Mark Cooper, Consumer Affairs of America, likes to talk about the yo-yo. They spin it off in the tracking stock and then when the regulators turn around and go the other way, they pull it back in. And Liberty and TCI have done that three times at last count. John Malone serves on the board of AT&T, and his responsibility is to the shareholders of Liberty Media. AT&T's control of one hundred percent of the ownership of Liberty Media means that everybody involved in the exercise knows that if the one company succeeds, the other company is better off, and vice versa. You don't need to have explicit communication for programmers to sit there and say, well, let me see. If I pick this programmer who's got no affiliation to this company, somebody might not like it. And I might not do well in my company if they don't like it and my company might not do as well. Or if I take the safe one, I don't have to call them up and tell them I'm going to do it or ask them whether I should it. I'm going to be safe. You can't possibly chart it, you cannot possibly put monitors in, you can't possibly deal with the myriad ways that relationships in this kind of situation go back and forth. The simple fact is that they own each other. And the Commission has recognized it and have adopted rules. And have adopted very specific rules about degree of insulation that it was going to require, which we don't like. And that's not good enough, they want more. Chairman said the time has come to start administering by rule and not by waiver. And what they're saying is pay no attention to all those rules you adopted, we'll be good, you know, it doesn't really matter. They're really asking you to ignore all the proceedings you've conducted and tolerate structures that are tailor made for devious conduct. MS. HILL-ARDOIN: I echo a number of those sentiments. I find it inconceivable that there could be any version of insulation, barring the rule that the Commission has put in place. AT&T may take the position that effectively, even though it owns a hundred percent of Liberty, that it's not their company, that they have no influence or control over it, I would tend to disagree with that. But more importantly, the FCC and the Department of Justice have disagreed with it. MR. SIMON: As a personal matter, I wouldn't dispute anybody who said they don't have influence over John Malone. But it is ironic that earlier, Mr. Cicconi said that in an arm's length relationship with Time Warner because of their joint ownership through MediaOne, that they would be able to align their interests with regard to rolling out local telephony. And, yet, all of a sudden we're asked to believe that they won't align their interests when it comes to programming and video services. One could ask the question why do you spend so much money to buy companies you then say you have no influence over and you're not going to have any cooperation with. My concern is this. The distribution point mentioned earlier allows AT&T to adversely effect the roll out of other types of video distribution over the internet. And we know that in the open internet networks, there is considerable investment in broadband video. That won't happen in the cable network if people can get access to provide video programming on the cable network in competition with the cable video programs. Why would we allow the owner of this network to control the next level of competition on the underlying transport facility? AT&T is made it clear in the past year that they consider internet video competitive with cable video. That's why they have said, and as Mr. Schwartzman says, their more candid moments, that the streaming video limit is because they don't want people getting their video over the internet. They want them to pay for it through the cable video property. The cross-ownership also affects electronic programming guides that will influence video programming and programming success. You have the issue of set top box control with relationship with Microsoft. We are building here a house of interconnection that will take years to unravel when you decide it's a problem. If you allow it to go forward in its present state. If we're concerned about new methods of distribution, why would we allow the legacy owner of a network to prevent the new distributors from being on that network? We fought this before with program access, we fought it with monopoly control of set top boxes and remote controls. Why wouldn't we fight it here? MS. TRUONG: Mr. Cicconi, I'm sure you'd like to respond. MR. CICCONI: Well, first of all, I thought the question was about Liberty and not about every other conceivable interest that AT&T has currently. I'm unaware of anything that exists that somehow allows Liberty to have any sort of role in the underlying transport, or even in the internet or video streaming, or anything of that nature. With respect to Priscilla on the point about the FCC and the DOJ having somehow objected to the structure of Liberty in its relationship with AT&T. With respect, that's simply not true. In fact, the Department of Justice and the FCC approved the TCI transaction with full knowledge of that arrangement. And, in fact, when they signed off, it effectively signed off on that. I think the sole issue here with Liberty relates to the underlying sale of programming by Liberty to TWE. Now, keep in mind, the larger issue here and the larger concern that the Commission had about whether AT&T has a material involvement in video programming decisions at TWE, we feel is taken care of on the record and hopefully to the Commission's satisfaction. There simply is none. The question is about this once removed issue of the sale of programming from Liberty to TWE. And, of course, that is an issue that we would seek to address through one means or another during the waiver period. But in terms of Liberty itself, I think there's a number of misconceptions, most of which have been laid out here yet again by the panel. The fact is there's structural separation between these companies, as I think by now everyone is well aware of. This has probably been one of the most publicly discussed arrangements, given the merger that helped put it in place. The economics of these companies are entirely separate. We do not have an economic interest in TWE. In effect, we never -- excuse me, not TWE, Liberty. In effect, we never really purchased the Liberty portion of it. And, thus, don't have an economic interest. If Liberty succeeds today, it brings economic value to the shareholders of Liberty, not to me, not to the shareholders of AT&T. If we do well, it doesn't effect them, either. Lastly, during this waiver period we pointed out that in addition to the overall safeguard that the Commission has with regard to our lack of any material involvement in programming decisions by TWE, we've also indicated a number of other safeguards AT&T would be willing to put in place with regard to Liberty. That includes replacing the current AT&T directors on Liberty board with independent directors that would be submitted to the FCC so there could be oversight. We have also indicated a willingness to agree to an auditor, an independent auditor picked by the FCC, that would every six months be able to report on compliance in terms of any involvement or influence through any of these entities. Obviously, we would take steps to insulate against any AT&T employee or person having any sort of involvement or interest in any programming decisions by Liberty, et cetera. I think most of that is on the record today. So, again, they're ample safeguards we feel out there that we have offered up to deal with the sole issue of Liberty sale of programming to TWE. Keeping in mind that the core issue here, the core concern that the FCC had in its ownership rules was about our material involvement, or lack thereof, in video programming decisions by TWE. Again, we have none. MR. JOHNSON: If I could have just one more question on the TWE situation, you pledged not to have any direct involvement or indirect involvement in the sale of programming to TWE through the various programming entities you have an interest in. But I gather you would have influence on the general policies of these companies. And I would presume that probably the largest buyer of the content of these companies would be TWE. Would that not be having an influence on the buying decisions of TWE? MR. CICCONI: The largest purchaser of what, for instance? MR. JOHNSON: Just to take an example, you're acquiring programming interest through MediaOne. You're, I guess, pledging not to participate with those companies in decisions that involve sales to TWE directly, but you would continue to participate with those companies in general programming decisions. And those general programming decisions would apply to TWE, which is a very large buyer of programming, one of the largest buyers of this content. MR. CICCONI: Again, the core issue is involvement in the decision making at TWE. I may have misunderstood you, Bill, but I thought there were two questions there and the first one was about the involvement in other activities beyond programming. MR. JOHNSON: No, I'm just focusing on programming. MR. CICCONI: Okay. Because I think that the Commission's specifically narrowed down, as you know, in its rule the concern about material involvement to programming and not the previous statement about media-related activities. So it just is about programming. And I think the fact is we feel that at the TWE level, we are fully insulated against any material involvement in their decision making. In terms of the sale by other entities of programming to TWE, whether it's from Liberty or from some other entity, we feel that we can provide adequate protections, most of which we laid out on the record. But, obviously, we're open to discussing any other degree of insulation the Commission feels may be desirable in that. Again, this is a factor here. It doesn't go to the core issue of whether or not we have involvement in those decisions at TWE. Simply goes to the mere fact of some programming being sold to TWE or TWE's purchase of some programming by entities which AT&T may have some interest in, however attenuated it may be. MR. JOHNSON: That's what I'm trying to get at. If you participate in the generic decision about programming and the largest purchaser of that programming is TWE, aren't you participating in the programming decisions of TWE? MR. CICCONI: I think that one can take attenuated and turn it into something even far more distant here. I think - again, I think we have to focus on the core issue in the rule, you know, that was laid out by this Commission, as material involvement in programming decisions at TWE. Again, we have none. The Commission has interpreted that to also infer a concern about the sale of programming to TWE by other entities with which AT&T has an interest. We have taken and offered to take steps to insulate ourselves from those decisions, as well. But I think -- Bill, I think to take the additional step and say one has to effectively insulate oneself from their operations in general, beyond the fact of sale of programming to TWE, takes it a lot farther than at least my understanding of the Commission's own interpretation. Again, keeping in mind that this, itself, is an inference the Commission staff has drawn from the rule itself. We don't believe it is actually in the words of the rule. We accept the interpretation that the Commission and the staff have put on this, that it also entails a need to insulate from the sale of programming to TWE, not just involvement, material involvement in programming decisions by TWE. But I think to then take it one or two steps beyond that would, I think, probably be protecting against something that simply is not in any way possible in terms of any influence at the TWE end. But this is all got to go back to TWE in the end, and somehow I would suppose have some sort of, some sort of kabuki-like influence on their decision making when we weren't, in fact, exercising any directly. I mean, we've at least been willing to accept the Commission's interpretation that the mere sale of programming by an entity like Liberty, or even an attenuated entity like Rainbow, that we somehow need to insulate even though we're not at the decision making end in TWE. I think if you look, by the way, at Time Warner's decision making within that partnership - and maybe Frank could speak to this - that, in fact, that supposition itself is open to question. Their decision making is very much in their own interest there and certainly isn't designed in any way to somehow serve our interest. JUDGE LATHAN: Okay, we really have to move on. I want to move to the area of broadband. That way, Greg, you get to answer directly. As you know, a recent -- well, this past summer, I believe it was, AT&T entered into a voluntary agreement with Mind Spring dealing with the issue of access to its cable pipes. And in that agreement in a letter dated December 6th, actually to the chairman, they proposed that they would open up their networks after the expiration of the exclusivity agreement that binds Excited Home. My question to AT&T and then for comment by Mr. Simon is how does AT&T propose to voluntarily open its cable networks to competing ISPs? What does open actually mean? That's the first part of the question. The second part is how many ISPs will you allow onto your system? And then the third part is in terms of pricing, will large ISPs and smaller ISPs be offered similar pricing? And then I would like Mr. Simon to comment on Mr. Cicconi's response. MR. CICCONI: Well, you're referring to the Mind Spring letter, and I think a number of these issues are addressed in the letter, Deborah, but let me try to be more clearer. We have indicated that we are going to provide a choice of ISPs on the system. I think your question of what does open mean, I think OpenNet itself, from its inception, defined open access is the process of providing consumers a choice in ISPs. AT&T is committed to do this on its systems as soon as the current contract expires. And, in fact, has gone one step beyond on its other broadband systems, most particularly, fixed wireless, we're offering to do that immediately. I think we've probably led the industry in this regard, and we're pleased that others, most recently Time Warner and AOL have cited that commitment positively and have indicated that they would also follow suit. We also believe that others in the industry are looking very seriously at following that lead. In practice, what it means is roughly this. During this period of time here when the contract is running, we have to tackle the technical issues of actually getting multiple ISPs on this system and then negotiations with those ISPs for that carriage. In terms of the technical issues, they are real and we have to address them. We feel within this intervening period of time, we'll be able to find a way to do that. In terms of the capacity of this system to handle the specific number of ISPs, we're confident that we'll be able to provide a more than adequate range of choices on that system. I can't sit here today and tell you how many we can accommodate. I can tell you that we intend to accommodate as many as the technology and our agreements with different ISPs and consumer demand, frankly, allow us to carry on the system. But we have indicated in the letter that we would provide -- we would hope to have multiple ISPs on the system. Again, I can't put a particular number on that and I don't think anybody out there today is really able to put a number on that. But -- JUDGE LATHAN: Let me just interrupt for a second. If we move beyond the letter, has AT&T given thought to, for example, will writers be able to write to a protocol that will be universal and shared by everyone, or will you have a separate protocol that won't allow others to be able to write programs that can run on your system? Will you extend the exclusivity that you have with respect to At Home and Road Runner onto the set top box? MR. CICCONI: Well, in terms of protocols, we're committed to open protocols. And, obviously, the system today offers access to all web content and that would certainly be our intention to continue that. We would hope it would be a vibrant platform for programmers and it's certainly our intention to develop it in that manner. And that's a commitment that we have made publicly. And, in frank, the ability to propagate this platform and be successful in the marketplace would argue for that. In terms of exclusive arrangements -- JUDGE LATHAN: What I meant is will you -- will Excite, At Home and Road Runner be exclusive ISPs on your set top boxes? MR. CICCONI: The answer is no. We would not be extending exclusive arrangements beyond the current duration period. JUDGE LATHAN: No, let me backtrack because I may not be saying this correctly. My question is do the exclusivity provisions with respect to Excite At Home and Road Runner apply to the set top box now? That's really what I'm asking you. MR. CICCONI: I see your question. The answer here really is that the set top box has very little to do with the internet access, per se. I think what you're going towards here is is internet access over cable, run over the cable television service. JUDGE LATHAN: Through the set top box. MR. CICCONI: Right. Through the set top box, but the set top box is really a separate issue. The exclusivity arrangement with our company and with other companies, and I believe Road Runner, as well, goes to the provision of high-speed internet access over cable, period. So, if we provided over cable, whether it terminates in PC or terminates in the television set, exclusivity applies. It has nothing to do with set top box, per se. So, during the duration of the contract, it goes to our provision, that is AT&T/TCI's provision of internet, high-speed internet access over cable. Once that expires, it will not be extended. So, we no longer be exclusive. JUDGE LATHAN: Just so I'm clear, you're saying that if you bring internet access through the set top box to the television, the exclusivity provisions do apply. MR. CICCONI: If we did that today, it would apply because it would be carried over the cable wire. That is the agreement we inherited. That is what the contract says. Let me speak to the set top box, though, because I want to be clear here. I think when we talk about exclusivity in terms of the box, per se, provision of internet access is just something that flows the box. In terms of the boxes themselves, anything in that box is non-exclusive. We've indicated that in terms of the provision of operating systems on set top box in terms of the acquisition of set top boxes themselves. We don't intend, and frankly, it's not in our customer's best interest to be dependent upon any one supplier for set top boxes or for operating systems on those boxes. And so we've insisted that any agreements we have, including one with Microsoft, be non-exclusive and that the protocols be open. That they be open to JAVA and things of this nature. JUDGE LATHAN: Okay. Mr. Simon, does the Mind Spring, AT&T agreement go far enough for you? MR. SIMON: No. A brief review of the bidding, the chairman asked a number of people, including Mr. Schwartzman and Mind Spring and others, to intervene with AT&T. I call it an intervention. To wean them from their monopoly tendencies in the cable world. The letter evidenced AT&T's admission that open system would be better than a monopoly, but, gee, we've got to keep it for two and half more years. The letter, and it is not an agreement with Mind Spring, it is a letter of intention to do it later if they choose to do it later. I'm willing to believe Mr. Cicconi when he says that they are going to do it later. My question is why do we have to wait two and a half years, what do they mean by open? Access for an oligopoly of the largest ISPs is not open access. Open access is non-discriminatory access for people who invest to your network and want to have access on comparable terms and conditions. To say that we're going to cut a deal with people who have market share, as Mr. Armstrong said in the New York Times a few weeks ago, is not open access. That is leveraging your bottleneck control to cut a deal. Open access is open access. It's what people get when they want to buy, borrow or lease a phone line to start an ISP company. They don't have to bring market share to the phone company. They just have to bring their checkbook. Now, I think it's a really good thing that AT&T says open model is better. But the letter they sent said they're a lot of open questions. Some of those open questions are people may have to use our backbone, which means they're leveraging their bottleneck control over the high-speed cable line to get advantage in the backbone market. It also talked about getting a percentage of the revenues from the e-commerce that other ISPs have traffic over their customers. That's not open access. That's leveraging market control. We're happy to work with AT&T and Mind Spring to make that agreement something real. We're happy to bring OpenNet technical experts to talk about the Doxis standards. We're happy to talk about a reasonable period of time. And by reasonable, I don't mean tomorrow. I don't even mean a few months from now. I think it takes some time. The Bells were given nine months to unbundle their loop. AT&T said that was too long. I'm willing to give AT&T at least that much time to figure it out. But when we say we can't open our system because we have a monopoly contract with our own company, eyes must roll. After all, in other context, in much more competitive markets, AT&T has argued for the complete abrogation by the Commission of contracts it had with ComSat so it could negotiate a better deal. Not because it couldn't have other means of getting there. It owns all these undersea cables. But because they said we ought to have open access to IntelSat and you should abrogate our contract so we can do that. Well, I ask why can't AT&T buy out its contract with At Home. It's already spent a hundred and something billion dollars to have it networked, what's another billion among friends? To have an open access within a reasonable timeframe. Now, the problem is that AT&T exhibits what I call the Jimmy Buffet principle, which is change in latitude is a change in attitude. In this country, AT&T says that with regard to the first mover advantage, the cable broadband providers have no first mover advantage or ability to lock in broadband customers. But to our northern neighbor in Canada, AT&T said, given the fact that many of the technologies involved in the provision of broadband access services are still in the early stages of development, it is unlikely we will see customers switching seemlessly from one service provider to another in the near or mid-term when they were asking for extensive conditions. To have access to cable internet providers in Canada. In this country, AT&T says accelerated competition from DSL and others will deter the ability of any broadband provider to engage in anti-competitive contact. In the northern latitudes it says the supply conditions on broadband access markets are extremely limited. There are significant barriers to entry into these markets, including lengthy construction periods, high investment requirements and some costs. Under these circumstances, the ability for new interest or existing facilities-based service providers to respond in non-transitory price increases would be significantly limited, not to mention protracted. All of these supply factors suggest that existing cable broadcast carriers are capable of exercising a substantial degree of market power in the broadband access market. Now, unless we think that latitudes makes a difference in principle, I ask you does a two and a half year delay in implementing open access give AT&T an advantage in the broadband market? Absolutely. Is there a resolution that is fair? Absolutely. What is that resolution? Open it up sooner. In a merger of this sort, there is often been divestitures of far greater interest than the one AT&T has in At Home. For them to continue to argue that their own contract prevents them from doing the right thing, gives them two and half years of first mover advantage. If you approve the merger without policy of open access, how will anybody catch up to them among my ISP community? JUDGE LATHAN: Okay, I'm going to let you respond, but, Andy, you've been so quiet. MR. SCHWARTZMAN: I don't know where people get this impression I talk a lot. JUDGE LATHAN: We'll come back to you after -- MR. SCHWARTZMAN: If you're giving me the floor, I will say one or two things. First, in order to shortcircuit some of the discussions - and Greg has obviously covered a lot and done it with a more elegant touch than I could ever have - I've attached as Attachment C to my testimony today, the single best succinct, forceful, eloquent statement as to why this should be a condition of open access attached to this merger. It was submitted by George Rydenberg of AOL. And I intend to quote to you and to him, repeatedly, in the months to come. JUDGE LATHAN: Is this the premier? MR. SCHWARTZMAN: Second, it is a matter -- MR. CICCONI: I would like to hear the quote. MR. SCHWARTZMAN: It's Attachment C there, Jim, go ahead and read. Second, I do address the group number of the aspects of the Mind Spring letter in the letter that I wrote to the chairman on December 6th. I don't know why the Commission is afraid of that letter. On December 6th, I asked that it be posted on the Commission's website. I've asked repeatedly since then, as recently as this week. And it still isn't posted on the website. Mr. Cicconi's letter is on the AT&T merger page. And my letter isn't. I just think it would be very useful to facilitate debate if people had the benefit of my views. MR. CICCONI: By the way, Andy, the Commission certainly has my permission to remove my letter and put yours up there at any time. JUDGE LATHAN: You had how many points, was it? MR. SCHWARTZMAN: Oh, I can do two more. JUDGE LATHAN: Okay. MR. SCHWARTZMAN: I haven't even gotten the substance yet. This is extremely important for Mr. Eichler to hear. The Mind Spring AOL letter does not address MediaOne systems. Mr. Cicconi has been unwilling to state in public, to my knowledge, and in private to my definite knowledge, the nature, terms or length of the MediaOne Road Runner exclusivity agreement. And they have not agreed to offer open access on MediaOne systems so far as I know in public or in private. And this is about whether AT&T should acquire MediaOne. AT&T has not committed even, quote, unquote, voluntarily to offer open access in the MediaOne systems. Finally, this is not just about choosing your ISP, the formulation that we've heard repeatedly this morning. If you get to choose among a couple ISPs but they all agree that they're going to use one or two filling systems, if you get to choose among several ISPs, but they all agree to limit uploading or to limit the size of video files because the terms and conditions offered don't give them that option. If they all agree that they're not going to permit certain kinds of filtering, parent's concern about how their children access the internet, it's not open access. Open access involves citizens, the customers who have a right to speak in an interactive medium and to receive information. It's not just their ability to have two or more ISPs to choose from as a customer. It's about their rights as citizens to use the internet as a medium of open expression. Thank you. JUDGE LATHAN: Thank you. Before you begin, Mr. Cicconi, I want you, when you respond to them, I would also like for you to specifically address the issue that Mr. Schwartzman about whether or not open access would extend to the MediaOne systems. And, also, then I would like Mr. Simon to tell us why this is a merger specific issue. As you know, in ATT-TCI, we did not address the issue of open access within the context of the merger. What, if anything, has changed that should lead us to believe that we should address it within this merger, rather than in a more general format? Mr. Cicconi? MR. CICCONI: In terms of the MediaOne territories, I realize that when we were negotiating the Mind Spring letter, you know, when Andy was present, we were dealing with a lot of issues. But he did ask me this question several times during those discussions and I gave the same answer at those times. Yes. Unqualifiedly, yes. This commitment applies to the MediaOne territories. He also asked me at what point the exclusivity obligation with Road Runner expires on the MediaOne territories. I indicated to him and it's on the record here, that it expires the last day of December, 2001. At that point, the commitments from the Mind Spring letter would be carried out by AT&T. We do intend to provide a choice of ISPs on all of our broadband systems. We said that publicly when we laid out the letter, we're applying it today to our fixed wireless systems which are not impeded by either the same technical issues or exclusive arrangement. So, I think the answer is yes. In terms of Andy's last point about customer choice, again, I couldn't agree more with him on that point. I think that's a very fair statement. This isn't just about customers being able to access a choice of ISPs. We've committed to this. Frankly, I think open access also involves whether they're able to, in fact, exercise that choice. And, frankly, when it comes to that, I think that Greg opened that or at least examine the question as to how easy it is once choice is provided for the customers to actually be able to exercise that. Because there's a number of impediments the ISPs themselves have in place to make it very difficult for you to switch. I think that certainly newspapers are full of a lawsuit right now about the largest ISP in the nation, one of its largest members, is apparently put a software product out there which it has not yet fixed. That for some strange reason, seems to disable any competing ISP that you might have when you install it. That's not certainly something that's AT&T's problem, but it is something that impedes a real customer choice of ISPs. Similarly, when it comes to the open standards on the internet, some of these members are fighting against the open standards involved in instant messaging. AT&T and others have taken the lead to try to get those standards open across the internet and not force a proprietary standard held by one company on the rest of the internet. That really is the type of bottlenecking that would prevent customer choice. We have publicly advocated that e-mail be forwarded by ISPs if a customer wants to actually change their ISPs. And we've challenged membership of OpenNet to agree to something like that. The failure to do so is, frankly, inexplicable. The United States Postal Service is able to reliably forward physical mail, there's no reason it can't be done electronically. Except that the ISPs themselves want to make it very difficult for you to exercise that choice. So, I think there is an extra dimension to the issue of open access beyond the choice of ISPs. The last point I'd make is this. The contract keeps arising as if this is something nefarious. In fact, no one was stepping up to the plate to build broadband access system on cable so the customers could access the internet. Investors in this company, Excited Home, which is not controlled by AT&T, but which TCI was an investor in, along with many others -- and, in fact, there's a public component of it, as well as investment bankers and others, went out there and built a system when no one else would build it. They took the risks, they secured contracts from the cable companies who wanted to offer this service. And, in return, they were given a period of exclusivity within which to realize a return on the investment commitment they had made to build this system. And if Greg's membership has one thing in common, it's, frankly, that a number of them want to be able to take advantage of that investment for free. In essence, at wholesale. Deriving the benefit of somebody else's risktaking. That isn't appropriate. It is not the business of the Government, and I think this agency has wisely concluded that it is not in the business of requiring the abrogation of contracts out there. We've indicated we are not going to extend it, but we absolutely defend that contract as a valid exercise. Last point. I think the -- including the RBOCs, and specifically GTE, that, frankly, following the double standard here. The Bell companies themselves have absolutely no interest in open access, per se. They have no ISP benefit that they derive from it. Their sole interest in this issue is simply to bottleneck the realization of competition in their territories. GTE is particularly egregious. They're a member of OpenNet. They operate a cable system which itself is closed. The Worldwind system is actually advertised on the internet in a way at odds with the great principles of OpenNet. If you want a different ISP, you have to pay an additional charge. And I'd be happy to give Greg a copy of the letter that was submitted to the FCC by consumer group pointing this out. And we're happy that they've done that. JUDGE LATHAN: Mr. Simon, could you take just about a minute, 'cause we're running out of time and I think there may be some wrap up questions. But please remember to respond to the question about merger specific. MR. SIMON: Right. To begin with, obviously a national policy of open access is in the best interest of consumers and internet service providers. You ask why would we ask for it in this merger. The short answer is we haven't been able to get the Commission to do a proceeding in any other way. You have the authority and the ability through this merger to begin a proceeding to apply open access to all cable internet providers. During the AT&T-TCI merger, we said, please, begin the process of requiring open access because cable concentration just makes the problems worse by reducing the number of decision makers in the market. Here I am again asking you, please, in the context of this merger, begin a proceeding to institute a national policy that doesn't just apply to AT&T and doesn't just apply to AOL-Time Warner, but applies to the cable industry. To apply the law that they cannot discriminate. Now, is access to the network under non-discriminatory terms, taking the network for free at wholesale? No. Is that what AT&T is asking when they go into the local loop, are they asking to ride for free? Because they want to get a discount? We haven't even asked for a discount from what they charge their own affiliated ISP. We've asked for the same deal. And that deal is they take two-thirds of every dollar that At Home makes from a subscriber. We have said treat people as you would treat your own affiliated provider. We have not even said you can't have discounts that are fair for different classes of customers. You just can't discriminate in favor of one customer or discriminate against one customer. But the idea that only people with market power can get in is not open access. If we have won this debate because of AT&T's letter to the FCC, I have somehow missed the party. It is the beginning of the process, and we're happy for it. But it is not the end of the process. And if AT&T opened tomorrow, if AOL-Time Warner opened tomorrow, what about COX and ComCast and Paul Allen and all the rest of the industry? Competition -- JUDGE LATHAN: Let me stop you for a second. What about them? Do you not believe that market forces would mandate that they would have to do that and the Government would not have to mandate it? MR. SIMON: When has a monopoly ever given up a monopoly without some help from the Government? The AT&T says they'll give it up in two and a half years, but I've yet to see that they mean non-discriminatory open access as compared to deals. That is not open. JUDGE LATHAN: Okay. Okay, we're running out of time. Quyen, did you have some questions? Okay. Bill? MR. JOHNSON: At the risk of taking us slightly backwards, but trying to bridge the gap. The internet, it seems to me from what I read in the press every day, is moving more and more towards involvement with video content. AT&T is indicated that in connection with the TWE issue, going backwards, it wouldn't be involved with TWE video content. Would that include involvement with TWE internet video content? MR. EICHLER: Let me try and answer that. There's very limited TWE internet content in -- JUDGE LATHAN: That's today, though. MR. EICHLER: That's today. But under the agreement they have no oversight over TWE internet content. JUDGE LATHAN: But assume for the sake of his question that TWE does decide to move into the internet video market, then answer his question, please. MR. EICHLER: Again, the rules of the TWE agreement would not give AT&T any oversight or input or control over or association with TWE internet content. MR. JOHNSON: What is the scope of the commitment, though? AT&T is making. MR. CICCONI: I think you have a rule in place that talks about material involvement in video programming, and I think this goes to the type of content you're talking about there. But, clearly, you know, if that took a different form over the internet, we would have no more involvement in that we would in current programming. I think as a practical matter, the mechanisms within the partnership as I understand them, simply don't give us any sort of involvement or voice in it, regardless. On its face and on the face of the terms of the partnership agreement. And we -- virtually all the management rights have been yielded that remain, and very few were there to start with. MR. JOHNSON: I'm really not talking about -- I was trying to find out how you would interpret your own words in terms of not what the TWE partnership at the present moment says, but -- MR. CICCONI: But I think, though, in fairness, it is a hypothetical. I mean, as Frank has indicated, they're not doing this now. I think that internet content can be a host of different things. And down the road I don't know exactly what form that might take. And, frankly, I don't know that the Commission would, either. I'm not prepared here to make an open-ended commitment in an area where, near as I can tell, there's nothing presently where I can't even conjecture as to what that commitment might be applied to in the future. JUDGE LATHAN: But are you saying -- MR. CICCONI: If you have a specific -- JUDGE LATHAN: But are you saying that involvement in internet video is or is not materially related to video programming? MR. CICCONI: I think if it's video programming, it's video programming, whether it's delivered over the internet or delivered over a cable system. And I would assume that if it is video programming, per se, delivery mechanism is not relevant. We would not have any material involvement in video programming, period. And we would seek to insure the Commission on that point. So, if you're viewing the internet as a means of distributing or accessing that programming, and that is the type of content you're talking about, then I think that's certainly a fair question. But, as you know, internet content can be a lot of things that wouldn't necessarily be classed as video programming. JUDGE LATHAN: On that note, I would like to thank each of you very, very much for your participation here today. It's been very beneficial to us. We will reconvene at one o'clock this afternoon. Thank you again. (Whereupon, at 12:02 p.m., the hearing was recessed, to reconvene at 1:00 p.m., this same day, Friday, February, 4, 2000.) // // A F T E R N O O N S E S S I O N (1:03 p.m.) JUDGE LATHAN: Time to begin. Thank you for coming back, those of you who came back. We're going to begin our afternoon session. And I'd like to introduce -- we have Howard Shelanski, he's our chief economist, and he's going to join us for part of our afternoon session. And we have Professor Francois Bar from Stanford University, Diane Linderman from the City of Richmond, Virginia, Christopher Melcher from Rocky Mountain Internet, Susan Eid from MediaOne, Mr. James Cicconi from AT&T, Peter Glass from Seren Innovations, Inc., and I don't see Khalil, I don't know if he's here yet, but Khalil Munir is supposed to join us from TAP. And we have Darryl Anderson from the National Association of Telecommunications Officers and Advisors and Gregory Rosston, Professor Rosston from Stanford University. The way we're conducting these sessions is that we're asking for each of you to give a five-minute statement. We have a time-keeper. She will show you a one-minute card when you have one minute remaining. When that time is up, she will show you a pink slip which says you're done. Okay. And we have already had Mr. Cicconi's statement this morning, so we won't ask him to repeat that. Okay. We are going to begin now with Diane Linderman from the City of Richmond. MS. LINDERMAN: Good afternoon. It is an honor to be here in front of you. The City of Richmond did review a Transfer of Control back in November concerning the AT&T-MediaOne merger. And it was certainly an interesting process for us. I wanted to go through a number of things that we did consider. Obviously, the key one is whether they're able to take over the system from a technical standpoint, from whether they have the ability to take over the system for us. And, certainly, we made that choice early on that AT&T certainly could. We did look at the contract to make sure they were in current compliance with our current franchise contract, and found that to be true, as well. Some other things that we considered during the transfer were that our original franchise was approved by our counsel in 1992 and did allow the cable operator to provide non-cable services, as well. And we did clarify some of the issues concerning that. In '92 I don't know that anyone considered that telephony would be a major focus of some of the cable companies in ten years from then, eight years from then. And we did look at the financial impact of them providing telephony under the current franchise. And, as I said, clarified what the franchise fee would be based on as far as those revenues coming in to MediaOne, or the new company, as well. We looked at the revenues for the internet services that the franchisee would be providing and how they would relate to the franchise fee, as well. The discrimination of the division of services was important to the city. We didn't want the franchise holder to discriminate, geographically, as to where they were going to provide the new internet services. And we wanted them to be all over the city and not necessarily those high-income areas. And they did agree to that in the transfer of control. The issue that certainly was raised this morning and was an interest of our counsel, as well, was the open access issue. And to be honest, that's where they spent most their time debating on the transfer. The City of Richmond actually had two ordinances that were introduced for their review. One that did reserve the rights of the city to require open access at some point in the future based on what was happening within the marketplace. Or in the legal environment. And the second was to require it. There is actually the third, which was do nothing in concern with it. But they chose that wasn't the right route, that they really did need to debate the issue on open access. And it was a very interesting public policy debate. The questions, you know, with the preclusion of the non-discriminatory access effectively deprive the citizens of Richmond of choices in accessing the internet via the high-speed connections at competitive prices. Would the public health, safety and welfare of this city be advanced by providing a market environment that offers meaningful choices to customers, foster competitive pricing and prevents inefficient economic distortions that depress economic activity. Will the regulation encourage investments of the franchise holder in providing a high-speed network. And should the city regulate access and incur the costs that may be associated with developing pricing methods and rules regarding dispute resolution on issues regarding open access and providing ISPs. They also considered the legal considerations. As I know you know, the courts are making some of those decisions about whether local Governments can actually make these kinds of requirements. And they did consider that. They considered what classification of the cable modem service under Federal law, they considered the city's legal authority. And they also considered the FCC's position on open access. And in the end, although I think every counsel person believed that open access was the right thing for its citizens, they chose to reserve their rights under the law. And the ordinance was passed, unanimously. JUDGE LATHAN: Okay. We would now hear from Mr. Anderson. MR. ANDERSON: Good afternoon. I'm Darryl Anderson, President of the National Association of Telecommunications Officers and Advisers and Executive Director of the District of Columbia Government's Office on Cable Television and Telecommunications. Thank you for the opportunity to speak to you this afternoon. While I realize that this proposed merger potentially affects telephone, video and other related broadband services the companies may offer, my particular areas of proficiency lie in the provision of cable television and broadband telecommunications services. My message today is quite poignant. NATOA, along with its many members and other local jurisdiction officials, is formally committed to the protection of citizen and consumer services and the communities it serves. Local governments are confident that through the promotion of competition of service providers, rapid and managed deployment of broadband services and the successful evolution of the telecommunications industry, consumers of these technologies will surely be the winners in this new digitally driven millennium. Policymakers are at the threshold of an era when the development and deployment of broadband services, coupled with the explosive growth of the internet, five hundred plus cable channels, an ever increasingly internet based economy dictates that the decisions made now will definitely effect the competitive future of our communications systems. By maximizing the partnership and shared responsibilities that exist between local governments and state and federal authorities, we can deeply consider and realize the importance of adopting policies and making important decisions that will foster the rapid and managed deployment of broadband services. This consideration must occur in a manner that will realize the potential of a convergent technologies of video, telephony and high-speed data through these types of mergers. One of the decisions that we'll have to make are through this partnership, is the issue of competitive access to cable operators' high-speed broadband networks for the provision of internet and other cable-related services. Over a year ago, NATOA's board of directors adopted an interim statement on internet access via cable. I will attach this statement to my written remarks today. This statement supports that a local franchise authority has the legal right and jurisdiction under the Federal Cable Act of 1984 to consider competition and a provision of internet services over cable at certain times or as the result of certain trigger events. Including a franchise transfer or renewal. It is one of many issues that may be considered by the local authority as it deems appropriate in the public interest. Or in light of identified community needs. The Federal Cable Act also acknowledges the local franchising authority's ability to consider the elimination or reduction of competition in the delivery of cable services and allows enforcement by local franchising authorities of franchised provisions requiring leases of capacity on the cable system for non-video programming purposes. Earlier this month, MediaOne and AT&T announced that by giving AT&T and MediaOne the green light to move forward with the merger in the Twin Cities of Minnesota, these municipalities have demonstrated their foresight to create an environment conducive to investment and competition. They go on to say that the marketplace and competition, not Government regulation, are the best means of assuring wide-spread availability of high-speed internet service. Well, we all have to ask ourselves whether or not this merger is truly in the best interest of American consumers. Does allowing two of the largest cable operators in the country to unite promote competition in any marketplace? Will consumers be better served by paving the way for one very large part of the country to be served by a single provider? When you consider the entire web of integral relationships that exist between AT&T, MediaOne, ownership interests in the other cable companies, key video programming services, leading cable equipment manufacturers, two major cable internet service providers and the potential interest in Time Warner, potentially soon to be AOL-Time Warner. Due diligence and caution must drive the review and consideration of this merger if, in fact, expanded services, competition and, ultimately, consumers are among the principle priorities. The question is whether or not this merger will continue in the spirit of protecting access to competition. The internet and the rapid and managed growth of the telecommunications industry in the name of the consumers. In conclusion, I urge you to exercise the utmost care in considering the long range impact of the merger and know that we will be all responsible for the impact of this merger on our communities. Deep in all areas of our communities long after this and similar mergers are completed. Today, Heather Barber, representative for the City of Portland, joins me. Ms. Barber is the Director of Federal Affairs at Simon and Company here in Washington. Ms. Barber's prepared a statement regarding this merger that I've attached to my statement today. Because of Portland's experience in various related matters, I have asked Ms. Barber to join me and to be available to respond to your questions. Again, thank you for inviting me and I'll be happy to answer any of your questions. JUDGE LATHAN: Thank you very much. We will now hear from Mr. Glass. MR. GLASS: Thank you. I appreciate the opportunity to speak to you today. I want to focus my remarks today on how AT&T already uses cable monopoly power to hinder competition from Seren. And our concern that AT&T's acquisition of MediaOne will further its power over video programming marketplace. Unless the Commission imposes appropriate safeguards. Let me begin by briefly describing Seren. Seren was formed in 1996 as a non-regulated subsidiary of Northern State's Power Company to provide high-speed internet cable television and telephone service to residential and business customers through the state of our hybrid fiber optic and coaxial cable broadband network. Seren has received several cable television franchises in Minnesota. Is already providing a full complement of services in the St. Cloud and Wave Park, Minnesota, with over two hundred cable channels. In addition, we are about to begin commercial service in Concord, California and four other franchise applications pending in California. We have recently filed a cable franchise application in Longmont, Colorado, with plans for other Colorado locations. In sum, we are fulfilling the intent of the Telecommunications Act by competing head to head with entrenched incumbents in both cable and telephone industries. On the video side, access to popular cable programming networks is vital to Seren's ability to compete. Unfortunately, the multi-channel video programming, distribution marketplace continues to be dominated by cable monopolies which use a market power to deprive rivals of programming. The unquestioned leader in this regard is AT&T, just as was its predecessor, TCI. You've already heard earlier today about the high level of horizontal concentration in the cable industry, and in particular, the extremely high market share of AT&T. While there may be quibbles about exactly what AT&T's ownership percentage is, there can be no doubt that AT&T enjoys enormous power in cable markets. And that this power will increase as a result of the MediaOne acquisition. The best evidence of AT&T's monopoly power is the fact that every time an open builder like Seren enters the market, AT&T responds by dropping its prices or adding newer services at no additional charge. This market power problem is exacerbated by the concurrent formation of ever larger refill clusters by AT&T and other large imersoles. As the Commission warned in its 1998 competition report, this increased concentration makes it more likely that large cable operators who do not compete with other in local downstream markets, will be able to collude in the in the upstream market for the distribution of programming. This Commission finding is consistent with the recent GAO report finding programming suppliers very dependent on large cable companies. One of the ways cable imersoles can collude is to pressure programmers not to sell to rivals. Complaints about such behavior were a major element in the passage of the 1992 Cable Act with its programmed access provisions. However, the problem Congress addressed then has not gone away. It is, in fact, made worse by the increased concentration resulting from acquisitions like that of MediaOne by AT&T. What I'd like to do this afternoon is demonstrate the persistence of this problem and the need for the Commission to make sure the proposed merger does not worsen it by describing two examples where AT&T and TCI has abused its power over programmers. The first instance involves Seren's attempt to gain access to Midwest Sports Channel, or MSC, the twenty-four hour regional sports network in Minnesota. Among the programs offered by MSC are Minnesota Twins baseball games, Minnesota Timberwolves baseball, basketball games and University of Minnesota football, basketball, hockey games. As well as Saint All State university games. I need hardly say that with this roster of sports, MSC programming is highly desirable in Minnesota. Many viewers will not subscribe to a service which does not offer MSC. Seren's experience is consistent with this Commission's finding that sports programming increasingly warrants special attention because of its wide-spread appeal and its strategic significance for MVPDs. Because MSC is wholly owned by CBS and is not vertically integrated under the Commission's program access rules, when Seren contacted MSC in 1998 to contract for its programming, we were told by MSC that it could not make its programming available to Seren because of its exclusive contract it had with AT&T-TCI. When Seren raised this issue in the AT&T-TCI merger proceedings, AT&T-TCI claimed that, quote, it had been entirely reasonable with its competitors in voluntarily relinquishing exclusivity in certain cases. Even though it was under no obligation to do so under the program access rules. And that it would act reasonably and responsibly in this area. However, after the merger was approved, when Seren contacted TCI to ask that it make good on its representations to the Commission, Seren was told that neither TCI nor Bresen, TCI's affiliate, was willing to waive this exclusivity and Seren was denied access to MSC. To this day, we still have not been able to carry that programming. My second example involves a cable network that is vertically integrated, but where AT&T has taken advantage of another loophole in the program access regime, terrestrial delivery. In October 1999, as Seren began its planned expansion to California, our programming personnel sought to obtain carriage by ABAY TV, a channel in the San Francisco Bay area offering sports, news and other local programming. BAY TV is owned jointly by Chronicle and AT&T and is delivered by terrestrial means. In December we were told that we would not be allowed to carry BAY TV because AT&T had an exclusive contract and would not allow competitors such as Seren to carry it. These are not the only instances where Seren has been denied programming because of exclusionary behavior, but Seren has also been denied access to several non-vertically integrated channels. However, these examples are representative of how the largest cable entity uses its power unfairly to hobble competitors and illustrates a danger of allowing it to further increase its power through this acquisition. Any merger requiring Commission approval, the burden of proof is on the merging parties to demonstrate that the merger would be in the public interest. Part of the public interest standard is in assessment of effective transfer competition. Because a proposed merger would further increase AT&T's already substantial power over programmers, would be entirely appropriate for the Commission to deal with this competitor problem by conditioning its approval of the merger on AT&T's agreement not to abuse its power in a programming market. This can be accomplished by simple and quite limited provision. AT&T should be required to agree that the program access rules will be applicable to all of its programming contracts, whether or not with vertically integrated companies, and regardless of whether delivery is via satellite or terrestrial means. Such relief would be directly responsive to the anti-competitive impact of the acquisition, would, therefore, be fully justified. This relief would also make economic sense because would focus on where the economic power over programmers is, at the MSO level, rather than making an artificial distinction between vertically and non-vertically integrated programming. It would also prevent AT&T from using a technological loophole, the medium used for program delivery, to avoid program access rules. Because programming exclusivity on location may not be contrary to the public interest. AT&T could be permitted exclusivity where it demonstrates to the Commission's satisfaction that an exclusive contract meets the public interest criteria in procedures detailed in the program access rules. This very limited condition would deal effectively with the source of the problem, AT&T's market power with a minimum of regulatory intervention. It is thus a clear, clean response to a very real competitor problem which would be worsened by the merger of these two very large MSOs. I appreciate your time today. JUDGE LATHAN: Thank you very much. We will now hear from Mr. Melcher. MR. MELCHER: Thank you. Good afternoon. My name is Christopher Melcher and I'm Vice President and General Counsel for RMI.net, Inc., formerly known as Rocky Mount Internet. RMI.net is a Denver based internet service provider and web commerce company. I would like to thank the Federal Communications Commission and the Cable Services Bureau, Ms. LATHAN, for providing me with the opportunity to join this discussion today on the proposed merger of the AT&T Corp. and the MediaOne Group, Inc. And its impact on the issue of open access. I will focus my remarks on the issue of open access to cable based broadband internet access as a requirement for FCC approval of this merger. I would like to first tell you a little bit about RMI.net. RMI.net provides internet access to more than one hundred thousand customers nationwide. Our internet access services cover the full spectrum, from standard 56k dial up internet service to digital subscriber line service, known as DSL on the residential side, to high-speed or high volume dedicated internet access in the form of T1s and DS3s for business customers. And up to wholesale internet access through our nationwide backbone. RMI.net is a primary internet access provider for rural America, as well, including farms, small towns and isolated communities throughout the mid-west and western United States. AT&T, MediaOne and the RBOCs do not and have not served these communities, whether through broadband or other forms of internet access. Currently we provide access in ninety of the nation's top one hundred market areas, via a combination of POPs, or points of presence, that we own ourselves or lease from others. RMI.net recently purchased Data Exchange Network, the sixth largest nationwide internet backbone provider, giving us the capability to provide access at speeds up to DS3 in New York, Chicago, Atlanta, Washington, Dallas, San Francisco and Los Angeles. We also provide website hosting and competitive local exchange, long distance and internet protocol voice service. I give you some of this background to let you know that in the last three years, our company has grown from approximately one million in revenue to fifty million dollars and up in revenue per year on an annual basis. This is an example of the rapid growth and development in the internet industry and the internet community. And we think it's imperative that the FCC help us and help other smaller ISPs continue to thrive in the internet. Our dual focus in our business is serving both residential and commercial internet access customer base and commerce enabling small and medium size businesses. Both of these groups will be directly impacted by the merger and the ultimate decision by the FCC on open access. As you probably can tell by my use of the term open access, as opposed to the terms forced access by opponents of this concept, RMI.net strongly supports opening up the nation's cable systems to competition at the wholesale broadband internet access level. We believe this should be a major component and a condition of any approval of the merger between AT&T and MediaOne. The real issue here is not how high-speed cable compares to DSL or other forms of high-speed internet access technology. The issue is about how closing one form of high-speed internet access technology to competition will affect the entire internet community. With the potential switch in support for open access by AOL as a result of its proposed merger with Time Warner, it becomes even more imperative that the FCC take up the cause of open access for the nation's six thousand plus small internet service providers. Indeed, AOL's merger with Time Warner could be seen as proof that the larger internet service providers, AT&T and AOL believe that cable and access to the cable technology is imperative to survival in the future on internet access. Let me address the reasons we support open access, why open access should be a condition to this merger and why the foremost common myths perpetuated by opponents to the concept of open access are false. First, the cable industry will tell you and 22-MediaOne will tell you that open access is not fair. They will tell you that they have built or purchased their systems and have the right to control access. In fact, those cable systems as you well know far better than I, were built with the support of the public, not only through franchises and monopoly awards, but through guaranteed customer revenue in the form of predictable cable rates. The public helped these systems, the public has an investment in these systems. The public, therefore, has a right to open access on that system. In reality, AT&T and the cable companies are trying to create an unlevel playing field by creating a closed system for telecommunications services that forces consumers into making difficult, non-competitive choices. It is only due to the hard work of this Commission and Congress that the incumbent local exchange carriers must now provide access to their systems under the Telecommunications Act of 1996. As you know, this legislation was strongly supported by 22-MediaOne and many, if not all of the cable companies represented in this room here today. At the end of the day, we believe that all companies that provide telecommunications services should play by the same rules, whether over copper wires or cable. Myth number two is that open access cannot technically or feasibly be accomplished. I have sat in hearing rooms and public forums with AT&T and cable industry representatives many times over the past six months and heard this argument over and over again. These, of course, are the same individuals who said that telephone competition would never work, they said that the internet would not work. Doesn't seem that anything will work until competition makes it work. The argument, in fact, is now irrelevant, according to AT&T itself. When AT&T announced through its letter to the Commission with Earthlink in December that they would be opening up the cable access, or the cable technology, AT&T admitted to the world that the question of open access for broadband cable internet service on the cable system was no longer a question of if there would be access. The question was only when and under what terms. In fact, I was scheduled to speak to a conference that day of the announcement of AT&T and Earthlink and I had mixed emotions because I got that announcement or got word of that only a few hours before I spoke. I was obviously very pleased to hear that AT&T had agreed that, of course, open access is the only way to go, but I had to scramble to change my remarks, substantially, for that afternoon. AT&T and I think they should be taken at their word, has now said the only issue, but it is an absolutely critical issue, is how do we insure open access under what terms. And we think that is critical. We think that the FCC -- JUDGE LATHAN: You need to wind up. Your time is up, but, please, you know, just wind up for us. MR. MELCHER: Thank you, Ms. LATHAN. JUDGE LATHAN: Thank you. MR. MELCHER: I'll run through very quickly the third myth is that open access will hurt competition in the marketplace. What will hurt competition is to allow AT&T to control nearly sixty percent of the broadband access market. With AOL and Time Warner soon to control another significant portion, it is imperative that open access be allowed and regulated. What is most strange to us in this whole equation is why the cable companies would not want or embrace that ISPs sell the cable internet access product. We are not asking for a free ride. We are simply asking for the right to purchase wholesale high-speed cable access and then resell it at the retail level. What is going on in the telecommunication market across the country right now. Why wouldn't the cable companies and AT&T want six thousand resellers out there trying to sell the cable internet broadband product. I'm not sure. But we're happy to do that. The final myth is that it will hurt the consumer. And, of course, that's false. What AT&T and MediaOne are proposing is that the consumer will pay twice for the same internet service. They will have to buy At Home or Road Runner or Excite. And then if they want another internet service provider like RMI.net, they will have to pay RMI.net on top of At Home or Road Runner or Excite. Obviously that would be a major blow to competition. We think that would be an impediment to the continued growth of the internet. I would say as a final note that if the FCC or others do not insure the competitive internet access will flourish, the opposite course would almost certainly lead to broadband internet access monopoly in the cable technology arena. It took us thirty-six years to break up the telephone monopoly. In this day and age, and given how critical it is that the internet develop rapidly, we cannot afford the luxury of that same course. JUDGE LATHAN: Thank you. Mr. Munir, please. MR. MUNIR: Good afternoon. My name is Khalil Munir and I am the Executive Director of the Telecommunications Advocacy Project. I'm accompanied by Thomas Hart Teft, legal counsel and partner in the law firm of Shirk, Hardy and Beacon. TAP is a non-profit organization created to increase small business participation in emerging opportunities within the telecommunications industry. Our raisal and detra is to promote sound public policy regarding telecommunication industry issues. I appear today to explain our opposition to the merger and to provide clarification about the context and content of our allegations pertaining to redlining. Our allegations are indeed serious and incendiary. And it is incumbent upon me to provide foundation for those allegations. TAP believes that discriminatory deployment of basic and advanced telecommunications services, or redlining in this case, broadband cable service is a violation of Sections 202(a) and 254 of the Communications Act. TAP regularly analyzes how underserved communities, and in particular minority communities are routinely disserved by telecommunications, corporate titans, some of whom ultimately merge. In our petition, we allege redlining has occurred in communities served by MediaOne based on available data and research and conversations with individuals and organizations, we have concluded that a disturbing pattern has emerged. TAP is conducting case studies throughout the country to document our allegations of redlining by MediaOne. Today TAP would like to focus the Commission's attention on the recent proceedings in Richmond, Virginia. An area highlighted in our supplement. TAP's initial field investigation, research and evaluation in the City of Richmond, revealed that MediaOne deployed broadband cable services in a discriminatory manner. Armed with this information, TAP appeared before the Richmond City Council during a hearing on the city's consent to the proposed transfer of control of MediaOne by AT&T in November of 1999. TAP testified regarding MediaOne's alleged discriminatory actions and the effect those actions have had on low income and minority residents of Richmond. I went to the jurisdiction of Richmond on numerous occasions to engage city council members and to brief them on the importance of understanding and adhering to the fundamental foundations of the Telcom Act of 1996. As they considered granting transfer of franchise authority from MediaOne to AT&T. I'm very familiar with the Act. I worked in the legislation for Congressman Townes, a member of the Commerce Committee, and had three amendments included in the final Bill that became public law. I encouraged them to stipulate in their ordinance language, that deployment of advanced technology by MediaOne should occur in a non-discriminatory manner. The council voted to approve the transfer, but included the language in their ordinance. During the course of my visits and in conversations with elected officials and ISPs and subscribers, a few things became very clear. The longstanding and mutually beneficial business relationship MediaOne shared with Richmond will continue under the banner of AT&T. However, I was not confident that subscribers were likely to experience an equally beneficial relationship that would be reflected in equal access to technology and quality of service. I contended that disparities in the deployment of advanced technology and the quality of services provided after the transfer would be affected by a number of factors. Those factors include where people live and the belief that a company can recoup its investment quicker by serving more affluent and better educated customers. My message resonated with the members of the city council in Richmond to the extent that in their collective wisdom, they voted to protect the interest of their citizens by requiring MediaOne to guarantee that they would not discriminate in their deployment schedule. Although the Richmond City Council ultimately approved the transfer of control, it took legislative action in part, based on TAP's presentation and conditioned its approval upon several items. Our examination of other jurisdictions reveal that there were community and consumer concerns about the corporate philosophy and quality of service provided by MediaOne. In some, such as Los Angeles, they have endeavored to ensure to disparate treatment of consumers. They, admittedly, when any company is accused of a repugnant and illegal practice, they will respond with righteous indignation. MediaOne claims our allegations are baseless. However, elected officials of Richmond, Virginia recognized the merit of our argument. I do not believe MediaOne is guilty of venal intent to deprive minority consumers and customers of advanced technological applications. However, our review of maps and other data reflecting demographics of deployment for broadband in the Richmond area and surrounding suburbs, gave us cause for pause. My review of deployment maps and demographic data provided by MediaOne has given me cause to consider the efficacy of plans by MediaOne to get deployment schedule this color blind. This is a critical point when one considers that in some jurisdictions, there may be more than one provider servicing customers in very close geographic proximity to its competitor or competitors. It is clear to me that in instances where more than one cable company services households in a jurisdiction, it is difficult to ascertain where areas of service and coverage converge or diverge. However, due to the proprietary nature of much of the evidence and TAP's inability to cross examine MediaOne in a formal hearing process, TAP has been restrained in submitting further evidence to the FCC. Therefore, TAP recommends that the FCC conduct its own field investigations and hearings of MediaOne's deployment patterns in other jurisdictions where provide service in areas with high concentrations of ethnic, rural and urban subscribers. Designation of this matter for a hearing would give TAP the opportunity to fully discover MediaOne's deployment tactics and practices, and would give the Commission the opportunity to fully investigate the allegations in our petition to deny. Should the Commission's findings confirm our allegations, well, then the Commission must deny the merger on the grounds that it would not be in the public interest. At a minimum, the FCC should impose forfeitures and conditions upon any consent to the merger to protect the interests of low income, rural and minority consumers. Thank you very much. JUDGE LATHAN: Thank you very much. Mr. Francois Bar, please. MR. BAR: Thank you very much. My name is Francois Bar and I'm on the faculty of Communications Department of Stanford. I would thank you for the opportunity to be here today. What I wanted to do this afternoon is focus my comments on issues of network architecture and the need to actively pursue open access. And I would like to make three points this afternoon. One is that what we're seeing today with the transition towards broadband is a critical transition for the life of the internet. Second is that open access has been key to the evolution of the internet so far, and it will similarly be key to this new transition. And I want to spend a little bit of time discussing what exactly open access is. And, finally, address the issue about whether action is required from the FCC. Should we do anything and would competition not solve this problem by itself? The first point is that we are now seeing a transition that is absolutely critical. The first phase of the internet was one of experimental network. The second one was one of mass deployment of DOW lap intermittent connections where we've seen the explosion of the web. What we're seeing today is a significant jump into a new kind of internet which will be characterized by broadband and always on capabilities. The success of the internet in the first two phases fundamentally rested on the network openness. Because it allowed the multitude of participants to experiment, to explore, to innovate and to advance new ways to use this new network. Throughout these first phases, policy intervention was key to the success. And here again, I emphasize the word intervention. It was not the unregulation of the internet, but active involvement by policy makers that guaranteed openness of the underlying infrastructure which was the telephone network, and made competition possible in order to spur the development of the internet. So, the fundamental question we are facing today is what forces do we want to unleash to shape the third generation of the internet. Do we want to continue the successful policy of the past of promoting openness, or instead, would you rather -- we rather trust the owners of infrastructure to shape and determine the uses of the infrastructure? My second point has to do with the definition of open access. We've heard a lot about open access today and in the past, but it is always difficult to pin down a pure definition of what that is. So, what I like to do is look at what it is not. And look at an example which is derived from some of the policy of Excited Home. The control that has been exerted by the owners of the cable infrastructure and extended to the ISP provision in Excited Home results in the ability to endorse two kinds of constraints on internet use and internet applications. One constraints on internet activities. And, second, gives trends on the patterns of use and the contents and application providers. In the first category, we've heard many examples this morning. But, again, constraint on the use and application, on user authorization of the broadband network go from limits on upstream traffic that has been imposed on them, prohibition from running a server in their home, whether they're a web server or mail server, FTB servers, et cetera. Prohibition from using their internet connection of the cable for work related activity. There is another service for doing that, which is called adhoric. And finally something which is also troubling, which is the need for constant monitoring of activities in order to enforce those rules. And AT Home has been monitoring who was running service, what people were doing with their connection in order to be able to disconnect them when they violate these terms of the agreement. That is the constraint imposed on the user. They're other kinds of constraints which are imposed on the patterns of use of the network which has to do with this architecture of cashing and reputation which ends up taking the best advantage, I guess, of the broadband connection of the last mile. What this has resulted in is a web of agreements between the owners of the infrastructure, the ISP, and the content providers which, essentially, provide favorite placement for contents which is affiliated with the owner of the infrastructure. So that those content providers or those application providers, those transaction providers which have made a deal with the owners of infrastructure will then pay a strong percentage of the transaction that they engage in over the broadband internet. What that results in is really a shaping of the architecture of the network that supports electronic commerce over broadband and shaping the electronic marketplace that is emerging over this. In ways which are not often obvious, not often transparent to the end users. By contrast, I think open access would need to have two components. One is transparency in the architecture. And here there's an interesting analogy which is that the power derived from control of the architecture in cable internet access is very similar to the kind of control the owner of an operating system on a computer derives from control over the APIs, the application programmer interface. There is a very interesting power here which may be worth exploring. And, second, that other ISPs should really have reasonable access to critical network features on a comparable basis. So, finally, in conclusion, I would like to address the last question, which is why do anything. And the reason why I think it's worth thinking about doing something is that there are several indications today that competition would probably be highly imperfect. What we have today is limited competition between the alternatives. Between cable broadband and a DSL. The footprints tend to not overlap. We have a situation in which cable broadband has a substantial lead over the alternative, DSL. Of about six to one. It's very hard to get precise figures, but it's a substantial lead. And, finally, a situation in which switching from one provider of broadband access to another one, from cable to DSL or from DSL to cable is very difficult. Is it too early to intervene? As we've heard, I think it's not, essentially because what we are defining today is the projectory of evolution of this third generation internet. And those projectories get defined in the very early stages of evolution of these networks. So, in conclusion, I would really urge the Commission to think very seriously about exploring open access requirement as part of authorizing this merger. Thank you very much. JUDGE LATHAN: Thank you. Mr. Rosston? MR. ROSSTON: Thank you very much for having me today. I think this is -- there's been a lot of interesting issues and from what I, my feeling is that the focus should be on the merger and how the merger affects all the arguments that have been put forth so far. Right now, several people have put forth a lot of interesting questions. Diane and Dell both said, you know, how do we worry about consumer welfare, what do we do? And these should be our primary concerns in evaluating the merger. What I'm going to do is look at the issue of open access and then come then back to the idea of how does the merger affect open access. We've heard a lot about innovation, openness, competition. These things are all like mom and apple pie. These are things we want to have. Everyone is in favor of openness in competition. The question is how do we get there and what's the best way of having this work. So, looking at the effects of open access, I'm an economist, I'm going to use an economic framework to think about this. And the way an economist would look at this first is to say what sort of relevant markets are we talking about. Right now, what I think I've heard a lot of people doing is sort of assuming the relevant market and not really thinking about precisely what they mean. Whether it will be, what the relevant market will be. In terms of this, I think there are three possible choices that one might analyze for a relevant market in this case. From going from the most narrow would be a cable broadband market where cable is the only thing in the relevant market, to maybe a broadband access market to possibly having a market where all access providers are part of the market. In terms of thinking about the open access issue, this should be investigated and clearly defined. How, what, how do people substitute among them? What are the price comparisons and how do people view them as possible substitutes? In an era of rapid -- there's been rapid technological change. This becomes somewhat difficult to determine what the relevant market is or will be a year from now or two years from now. Right now, there are slight differences in performance. I've seen some statistics about how cable and DSL differ. Depends on the peak times for cable versus DSL. One may be better at different times than the other. But what you need to do is to first assess what is the relevant market. Second is to then say once you define the relevant market, what about market power. In this, you would say do the merging parties have market power or if you just looking at open access, does the cable provider have market power in this. What you also want to look at in this case is what are they doing to exacerbate this possible market power. Is the market power just in broadband access or is it in internet access. And the problem people have been mentioning is this exclusive bundling of internet service provision. One of the things that needs to be thought about is in a broadband market, what does an internet service provider mean or do, compared to a dial-up world where it made sense that I make a telephone call or my computer calls up on a modem and gets transferred to a modem bank, that then transfers me to the internet. Right now I think that almost anything I can get from AOL, I can also get from Yahoo, that is, could be considered an ISP, but it's for free on the internet and you can get a lot of the same things, web hosting or whatever you want from an internet portal that you can also get from an internet service provider in the broadband network. It's just the connection from the regional data center or the cable head to the network, to the internet. So, then you also want to think about questions of ability and incentives to actually do this. What incentive would a cable operator have to try to foreclose other people who may be, as Christopher Melcher said, they want to sell lots more broadband access. Why would the cable operator have this incentive? There was a question about a parallel with Microsoft. Microsoft had the incentive to -- the theory of the Government's case was they have an incentive to displace the browser because it was a threat to the operating system. It doesn't appear -- one needs to think about whether or not an internet service provider is a threat to the broadband internet access in this. There was also questions about lock in effects. In thinking about whether cable, because it has a headstart, has more customers now than DSL, is this going to prevent someone from switching back and forth between cable and DSL. If they are not happy with their cable service, can they easily switch, how hard is it to switch and what are the switching costs and lock in effects? Another lock in effect that people have talked about in some of the filings in this is worrying about the cashing and replication at the cable head end. How much is this going to buy us the cable system to promote its own people versus partners or people, customers, portal sites or e-commerce sites that it does not have a partnership with. Can they replicate if you have the cable head end, can I put forth a whole set of web shopping stuff right next to the cable head end and cash for other people. If that's a possibility, then cashing by the cable system doesn't give it that much of an advantage, especially when you think about this always on phenomenon. I mean, there were a lot of people who went to Netscape Netcenter because they don't know how to change their home page. When you move into a world of always on, this idea of not knowing things, how to change your home page doesn't matter because you go somewhere else and you leave your computer on and you never go back to your home page. I wanted to come back to the merger and I had a few other ideas on things, but since my time is up, I'll come back to think about in all this analysis of open access, at least it doesn't seem to me that I haven't mentioned the merger and how the merger affects things because it doesn't seem to play into this sort of competition analysis with, if you think of it as a cable monopoly, well, it's a cable monopoly on a local level. Who I get from my internet service provider depends on who serves my area. Whether it's DSL, wireless, cable, whatever it is, I have this very localized market. Doesn't seem like the merger affects the ability of someone to provide this service. So -- and I haven't heard other arguments about how the merger affects open access. Thank you very much for inviting me. JUDGE LATHAN: Thank you very much. Thank all of you. I am going to start with Howard Shelanski because he can't -- he said he wasn't going to stay with us for the full session, so I would like for him to ask any questions that he has from an economist perspective. MR. SHELANSKI: Yeah, I have a number of questions for a number of the panelists, but I think I will start with Professor Bar. I have a couple of questions for you, but I'd like to start first with your vision of the state of competition currently in the broadband market and how this may affect the case for open access. As you correctly point out right now, in the very small broadband market -- and I do mean very small because if we're talking a couple of million lines out of seventy-eight million internet users, the dial up world still, obviously, dominates. And there's a lot of growth that's yet to occur and a lot of things that can yet happen on that growth power. Right now, there's certainly a lead for the cable systems in delivering broadband, although the data that I have looked at shows that over the past several quarters, DSL has been taking market share at quite a rapid rate. Now, these are aggregate figures that I've looked at and perhaps the residential difference is still quite great. But this suggests that DSL is not able to be written off as a, as conduit. And I think it's very possible that we have a very different competitive scenario down the road. And I want to pose that scenario for you. It's different from the one you proposed, and ask you how that affects your arguments for open access. And the scenario is that five years from now the ILECs have gotten their DSL plans rolling, they've gotten their implementation organized. They are currently marketing mostly, or capturing mostly residential customers. And DSL is not far behind cable in serving residential customers and still has a substantial lead in the business world. They're also all of these wonderful companies that are going to bid for the 700 megahertz spectrum. And let's suppose that they're delivering wireless internet access, fixed wireless internet access to the homes. So, we now have three pipes. There are a number of major ISPs who may morph into some other kind of entity competing for customers based on the particular applications they provide and the cashing services they provide and their neat graphics. Do we need open access in such a world? And if so, what does it mean? MR. BAR: This is a scenario I like. I mean, in the end, I think the goal that we all have is to have the broadest possible deployment of broadband access with as many different access methods as possible. However, the question is can we get there and can we get there with many alternative possibilities. As you put it, that would definitely not write off the possibility that DSL will compete. My sense, though, is that for the moment, there is -- again, to take Greg Rosston's point, competition, if you look at it at the local level, even though those are aggregate figures, make sure that there is a number of customers for both DSL and cable. Means that individual customers at the local level may not have the choice between the two. And even if they do have the choice, it is quite difficult for them to switch from one to another. It requires rewiring. It's an extremely complicated process. And as a result, the competition between those two different forms may not work very well. The question is in this ideal world, and if we get to that environment, I would think there are some much stronger market pressures to enforce or to increase the incentives on the various carriers to have an open system. Which will be the various providers of internet service will be able to choose alternative carriage. The question I think is really that if we don't have open access on the cable side of this point, they're many incentives, also, to build an infrastructure that might be very hard to reverse. There could be some very big costs to go back from a closed cable infrastructure to one that is more open. MR. SHELANSKI: But if the other infrastructures at issue are not cable infrastructures, if they're fixed wireless, if they are the telephone network, in whatever form we find it a couple years from now, the architectural decisions are going to be relevant for those ISPs who want to get onto the cable network. But it would seem to me that they would be completely irrelevant to the ISPs who want to go onto the other networks. And my concern is how much of this architectural argument that you make is driven by a supposition of cable dominance, or how much are you really arguing that is a set of contractual relationships that might be put into place now with application providers, with content providers, that might not be -- that might tip the balance decisively at this early stage and interfere with the development of this ideal world that I hope for. MR. BAR: My preference, ultimately, would be to have a framework to deal with this issue which is not tied to individual technologies. Which is I think the reason why we're facing this problem today. We have on one side if you provide broadband access over telephone wires, this is under a common carriage environment and you have some kind of openness requirement. And if you provide it on a cable network, you don't have the same kind of requirements. While this is another matter, I think it would make a lot more sense not to have a comprehensive approach towards the solution. I think in the end, also, having an open framework that is cross platform, cross technology, has a sort of value. That you don't necessarily want to develop an infrastructure where different kinds of technology line up directly with different kinds of architecture because I think the switching issues for customers will remain there. It is not clear to me that in the end you want a system where you have to pick a whole package of underlying technology, network architecture, electronic commerce marketplace architecture and content provision. Which is we're framing for, I guess, you know, in the world you are finding. Vertical packages that go from transport all the way to transaction and content. My sense, again, that's derived from observing the evolution of the internet to date, is that the more cross pollination possibilities you make possible, the more experimentation you have. And the richer the environment will be. MR. SHELANSKI: That's very helpful. Let me just turn the question around, then, to Greg because I'm an economist, I like to pick on economists. Greg, let's say that Francois' scenario, the one that he spelled out underlying his initial remarks, does take hold and we do see a classic kind of network tip and in residential market cable is the dominant delivery system. What kind of market pressures do you think enter in to meaningfully open up that conduit, such that there will not be discrimination against content, contract relationships that are locked in orally. For example, by a proprietary ISP. And what of the market for innovation and applications? Will there be a vibrant enough market down the road or will all of the good deals have been sewn up with the ISPs that are bundled with the conduit providers, such that there would be a well out there -- I mean, excuse me a Yahoo out there that does not have, at the moment, at least, a conduit relationship. But they will not be able to induce a proprietary applications development because the really good deals and the early lead with customers was sewn up. What kind of pressures will there be so that we don't get these maybe three competing vertical systems, maybe just one competing vertical bundle, or one vertical bundle to open those up? MR. ROSSTON: First, I hope your first scenario is right that we do have the competing, lots of competing technologies. But I think right now, for example, one of the pressures that's going to keep the internet open, I think, is that there's a huge proportion of people who go onto the internet from work. And when you're at your office, that access that you're going to be able to get to the same content, the same things that you can get to from home. And there's going to be pressure to have standardized interfaces, real player, windows media, whatever it is, people are going to write applications for those kinds of things so that those standards that will work on your Netscape browser or your internet Explorer browser are going to work in both places so that you might not have sort of a content that's tailored towards the cable modem only. I think you will have -- there's no sort of putting the genie back in the bottle. I don't think the cable systems is going to dominate dense downtown urban areas alone. So that's the first part of it. I think, also, just this idea that what it is -- if it does come to pass that you would want to look at it then, rather than looking at something now as something that might possibly happen, as far as I've seen evidence is that DSL seems to be gaining a lot of speed. So I'm hoping that DSL, the competition between cable and DSL and wireless comes on. I think there is that pressure. And to the extent that consumers pick one over the other, there is the idea that this is what consumers desire, as well, since there are the possibility of choices now. They should be competing to try and offer the things that consumers want in order to get them to pick their technology. If one technology is clearly better than the other technology, we want to allow that to succeed and then deal with the problems, if they occur, of this content. In other words, I think there are technological ways around this that are talked about where you have someone who can cash things right next to the server. One of the things that may be the first mile access that's taken over, but the internet is still an incredibly vibrant place where people to come up with all sorts of new applications and there's a lot of creativity to get around restrictions like this. I wish there weren't restrictions like the video thing, but that would be sort of a you rather have a restriction on integrity of the network in terms of bits instead of types of bits. MR. SHELANSKI: Deborah, I don't know -- they don't let me out very often, so I have a list of questions. I don't know how long you want me to go on, or -- JUDGE LATHAN: I do have -- I want to follow up on this video question, here, because I have a question. Post merger, do you think that AT&T will be able to adversely impact the video programming market? And from several perspectives. From the perspective of will small independent programmers be able to get carriage? If they can't get carriage, you know, will they basically just die? Will we continue to have a diversity of programming and innovation that Americans expect to have? So, basically, I'm asking you what do you think, if anything, the impact of the merger will have on programming, video programming? MR. ROSSTON: First, I haven't thought about that issue very much, so -- JUDGE LATHAN: Well, you're an economist, so I thought I'd try. MR. ROSSTON: I guess the question is if you think that cable has monopsony power in the programming market and that there was the possibility of MediaOne and AT&T competing with each other or exerting some sort of competitive discipline on each other prior to the merger, there may be some impacts on that. There also may be some impacts that if you got carriage on MediaOne but didn't get it on AT&T prior to the merger, now you might not get it on both. You might have some effects that way. But I haven't really thought about how the independence would be affected, in general. One of the things is by digital upgrades and things, there's going to be a bigger demand for programming which should be good for programmers. And high-speed access may be somewhat people can be programmers, internet programmers, as well. So I think there are benefits from having higher speed access and upgrades to systems in terms of demand for programming which should help people. But there may be these other questions that people need to investigate. But I haven't thought through the issues on that as much. JUDGE LATHAN: Well, let me just ask you one more, then. I mean, I know you haven't thought through, but your first impression. From the perspective of distribution, would you believe that -- do you have any concerns that AT&T's ability to enter into exclusive contracts might inhibit the ability of its competitors, such as overbuilders, to be able to provide programming that consumers would find necessary in order for them to subscribe, and, therefore, making it much more difficult for an overbuilder or another competitor to AT&T to compete? MR. ROSSTON: It's my impression that the program access rules were a big benefit to competitors like Direct TV and Echo Star, and allowed them to get programming. And that was probably a good thing. I think that there, to me, they should be technologically neutral and not -- as an economist, I can't see the difference between a program that's delivered over satellite versus one that's delivered over microwave. But -- JUDGE LATHAN: What about terrestrially? MR. ROSSTON: What? JUDGE LATHAN: Terrestrially. MR. ROSSTON: Yeah, I guess -- yes, yes. I'm sorry, I don't know the lingo. I been away from the Commission too long to remember the lingo. But, you know, so there's no sort of economic difference in that, I don't think. But it's -- they seemed to have allowed the competitors to succeed. There may be efficiencies from exclusivity in terms of getting a program off the air, but in other cases, it definitely can impact competition if you can't get subscribers because you can't get a channel that everybody wants and won't subscribe without it. MR. SHELANSKI: Francois Bar gave us a nice definition of what open access is, for which I'm very grateful because it's been very hard to, often in the debate, to figure out whether people aren't talking past each other. And his definition of open access has two components, transparency and architecture. And access to comparable network features on reasonable terms. These are both things that can be defined in a variety of competitive levels. So, my next question really is directed to the four of you, to Mr. Anderson, to Mr. Glass, to Mr. Melcher and to Ms. Linderman as competitors and people who are also in the policy and regulatory standpoint. I can imagine the competitive side of open access being defined in a variety of levels. One possibility is that the cable companies will come to private agreements as the AT&T letter might be an exemplar, with a variety of ISPs. Not all of them, by any stretch of the imagination, but with a few. And those agreements will provide technical solutions, transparent technical solutions to some of the problems of a shared infrastructure. And will also provide comparable network features, cashing, replication, streaming to those partners. Is that open access if this is a private agreement for five or six such players to come into the market? The agreements might be driven either by the incentives of AT&T to make its cable subscribers happy. They don't want one ISP, they want choice, so it's a good business decision. Or driven by fear that the Justice Department will be dragged in on some kind of a central facilities case. And just note the investigation recently announced of E.Bay as evidence that the Justice Department is watching any bottlenecks created in the internet extremely closely. With that kind of more general competition regulation and legal infrastructure and private incentives, is that open access? Or are you looking for something more, a mandate that is, in fact, universal. That any ISP that goes into business, can at any time come to any cable system and say we want to be on your network, whether it's by reselling and relabeling the service that you provide, putting a different cover sheet in front of it, in essence. Or by actually having some kind of co-location, some kind of -- it's hard to talk about a virtual circuit on cable infrastructure, but some kind of routing on direction of traffic that must be provided to all comers. What, from a competitive standpoint, do you as competitors and regulators consider to be open access? MS. LINDERMAN: I'd be happy to make a comment. I think if you asked the citizens in the city of Richmond who was an internet user what open access meant to them is that they'd have whatever choice they wanted to. It wouldn't be limited to five or six or two, whatever. I think because as a citizen and I have been in this debate for a long time, I still don't understand it all. And the citizen, the consumer doesn't -- understands it less than I do. And so the very simple choice they may make is one who is going to be their provider just of the architecture, the wire. And then, second, that they can get to the internet service provider that they want. I don't think there'd be any argument -- JUDGE LATHAN: But following up on that, does that mean that, theoretically speaking, then, that if there are six thousand ISPs that AT&T should have to carry six thousand ISPs and with the risk, perhaps, of sacrificing other services that it would not be able to render? I mean, what's the numbers? If one is at six thousand -- MS. LINDERMAN: I don't know what the number is. In the world you're talking about five years from now where everything was connected somehow, then you can get to where you want to go on all those types of infrastructures, the wireless and the cable and the broadband and the dial up. I don't know what, I don't think there is a magic number. JUDGE LATHAN: Professor Bar, I mean, what do you think? Should they have -- should a cable company have to carry any ISP that demands carriage? MR. BAR: Ideally, yes. I mean, we've been doing that with the telephone network and it's not been a major problem. It's just a question of defining the architectures of that. It is -- again, this is sort of the basic feature, the basic elements of the network are accessible on a non-discriminatory basis on reasonable terms. JUDGE LATHAN: Mr. Cicconi, let me just get Jim's reaction to that. MR. CICCONI: I am not the chief technologist, I am the chief lawyer. But near as I've been educated, there are differences between the telecommunications infrastructure in this country and the internet infrastructure in this country. I think those have been pointed out by any number of people. The example was used earlier by Professor Bar of restrictions on consumers being able to set up service in their homes. This is a result, frankly, of the shared architecture of the system. I might add that a member of OpenNet that's been a strong advocate of open access, GTE, on the Whirlwind system, on their cable system, has a similar restriction to home servers. There's a very good reason for that. We had a real good example of it in California on the At Home system. There the entire system in an area bogged down to a call and At Home was not able to actually meet the speed levels that people had contracted for. They traced it back and they found out that the reason was somebody was running a server in their home. Had become, unfortunately, a very popular porn site and that in violation of the restrictions. The point is not that they were doing something they shouldn't have on the server. The fact is that they were running the server that degraded the quality of service for the entire surrounding area. And that is something that's unique to the cable infrastructure but does not exist in the telecommunications infrastructure. So, I think just there I think that it's far too simplistic to analogize between these two systems which were set up very differently, they're structured very differently. They have because of their history in different structure, set up under different structures of law by the Congress and different forms of regulation within the FCC. To suddenly analogize that these are, therefore, the same and should be governed by the same restrictions, I think ignores the reality of these systems. And not trying to do the same type, give the same type of simplistic answer, analysis for the server example, but I think it is a shared system. It is one of the challenges we face on the structure. I cannot sit here and nor can anybody in the company today and tell you how many ISPs we can accommodate on this system. We do not know yet. We don't know the impact this would have on the scalability of these systems. I can tell you this. We are committed to do it. We're committed to have it as open as possible. We're committed to as many ISPs as we could accommodate on this system. But we don't know yet what the answer is. I doubt seriously it's six thousand. But if we could find a way to do that, we will. MR. SHELANSKI: Well, let me -- yeah, before I get through, I like to hear from Misters Glass and Melcher from the competitor's standpoint. But let just push back to make I sure understood one of Francois Bar's point. Because if I did, I think it's, it may well be one of the critical points. You suggested that there shouldn't be a problem requiring universal or ubiquitous open access on the cable network because that's what we're doing on the telephone network. By that do you mean that absolutely any competitor should be able to come in and by a loop? Is that the analogy that you're drawing? MR. BAR: Again, I didn't say there shouldn't be a problem. MR. SHELANSKI: No. MR. BAR: I said ideally. MR. SHELANSKI: Okay. MR. BAR: I do understand there are technical restrictions. And I do understand, also, that there is technology called solutions to technical restrictions. It's a question of how hard you want to work at solving them. I was primarily reacting to the way you phrased the question which was would it be open access if the owner of the infrastructure decides to strike deals with four or five ISPs and let those ISPs onto the network. That strikes me as not open access. MR. SHELANSKI: Okay. MR. BAR: If there are limits who gets to be let in should not be decided by the owner of the infrastructure. I mean, we have all kinds of mechanism; auctions, licenses, you know, that do not give the entire power to decide who gets programming or applications or ISP onto the infrastructure just because they own the infrastructure. MR. SHELANSKI: Okay. I think that's an important point. Because it would be nice if there were a technical solution, but certainly the telephone contacts, the loop is a pretty separable item and only one person gets it. You know, if I capture the customer, I get the loop and it doesn't effect what's done with the rest of the network. Obviously we don't have an analogy to the loop right now, anyway, in the cable system. And I think there's a question that we need to ask is the extent to which by mandating such an analogy, or even by having an auction, that's another question. Who sets the standard by which the interconnection would occur? Would you let the cable system define that or would that come from somewhere else? MR. BAR: I wish I had the answer. MR. SHELANSKI: Okay. MR. BAR: I think at this point what I'd like to say is this seems to be quite complicated issues which do warrant an investigation. I mean -- MR. SHELANSKI: Fair enough. Fair enough. MR. BAR: My goal here would be to advocate very strongly for debate. That looks at the options. That looks at what exactly are the technical restrictions, not just what the owners of the infrastructure tells us are the restrictions. But of an open debate about looking at that. An open debate about looking at alternative allocation mechanisms and consequences. MR. SHELANSKI: I agree that sounds very reasonable. Mr. Melcher, do you want to respond? MR. MELCHER: I would like to throw in support for the view that you cannot allow the owner of the cable technology to run the auction or to decide who gets access to the technology or not. I think it would be similar to letting an RBOC decide who gets to get access as a CLEC, and we happen to be a CLEC, as well. If U. S. West or if Pac-Bell decided they didn't like us, they wanted someone else, I don't think that would be an appropriate situation. Similarly, I don't think AT&T should be allowed to say that we'll let Earthlink in and now we've proven that we don't have a monopoly or monopsonese, so, therefore, we don't have to let anyone else in. I think that control certainly shouldn't be in the hands of AT&T. I think the technological hurdles could be overcome. It's just something needs to be looked at and resolved. Going back to -- I'd like to comment briefly on going back to DSL versus cable. As I understand it, cable passes, not connect, but passes approximately ninety percent of the homes in this country. DSL currently only passes about thirty percent of the homes. So, there really isn't free choice. I would love to see the ideal world that members of the panel have talked about, and I look forward to that world. But that is a long ways off. And I think right now we need to make sure that everybody has availability to each technology. The technologies have different features and they have different pros and cons. For example, personal example, I'm a senior executive at an internet company. I can't get high-speed access from my own company. I live twenty miles outside of Denver, I can't get DSL. I have to choose AT&T digital cable or some other form. And that's true of a very large percentage of this country. They don't have a choice of cable versus DSL. Last point. Obviously, if I'm sitting at my home, I would like to be able to choose my own company as my ISP provider over whatever technology I'm required to use to get high-speed access. Otherwise, obviously, I'm going to pay twice. That's not fair. And what we do is exasperate the digital divide that everyone's talking about these days. If you can't -- if you have to pay twice for the same technology, a lot people aren't going to get that technology. JUDGE LATHAN: Mr. Cicconi? MR. CICCONI: I just want to respond to one point, there. Chris used the number that cable passes ninety million homes in America. And I think it's an apples and oranges comparison. The fact is cable does pass those homes, but this is not upgraded cable. This is not cable capable today of delivering high-speed internet access. Percentage, actually, is far less and I don't have it. But the ninety million is the entirety of cable systems in this country. And it's simply not a comparison. The other point I'd like to make is this. There seems to be some dissing of DSL that is going on here for purposes of trying to make a point that somehow cable and internet access is the only means out there. And I think those of us that pay a little bit more attention to this may be looking at what the consumer's market's doing. I think Howard made the point about how DSL seems to be accelerating recently. Believe me, we've noticed this, too. And I think that here in the Washington area, what you've noticed is that with the announcement that At Home's coming into one area, I believe, and Road Runner's going to be coming into the COX cable territories in Fairfax County, all a sudden what you're finding is Bell Atlantic running DSL ads. This is, by the way, the Best Buy ad from the Washington Post this Sunday, they're marketing DSL modems complete with Bell Atlantic service. You're finding a three-quarter page ad in the Washington Post this week with DSL service. By the way, it's priced at forty-nine ninety-five, which is what the cable service will probably be priced at when it comes in here. And that's a significant drop from what Bell Atlantic was pricing the same service at only about six months ago. And quite a bit less than what it was pricing it at a full year ago. My point is that just the mere pendency of cable coming in and providing high-speed access in an area is driving DSL deployment. The people in this area are actually benefiting from lower prices for DSL services and seeing very aggressive marketing abuse of services. Merely with the plans to come in here with high-speed cable modem service. And I think that when the service actually comes in, they're going to benefit far more from it. I think that for the Government to intervene here, intrude and impose conditions on this, would actually retard the very type of investor that's driving this into deployment in this country. And I think we've all been cognizant of the route that Canada went down here. And this is not, frankly, a happy situation. I was up in Canada meeting with one of the commissioners myself. And they're not very happy with the quandary they find themselves in, either. Fact is they put an open access regulation on the books several years ago. They're still trying to implement it, and they're finding themselves bogged down in the marasse of even pricing regulations and how they administer these things. And they're finding that it's leading them down the path of increasing regulation which they, themselves, fear is going to have a stifling effect on the deployment of broadband in Canada. And I believe the Commission itself recently in looking at the Canadian situation, is acknowledged, in fact, that that path is fraught with exactly that type of danger. This is exactly the type of deployment that the Commission and, frankly, the Telcom Act was hoping to drive. It is working, broadband is coming out there through a variety of different forms. And for the Government to intervene, however well intentioned it might be, when the market is in the process of addressing these problems, including AT&T's commitment to provide a choice of ISPs, I fail to see what rationale there is for Government intrusion here. MR. SHELANSKI: Well, you know, Jim, I think it's right that a lot of companies have popped into the Washington area, though I've yet to be certain whether it's because they're scared of you and figured out where Chairman Kennard lives. But I want to pick up on an issue that Mr. Melcher raised, and this is a question for you, Mr. Munir. One issue that we've been wrestling with is the extent to which the broadband internet access market and the dial up internet access market are separate markets. Or should we just all consider it one market and consider the fact that anyone who has a telephone can dial in to an ISP, has internet access, and that should allay our fears about any potential monopolies on the part broadband? I think this is relevant to concerns about redlining to accessing particular neighborhoods, that particular businesses and particular customers have. How important do you think it is to insure that broadband deployment is fast and ubiquitous into all areas, regardless of income level, regardless of ethnic and racial background? Or do you think that the important thing is simply to insure that there is a vibrant functioning internet and reasonable phone rates so that people can obtain those, access to the internet through the dial up world. Is there a difference -- should we really worry about getting bogged down out there faster, should we worry on making sure that the vibrancy of the internet and cheap ISP remains in place? MR. MUNIR: It's an interesting question that you pose because as an economist, you probably are familiar -- I know you're familiar with the term all things being -- MR. SHELANSKI: We say it a lot. MR. MUNIR: Yeah, all things being equal, which they are not. And in my aspiring economist days, we frequently had to refer to that. I think that's vitally important for it to be competition and for broadband to be deployed as quickly as possible. However, consider this. In many urban areas, although areas probably very high proportion of families that have telephones, the level of penetration is not universally a hundred percent. So, therefore, those individuals who don't have telephones, even if you deploy quickly, they wouldn't have the benefit of being able to take advantage of it. So, that's a very critical factor. Now, if you have a number of ISPs in competition in the marketplace, that serves the marketplace very well. But I think as it relates to discriminatory deployment, redlining, there are a host of issues that mitigate and militate against each other. JUDGE LATHAN: I want to follow up on this redlining issue and then I want us to take a break. You've made some fairly serious allegations against MediaOne with respect redlining. And my first is question to you can you give us some specific incidents and evidence of redlining by MediaOne and then I would like MediaOne to respond to any of the accusations that you've made. MR. MUNIR: Okay, yes. First, let me set the stage that our allegations were predicated on maps that we pick, that we utilize reflecting MediaOne's deployment schedule in various localities around the country. We used a demographer and a very reputable firm for those maps. And that was taken off of the web. Now, so we drew some inferences and some conclusions from those maps. Subsequently, we were able to review the maps of deployment used by MediaOne. So, our allegations about redlining were predicated on our earliest information. And subsequently my visits to Richmond and my inquiries around the country reinforced some of the notions that we have about redlining or discriminatory deployment. However, we are still in our fact-finding phase. JUDGE LATHAN: Well, can you give us just some examples of what you found so far? MR. MUNIR: In Richmond, in Richmond -- when we went to Richmond, we were advised by customers that, in fact, they, their areas may have been wired, but they didn't have access to the broadband applications. So, the question for us was whether or not that was a calculated and strategic process, or if it was just a matter of circumstance. In speaking with people at MediaOne, they have indicated that they wired, irrespective of class, ethnicity or income. But customers indicated that they didn't have the benefit of certain technology. And so the question for us well, why is that. And we didn't engage or have discussions with anyone from MediaOne until very recently. So there was a lot of vacuum there. JUDGE LATHAN: So, there are not -- you don't at this point and time have any specific incidences of redlining, but you have a concern that redlining might occur or has occurred? MR. MUNIR: We have concerns that if history is any barometer, we know that in various jurisdictions around the country, typically, companies will deploy advanced applications based on the likelihood that certain areas are wired for the technology and that there is a likelihood that those homes that have computers will take advantage of those advanced applications. If you look at rural communities, urban communities, of which there are a host of ethnic residents, the question is whether or not they have the opportunity to take advantage of services. JUDGE LATHAN: But I just want to be clear. Are you saying that MediaOne redlines? MR. MUNIR: We allege initially that they redline. JUDGE LATHAN: Are you alleging today that they redline? MR. MUNIR: We allege we believe that they utilized discriminatory deployment. Now, the term of art, discriminatory deployment, relates to a strategic decision that's maintained by a corporation as to what they do. And that's different than redlining. You can make a determination that we want to wire in a given area because we believe that, they believe that they will get a fairly -- JUDGE LATHAN: Okay, well, let's follow up on that, though. So you're say you're not saying that MediaOne today has redlined. But you are saying they engaged in discriminatory deployment. MR. MUNIR: Selective deployment, yes. JUDGE LATHAN: Okay. So, can you give me an example of discriminatory deployment? Is it Richmond, Virginia? I mean, is there -- I'm just looking for something concrete. MR. MUNIR: In different cities around the country; Atlanta. Let's see, Atlanta, Los Angeles, Richmond and Chicago we made inquiries about whether or not redlining was occurring. I must admit that based on our review of the maps that MediaOne provided to us recently, it caused me to raise questions because I was told and it became clearer to me that there may be some instances where there are multiple cable providers. So, for example, if you're in a jurisdiction and there are two or three cable providers including MediaOne, redlining may be taking place, but it may not necessarily be MediaOne. And at the time that we filed our application, there was some question as to who were the guilty parties. It was our understanding based on maps, the information, the relevant information that we had the time, that MediaOne wasn't involved -- JUDGE LATHAN: Well, let me just ask you this and then I want Diane to tell me a little bit about redlining in Richmond, if it exists, since you're there. Based upon what you know today, would you oppose this merger because you believe MediaOne or AT&T engages in redlining? MR. MUNIR: I would like to, based on what I know today, I still have some questions that I would like to have answered. I am not of, as strongly of the opinion that they are guilty of redlining. But I still have questions. JUDGE LATHAN: Okay, thank you. Let me just let Diane tell us about if you believe they're instances of redlining in Richmond. And, Susan, we'll hear from MediaOne. MS. LINDERMAN: And I'm sure Susan, as a result of allegations, MediaOne did make a response I think to you and we certainly got copies of it. It was a little confusing for us to determine based on the information we had, as well. And there was some -- in Virginia, the counties and cities are separate, and some of the information that we were getting was that it wasn't happening in the county and it was being referred to as the city. But the council, although, was concerned about the potential for it to happen, we didn't find any specific instances that it had happened. And, actually, if MediaOne had wanted to serve the affluent parts of the community, they would have gone to Henreco County first and not even looked at the city of Richmond. Because obviously, our median income is far lower than the suburban areas surrounding it. So, they did make a condition in the ordinance that didn't allow them to discriminate, but they didn't find any specific instance in the city that it happened. MS. EID: Thanks, Deborah. I appreciate Khalil's coming as close as he could to withdrawing the accusations. I'm surprised that he didn't go a little bit further. We actually met this week, twice. And as recently as last evening, I sat down with Khalil and went through all of the maps that we submitted to the bureau at your request. And as he said, these are extremely serious accusations, ones that MediaOne has taken very seriously, as has the bureau. We spent a lot of time analyzing our deployment in every market across the country. And as we said in our response to the petition, the allegations are baseless. They're not grounded in the facts that we have put forward. The evidence in the record will support that. And I would really encourage Khalil and his folks to go back and review the information that we've put on the record. I think the point that he was trying to make is that TAP's methodology is defective in two important respects. One, they included franchise areas in the map that MediaOne does not serve today, and therefore, we have no control over deployment in those franchise areas. And, number two, they did not include a number of communities that we have, in fact, upgraded and do provide broadband services today. So, at the bureau's request, we looked at the three markets where we have the most diverse population. Richmond is one, Los Angeles and, actually, Atlanta, Georgia. And just let me give you quickly the rolled up statistics for our deployment of high-speed data in each of those. In Los Angeles, by the end of this year, ninety-seven percent of the white homes passed will have high-speed data. Now, almost ninety-nine percent of the African American homes in that market will have high-speed data, and ninety-seven percent of the Hispanic homes. In Georgia, the numbers are almost ninety-five percent of the Hispanic homes will have high-speed data. Ninety-three point five of the African American homes and ninety-one percent of the white homes. And in Richmond, as Diane said, by the end of this year, we will complete our upgrade so that a hundred percent of all the homes will have high-speed data, digital telephone service and the upgraded video. When TAP filed its petition last Fall, that build was about four months along. And as she said, it was actually the African American population in Richmond was three times more likely to get the upgraded services than the white population in that market. And in the petition they claimed that only eleven percent of the African American population had access to the service. But they ignored the fact that ninety-six percent of the white population did not. But the important point is by the end of this year, a hundred percent of that market and the very high statistics in the others. So, I just conclude, again, that the facts support our response, which is that these claims are baseless. JUDGE LATHAN: I was going to ask you, Mr. Munir, what assurances can AT&T and MediaOne give the Commission that advance services will be rolled out to all communities? What assurances would you find adequate? MR. MUNIR: I think at the very least -- well, as a starting point, utilizing or taking off from the language employed by the jurisdiction, City of Richmond for non-discriminatory deployment. And that's a great starting point to proceed from. At the moment. However, I do want to raise a question or point. The buildout that was just addressed was, we believe, accelerated. And perhaps accelerated as a consequence of our inquiries and allegations. That may not have been the case. On the face of it, it appeared that once our allegations were made, the buildout was accelerated. It could very well have been a function of the fact that the land mass and area in Richmond is not that great and the number of customers is not that -- isn't that substantial. So, that's a question that I raise. And that's why, after having looked at the maps, in many respects, it answered some questions, but it raised others. Additionally, I spoke to this earlier. The fact that an area is wired, if the lines are deployed, the question is whether or not the services are afforded to the customers and consumers. And I don't know, I would like for them to answer that question that when they say that a hundred percent of the homes have been passed, ninety-seven percent, whatever that figure is, does that necessarily mean that if a customer calls up and says I want your services and they live -- and they happen to be African American and live in a given area or they live out in Goochland -- excuse me if I'm abusing the name -- whether or not the services are available. MS. EID: Yes, I guess the short answer to that is looking at Los Angeles as an example, a company such as MediaOne wouldn't spend close to a half a billion dollars upgrading that network and not market those services. There would be no return on that investment and it just makes no business sense for any company to do that. I'd be happy to send some marketing materials along to Khalil so he can take a look at them. And, again, in Richmond, in Atlanta, it's the same thing. But I just want to comment on the non-discriminatory provisions that were included in the transfer. I, in my former life, used to do a lot of franchising and I am hard-pressed to think of one local franchise that we have that doesn't include some requirement that we serve a hundred percent of the community or that it be non-discriminatory in our deployment of those services. So, I really don't think that that's an issue at all. JUDGE LATHAN: Mr. Anderson. MR. ANDERSON: Yes. Many local governments I think are concerned with protecting residents against these issues of, you know, cherry picking or redlining. And I think, well, as Mr. Shelanski asked earlier, you know, is there a real difference between dial up access versus broadband. Are they really the same product or they're two really different kind of animals. And I think, yes, I think experience tell us, for anyone whose made the migration from dial up access to cable modem or DSL service, especially those of us like myself who made the migration back to dial up service because of the availability in the internet community for the service. Yeah, there is a difference. And we talk about redlining and providing service and barging, these companies barging themselves to universal service requirements in servicing all areas, despite, you know, the demographics of the area. We talked earlier, you know, about providing what percentage of phone service to which percentage of neighborhoods. And here we're back to this whole dial up scenario again. I think really going forward, we need to look at the issue of providing broadband services. You mentioned, yes, the homes are passed, but are the services really being offered. Sure. That becomes the issue for people in large urban cities. I know that even in the District, here we have experiences where we have some of the services that are available, however, companies, telecommunications companies have issues with concern of safeties for their employees, for insulations or repair or maintenance of these broadband services. So, it's not as unrealistic to think that although the homes are passed for the broadband network passes homes that, you know, automatically these folks have access to it. Quite realistically, there becomes issues of safety and concerns for employees or theft of the services that really can slight and sway the decision on whether or not to make these services available to those residents. JUDGE LATHAN: Thank you. I think on that note, we'll take a short break. When we come back, I want to talk more on the subject of programming and also video competition when we come back. We'll take a ten minute break. Thank you. (Whereupon, a brief recess was taken.) JUDGE LATHAN: We're back in session. Okay, ladies and gentlemen. It's the home stretch. Okay, we're beginning now. Quyen Truong has a few questions and she's going to begin with some questions pertaining to the broadband market, is that where you're going to first start, Quyen? MS. TRUONG: Yeah, I think we've had a very interesting discussion about the open access or force access in general, and I'd like to bring it back to the merger, specifically. And this can go to anybody on the panel, basically. Do any of you contend that the merger would actually make the situation worse as far as the issue of open access is concerned? And, if so, can you explain how the merger would make it worse? JUDGE LATHAN: And, let me add, should this be something considered within the context of the merger? Is this merger specific? MR. MELCHER: I won't represent that I am a merger expert by any stretch of the imagination. However, the reason I'm here and the reason I've flown out from Denver and postponed my vacation, which is the first one I've had in about a year and a half, was because it is so important to us as a smaller ISP to be here to comment on this merger. If this merger goes forward and there is no open access mandated for the cable technology, our company does not -- our company believes that our odds of surviving are reduced significantly. And the smaller ISPs and the competition you get from a vibrant small ISP market will be damaged in a material way. And the reason I say that is because this is a critical technology. This is a technology that people want to have, people want high-speed access. Whether it's DSL or cable, they want high-speed access. And if they can only get it through a few providers, those few providers will capture that market. And every ISP out there is very much concerned and very much focused on cable technology as a broadband access plant or forum. That's why we're here. So, the answer to your question is yes. If this merger is approved and 22-MediaOne and 22-TCI MediaOne and whatever else AT&T joins with, controls sixty percent of the cable market and controls that cable technology and does not open it up to other ISPs, we believe you're going to see less competition in the future, you'll see less smaller ISPs and we'll be at a competitive disadvantage. Right now, some of the products that we offer, just so you can get a sense of what we offer, require high-speed access. We have our own search engine, we have a vertical portal, we have streaming products that require high-speed access, we have application services. We're an application service provider, which you may know as a rapidly growing new segment of the united industry, whereby your software packages are hosted on a server outside of your PC and your PC, through the internet, accesses that server, draws down the software like Windows, like Excel, like Access, like Outlook. It's not hosted on your PC. It's over the internet as a server. You're required to use those kinds of programs efficiently, you require high-speed access. If you're a small business person running a business out of your home, you require high-speed access. If you're telecommuting and you want to work efficiently at home, you require high-speed access. If you want to participate in the internet revolution, if you want to participate in all the products out there, you require high-speed internet access. And cable is one of the best, if not the best technology available today for high-speed internet access. So, that's why I'm here, that's why the small ISPs care so much about this. MR. ANDERSON: As I said when I opened today, one of the concerns that I have, one of the primary concerns was protection for consumers and the promotion of competition through the cable services. I think as we see this merger and you begin to review this merger, I think that has to be a primary priority for the consideration of the merger. You ask will it effect, negatively, competition. Is it healthy for the consumers. Well, when you consider that the number of cable companies through these and similar mergers begin to diminish the number of cable operators out there, where smaller and smaller number of companies control this broadband access through the cable television network, then I see us moving back to a throw-back of the old, the AT&T of old. The big days. Prior to the split up of the company where the services the people really want, people required, were only being offered by one or two companies. I think there's no way that we can expect to foster competition and offer diversity of services and embellish consumer services for the benefit of the consumer if the merger is allowed to take place without there being serious consideration to the protection of consumer's rights to competition for the services. MR. GLASS: Yes. To me, this debate is missed the point. I don't see that there's a problem, necessarily, with the 22-MediaOne merger. As far as open access is concerned. If there was a situation where there was an impact on content as a result of the merger, I'd be concerned. But the way I see it, there is a number of competing technologies, be it T-OneMind's dial up, wireless, broadband or DSL, these technologies provide a number of ways for customers to get access to the internet. The internet content that I see is mostly duplicative. So no matter what technology used to get there, it's, you see the same content. Now, if for some reason as a result of this merger that AT&T is able to capture some content that's widely appealable and keep that from the masses, then I would have a concern. But I don't see it that way. JUDGE LATHAN: Yes, Professor Bar, please. MR. BAR: I would argue that this is purely a merger issue. If the issue of open access is not simply one of allowing an extra ISP onto one network. If it is as I described it earlier, the issue about the definition about the underlying architecture of the carrier infrastructure. Then merging two infrastructure that deliver broadband access cable will make that the dominant architecture. And once you combine Excited Home plus Road Runner, you do have -- you would end up with a dominant way of designing a broadband access network over cable. JUDGE LATHAN: But my question would be, then, if this merger's specific, it would not apply to the other MSOs, cable companies, such as COX and Cablevision. I mean, is that a fair and equitable thing to do in the context of a merger where it would apply to some parties and not to others? Professor Bar? MR. BAR: No. Obviously not. It's something that should apply to all the cable carriers. JUDGE LATHAN: Mr. Cicconi? MR. CICCONI: Well, first of all, we have committed to provide a choice of ISPs on all of our broadband systems, and we're going to do so. We've led the industry and you've seen response from the industry to that leadership. So, I think this is, frankly, an issue, if it is a problem at all, it's an issue that's being addressed by the free market today. Secondly, we hear -- you continue the statement about controlling broadband access. No one in America controls broadband access. There's absolutely no evidence before this Commission, and no evidence, frankly, that anyone at this panel has presented that I've heard today that indicates anything to the contrary. It's simply untrue. AT&T will not control sixty percent of cable subscribers in America. And even if it did, that doesn't constitute the broadband universe. There is DSL out there, there is satellite, there is fixed wireless. They're other technologies coming on. So it's ludicrous to argue that the broadband market which itself cannot be segmented from overall internet access, should, in turn, be segmented into just cable broadband. Just does not constitute the broadband universe. And the broadband itself, does not constitute the universe of internet access. So, the segmenting of segments here in order to prove a point, is, frankly, refuted by the facts. Is simply unfair and unsupported. There is no such control. If there is no control, you can't have any sort of bottlenecking. To argue that AT&T, with about a hundred thousand broadband high-speed internet customers today, is somehow able to bottleneck internet access, when the largest single internet provider has twenty million customers, is added more in three months than Excited Homes added in the past three years, is simply ludicrous on its face. The consumer will continue to have multiple means of accessing the internet. This is very clear. It will not come just through cable. And, by the way, cable will just not come from AT&T. You're going to have multiple means of accessing the internet available to everyone at multiple speeds. And this will insure the choice continues and that the market can continue to drive this. I believe the market will dictate a choice of ISPs. It is caused us to reach that conclusion today. And, again, I see no reason for Government intervention if the market appears to be responding. Finally, I think the original question is the appropriate one. How appropriate is it to address something like this in the context of a merger of AT&T and MediaOne. If this is indeed a policy issue, as our opponents have suggested here of broad applicability, even though we disagree with this, it is something that should be applied on an industry-wide basis, not in the context of a specific merger. It would be grossly unfair to impose requirements on just two companies in this industry if indeed they feel this is a problem affecting all of cable. Thank you. JUDGE LATHAN: On that note, though, Professor Rosston, I know you had a comment. Before you comment, would you address the issue -- because I was playing devil's advocate with Professor Bar. Some would argue that it is most appropriate to address the issue of access in this merger because of the horizontal reach that AT&T, the merged entity would have, that it should be addressed within the context of the merger. So, would you answer that question? And we'd also like the comments that you were previously going to make. MR. ROSSTON: Okay. I think that the issue of horizontal reach is -- when I went through the questions that you will go through to look at the economic effects of this, whether you have -- whether I'm served by a company that serves Memo Park where I live only, or serves the whole rest of the company, doesn't really matter to me wherever else they serve. It's the options that are available to me. Do I have DSL and wireless and cable available to me, or do I just have cable available to me? Or dial up access. It's a question of what's available to a specific group and it doesn't really matter in terms of access what somebody else across the country has access to, for the most part. There may be some circumstances in which you care sort of network effects of programming availability or content availability. But it seems to me a lot of those issues are not a real problem right now and should be considered in more of a general access proceeding. I was going to comment that I think that this is -- most of the issues as I said earlier, are not merger specific. And that if the Commission is concerned about this issue, we should have a specific proceeding directed towards the open access proceeding, just like your question to Professor Bar of is this really something we should impose only on these two. Well, it doesn't sound like he was convinced or I'm convinced that it's something that if you're going to do something, it should be only on these two. There is the issue of if you do something that there's going to be a large amount of regulation of both figuring out what to do, how to do it and prices. And that's going to take -- and the Commission should be aware that doing anything is going to cause a lot of regulation and a lot of regulatory apparatus. And that regulation is not perfect. And the Commission should be wary of that. Finally, I was just struck by the comments about what RMI.net could provide and would provide as an ISP. And to me, that sounded like it's a -- and I appreciate the idea of streaming video and ASP provision. But there are a lot of companies that are providing this on the internet and they can provide to -- my assumption is they can provide to people at the FCC who have access at their desktops. They can provide it to me with my cable modem at home. And they can provide to people with DSL services, and it doesn't necessarily mean, being an ISP in the traditional sense of dialing up into an ISP. So there maybe different ways to think about what an ISP is in an always on digital architecture like cable. JUDGE LATHAN: Picking up on this issue of merger specificity and also the point that Mr. Glass made about being concerned only if there may be an impact on content, as is alleged exists in the multi-channel video programming market. Is it possible that we would also have similar adverse impact in the broadband market based on AT&T's horizontal reach post merger? That is its ownership interest in the two leading cable ISPs, Excited Home and Road Runner. And, also, its ownership interest in cable systems covering sixty percent of homes passed by cable, nationwide, which can and will be upgraded to provide high-speed internet access. Now, the large customer base, the horizontal reach that AT&T would have, would you consider that that may allow it to attract broadband content and application provider who needs the access to the customer eyeballs, and therefore, allow AT&T to enter into exclusive arrangements with broadband content application providers? Or, otherwise, affect content applications that also be broadband architecture. And I'd like to hear from I think most of the panelists here, starting perhaps with Professors Rosston and Bar, and then some of the competitors, Mr. Glass and Mr. Melcher. MR. ROSSTON: I guess there were a few other questions and the first that I heard was whether control of both Excite At Home and Road Runner, if there is control, is that a problem. I actually get cable modem service from my ISP channel rather from either of those two. And I imagine that being the ISP for a cable -- would this -- I think the concern is do other cable systems have a concern that AT&T would be controlling the two top cable modem ISP services. And it seems to me that, first of all, there's ISP channel. I assume there are some other ones, as well, who could provide ISP service, RMI.net or Mind Spring who could provide the ISP service for other cable systems. So, I don't think -- I haven't investigated, but it seems to me that it's not going -- if they're all these ISPs who want to be on cable systems that control over two of them that have started for cable systems wouldn't be that much of a concern if there was lots of entry. In an anti-trust analysis, competitive analysis, you worry about entry. Or you think about entry. And if these other companies could enter to provide ISP service, then other cable systems, DSL service, other people would have ISP choices, as well. So, I don't see that as a problem right now. The other question you addressed was would AT&T have control over programming. And right now, that doesn't seem to be a big, given the number of people who use dial up access and use access from work and the increasing number of DSL subscribers, it doesn't seem like that's a big problem, either. I don't know if they're doing exclusive deals. There may be benefits to exclusive deals from product differentiation, but there seems to be an incredible amount of competition in internet content that even if the New York Times were to do an exclusive deal with AT&T, there are lots of other news services that people would subscribe to and, for the Washington Post, or whatever, so that they could get service on their DSL lines. It doesn't seem like there is the one thing that everybody has to have on the internet right now. To me, it seems like this is a concern you might want to monitor but you shouldn't do anything about it right now. MS. TRUONG: Professor Bar. MR. BAR: I'm going to address the second part of the question which is, just as we did the kind of application and exclusive deal, exclusivity of content. My understanding is that today At Home has a number of exclusivity deals with applications of providers and some content carriers which are application providers that require high-speed. I was looking for my notes for the specifics and I wasn't able to find it in the few seconds we had, but my recollection is that there is an agreement with an on line game company that takes advantage of this big architecture of the At Home network. So in that sense, having a high-speed network that combines Excited Home plus Road Runner, provides the opportunity to create the architecture that will support these kinds of exclusive deals and reinforce AT&T's negotiating power or At Home and Road Runner's negotiating power in striking those exclusivity deals. MS. TRUONG: I think what -- Mr. Cicconi, stick around. I'm sure you want to respond, but if we can perhaps hear from Mr. Glass and Mr. Melcher. MR. GLASS: I'm not aware of anything that would result from this merger that would have AT&T or MediaOne have any power over the content on the broadband. Most of that from my experience, is duplicative and I don't see how this discussion, although quite interesting, is all that relevant to the 22-MediaOne merger. In context with -- I contrast that with the fact that the Commission does have power over cable programmers. And, in fact, I presented a couple of specific instances where we have problems with programming and getting access to it. I think that is a more relative discussion. MR. MELCHER: Thank you. I beg to differ. I think you need to look at how important this technology is to the types of things you can do with the technology. And as Professor Bar mentioned, there are a number of content providers and a number of pieces of content out there that do require high-speed access. I'm negotiating a deal right now with someone who's coming up with a 3D chat room. And this is a concept that I won't go into for obvious reasons, but it requires high-speed access, it requires broadband access. They're a number of other relationships that we're negotiating currently that require high-speed access. And some of those we're not going to be able to complete until we see whether or not we're going to get access to this cable plant. Specifically, people are asking to see are you going to have access to this technology because currently, this technology, a lot of folks believe will be the dominant technology in the next two year period. So, I think you need to look at that. You need to understand there are some content companies that will only negotiate with folks who have access to a technology, a high-speed technology. And, secondly, only have access to a certain number of eyeballs. People are not as interested in negotiating or discussing agreements with RMI.net as they are with AT&T or MediaOne because our eyeballs are a hundred thousand and their eyeballs are many, many millions. So, I think that -- obviously, there's nothing you can do about that, but I think you combine that, their eyeballs with the control of the technology, and you get a very dangerous combination. One thing I'd like to say, if I can, just comment on the AT&T statement that they are already opening this up to ISPs. I've got a statement here from Legg Mason, obviously a very well known investment group and they've got analysts that cover this industry. And Legg Mason, on December 6th, 1999, Scott Cleland, Legg Mason Percursor Research, states their opinions of the 22-Mind Spring letter. Essentially, the agreement represents very selected access to AT&T's cable plant. In brief, the two page letter agreement, (a) is non-binding, (b) does not apply until July 2002, (c) is not enforceable, (d) sets no wholesale price, (e) sets no guidelines or guarantees on bandwidth or performance, (f) does not afford an ISP full control of its relationship with its customer, and, (g) does not address operational support systems and bandwidth performance measures for competitive ISPs. The proposed agreement would resolve the easiest parts of the negotiations, however, it does not resolve the most important. Investment relevant parts of the agreement and the hardest parts of the negotiation which are price, bandwidth and customer control. Those are the three key elements. Again, quoting price Legg Mason, they say for AT&T, this is a political tourniquet to try and staunch the political hemorrhage for open access. Essentially, the best reaction to a bad situation. It could have the added benefit of delaying regulatory intervention, which is their goal here. Providing AT&T valuable time to lock up as many customers as possible while still enjoying first mover advantage. That's the key here, AT&T wants to lock up this technology and these customers for two years. That's our -- MR. JOHNSON: Let me just follow up one thing. Have you tried to become a cable broadband access provider on a system that's just starting out, that doesn't have an affiliated provider? MR. MELCHER: No, sir, I have not. MR. JOHNSON: Is there some reason why that mode of entry is difficult? MR. MELCHER: I think the difficulty is that I would require, for example, where we are located, our corporate headquarters are in Denver, I would require the City of Denver to give me a franchise, a legal monopoly -- MR. JOHNSON: Hold on, I'm talking about, in effect, becoming a Excite, At Home, cable firms that are not affiliated with that. MR. MELCHER: Not affiliated with AT&T or Excite or At Home? In Denver, TCI is the cable provider and they will have nothing to do with us. We would love to. MR. JOHNSON: But -- MR. MELCHER: We would love to do that. MR. JOHNSON: You're providing ISP service outside of Denver? MR. MELCHER: We're providing ISP service around the country, yes. And we're actually exploring that with Portland, with companies in Portland because Portland has denied AT&T their effort to close the system. So, we've had preliminary discussions. Nothing, nothing very substantial yet. MR. JOHNSON: Mr. Rosston said, well, there are more companies than Road Runner and Excited Home. I'm just wondering if entrance into that market by you or similar firms is difficult, or if there really are reasons why Excited Home and Road Runner and a few of these firms have something you don't have. MR. MELCHER: What they have is the technology. It would not be difficult if we had access to the technology. MR. CICCONI: Actually, it's not a matter of the technology, it's a matter of the investment and they have not been willing to make the investment. Excited Home made the investment, others have made the investment, Road Runner made the investment. I think the big difference that we have with Mr. Melcher's analysis is he keeps using words like wholesale, non-discriminatory. He cites Scott Cleveland's laundry list of things, all of which add up to common carrier status. That is not the law. And as much as he and some of his friends would like to impose common carrier regulation on this system, in fact, that is not the law. That is not the regulation. It is not a wholesale system. We're not spending billions of dollars to upgrade these systems so someone can come in and add their profit margins on it. I mean, that is simply not the way this works. You have to -- if people are going to get this service, others have to be able to invest, be willing to invest, have the incentive to do so to build those systems. To add that technology, to market it and to deploy it. No one will do it if somebody can sit back, wait for somebody else to dig up the streets or put in the servers or build the systems or market them, sit back and then demand to be able to get on that back as wholesale. It's simply unfair. It is also not the law. Now, a couple other -- I really like -- they're a couple other points I'd like to respond to here. I think Mr. Melcher also made the point about eyeballs and somehow exclusive contracts may be somehow unfair because of the cable system, having an exclusive contract with someone that had broadband content, or something in this nature. He cites the fact he's got a hundred thousand subscribers versus a million here that we have. Well, in fact, he's in a far more dire situation right now in Meril Band. He has a hundred thousand there and AOL has twenty million. AOL subsists on exclusive contracts. They have an exclusive contract with Barnes & Noble. I dare say Mr. Melcher's not able to get Barnes & Noble's bookselling services on his ISP because of that exclusive contract. In fact, most of AOL's contracts are exclusive to that nature. And I have not heard any indication from Mr. Melcher. Indeed, other ISPs, that somehow they seem bothered by that fact. It is directly analogous. This is -- these content providers, these people selling services, retailing services have a right to contract with whom they want. Now, I don't see any diminution in the innovation on the internet, the development of new technologies. Frankly, the development of broadband applications or things of this nature that somehow indicates any danger this is going to be locked up. If he's certainly got some examples, I'm willing to listen to them. But I really have heard none. Finally, there seems to be a premise here which was laid out in the question about the horizontal reach of our systems. And the ability, somehow, control programming on broadband here. And the figure sixty percent was used. Well, in fact, the horizontal reach of these systems is right around twenty-seven percent. That would be attributable interest equally of AT&T once this merger is concluded. Not sixty percent. When you're talking about -- JUDGE LATHAN: Is that taking out Liberty and TWE? MR. CICCONI: I believe so. Again, we're talking the Commission's own rule on attributed interest. And to comply with those rules, we have to be under thirty percent. Now, if you're talking about ability -- MS. TRUONG: I'm sorry, but before you go on now, we just want to clarify. Is it your position, then, that you would not be -- in order to avoid attribution of TWE, AT&T would stay out of the internet activities of TWE, as well as the video programming? MR. CICCONI: That's not what I'm saying. I'm saying we would comply with the rules here and the rules talk about the material involvement in video programming. What we're getting into, though, is control here. Because that was really what your question goes to, the ability to control programming on this medium here. The control you have to -- to control programming, you would have to have control of the systems that provide the programming. We have absolutely no such control on the Time Warner systems. Absolutely none. There's adequate showings on the record here, in fact more than adequate before the Commission to indicate that. That control that one would have to have to somehow control programming, doesn't exist on those systems. It does not exist on cablevision systems, frankly, either. So, in order to be able to exert control of programming, one would have to exert control over those systems. The only systems we would be able to actually control would be the ones we own and operate. So, I think the ability to do anything of that nature would be extremely limited. And I contrast that with the SBC again we heard from this morning here who actually would have control of about thirty-five percent of the local phone lines within their territory, with a penetration level of about ninety-four percent. Again, when you consider penetration level for this high-speed service there, you're starting very, very low in these territories. So, I think again, if you contrast this with the true horizontal reach of others in this market for deploying DSL and other things, I think you come away, you know, with a clear conclusion that it's simply not possible for any one company, particularly AT&T, to exercise anything of that nature. JUDGE LATHAN: Well, let's move just for a second when we're talking about exercise and control away from broadband market for a second, and back to the video market. Mr. Glass says that, look, I'm having trouble today, right now prior to your merger being able to get programming. I'm a competitor, I want to be a competitor, but I can't get the programming that I need in order to be able to compete effectively because of your exclusive contracts. Now, assuming for the sake of argument that that is true, wouldn't this be exacerbated, wouldn't the merger exacerbate that situation of inability to be able to get programming in the video context? MR. CICCONI: Absolutely not. First of all, Seren's situation has nothing to do with MediaOne. Their particular issues with the TCI system, it was raised in the context with the TCI merger, in fact. They argued that they should be allowed somehow through the merger there to have the Commission intercede. And, in essence, may an exception to its own program access rules there in order to give them access to programming that's currently under exclusive contract. Now, the Commission's program access rules prohibit a cable operator from having an exclusive contract with a programmer is, (a) satellite delivered, and (b) vertically integrated with a cable system. The programming in question that's been cited by Seren in this instance is neither. The Commission concluded that when it considered their request for special condition on the TCI merger and rejected it on those grounds. It is also heard from them in the context of several rule makings with exactly the same issue and is rejected that concern in those proceedings, as well. To bring it up here in the context of the MediaOne merger when MediaOne properties are simply not involved, is, frankly, inappropriate. JUDGE LATHAN: But Professor Rosston, you disagree. I mean, you earlier stated that you believe that the program access should apply to terrestrially delivered programming, irrespective of the method of delivery, do you believe that the merger would exacerbate -- let me not say exacerbate. Do you believe that the merger would have a stifling effect upon competition into the video programming marketplace? MR. JOHNSON: Well, let me just add one little piece to that. Would AT&T's relationship with CBS change if they acquire MediaOne? MR. ROSSTON: Sorry, could you explain that? AT&T's relationship with CBS? MR. JOHNSON: With CBS who is the source of this product that Mr. Glass can't get access to. Does it make any difference if the -- is it clearly market specific or is it matter what the broad coverage of what AT&T is? MR. ROSSTON: One thing, and this is not an issue I've thought about before. Sitting here, it seems to me if it's a local programming, local sports programming issue, that the merger wouldn't sort of change that. Because if it's adding cable systems that are already in the area, it doesn't seem like it would change the demand at all for that local sports franchise. It wouldn't change any leverage or anything else for a local sports programming channel in that sense. MR. CICCONI: Bill, I'd hardly consider whether Mid-West Sports decides they want to offer the Minnesota Twins on an exclusive contract with the local cable system as a matter of national import. It's certainly not a matter that arises in the context of this merger. MR. JOHNSON: No, but CBS has a lot of relationships with other media companies. And the size of those companies, presumably, has something to do with the relationship that developed with CBS. MR. CICCONI: Bill, again, I think you're using word relationship. This is a contract. This is a contractual relationship, so it's limited to that. This is not some sort of strategic partnership that these companies have entered into. They're programming supplier. We have a contract with them in this territory. It is a contract. Is nothing more than that. MR. JOHNSON: Oh, I'm not suggesting that -- MR. CICCONI: It's perfectly valid and appropriate under the Commission's own program and access rules. MR. JOHNSON: That seems to me quite clear that it's, I mean, there are a set of rules. But does the fact that this impedes competition, if it does -- MR. CICCONI: Whether Seren is an overbuilder in that region, has access to the Minnesota Twins, you know, is hardly an issue or question, I think that is exacerbated somehow by AT&T acquiring the cable systems in Boston. This is a contract that Mid-West Sports which supplies, I guess, broadcasting rights for the Minnesota Twins, Minnesota Timberwolves, I think you read the list there. I think it's hardly in any way affected by our acquisition of cable systems in Atlanta and Boston. JUDGE LATHAN: This is merely an example. The point was does AT&T have the ability to stifle competition through the use of exclusive contracts? And, if so, should there be some limitation on the ability of AT&T as a merged entity to be able to use exclusive contracts if they, in fact, impede competition. MR. CICCONI: I think that the answer is no. This is a matter -- I mean, I could leave it there, I suppose, but maybe I should leave it there. This is obviously something that Mid-West Sports decides it wants to offer it on that basis and it made the decision to do so. It's as much their decision as our decision. MR. JOHNSON: Is that right, that it's as much theirs as yours? MR. CICCONI: It is a contractual relationship. If they don't want an exclusive arrangement -- JUDGE LATHAN: But isn't it so the larger that a DSL gets, the more clout it's going to be able to have to influence a local market? Is that correct? MR. CICCONI: Your status -- our status in the local market in Minneapolis is unaffected by this merger. MS. TRUONG: I think perhaps the actual question is whether your horizontal reach post-merger would increase your clout to the extent that you can get more exclusive contracts and, thereby, harm other MDPD providers, as well as a diversity of the programming market. And I think Mr. Glass has been waiting to address that issue. MR. GLASS: Well, the Commission itself has recognized the fact that access to local originated sports programming is an important issue in its affecting ability of upstart competition to really get a foothold in the marketplace. And we have provided this as one example of what we're experiencing up in Minnesota and I've also provided another example on another technicality that AT&T has used to preclude us from getting access to programming in the Bay area. And my next question is what are they going to do to us when we get into start building and looking for programming in the Denver area. MR. CICCONI: Our sports programming, it's my understanding that the Commission's actually considered the argument that the sports programming is somehow unique and that it should somehow be treated differently under the program access rules. It's my understanding that there are two cases that the Commission took up, one involving ComCast, the other involving Cable Vision. And in those cases, I understand the Cable Bureau refused to extend program access rules to sports programming services because they were terrestrially delivered. So, this issue has been considered by the Commission before, including the specific questions just raised about sports programming. And the Commission stuck by its rules. MR. JOHNSON: I think it's quite a different question. The question here is whether the changing size of the entity that's involved in this negotiation changes its ability to acquire exclusive rights. And I guess you're suggesting it doesn't matter how big AT&T becomes, they have the same access to or leverage over CBS. MR. CICCONI: I think that -- well -- MR. MELCHER: If I could add to that, that in addition, I think your earlier question adds to this issue, which is that to the extent they have exclusive control over another technology through which they can offer content, cable content or other content, how does this merger through that means, also stifle competition. Or have an adverse impact on our current internet industry. And I think one of the things that's important to keep in mind is that right now, the broadband internet access will allow streaming video which is cable programming. It will allow television quality programming over the internet on the computer screen. One of the interesting new applications is that you will open up your computer screen, you'll turn on your PC at your desk, you'll launch Windows, you'll start working in a document and then you'll put a little TV screen on the upper right hand corner of your computer screen, and you will watch live feeds of the FCC hearings or you will watch CSPAN or you will watch NASDAQ or the stock market or you will watch CNN, and you will have content delivered. And that requires broadband access. Now, if they control the technology, they obviously will have a better ability to control the content. I think that goes directly to what you're talking about. MR. CICCONI: Mr. Melcher keeps using the terms controlling the technology and exclusive control over high-speed internet access. Both of these statements are simply false. There's absolutely no evidence to support either of them. There is absolutely no control of the technology for internet access, no control over the technology for high-speed internet access, no exclusive control on access the high-speed internet services. Witness DSL, which we've talked about most of the day. These are simply untrue statements. And so to somehow take those and assert that this control can then be used to disadvantage others, is, I think, unfair. Let me go back to Bill's question here, 'cause I really do, I think it's a fair question, but I also think the answer is that, in candor, when they're marketing Minnesota Twins and Minnesota Timberwolves games, and that's really what, as I understand it, they market sports programming, local sports programming. And I think one has to assume that the market is the local market. And I think that in deciding who they want to contract with in that area, they're going to look at the relative strengths in audiences of those systems. And if they choose AT&T system over Seren system, it may well be because of our presence or the number of RBOCs we have in that local market. That's not our fault. I mean -- and, frankly, if Seren develops adequate local presence for coverage there, they may well, Mid-West Sports may decide to deal with their next contract in a different manner. But the fact is I think the relevant market is the local market, Bill. And I think that's, frankly, the basis on which they've made their decision to contract with us and we made our decision to contract with them. And we're serving the local audience who wants to watch Minnesota Twins baseball games. God knows, I don't want to watch those here, that's for sure. And I think there's a market for it there and that's the relevant market. MR. GLASS: Mr. Cicconi keeps referring to the fact that the AT&T and MediaOne merger won't have any impact on its ability to contract with MSC. And that's just not the case. As they continue to receive larger and larger market share of the Metropolitan Minnesota, Minneapolis Metropolitan area market and outstanding areas, there's no -- it's going to be increasingly difficult for Seren to ever get accessing to that programming. And without that programming which is an important product offering, we're never going to be a viable competitor to them. Now, you know, Mr. Cicconi, you know, continues to say that that has no significance -- market presence doesn't have any impact on their ability to market, to contract with MSC. You know, Mr. Johnson, that is just not true. And we're certainly seeing that. We're never going to get access to that programming and we're going to be at a continuing disadvantage. Mr. Cicconi previously provided a copy of a Best Buy advertisement showing that, you know, all these competing technologies are out there. I agree with him on that. I also see in my local newspaper, advertisements from his affiliates showing that they are the only providers of MSC. And continue to hammer home the fact that don't take Seren's products because you will not have access to that programming. MR. MELCHER: If I might, I don't mean to interrupt or to stray back to an issue that you feel has been covered, but Mr. Johnson asked me a question and I been reminded with regard to ISPs applying to cable systems or cable companies, Mr. Brewer of Mind Spring, testified that he requested carriage with the twenty largest cable systems. Every one of them refused to allow him to enter into any sort of relationship with them. Coincidentally, Mind Spring is the one that AT&T agreed to allow access to. But they have no concrete deal, no enforceable agreement. Secondly, you asked whether or not we would invest in a relationship with a cable provider. And we would absolutely be able to and would be willing to duplicate At Home's network investment in the head end. We'd be more than happy to invest our own dollars, which we have done by the millions, into the content and into the end product, the ISP product. All we're asking for is access to the pipe that carries it, the technology. We're not asking to carry or to be on At Home's system, we're not asking to piggyback on At Home's investment. We're simply asking to be allowed the same access to a technology that the public helped to build so that we can offer new content, we can offer what we believe are distinct and better value ad products to the consumer. JUDGE LATHAN: Mr. Cicconi, some say that because cable has a really mover advantage, and even though DSL is on its heels, you know, witnessed by the fact that SBC and others have announced roll outs of DSL plans. That because of your early mover advantage, you would be able to move into market places and on negotiated exclusive of programming agreements that will basically make it difficult for DSL and other competing technologies to compete because they will not be able to get the programming because you've sewn the market up by entering into exclusive agreements. Could you address that feeling? MR. CICCONI: Well, sure. I mean, I assume you're talking about some sort of internet content, locking up the market on some internet content? JUDGE LATHAN: Even the video programming market, as well. MR. CICCONI: Okay, well, 'cause this really does, if you talking about the At Home system and the Excited Home system, you're really I think talking about internet content and I think if there's a first mover issue, it lies there. I think, first of all, you've seen the deployment of this and you haven't seen that occurring, so if there's a first mover advantage, Excited Home has had it and they have not locked up exclusive content arrangements that have been, somehow been, somehow been denied to DSL. Secondly, I think what you're finding is that while cable got out there quickly, DSL is catching up quickly. You've seen a lot of studies recently, most in the past week, the Yankee Group, which is pretty reputable analysis outfit, came out with a study that essentially said over the next couple of years that the market share of cable and high-speed broadband is going to be cut in half by DSL. And that's, you know, it's pretty good indication that scenario that Howard Shelanski talked about earlier is probably coming to pass. I don't think one can look at the billions of dollars, like seven billion dollars the SBC is deciding to invest in DSL deployment in order by the end of two years from now to be able to reach seventy-seven million people and somehow think that DSL is not going to be viable with billions of dollars being thrown behind it by the local phone monopolies. So, I do think that is there. You haven't seen the first mover advantage exercised in that way. Again, first mover advantage, if it's meant anything over the past three or four years, has gotten Excited Home to a grand total of one million subscribers. Of whom we have about ten percent actually on our systems. We're certainly hoping that gets to be a bit higher. But it isn't yet. One million as compared with twenty million for American Online. So, this is -- I think if there's a first mover advantage here, it certainly isn't somehow being seen as leading to any sort of control or dominance with exclusive programming arrangements that's in any way locking DSL out of content. If any of the RBOCs run into any sort of issues of that nature, I'm sure they would have brought them up to you by now and they would have filed them in this proceeding. JUDGE LATHAN: Mr. Rosston, Professor Rosston? MR. ROSSTON: Yeah, I think one thing, when you talk about first mover advantages, in some sense, those, if they do exist - and I haven't seen any evidence that they do - but if they do exist, this is good because it will spur the second person to come and try and make sure they're deferred until you get dual deployment. The fact that the RBOCs are investing more is probably due to the fact that cable has come out, partly. There's competition to be the first mover if you do have first mover advantages. The problem comes if there's some lock-in effects of customers not being able to switch and, or if there's some sort of content problems where you can get content on one where the first mover somehow locks up content and detrimentally affects consumers the other way. And I don't think -- the switching costs for switching from cable to DSL, imagine are pretty low. I haven't tried to switch from a cable modem, but if they're trying to sell DSL in mass markets, they're trying to make it very easy to implement and have very software driven installations of this. And then on the contents side, everybody can get access to the internet. So that it doesn't seem like, you know, if there's a game -- as Francois said, there's a game situation that is exclusive to Excite At Home, I don't imagine that the game programming market is a monopoly and there aren't seventeen other game manufacturers who would be happy to have their games on every single ISP who would be on DSL or wireless or other things. JUDGE LATHAN: Excuse me, but what you're saying is you believe there would be availability of programming for the competitors to AT&T? MR. ROSSTON: Right. Yes. MR. CICCONI: I think there's one other point here, too, if I might add. And that is if we're really talking internet portal sites here somehow doing exclusive arrangements, that certainly hasn't transpired in the broadband world and it's barely transpired in the narrow band world. And I think there's another reason for that in addition to the fact that you really haven't seen a major first mover advantage or any sort of dominance developing there. The reason's at the other end. Why would any sort of portal or content provider want to tie themselves up in that type of arrangement, lock themselves out of another technology? They simply aren't doing it because they have no reason to do it. They're restricting their own reach and access. JUDGE LATHAN: But the argument -- the counter-argument one would make is because if you're as large as AT&T and you want to be carried on a system as large as AT&T, you prefer that over having to run around the country and trying to negotiate with a multitude of small cable companies when you can just get you programming carried by the largest system in the country. MR. CICCONI: Well, if the largest system in the country is able to only reach thirty percent of the people in the country at its maximum, which under your rules is, of course, what we would be able to do, then they would restricting themselves from accessing seventy percent of the country. I don't know why they'd do that, frankly. MR. MELCHER: I think there's one other issue. MR. CICCONI: And, by the way, they haven't. MR. MELCHER: I think there's one other issue here, as well. Which is that there is certain content that may only work over certain technologies. And I go back again to high speed access, broadband access. If you want a video streaming applications or certain very intensive applications, those will require certain technologies. And if you have someone like AT&T which is able to, maybe not exclusive control, but a majority control of a certain technology and certain content only works over that technology, then you have content monopoly and you have content control. And only folks who have access to a certain technology can then get access to that content. MR. CICCONI: I would think Mr. Melcher would be far more concerned about instant messaging technology where you actually have one dominant player on the internet today exercising such control to the disadvantage of other ISPs like himself. That is a very real example of a dominant player with market power exercising it to dictate standards across the internet. And I would hope they'd be just as outraged about the actual exercise of that as potential exercise. MR. MELCHER: I'm concerned about every monopoly. MR. ROSSTON: Just on this thing, Excited -- in the Wall Street Journal today, there's a clip about the Excited Home actually selling web access via phone lines via DSL, so in some sense they try to have technology geared towards cable modem, they don't seem to be practicing that by trying to also sell DSL service. MS. TRUONG: I hate to harp on this point, but just to play devil's advocate. First, I think to address the point of AT&T's horizontal reach in the digital market, I do want to clarify here if we're talking about AT&T satisfying the insulate limited partnership exemption so that the TWE partnership would not be attributable to it because it's not involved in TWE video programming activities, then that would mean that 22's reach would be under thirty percent when we consider the video market. But if we look at the internet market and AT&T is involved in the internet activities of TWE and its other cable systems in which it has ownership interest -- JUDGE LATHAN: You mean the Road Runner? MS. TRUONG: Well, no, I'm talking about the whole universe of cable systems that are attributable to AT&T. Then I think it would be legitimate for us to consider that AT&T's reach would cover sixty percent of homes passed by cable nationglide. Recognizing that not all of those homes passed are currently upgraded to provide high speed internet service, of course. MR. CICCONI: I'm at a lost to know where you're getting the sixty reach from if we've got an attributable interest in only thirty percent. MS. TRUONG: You have attributable interest in thirty percent of the market for the video programming market. THE MPPD market. MR. CICCONI: And under your ownership rules. MS. TRUONG: Yes, but if we're talking about the high speed market or the internet service -- MR. CICCONI: We're talking about is -- if you're talking about the potential reach of any system in which AT&T has an interest, however attenuated, I'm not certain how you, then, extrapolate from there to the internet and somehow get some sort of internet reach based on that. Maybe you can explain the question to me a little better and I'll try and answer it. MS. TRUONG: Well, I think if you look at it from the standpoint of our attribution rules, we find that putting aside the issue of the TWE partnership, you, post-merger, would have close to thirty percent of homes passed -- or, rather, thirty percent of -- MR. CICCONI: Subscribers. MS. TRUONG: -- MVPD subscribers nationwide. So that's a different standard than if we're looking at the internet market where the question would be the number of homes that can be upgraded for you to provide high speed internet access. And so from that standpoint, it would make sense for us to look at the cable homes passed number as the base line. MR. CICCONI: Well, we're not upgrading cable homes for high speed internet access unless we own those systems. It's not -- so I'm, again, I'm having a little with this. Certainly if we own the systems to deliver high speed internet access, we're going to do those upgrades. We're in the process of doing many of them now. But if you're talking about systems owned by others for purposes of their decision to upgrade whether it's Cable Vision or someone else, that's certainly their decision to make those upgrades and that is not something where we're making the decisions. MR. JOHNSON: Can I just try this one more way? MR. CICCONI: Okay. MR. JOHNSON: I assume from the documents you filed that you have an interest in being involved in the TWE phone business. JUDGE LATHAN: By TWE we mean Time Warner Entertainment, for everybody. MR. JOHNSON: And that you would want to be involved in upgrading those operations and marketing the phone business. MR. CICCONI: We would hope to conclude a joint venture agreement with Time Warner to do that, yes, Bill. MR. JOHNSON: Would the same be true with respect to internet access on those systems? MR. CICCONI: Not necessarily. That would be a decision that Time Warner itself would have to make as to whether they wanted to, wanted to include that in the arrangement. And it's simply something to be negotiated. I'm not certain and I don't think anybody could conclude in any hypothetical negotiation that that's something the cable system would want to yield up nor needed because it's not necessarily an adjunct to delivery of telephone service. MR. MELCHER: Well, Mr. Johnson, I think you're absolutely right. If you look at yesterday's U. S. A. Today newspaper, you'll see Mr. Levin, I think he's still Chairman and CEO of Time Warner, TWE, and he is literally crowing about how much money Time Warner made from value ad internet services. And I believe his quote was -- you can get it out of U. S. A. Today newspaper article yesterday -- I believe his quote was, crowing about the inertia of first movers status and the inertia of customers, you sign them up on the credit card, you roll them in and you just watch it, keep going. And they never leave. And that's what AT&T is looking to do and I think we have to be concerned about AT&T and TWE together what they're going to do with that cable technology. MR. CICCONI: But the larger point I think Chris may well have made is if Jerry Levin is so happy with the revenues from his ISP internet access on his cable systems today, I don't know why he's about to yield those over to AT&T as part of the telephony deal. We certainly would like to think he might, but the statement that Chris mentioned from Jerry Levin certainly doesn't seem to indicate that that is his game plan, nor is that anything that we've had indicated to us. So, I think that the notion that somehow our reach on the internet would include and would subsume the ability to access the internet over all of Time Warner systems, I think is certainly hypothetical and most probably flawed. MR. CICCONI: Let me just read this one -- one of your filings said that you want to emphasize the ability to retain MediaOne's interest in TWE is critical to the proposed merger and to AT&T's ability to achieve a broad rapid deployment of competitive telephony and broadband services. Which I would read as it's critical to getting access to the TWE plant for internet access services. Is that not right? MR. CICCONI: Again, if you're talking about Time Warner's cable systems which may be included in the TWE partnership, those systems are currently on the Road Runner system today. We would hope to have an access to those systems to provide competitive telephony services. Frankly, any other services we're able to provide. But the fact is today if you're talking about reach today, what you're talking about is Time Warner's control of the internet access on those systems. We do not have that control. And I don't think we can sit here and hypothesize that we may as a result of some agreements or arrangements in the future be able to somehow get a hand in that. That's not the case today. It certainly doesn't appear to me to be the case tomorrow, if and when we acquire MediaOne. It is a fact that those systems are controlled by Time Warner today and that Time Warner controls the internet access, provision of internet access on the system. JUDGE LATHAN: But if you were to merge with MediaOne, you would acquire their twenty-five percent -- I've seen numbers from twenty-one percent to twenty-five percent interest in Time Warner Entertainment. And I know that you do not have management or governance rights under, the way the provisions are written in that agreement, but would it not be possible for you to swap items in and out of that agreement? For example, HBO -- to do a deal where you could swap HBO for the right to deliver those internet services over the TWE systems? MR. CICCONI: Again, what we're able to do in the future negotiation which we may or may not enter into as part of the partnership is highly speculative and certainly the other party to those negotiations isn't here and I don't think -- MS. TRUONG: We invited them. MR. CICCONI: I know. I don't think, Deborah, I can draw -- and I can understand why they're not here, too. I don't think I can really draw a conclusion here as to what they would be willing to negotiate or not negotiate. But I think there's a core. JUDGE LATHAN: I'm not asking if they would or wouldn't. Simply saying would you have the ability. MR. CICCONI: I don't really want to go down, go too far down the hypothetical road. Let me say this again. If we're talking about cable high speed internet access here, what you're talking about, again, is is a segment of overall high speed internet access, which somehow excludes DSL, excludes satellite, excludes fixed wireless, excludes any other means of accessing the internet. And, by the way, which ignores the dominant means of accessing the internet today, which is merilband. So I think one is taking a segment of the segment of the segment and then, somehow, hypothesizing that we might have a position there within that segment. The fact is we don't have that position today in broadband internet access. And there's really no reasonable belief we would have that tomorrow. It's a highly competitive market. And from the consumer's standpoint, this is probably the most important aspect of it. The consumer has other choices for getting internet access, both high speed and low speed. In fact, in a variety of speeds. So, from a consumer standpoint, if they don't like one offering that one particular company is laying down, they can go somewhere else. That's really what this is all about. From a consumer standpoint, there is no bottleneck, there is no blockage today and there would not be tomorrow. I think the development of this market, the acceleration of DSL, the advent of fixed wireless and these other technologies is the best assurance the Commission has that the marketplace is indeed working. I certainly understand that it's your responsibility to monitor those developments closely to make sure bottlenecks don't occur. Fact is, there's no evidence on the record that there is a bottleneck today and there's certainly no indication or evidence that the bottleneck will develop in the course of this merger. And if one believes the studies like Yankee Group and others, then the possibility of any bottleneck developing in the years ahead, in the immediate years ahead is greatly diminished. MR. MELCHER: I thought there's a comment from the Consumer Federation of America that might be relevant for this discussion. And the Consumer Federation of America in their December 1999 report entitled Keeping the Information Superhighway Open for the 21st Century, concludes that AT&T's efforts to impose discriminatory access on a major means of communication, the broadband internet, should be opposed and should not be allowed. They go on to talk about this discussion here. AT&T's continuing, and I quote, AT&T's continuing efforts to mask its central role in the ownership of cable and broadband internet companies are examined. The new AT&T is now a jumble of management gimmicks intended to convince regulators that AT&T is not in charge. Tracking stock for cable programming, tracking stock for wireless, tracking stock for internet programming, a management committee for Time Warner Entertainment and an independent, quote, unquote, independent operating agreement for Cablevision. These arrangements do not eliminate the ability of AT&T parent to influence the decisions of these corporate children. There are extremely for regulators to police to prevent abuses of influence. They deny regulators full oversight over major ownership decisions. That's their statement, not mine. But I -- MR. CICCONI: Can I respond to that statement since you've read it? First of all, that was a statement that the Consumer Federation put on the record in response to the announcement by AT&T who is going to put out a tracking stock. And there's several simply false statements in there. Talked about a tracking stock for cable. There's no such animal, there's been no such announcement, there is no such tracking stock. Talks about a tracking stock for internet interest. There's no such animal, there's no such tracking stock. There is a tracking stock that has been announced for a wireless interest. Has nothing to do with the issues before the Commission here in this merger. Or, frankly, anything to with anything that Mr. Melcher has brought up. MS. TRUONG: Well, I think there is a lot of disagreement about the extent of AT&T's horizontal reach, obviously, in both the video and broadband areas. But I like to bring it a little bit farther out and to ask a broader overall question and certainly would love to hear from Professors Rosston and Bar and Misters Cicconi and Melcher, but from anybody else on the panel, as well. Going back to the broader question, do you think that the merger would give AT&T some kind of horizontal reach that would allow it to handicap or slow down the growth of competition from alternative broadband providers such as DSL or wireless, either by virtue of its being able to have first pick or exclusive arrangements with broadband content and application providers or through some other means. Professor Rosston? MR. ROSSTON: Given it's late, how about no? JUDGE LATHAN: Yeah, our time is really up. If you want to give quick answers to that, you know, that's fine, but, you know, make it like thirty seconds or so. MR. MELCHER: It's not a primary concern of ours, that particular issue. JUDGE LATHAN: Professor Bar? MR. BAR: The answer is no, but my sense is that there are some concerns that can raised which I've raised earlier, so I'm not going to repeat them for the sake of time. They are issues about first mover advantage, there are issues about defining the architecture for important portion of the cable infrastructure which I think do translate into a new power. JUDGE LATHAN: Okay, we'll let Mr. Cicconi have the last word since he chose to be here all day. MR. CICCONI: Well, if you believe this stuff about first mover advantage, and I don't think there's really any evidence that we're benefiting from it, but apparently some people on the panel here seem to think we have it. If we have it, then the notion of exclusive arrangements -- JUDGE LATHAN: Well, Jim, let me stop you. We do not -- we draw no conclusions. Those were hypotheticals. MR. CICCONI: No, I understand. THE: Okay. MR. CICCONI: But the fact is that if we did have a first movers advantage somehow here, one would think we might have some exclusive broadband content arrangements. The fact is we don't. That's probably the best evidence that there is really not much of a first mover advantage here. Certainly the content providers haven't seemed to feel there is. But there are no exclusive content arrangements in this base that I'm aware of. JUDGE LATHAN: Well, before we conclude, I want to thank all the staff who really helped put this meeting together. There were a lot of people who devoted a lot of work to making certain that your water jugs were filled and the tables were set and coming up with some, a lot of these questions. So I want to thank the Cable Services Bureau staff for putting this together. And I want to thank each of you for coming. It has been a very long day. We have found this to be very, very beneficial. And thanks so much. // (Whereupon, at 4:05 p.m., the hearing was concluded.) // // // // // // // // // // // // // // // // // // // // // // // REPORTER'S CERTIFICATE FCC DOCKET NO.: 99-251 CASE TITLE: AT&T-MediaOne Public Forum HEARING DATE: February 4, 2000 LOCATION: Washington, DC I hereby certify that the proceedings and evidence are contained fully and accurately on the tapes and notes reported by me at the hearing in the above case before the Federal Communications Commission. Date: __________ Sharon Bellamy Official Reporter Heritage Reporting Corporation 1220 "L" Street, N.W. Washington, D.C. 20005 TRANSCRIBER'S CERTIFICATE I hereby certify that the proceedings and evidence were fully and accurately transcribed from the tapes and notes provided by the above named reporter in the above case before the Federal Communications Commission. Date: __________ ______________________________ Official Transcriber Heritage Reporting Corporation PROOFREADER'S CERTIFICATE I hereby certify that the transcript of the proceedings and evidence in the above referenced case that was held before the Federal Communications Commission was proofread on the date specified below. Date: __________ ______________________________ Official Proofreader Heritage Reporting Corporation UNITED STATES FEDERAL COMMUNICATIONS COMMISSION HERITAGE REPORTING CORPORATION Official Reporters 1220 L Street, N.W., Suite 600 Washington, D.C. 20005-4018 (202) 628-4888 hrc@concentric.net 22 Heritage Reporting Corporation (202) 628-4888 Heritage Reporting Corporation (202) 628-4888