[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
HOW INTERNET PROTOCOL-ENABLED SERVICES ARE CHANGING THE FACE OF
COMMUNICATIONS: A LOOK AT VIDEO AND DATA SERVICES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
APRIL 20, 2005
__________
Serial No. 109-19
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
U.S. GOVERNMENT PRINTING OFFICE
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------------------------------
COMMITTEE ON ENERGY AND COMMERCE
JOE BARTON, Texas, Chairman
RALPH M. HALL, Texas JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida Ranking Member
Vice Chairman HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia BART GORDON, Tennessee
BARBARA CUBIN, Wyoming BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman GENE GREEN, Texas
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania JIM DAVIS, Florida
MARY BONO, California JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon HILDA L. SOLIS, California
LEE TERRY, Nebraska CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey JAY INSLEE, Washington
MIKE ROGERS, Michigan TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee
Bud Albright, Staff Director
David Cavicke, Deputy Staff Director and General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Telecommunications and the Internet
FRED UPTON, Michigan, Chairman
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida Ranking Member
PAUL E. GILLMOR, Ohio ELIOT L. ENGEL, New York
ED WHITFIELD, Kentucky ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming MIKE DOYLE, Pennsylvania
JOHN SHIMKUS, Illinois CHARLES A. GONZALEZ, Texas
HEATHER WILSON, New Mexico JAY INSLEE, Washington
CHARLES W. ``CHIP'' PICKERING, RICK BOUCHER, Virginia
Mississippi EDOLPHUS TOWNS, New York
VITO FOSSELLA, New York FRANK PALLONE, Jr., New Jersey
GEORGE RADANOVICH, California SHERROD BROWN, Ohio
CHARLES F. BASS, New Hampshire BART GORDON, Tennessee
GREG WALDEN, Oregon BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska ANNA G. ESHOO, California
MIKE FERGUSON, New Jersey BART STUPAK, Michigan
JOHN SULLIVAN, Oklahoma JOHN D. DINGELL, Michigan,
MARSHA BLACKBURN, Tennessee (Ex Officio)
JOE BARTON, Texas,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Champion, Lea Ann, Senior Executive Vice President, IP
Operations and Services, SBC Services, Inc................. 7
Cohen, David L., Executive Vice President, Comcast
Corporation................................................ 17
Gleason, James M., President, New Wave Communications,
Chairman, American Cable Association....................... 29
Ingalls, Robert E., Jr., President, Retail Markets Group,
Verizon Communications..................................... 20
Mitchell, Paul, Senior Director and General Manager,
Microsoft TV Division, Microsoft Corporation............... 11
Perry, Jack, President and Chief Executive Officer,
Decisionmark Corporation................................... 40
Schmidt, Gregory, Vice President of New Development and
General Counsel, Lin Television Corporation, on Behalf of
National Association of Broadcasters....................... 23
Additional material submitted for the record:
Champion, Lea Ann, Senior Executive Vice President, IP
Operations and Services, SBC Services, Inc., letter dated
May 18, 2005, enclosing response for the record............ 82
Cohen, David L., Executive Vice President, Comcast
Corporation, letter dated May 24, 2005, enclosing response
for the record............................................. 85
Gleason, James M., President, New Wave Communications,
Chairman, American Cable Association, response for the
record..................................................... 80
Ingalls, Robert E., Jr., President, Retail Markets Group,
Verizon Communications, letter dated May 24, 2005,
enclosing response for the record.......................... 88
Mitchell, Paul, Senior Director and General Manager,
Microsoft TV Division, Microsoft Corporation, letter dated
May 24, 2005, enclosing response for the record............ 91
Perry, Jack, President and Chief Executive Officer,
Decisionmark Corporation, letter dated May 17, 2005,
enclosing response for the record.......................... 93
Schmidt, Gregory, Vice President of New Development and
General Counsel, Lin Television Corporation, on Behalf of
National Association of Broadcasters, letter dated May 23,
2005, enclosing response for the record.................... 94
(iii)
HOW INTERNET PROTOCOL-ENABLED SERVICES ARE CHANGING THE FACE OF
COMMUNICATIONS: A LOOK AT VIDEO AND DATA SERVICES
----------
WEDNESDAY, APRIL 20, 2005
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Telecommunications
and the Internet,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:10 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Fred Upton
(chairman) presiding.
Members present: Representatives Upton, Stearns, Gillmor,
Whitfield, Cubin, Shimkus, Pickering, Radanovich, Bass, Walden,
Terry, Ferguson, Sullivan, Blackburn, Markey, Doyle, Gonzalez,
Inslee, Boucher, Towns, Gordon, Rush, Eshoo, and Stupak.
Staff present: Howard Waltzman, chief counsel; Neil Fried,
majority counsel; Will Nordwind, policy coordinator; Jaylyn
Jensen, senior legislative analyst; Anh Nguyen, legislative
clerk; Kevin Schweers, communications director; Jon Tripp,
deputy communications director; Peter Filon, minority counsel;
Johanna Shelton, minority counsel; and Turney Hall, staff
assistant.
Mr. Upton. Good morning. Today's hearing is entitled ``How
Internet Protocol-Enabled Services Are Changing the Face of
Communications: A Look at Video and Data Services.''
Video and data are the second and third legs of the three-
legged IP-enabled stool. Recently, we examined Voice over IP,
which is the other leg. And as we modernize our Nation's
communications laws, it is my goal to ensure that all three
legs of the IP-enabled stool are covered by whatever we do.
Anything short of that could hamper deployment of the widest
range of IP-enabled services to the American people and thwart
the widest range of intermodal competition in the
communications marketplace.
When video is sent in an IP format through a broadband
connection, it enables the provider to send just the content
that the subscriber wants at that particular time, as opposed
to cable or satellite technology, which typically requires all
channels to be available to each subscriber at the same time,
waiting for the subscriber to change the channel. As a result,
IP delivered over broadband enables a much more efficient use
of a provider's capacity and thus enables that capacity to be
used to offer more content and more services. In addition, when
video is sent in an IP format through a broadband connection,
it enables more interactively, which, in turn, enables more
customization of the subscriber's video experience. Moreover,
it enables voice and data to be combined with a video offering,
which many subscribers may find attractive.
At issue today is what the proper regulatory framework for
IP-delivered video should be. Of particular interested to me is
whether IP-delivered video services should be treated the same
way as cable in terms of existing local franchise law.
Shouldn't the FCC's determination that Vonage's VoIP service is
uniquely interstate in nature and therefore not subject to
State regulation guide our logic when we discuss local
franchise authority over IP-delivered video services? Moreover,
couldn't certain IP-delivered video services be so distinct
from today's cable service to warrant a distinction in the law
regarding local franchise authority?
I look forward to exploring these and other issues with our
witnesses today. And with that, I yield to the ranking member
and my friend, Mr. Markey from Massachusetts, for an opening
statement.
Mr. Markey. I thank you, Mr. Chairman. And I thank you so
much for calling this hearing this morning on the policy
questions raised by the Internet Protocol-based video and data
services. This morning, we will receive testimony on IP-enabled
data services and video services.
Microsoft's Xbox, for example, is not only a widely popular
game application for broadband networks, but also provides
voice services as a feature. Policy makers will need to address
what happens when IP applications combine multiple services,
such as voice, with other data information for purposes of
determining proper regulatory treatment.
We also need to enact strong protections ensuring the
consumers are not thwarted from utilization the applications of
their choice over the Internet and that innovators and
entrepreneurs are not frustrated in their ability to offer
innovative new services to consumers over broadband networks.
Today's hearing raises a number of important policy issues
on video-related issues as well. The cable market today remains
highly concentrated. Consumers continue to pay too much for
cable service. An independent cable operator is almost an
oxymoron, as the overwhelming majority of cable channels are
either owned by major television networks or the cable
operators themselves. When cable operators are questioned
annually about why rates continue to rise annually, they note
that they have spent large sums upgrading their networks for
additional services and channels.
There is no question the cable networks have been upgraded
and that they increasingly offer an array of services to
customers, including much-needed voice competition.
Additionally, cable operators often point to increases in
programming costs as a key reason consumer rates keep rising.
The programmers, in turn, often point to rising costs in the
sports marketplace. Policy makers have been hoping for years
that competition would arrive to ameliorate some of these
unhealthy dynamics in the marketplace, but for millions of
consumers, effective competition has not yet arrived.
Which brings us to the Bell Telephone utilities. As the
Bells roll out IP video services, policymakers must determine
whether such services represent a qualitatively distinct
service of services now offered for cable operators. If so, we
will also need to determine whether that also means that must-
carry rules, sports blackout rules, community access channels,
local franchises, franchise fees, consumer privacy protections,
and other obligations to which we currently hold cable
operators should be ignored in whole or in part for the Bell
companies.
The benefits of competitive IP-based services are manifold
in terms of consumer choice and possible job creation and
innovation. But we must remember that consumers can only derive
the benefits of such new broadband services if they can
actually afford a broadband connection and only if providers
offer such services in their neighborhood in the first place.
With this in mind, it is particularly troubling that SBC and
Verizon have deployment plans that skip over or avoid the very
communities in their service territories which could most
benefit from an affordable alternative in the marketplace. It
is unusual, in this context, to receive requests for
forbearance from the public interest obligations the cable
operator's discharge from providers whose current deployment
plans arguably widen rather than bridge the digital divide,
which remains in our society.
An argument that rules need to be bent or waived so that
service can reach the most affluent sooner is simply not a
compelling public interest case to make. I hope that these
companies will reflect on their plans and needs of their own
customers and recalibrate their deployment plans so that all
sectors of our society are appropriately served. In the end,
this is not only good telecommunications policy, it is also
good economic policy for our country.
I want to thank Chairman Upton so much for this hearing,
and I look forward to hearing from our witnesses.
Mr. Upton. Mr. Whitfield?
Mr. Whitfield. Mr. Chairman, thank you very much.
We, I noticed, have a distinguished panel here of seven
people, so I will waive my opening statement.
Mr. Upton. Mr. Shimkus.
Mr. Shimkus. Pass.
Mr. Upton. Mr. Walden.
Mr. Walden. Thank you, Mr. Chairman.
Since I am dressed like the chairman of the Oversight and
Investigations Subcommittee, I, too, will waive.
Mr. Upton. Mr. Ferguson.
Mr. Ferguson. Thank you, Mr. Chairman. I have a different
suit on, so I will offer an opening statement.
Thank you for holding this hearing on Internet Protocol-
related services. These hearings have been a great opportunity
for all members, particularly new subcommittee members, like
myself, to get the full picture of the exciting new services
being made available to our constituents. They have also given
us guidance on how our committee should treat these services as
we consider a rewrite of the communications act.
Voice over Internet Protocol has already permeated the
American marketplace, providing new ways for people to
communicate outside traditional telephony and wireless cell
phones. IP video, the subject of today's hearing, is a new and
exciting product poised to enter the marketplace and to have a
major impact on the video services industry. IP video, some
already available and some in development, will fundamentally
change the way we watch television and receive other video
content. This new option will also directly compete with other
established offerings, such as cable and satellite. With these
options available to the consumer, this committee will need to
consider how to ensure that a level, competitive playing field
exists for all industries.
We also need to determine whether and how these new
services fit into the current regulatory landscape and what it
takes to get them deployed quickly with the least amount of
government interference. I welcome the witnesses present here
today. I look forward to hearing your varied perspectives on
what Congress's role should be as we move forward in this
exciting new area.
Mr. Chairman, with that, I yield back. And I thank you.
Mr. Upton. Mr. Doyle.
Mr. Doyle. Thank you, Mr. Chairman.
I want to thank you for holding this hearing, and I also
want to thank each witness for agreeing to appear before us
today.
This is our third hearing on IP-enabled services, and in
the time that we have looked at this issue, I have only become
more convinced that the revolutionary effect this medium will
have on every aspect of communications.
It is truly an exciting time in the telecom world, exciting
both for consumers who will benefit from increased choice and
value, and also for companies that will use IP-enabled services
to compete for new business opportunities. I have always
believed that the role of this subcommittee should be to try to
pass legislation that will promote and increase competition
within industries in order to yield greater benefits for
consumers. And it is clear to me that if we can craft and pass
good legislation, one major area where consumers will see
significant benefits is in the area of choice. Consumers will
have multiple choices to make when determining from whom or
where to purchase voice, data, and video services.
VoIP calls for a cable provider, video services through a
phone company, and data services through a satellite provider
are all closer than most people might think. In fact, these
services are here, and they are growing in popularity. And in
order for them to continue to grow in popularity, it is
incumbent upon us to provide legislative clarity to both
industry and consumers. It is clear to me that the speed with
which IP-enabled services have changed the telecommunication
industry requires that we craft legislation that places more
emphasis on regulating the services companies offer as opposed
to regulating the manner in which they are delivered.
Regulatory parity across platforms seems like a sensible
goal for us to strive toward. Some issues that have always been
the subject of regulation may have grown in importance as this
technology has advanced. Because the extent that a consumer can
benefit from this new IP-enabled technology is entirely
dependent upon that consumer's access to broadband networks.
All communities should have access to the benefits of IP-
enabled services. We must do more to promote the deployment of
broadband services, and we must ensure that those services are
available in all of our communities, not just the most affluent
ones. For this technology to truly create opportunities, it
must be available to everyone.
I look forward to hearing from our witnesses today. I want
to specifically welcome Mr. David L. Cohen, Executive Vice
President of Comcast Corporation to the subcommittee this
morning. I have had the pleasure of knowing David for many
years, dating back to his Chief of Staff days to then mayor of
Philadelphia and know our Governor, Ed Rendell. David's civic
and charitable activities make him an asset both to Comcast and
also to the State of Pennsylvania. David, welcome.
Welcome to all of the panelists.
Mr. Chairman, thank you, and I yield back.
Mr. Upton. Mr. Sullivan.
Mr. Pickering.
Mr. Pickering. Mr. Chairman, I just want to thank you for
having this hearing, and I will waive my time.
Mr. Upton. Mr. Terry.
Ms. Eshoo.
Mr. Gordon.
Mr. Gordon. Mr. Chairman, this is an important hearing, and
I welcome the opportunity to hear from our witnesses today.
Mr. Upton. Mr. Boucher.
Mr. Boucher. Well, thank you very much, Mr. Chairman. I
want to compliment you for focusing the subcommittee's
attention this morning on a matter of far-reaching consequence
for the telecommunications marketplace.
The arrival of advanced communications over the Internet,
including Video over Internet Protocol, promises a broad
transformation in the market for multi-channel video
programming services. Internet-based video will bring digital
clarity and a wider array of service offerings to consumers.
As the private sector both welcomes and accommodates these
dramatic changes, a new regulatory framework is required. That
is why our colleague, Mr. Stearns, and I have introduced
legislation that would treat all advanced Internet
communications with a light regulatory touch. It is noteworthy
that our bill would apply the new regulatory framework to IP
video as well as to VoIP and other more commonly known
applications that are Internet-based. Our view is that the
scope of the new law should be broad and not be limited just to
VoIP.
After hearing this morning from our witnesses about the
dramatic new IP video services that are now on the horizon, I
hope that the members of the subcommittee will agree that these
services should also be within the coverage of the new, light-
touch regulatory framework. Within that framework, IP services
would be declared to be interstate in nature and the States
would be prohibited from regulating.
At the Federal level, regulation would truly be minimal.
Legacy regulations applicable to the public-switched telephone
network would not apply. The FCC would be empowered only to do
the following and only with regard to VoIP, which substitutes
directly for regular telephone service: provide for E911
access, provide for disability access, provide for access
charges where the call is terminated on the public switched
telephone network, provide for Universal Service payments, and
provide for technically feasible law enforcement access.
We face a number of questions, including the need for
network neutrality, to prevent platform owners from
discriminating in favor of their own content to the
disadvantage of unaffiliated content providers, and how to
address the video franchising requirements imposed by local
governments.
Perhaps our witnesses this morning will address some of
these matters during their comments.
Thank you very much, Mr. Chairman. I yield back.
Mr. Upton. Mr. Stupak passes.
That concludes our opening statements. I would just make
unanimous consent that all members will be able to put their
opening statements in as part of the record. I would note that
the House is in session, and we are taking up a very important
energy bill on the House floor, so members will be in and out.
Other subcommittees are meeting as well.
[Additional statement submitted for the record follows:]
Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy
and Commerce
Mr. Chairman, thank you for holding this hearing. Last month we
examined how Internet Protocol is revolutionizing voice services. Today
we examine how Internet Protocol and broadband technology is
revolutionizing video services.
Many of you are probably already aware of video streaming
technology. Companies such as RealNetworks have for some time been
enabling consumers to watch news clips and other video content over
computers using the Web and browser-type interfaces.
One advantage to delivering content in IP format and over broadband
connections is that it uses capacity more efficiently. Cable and
satellite operators have traditionally had to make all their channels
available to each subscriber simultaneously, regardless of which
channel the subscriber was watching at a particular time. Internet
Protocol allows a provider to transmit only the content that a consumer
is watching, freeing capacity on the network to offer more content to
more consumers as well as additional services and applications. And
broadband networks are increasingly providing more bandwidth, enabling
the provision of new, content-rich services.
Another advantage of IP is its increased interactivity. By
converting video to an IP format and adding two-way broadband
connectivity, providers can tailor programming to each specific viewer,
and allow the viewer to alter specific components of that programming
in real time. IP also facilitates the introduction of voice and data
functionality into the video product.
As we look toward modernizing the Communications Act, we will need
to consider what the appropriate statutory framework should be for IP-
delivered video services. Should they be governed by existing
provisions in the Communications Act, such as the franchising, must-
carry, and program access rules, even though those provisions were
drafted without IP technology in mind? Is it even possible to apply
those rules to video delivered over the geographically boundless
Internet? What is the right statutory framework that will increase
competition, allow innovative services to flourish, and enable all
industry participants to benefit from the advantages of IP technology?
I look forward to today's testimony, and welcome our witnesses'
help in examining the technological, business, and legal implications
of IP-delivered video.
Today we stand on the threshold of a new age in communications. The
1996 Telecommunications Act served an important purpose, but technology
has moved on. This year, one of my high priorities is to update the old
act and to do it well. The right approach will invigorate the tech
sector and produce jobs, growth and opportunity for its workers.
American consumers will get an array of services and choices that were
unimagined just a few years ago. I can't wait to get started.
I yield back.
Mr. Upton. As all of my colleagues indicated, we do have a
very distinguished panel of witnesses for today's hearing. And
we are joined by Ms. Lea Ann Champion, Senior Executive Vice
President of IP Operations and Services for SBC; Mr. Paul
Mitchell, Senior Director and General Manager of Microsoft TV
Division; Mr. David Cohen, Executive Vice President of Comcast;
Mr. Robert Ingalls, President of the Retail Markets Group for
Verizon; Mr. Greg Schmidt, Vice President of New Development
and General Counsel for LIN Television Corporation; Mr. James
Gleason, President of New Wave Communications; and Mr. Jack
Perry, President and Chief Executive Officer of Decisionmark.
We appreciate you sending your testimony up yesterday, at least
I got it yesterday, in advance. I would note that your
testimony is made part of the record in its entirety. I
understand a couple of you have video presentation in
conjunction with your remarks, and we would like to think that
you could keep your opening statement to no more than about 5
minutes.
Ms. Champion, we will begin with you. Welcome. You need to
turn that mic button on.
STATEMENTS OF LEA ANN CHAMPION, SENIOR EXECUTIVE VICE
PRESIDENT, IP OPERATIONS AND SERVICES, SBC SERVICES, INC.; PAUL
MITCHELL, SENIOR DIRECTOR AND GENERAL MANAGER, MICROSOFT TV
DIVISION, MICROSOFT CORPORATION; DAVID L. COHEN, EXECUTIVE VICE
PRESIDENT, COMCAST CORPORATION; ROBERT E. INGALLS, JR.,
PRESIDENT, RETAIL MARKETS GROUP, VERIZON COMMUNICATIONS;
GREGORY SCHMIDT, VICE PRESIDENT OF NEW DEVELOPMENT AND GENERAL
COUNSEL, LIN TELEVISION CORPORATION, ON BEHALF OF NATIONAL
ASSOCIATION OF BROADCASTERS; JAMES M. GLEASON, PRESIDENT, NEW
WAVE COMMUNICATIONS, CHAIRMAN, AMERICAN CABLE ASSOCIATION; AND
JACK PERRY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, DECISIONMARK
CORPORATION
Ms. Champion. Very good. Thank you very much.
Thank you Chairman Upton and members of the committee for
offering me this opportunity to speak with you today. My name
is Lea Ann Champion and I am Senior Executive Vice President
for IP Operations and Services at SBC Communications, Inc.
And it is a pleasure to be with you here today to talk
about the seismic shifts that are reshaping the communications
and entertainment industries and how SBC is building a powerful
new Internet Protocol platform to meet customers'. Today,
customers do want more choice. They want the ability to control
their communications and entertainment experience. They want to
be able to communicate, to gather information, and to enjoy
entertainment when they want it, how they want it, and on what
device they want it.
That is why it is important for us to invest into new
technologies. It is not enough to repackage the same old stuff.
We must bring a new level of integration and functionality to
our customers.
We will do that by using Internet Protocol, or IP-based,
services. The simple elegance of IP technology is that it
allows various broadband applications to communicate and work
together to enhance the capabilities of otherwise separate
services. This is because, with IP, the digital bits all look
the same whether they are carrying video, voice, or data,
music, photos, high-speed Internet, or wireless services, no
matter what the device.
Through Project Lightspeed, we plan to invest $4 billion
over the next 3 years in our network, operations, customer
care, and IT infrastructure. We are working with companies like
Alcatel and Scientific-Atlanta, to deploy a two-way,
interactive, switched IP video network and extend approximately
40,000 miles of new fiber optics. In existing neighborhoods
across our 13 States, we will extend fiber to within 3,000 feet
of a home on average. And in most new developments, we plan to
take fiber all of the way to the premises. The initial
deployment will reach more customers, 18 million households,
faster than any other company with a fiber deployment plan in
the United States.
Our plan is to deliver a single IP network connection
providing high-quality TV viewing, super high-speed Internet
access, and integrated digital voice services, a single IP
address to every home for video, voice, and data.
Now let me show you some of the features that will be
available in the initial or later stages of our product.
[Video.]
Customers will be able to scroll through and preview other
channels in a picture-in-picture guide, without leaving the
channel that they are watching, something that they can not do
today with traditional cable services.
Customers will be able to enjoy the customized and
personalized content of their SBC Yahoo! service on their TV
screens, such as personalized sports, weather, and stock
information, something they can not do today with traditional
cable services.
Through IPTV technology, our whole-home DVR, digital video
recorder, goes beyond what standard DVRs do today. You can
record a program in one room and then watch it on any TV in the
house, something that can not be done today with traditional
cable services.
With IP-based picture-in-picture technology, the
entertainment experience will move from passive TV viewing to
an interactive one. And I would like to show you an example,
courtesy of our friends at Major League Baseball and Microsoft.
Today, with traditional cable services, you watch baseball like
this, one game with a few stats. Here is how you will watch it
with IPTV. Even the Cubs, who are ahead in the eighth inning
there, five to one, Mr. Chairman. Here is how you will watch it
with IPTV. With this new TV viewing capability and experience,
watching sports will never be the same.
The IP-based platform will allow customers to access and
program services even when they are away from home. As an
example, customers will be able to use their Cingular phone to
access a list of shows, watch a commercial for the show right
there on their phone's screen, and then schedule to record that
show. And the customer will be able to see a notification both
on their Cingular phone as well as on their TV back at home
that the show has been set to be recorded. This is something
that customers can not do today with traditional cable
services.
There are other applications in development, using our
ability to deliver on-demand data, that will deliver a better
TV experience.
With our IP platform, customers will have instant access to
the program they select, eliminating the annoying delay
experienced with today's current digital cable services.
And IPTV allows new levels of interactivity. Let us say you
are watching a commercial with a cliffhanger ending. Instead of
going to a website, you could just press a button for more
information about what comes next. Or, if you are viewing a
talk show and want to order the ``book of the month'' just
discussed, you can order it through your television, again,
something that can not be done today with traditional cable
services.
In short, we are not building a cable network nor do we
have any interest in being a cable company offering traditional
cable services. Instead, we intend to offer customers a new,
unique, total communications experience, one that they can
customize and personalize to suit their family's needs and
tastes. Likewise, our super high band with IP platform will
offer broadcasters and programmers a more nimble and
sophisticated alternative to take content to the future.
So we are building very aggressively to reach half our
customers' homes in 3 years with this new IP network, but we
are not stopping there. We are also creating another integrated
solution to compete for customers in the video space. Through a
joint venture with 2Wire, a Silicon Valley-based company, we
will integrate satellite video with our high-speed Internet
access service through a combination set-top box, available to
the majority of our customers later this year.
The service will allow various capabilities to work
together. For example, via SBC Yahoo! DSL Internet connection,
Internet-based entertainment services can be downloaded and
viewed. Customers will be able to use their stereo system to
listen to their music that is stored on their PCs and will be
able to view digital photos that have been stored on their set-
top box or saved on a networked PC right on their TV screen.
And as with IPTV, customers can even control their
entertainment experience while they are away from home. They
may remotely program their set-top box to record a show, change
parental controls, download movies, access their photos and
personal music collection.
With these two video initiatives, we plan to bring a new
level of interactivity and integration to customers.
With Project Lightspeed, we have decided to put billions of
dollars of private investment at risk. We can move forward with
greater confidence due to the progress that has been made in
the public policy and regulatory arena. The FCC and Congress
have so far employed a light touch approach to regulating the
Internet and IP-based services, and we applaud you for your
forward-thinking efforts. We need to extend this minimal
regulation approach applied to VoIP, only now the ``V'' stands
for video.
SBC will be a new entrant in the video space, providing a
competitive alternative to incumbent cable operators. And we
intend to move quickly. Public policy should reduce any
roadblocks and unnecessary rules to encourage new entry into
the video services market. In particular, new entrants should
not be saddled with the legacy regulation applicable today to
incumbent providers. Only then will consumers benefit from the
innovation and choice that is just around the corner.
Thank you very much for the opportunity to be here today,
and I would be happy to take any questions.
[The prepared statement of Lea Ann Champion follows:]
Prepared Statement of Lea Ann Champion, Senior Executive Vice
President--IP Operations and Services, SBC Communications Inc.
Good morning. Thank you, Chairman Upton, and Members of the
Committee for offering me the opportunity to speak with you today. My
name is Lea Ann Champion, Senior Executive Vice President--IP
Operations and Services for SBC Communications Inc.
It is a pleasure to be here to talk about the seismic shifts that
are reshaping the communications and entertainment industries and how
SBC is building a powerful new Internet Protocol platform to meet
customers' needs. Customers today want to have choice. They want to
control their communications and entertainment experience. They want to
communicate, gather information and enjoy entertainment when they want
it, how they want it and on which device they want it.
That's why it is important for us to invest in new technologies. It
is not enough to repackage the same old stuff. We must bring a new
level of integration and functionality to our customers.
We'll do that by using Internet Protocol or IP-based services. The
simple elegance of IP technology is that it allows various broadband
applications to communicate and work together to enhance the
capabilities of otherwise separate services. This is because, with IP,
the digital bits all look the same whether they are carrying video,
voice, music, photos, high-speed Internet access, or wireless
services--no matter the device.
Through Project Lightspeed, we plan to invest $4 billion over the
next three years in our network, operations, customer care and IT
infrastructure. Working with companies such as Alcatel and Scientific-
Atlanta, we will deploy a two-way, interactive, switched IP video
network and extend approximately 40,000 miles of new fiber optics. In
existing neighborhoods across our 13 states, we will extend fiber to
within an average of 3,000 feet of the home. In most new developments,
we plan to take fiber all the way to the premises. This initial
deployment will reach more customers--18 million households--faster
than any other company with a fiber deployment plan in the United
States.
Our plan is to deliver a single IP network connection providing
high-quality TV viewing, super high-speed Internet access and
integrated digital voice services. Let me show you some of these new
features that will be available in the initial or later stages of the
product:
Customers will be able to scroll through and preview other channels
in a picture-in-picture guide--without leaving the channel they
are watching.
Customers will be able to enjoy the customized content of their SBC
Yahoo! service on their TV screens, such as personalized
sports, weather and stock information.
Through IPTV technology, our whole-home DVR--digital video recorder--
goes beyond what standard DVRs do today. You can record a
program in one room, and watch it on any TV in the house.
With IP-based picture-in-picture technology the entertainment
experience will move from passive TV viewing to an interactive
one. I'd like to show you an example, courtesy of our friends
at Major League Baseball and Microsoft. Today, you watch
baseball like this--one game with a few stats. Here's how
you'll watch it with IPTV. With this new TV viewing experience
. . . watching sports will never be the same.
The IP-based platform will allow customers to access and program
services when they are away from home. As an example, customers
may use their Cingular phone to access a list of shows, watch a
commercial for the show right on the phone's screen, and
schedule to record it. The customer will see the notification
that the program is set to record in two places: on the
wireless phone and on the DVR guide at home.
There are other applications in development--using our ability to
deliver on-demand data--that will deliver a better TV experience.
With our IP platform, customers will have instant access to the
program they select--eliminating the annoying delay experienced
with today's current services
And IPTV allows for new levels of interactivity. Say you're watching
a commercial with a cliffhanger ending; instead of going to a
Web site, you can press a button for more information about
what comes next. Or, if you're viewing a talk show and want to
order the ``book of the month'' just discussed, you can order
it through your TV.
So, we're building very aggressively to reach half our customer
homes in three years with this new IP network--but we're not stopping
there. We are also creating another integrated solution to compete for
customers in the video space. Through a joint venture with 2Wire, a
Silicon Valley-based company, we will integrate satellite video with
our high-speed Internet access service through a combination set-top
box, available to a majority of our customers later this year.
The service will allow various capabilities to work together. For
example, via SBC Yahoo! DSL, Internet-based entertainment services can
be downloaded and viewed. Customers will be able to use their stereo
system to listen to music stored on their PCs. And, customers will be
able to view digital photos stored on the set-top box or saved on a
networked PC right on their TV screens. As with IPTV, customers can
even control their entertainment experience while away from home. They
may remotely program their set-top box to record a show, change
parental controls, download movies, and access their photos and
personal music collection.
With these two video initiatives, we plan to bring a new level of
interactivity and integration to consumers.
With Project Lightspeed, we have decided to put billions of dollars
of private investment at risk. We can move forward with greater
confidence due to the progress made in the public policy and regulatory
arenas. The FCC and Congress have so far employed a light-touch
approach to regulating the Internet and IP-based services, and we
applaud you for these forward-thinking efforts. We need to extend this
minimal regulation approach applied to VoIP--only now the ``V'' stands
for video.
SBC will be a new entrant in the video space, providing a
competitive alternative to incumbent cable operators--and we intend to
move quickly. Public policy should reduce any roadblocks and
unnecessary rules to encourage new entry into the video services
market. In particular, new entrants should not be saddled with the
legacy regulation applicable to incumbent providers. Only then will
consumers benefit from the innovation and choice that is just around
the corner.
Again, thank you for the opportunity to be here today. I would be
happy to answer any questions you have.
Mr. Upton. Thank you.
I made a mistake in the beginning. I did not see Mr.
Gonzalez to my left. I apologize. Would you like to make--I
know that this was a constituent from Texas. Did you want to
say something?
Mr. Gonzalez. No, I was going to waive opening except for
the extent that I wanted to welcome the witness, Ms. Champion
from SBC, which, obviously, is headquartered in the very heart
of my District and of course commend all of the efforts SBC
does in the community. And it is truly a model corporate
citizen.
Other than that, I yield back.
Mr. Upton. Mr. Mitchell.
STATEMENT OF PAUL MITCHELL
Mr. Mitchell. Thank you, Mr. Chairman, Mr. Markey, and
members of the subcommittee.
I am Paul Mitchell, and I am the Senior Director and
General Manager for the Microsoft TV Division----
Mr. Upton. Can you just pull the mike just a little closer
to you?
Mr. Mitchell. I am the Senior Director and General Manager
for the Microsoft TV Division at Microsoft.
This hearing is important, because it asks how current
Internet technologies are transforming the consumer experience
and what, if any, obligations should apply.
Microsoft is not a network provider. Instead, we offer a
variety of Internet products and services that ride atop of and
use a broadband transport. Our products and services that make
use of the Internet and IP technologies include Windows XP and
Media Center Edition, MSN, the Xbox, and Microsoft TV IPTV
division.
My division, Microsoft TV, offers technology solutions to
infrastructure providers, including Comcast, SBC, and Verizon.
We have Microsoft TV Foundation Edition for traditional cable
networks and our advanced IPTV edition products for advanced IP
networks, DSL, cable, or wireless.
The emergence of IP technology is finally delivering the
long-promised convergence of Internet service and products. Ten
years ago, the then-Chairman of this subcommittee predicted
that in the future, you will be able to watch your phone,
answer your PC, and download your television. And today, these
notions are a reality.
We are moving from a time when consumers looked at the
Internet as a distinct medium to a world where consumers simply
make calls, watch TV, and obtain information without realizing
that the service is being provided in an IP format. The Xbox
Live Service demonstrates how IP technology can transform the
consumer experience, in this case, gaming. It allows gamers to
compete with each other over the Internet and the gaming
experience is enhanced by allowing them to talk to their
competitors. This ancillary VoIP feature associated with an
Xbox and the Xbox Live Service, does not allow for connection
to the public switch network, does not use numbers, can only be
used with an Xbox game console, and can not be used with a
phone.
This use of Voice over Internet Protocol technology
highlights the challenge that is faced by policymakers as they
contemplate Internet services. VoIP implementations encompass a
great range of capabilities, from a feature supported by a
gaming console such as the Xbox, to a full substitute for
telephone service that is connected with the public switch
network.
As Congress considers how to treat VoIP services that are a
substitute for a traditional phone service, it must ensure that
other VoIP products or implementations are not inadvertently
swept into the mix, because no one would cancel their landline
phone just because they bought an Xbox and subscribed to the
Xbox Live Service. The service clearly stands outside of the
communications act.
As this subcommittee considers the shape of future laws, we
think that a look back is constructive. In 1996, this committee
wrote into the act the following statement: ``It is the policy
of the United States to promote the continued development of
the Internet and to preserve the vibrant and competitive free
market unfettered by Federal or State regulation.'' That policy
has served the Nation well over the past 10 years, and we
believe that it remains sound policy today.
Because Microsoft provides products and services and not
broadband transport networks, we will not address all of the
questions facing the subcommittee, but we do have some core
principles for your consideration.
First, Internet services and products should remain largely
unregulated. The Internet has been a remarkably successful tool
for consumers and business. Congress should proceed carefully
so it does not inadvertently disturb this accomplishment. You
should ask whether any proposed law or regulation that burdens
Internet services and products is necessary for the public
good.
Second, consumers should be able to continue to use and
access any site and any lawful application or device with a
broadband connection. In his speech last fall, the former FCC
Chairman, Michael Powell, listed four Internet freedoms: the
freedom to access content, the freedom to use applications, the
freedom to attach personal devices, and the freedom to obtain
service plan information. And those freedoms have clearly
helped shape the tremendous success of the Internet to date,
and they remain of vital importance in a broadband environment.
Third, if policymakers act, they should maintain a light
touch. The regulatory light touch approach of the past decade
that has been embraced by Congress and the FCC triggered the
explosion of new services and applications that fueled the
Internet economy. In the Internet marketplace, it is
exceedingly difficult for government regulations to keep pace
with technology, so it is important to remember this: the
unfolding world of Internet services will not neatly map to all
of the existing regulations. So if legacy rules are applied
indiscriminately, they will hold back innovation. Before
applying existing regulatory concepts, some of which date back
70 years, to Internet services, it is important to first test
whether the rule benefits the public now in a broadband world.
And finally, if regulated at all, Internet services should
be subject exclusively to Federal jurisdiction. Congress should
protect Internet services from conflicting and overlapping
State regulation. Internet services are used in interstate
commerce, they do utilize global networks, and they generally
require the transmission of bids across State lines. Therefore,
Congress should make certain that where subject to regulation,
Internet services should fall exclusively within Federal
jurisdiction.
In conclusion, let me emphasize that Microsoft is very
excited about its role in bringing innovative Internet products
and capabilities to consumers. And we stand ready to work with
this subcommittee to ensure that any legislation accomplishes
these goals.
Thank you.
[The prepared statement of Paul Mitchell follows:]
Prepared Statement of Paul Mitchell, Senior Director and General
Manager, Microsoft TV Division, Microsoft Corporation
Mr. Chairman, Mr. Markey, and Members of the Subcommittee: My name
is Paul Mitchell, and I am Senior Director and General Manager for the
Microsoft TV Division at Microsoft Corporation. I am pleased to appear
before the Subcommittee as it works to understand how current Internet
technologies are transforming the consumer experience, and as it turns
to the critical job of reviewing existing laws and rules in an effort
to determine how new ones need to be written so that these new
technologies can flourish and consumers can receive and enjoy new and
innovative Internet services and products.
We see the emergence of broadband platforms and Internet Protocol
(IP) technology as delivering--finally--the long promised convergence
of Internet service and products. Ten years ago, at a hearing much like
this one, the then-Chairman of this Subcommittee predicted that in the
future you will be able to watch your phone, answer your PC, and
download your television. These notions are no longer theory. Today,
they are a reality. IP services and products today enable the delivery
of voice, data, and video in new and innovative ways and represent a
transition in how consumers communicate, since it allows consumers at
work, at home or on the go to access content, services, and
applications through a greater diversity of devices, including PCs,
TVs, mobile phones, and handheld devices. We are moving from a time
when consumers looked at the Internet as a distinct medium (they looked
for information ``on the Internet'' or made ``Internet calls'') to a
world where consumers simply make calls, watch TV, and obtain
information without realizing that the service they receive is being
provided in an IP format.
We are excited about this development because Microsoft offers a
variety of Internet products and services that use broadband transport
connections to create new and innovative consumer experiences. In our
world, Internet or IP services and products generally mean those
services and products that ride atop or are connect to broadband
transport networks. For example, we provide software used to run the
Windows Media Center Edition PC which is available in the market today
and enables consumers today to access an analog or digital broadcast
video service, an analog multichannel cable video service, photos,
music, Internet services, and all the other features of a PC. We are
currently in talks with the cable industry to enable the Media Center
Edition PC, hopefully in a short timeframe, to access digital cable and
interactive services. In the future, we expect the Media Center Edition
PC also to enable consumers to access IPTV services. Media Center
Extenders and Portable Media Centers allow consumers to enjoy this
content and these services throughout the home and on the go. MSN
delivers to the computers and wireless phones and handheld devices of
consumers a variety of content, including news and entertainment, as
well as other services such as downloadable music and video offerings.
In addition, consumers can sign up for Hotmail, a free email service,
and MSN Messenger, a free instant messaging product. Microsoft Live
Meeting enables a group of people in an enterprise environment or other
setting to enjoy new options for real-time collaboration, to increase
productivity, using Microsoft software and a broadband transport
connection. Our Xbox Live Service offers another example of how IP
technology can be used to improve a consumer experience, in this case
gaming, by allowing gamers to compete against each other over the
Internet and enhancing their gaming experience with a VoIP feature.
In addition to the products just mentioned, my group, Microsoft TV,
offers technology solutions to infrastructure providers. We developed
Microsoft TV Foundation Edition, currently being deployed by Comcast,
which brings advanced guide functionality with digital video recording
and a client applications platform to traditional cable networks. We
also developed the IPTV products that SBC and Verizon are deploying,
which deliver a high-quality interactive video content service to
consumers. These products can be deployed over a variety of networks
including a broadband telephony, cable, or wireless network. Our IPTV
products will offer new interactive features for consumers, and we
think consumers will find this a very compelling experience.
We may hear today about VoIP, which is the delivery of voice
communication over an IP based platform. VoIP is a technology that can
be used in a variety of ways and as such highlights the challenge for
policy makers. VoIP encompasses a great range of capabilities--from a
feature in a gaming console such as Xbox, to a computer-to-computer
communication, to a full blown telephone service that is capable of
interconnecting with the PSTN. Even Internet radio programs are, in
some sense, VoIP services. As Congress considers the appropriate
regulatory treatment for those VoIP services that consumers use or that
are offered as a substitute for their traditional phone services--what
I will call a VoIP Telephony service--it must ensure that other VoIP
services or features are not swept inadvertently into the mix. No one
sees the VoIP feature that can be used with our Xbox Live gaming
service as a substitute for your landline phone. The Xbox Live VoIP
feature does not use telephone numbers, cannot be used in conjunction
with a phone, cannot connect to the PSTN, can only be used if you have
an Xbox game console, and users are identified solely by their gamer
tags and not their names. In short, the Xbox Live VoIP feature is
simply too limited to be of use to consumers outside the gaming
experience. Essentially, you are not going to give up your regular
phone connection to the PSTN just because you have an Xbox.
The Subcommittee will hear today about tremendous innovations which
result from billions of dollars of investments by Microsoft and other
high tech companies as well as upgrades by the network transport
providers represented here today. The investments in innovative
software, devices, services, and applications are, in fact, major
drivers of the tremendous investments being made in network capacity.
As Congress has indicated, policy makers should avoid any action that
slows, disrupts, or distorts that innovation. This suggests Congress
should proceed cautiously before creating new rules and avoid expanding
the scope of regulation unless and until it is demonstrably needed.
Indeed, in writing the Telecommunications Act of 1996, this
Subcommittee recognized that an overarching policy goal is to preserve
the vibrant Internet marketplace unfettered by unnecessary regulation,
in order to encourage innovation, create jobs, and stimulate the
economy. That principle, embodied in Section 230(b) of the
Communications Act, is a testament to the vision of the Members of this
Subcommittee, who stated ten years ago that, ``It is the policy of the
United States . . . to promote the continued development of the
Internet . . .; [and] to preserve the vibrant and competitive free
market that presently exists for the Internet and other interactive
computer services, unfettered by Federal or State regulation . . .''
We believe that this overarching policy statement has served our
nation well over the past ten years, and we think that policy remains
sound today. The hard questions come when Congress moves beyond this
policy statement, which we think Congress should reaffirm in any new
legislation, to specific provisions of existing law and how new
technologies fit, or don't fit, into those legal schemes. Because
Microsoft provides products and services that rely on broadband
connections, but does not operate broadband transport networks, we sit
in a different place than many other companies testifying today.
Consequently, we do not have answers to all of the important questions
facing network operators and this Subcommittee as communications
networks migrate to the widespread use of IP technology. But we do come
to this debate with certain core principles and want to share them with
you today:
1. Internet services and products should remain largely unregulated.
Internet services, that is, those services and products that ride
atop or connect to the underlying broadband transport services, should
remain largely unregulated and not be subject to the Communications
Act. The success of the Internet as a tool for consumers and business
has been remarkable, and Congress should proceed carefully so it does
not inadvertently disturb this accomplishment. The choice of content
and services available over the Internet overwhelms all of us, and that
stands out as a huge accomplishment of this medium. Thus, Congress
should ask whether any proposed law or regulation that touches upon
this tremendous variety of Internet services and products is necessary
for the public good. No question that our information technology and
communications networks are changing rapidly, but it is wise for this
Subcommittee to pause and ask whether the evolution of technology
requires an expansion of our laws into new realms.
2. Consumers should be able to access any site and use any lawful
application or device with a broadband connection--just as they
have been able to do in the narrowband world.
At a speech last fall, Chairman Powell stated that as we continue
to promote competition among high-speed platforms, ``we must preserve
the freedom of use broadband consumers have come to expect.'' He then
went on to challenge the broadband network industry to preserve what he
called ``Internet Freedoms.'' Specifically, these are:
Freedom to Access Content. First, consumers should have access to
their choice of legal content.
Freedom to Use Applications. Second, consumers should be able to run
applications of their choice.
Freedom to Attach Personal Devices. Third, consumers should be
permitted to attach any devices they choose to the connection
in their homes.
Freedom to Obtain Service Plan Information. Fourth, consumers should
receive meaningful information regarding their service
plans.1
---------------------------------------------------------------------------
\1\ Michael Powell, Remarks at the Voice on the Net Conference
(Oct. 19, 2004) (available at http://hraunfoss.fcc.gov/edocs--public/
attachmatch/DOC-253325A1.pdf).
---------------------------------------------------------------------------
We see these consumer freedoms as fundamental to the success of the
Internet. Those freedoms, which have been at the core of the
telecommunications world for the past three decades or longer, shaped
the dial-up Internet world, and we firmly believe these principles
should be carried forward to the broadband future.
As a Commerce Department study found, availability of value-added
businesses and consumer applications at competitive prices is a key
demand-side driver of broadband.2 Preserving an environment
for innovation and competition among services and devices that connect
to broadband networks will, in turn, encourage further investments in
these networks. Thus, we hope that everyone at this table and this
Subcommittee agree that these consumer freedoms must continue to hold
true for the Internet to succeed.
---------------------------------------------------------------------------
\2\ Department of Commerce, Office of Technology Policy,
Understanding Broadband Demand: A Review of Critical Issues, at 14-17
(Sept. 22, 2003).
---------------------------------------------------------------------------
3. If policy makers act, they should maintain a ``light touch'' and act
only with respect to those services that give rise to present
day policy questions.
Since passage of the Telecommunications Act of 1996, the FCC and
this Subcommittee have stayed the course on the principle that the
Internet services should be unregulated or at most lightly regulated.
We firmly believe that this regulatory ``light touch'' approach
triggered the explosion of new services and applications that has
fuelled the Internet economy that we have today. Rapid change and
technological advancement in the IP services market mean that it is
exceedingly difficult for government regulations to keep pace with
technological advances in the IP marketplace. That reality counsels
caution in expanding the scope of regulation or in writing overly
prescriptive rules.
In order to avoid constraining the continued growth of IP services,
any regulation imposed on IP services should focus on objectives, not
means, and should allow implementers flexibility in how to technically
meet those objectives. For example, policymakers should retain as a
policy objective that consumers should be able to obtain, at retail, a
variety of innovative devices for accessing IP services over a
broadband connection, while allowing industry and appropriate standards
bodies to develop the solutions for connectivity of such devices.
An area which this Committee may consider is how these new services
may affect the existing telecommunications infrastructure and the
support systems, such as universal service, that accomplish important
social goals. The local telephone network is currently subsidized
through massive implicit subsidies as well as explicit subsidies which
involve telecommunications carriers making payments into the universal
service fund. Plainly, the system that finances the universal service
fund is under strain today, because it is funded by interstate telecom
revenues, and demand for subsidy payments is growing at the same time
that those revenues are shrinking. Thus, we encourage the Subcommittee
to consider alternative means, such as assessing a universal service
fee on telephone numbers if you want to fund the telephone service or
assessing it based on connections if you want to fund the underlying
infrastructure. In addition, the existing system for compensating
telecommunications carriers that exchange traffic is deeply flawed and
has been the subject of reform efforts for years. Those efforts should
come to conclusion and the system should be fixed before it is applied
to IP services, or else innovation will suffer.
This example illustrates an important point: Old rules will not map
neatly to the unfolding world of Internet services and will hold back
innovation. The transformative nature of IP services, including IP
transport services, means that existing regulatory or legislative
concepts, some of which have not been reconfigured in seven decades,
should not be applied without first analyzing whether the legacy rule
still benefits the public in the broadband world.
Regardless of the legislative approach this Committee takes, we
think it is instructive to learn from the FCC's light touch in
developing a policy toward the Internet over the past ten years. We
also believe that the existence of certain core consumer safeguards
provide key signals to all those who use the Internet--network
operators, content developers, consumer equipment manufacturers,
software developers, and consumers--that their investment will be
protected and that their innovation may be rewarded. Any legislative
drafting must be done carefully so as not to overreach, and we hope to
work with the Committee to clarify the scope of any legislation.
4. Where subject to regulation, Internet services should be subject
exclusively to Federal jurisdiction.
Lastly, Congress should protect IP services from conflicting and
overlapping State regulation. IP services are used as an integral part
of interstate commerce, they utilize interstate or global networks, and
they generally require the transmission of bits across state lines. As
a consequence, where subject to regulation, they should be exclusively
within Federal jurisdiction. The FCC has correctly decided that VoIP is
an interstate service, and that conclusion should apply to other IP
services that are subjected to regulatory treatment. Accordingly, where
this Committee subjects an IP service to the Communications Act, it
should make clear that the IP service is subject only to Federal
jurisdiction.
In conclusion, IP services are beginning to deliver to consumers a
world of content and communications that will dramatically improve
economic and social welfare. Investment and innovation in these
services thrives in an environment in which these services are
unregulated or lightly regulated, and where certain core principles
regarding the freedom of use that broadband transport customers have
come to expect are preserved. To the extent IP services have to be
regulated, if at all, it should be done exclusively at the Federal
level, and only then to the degree necessary to achieve core government
interests that the marketplace cannot solve.
Mr. Upton. Mr. Cohen.
STATEMENT OF DAVID L. COHEN
Mr. Cohen. Good morning, Mr. Chairman and members of the
committee.
Mr. Upton. You just need to move that.
Mr. Cohen. Good morning, Mr. Chairman and members of the
committee. It is a pleasure to be here today.
One of the favorite stories of Comcast Chairman and CEO
Brian Roberts relates to a conversation he had with Bill Gates
of Microsoft in early 2002. Mr. Gates said he was more excited
than ever about cable's potential to bring new services to
America because of IP. The next day, when Brian returned to
Philadelphia, he called in all of his engineers and said,
``What is this IP that Bill was talking about?'' Well, 3 years
later, we all know what IP is. It is a powerful technology that
is changing the world of communications. And the cable industry
has embraced IP. As an industry, we have now invested nearly
$100 billion since 1996 to bring an IP-enabled broadband
network to nearly every doorstep in America. For Comcast, our
part of that investment has been about $39 billion, and we will
use that infrastructure to bring advanced digital voice service
to nearly every one of the 40 million homes that we pass over
the next 2 years.
Congress and the FCC are now considering how IP may change
the competitive landscape and what the implications are for
that for regulation. Some phone companies want to use IP to
bring another competitive video choice to consumers. And we
say, ``Welcome.'' The video marketplace is already robust with
competition, and now phone companies and others plan to offer
even more. This additional competition warrants a comprehensive
reexamination of the rules regulating cable, rules adopted in a
far less competitive era.
At least one phone company is arguing, ``IP video is a
different technology. Exempt us from everything,'' which
invites some fundamental questions. On what basis do we
regulate? Do we make regulatory distinctions based on
technology? Or should we treat like services alike?
In January of this year, my friend and your former
colleague Tom Tauke of Verizon made the following comment to
the Nation's mayors, and I quote: ``It is not logical to treat
different sectors of the communications marketplace differently
based on what technology they use when they are all delivering
the same service.''
We think he is right. If the consumer views the video
service delivered by a phone company to be essentially the same
as what they get from a cable company, the law should not treat
them differently based on whether they use a lot of IP, a
little IP, or no IP at all. Like services should be treated
alike, and everybody should play by the same rules.
As the phone companies have described their IP video ideas
to date, they clearly seem to be just like cable services. The
demonstration you saw here today, for those of you who were at
the cable show less than a month ago, you saw very similar
demonstrations, picture-in-picture, customized TV, whole-home
DVRs demonstrated on Comcast cable network in the Bay area as
you saw on the demonstration today. As such, those services
today should be governed by the cable provisions of the
communications act. And that is not to say that they would be
regulated identically to incumbent cable operators.
Title VI of the act applies lesser economic regulation to
new entrants, including freedom from all price regulation.
However, Title VI generally applies service non-economic rules
to all competitors, including the need to obtain a local
franchise and the responsibility to bring the benefits of
competition to every American, rich or poor.
A cable operator may not discriminate based on the economic
characteristics of a community. Every cable operator in
business today, large and small, has been required to build out
its systems to avoid redlining and so should all new entrants.
Now let me be clear. We do not oppose a review of Title VI.
In fact, we think the level of competition today justifies
elimination of many of the requirements of Title VI for all
providers, and we applaud the chairman and the committee for
taking up this issue.
Similarly, we supported efforts in the last Congress to
establish new rules for all VoIP providers. And while VoIP
services are now widely available in the marketplace, we still
lack clarity about the rules that will apply. So we also this
committee to complete its important work on VoIP policy as
quickly as possible.
In contrast, no one is providing IP video services in any
significant way today in the commercial marketplace. There is
no IP video market that is being held back by current policies,
and there are unique policy issues raised by IP video that do
not apply to IP voice, including issues of localism and content
rights management, in addition to the redlining issue I
mentioned earlier. Therefore, this is a great time for Congress
to comprehensively review the regulatory framework for all
multi-channel video services, given the substantial growth in
video competition. And if the rules are to be changed, I think
it is clear that some of the rules need to be changed, then
they should be changed for all providers.
Mr. Chairman, for years the phone companies have protested
that the law treats their DSL service differently from the way
it treats cable's high-speed Internet service. ``Treat us like
the cable companies,'' they have said. And I would note that
Comcast, for one, has never objected to that position.
Now that the phone companies plan to offer video, I suggest
that they should get their wish. They should be treated like
the cable companies, and whatever rules apply to us should
apply to them, too.
Thank you very much, and I am also looking forward to
taking your questions.
[The prepared statement of David L. Cohen follows:]
Prepared Statement of David L. Cohen, Executive Vice President, Comcast
Corporation
Good morning, Mr. Chairman and Members of the Committee.
Comcast's Chairman and CEO Brian Roberts tells the story of two
conversations he had with Bill Gates of Microsoft that represented
turning points for our company.
The first was in 1997, when Mr. Gates agreed to invest a billion
dollars in Comcast to help jump-start our industry after a severe
downturn.
The second was in early 2002, at the Consumer Electronics Show. Mr.
Gates said he was more excited than ever about the potential of the
cable industry to bring new services to America because of ``IP.'' The
next day, Brian returned to Philadelphia, called in his engineers and
said, ``What's this IP that Bill was talking about?''
Well, three years later, now we all know what IP is. It's a
powerful technology that's changing the world of communications. And
the cable industry has embraced IP. We have now invested nearly 100
billion dollars to bring an IP-enabled broadband network to nearly
every doorstep in America. And at Comcast, we will use our IP
infrastructure to provide advanced digital voice service to 40 million
homes in the next two years.
Congress and the FCC are now considering how IP may change the
competitive landscape, and what the implications are for regulation.
Some phone companies want to use IP to bring another competitive video
choice to consumers. We say, ``Welcome.'' The video marketplace is
already robustly competitive, and entry by more competitors can bring
more consumer benefit. And we believe that this additional competition
warrants a comprehensive reexamination of an existing regulatory
framework adopted when the video marketplace was far less competitive.
But at least one phone company argues, ``IP video is a different
technology. Exempt us from everything.'' Which leads to some
fundamental questions: On what basis do we regulate? Do we make
regulatory distinctions based on technology? Or do we treat like
services alike?
In January, my friend Tom Tauke of Verizon made the following
comment to the nation's mayors: ``It's not logical to treat different
sectors of the communications marketplace differently based on what
technology they use when they're all delivering the same service.''
We think he's right. What matters to consumers, and what should
matter to this Congress, is not the technology used to provide
services, but the services themselves. If the consumer views the video
service delivered by a phone company to be essentially the same as what
they get from a cable company, there is no basis for the law to treat
them differently based on whether they use a lot of IP, a little IP or
no IP. Like services should be treated alike, and everyone should play
by the same rules.
Today, the law permits a phone company to offer video programming
in one of four ways--as a common carrier, as a wireless provider, as an
open video systems provider, or as a franchised cable operator. Based
on what we understand of the business models planned by the phone
companies here today, they will fall into that fourth category--they
would be franchised cable operators, governed by the cable provisions
(Title VI) of the Communications Act.
Title VI already contains reduced obligations for new entrants,
such as freedom from price regulation, but, in general, it does not
distinguish among competitors in imposing certain non-economic rules--
including the need to obtain a local franchise, and the responsibility
to bring the benefits of competition to every American, rich or poor.
A cable operator may not discriminate based on the economic
characteristics of a community. Therefore, as a condition of granting a
local franchise, a city government may insist that every neighborhood
is to be served within a reasonable period of time. Every cable
operator in business today lives under this rule and has built out its
systems to avoid redlining. By the way, that's also how we're rolling
out our IP-powered ``digital voice'' service as well--when we provide
this service in a community, we will quickly serve the whole community.
And we will offer it to every home in the franchise area, whether or
not that home is currently a video or data customer.
Let me be clear. We do not oppose a review of Title VI. In fact, we
think the level of competition today justifies elimination of many of
the requirements of Title VI for all providers.
Mr. Chairman, we supported efforts in the last Congress to
establish new rules for VoIP. That job is not yet done--and while VoIP
services are now widely available in the marketplace, we are left
waiting for clarity about the rules that will apply. We believe that
VoIP deserves the prompt attention of this Committee. And our position
on VoIP is consistent with our position on IP video: for VoIP, we
support minimal economic regulation while ensuring that all VoIP
providers satisfy E911, CALEA, universal service and disabilities
access requirements.
By contrast, there is no one providing IP video services in any
significant way today. There is not an IP video market that is being
held back by current policies. Many of the issues raised by IP video
have no parallel in IP voice and so have not been part of the debates
over the proper framework for voice offerings. Legislating or
regulating in advance of a careful consideration of these issues, such
as localism, content rights management, and redlining, could
inadvertently undermine important public policies. Responsibility for
some of these issues has been placed at the local franchise level, and
Congress and the FCC may or may not want to shift that responsibility
to other levels of government.
Instead of having a debate about IP technology, we believe Congress
should consider how all multichannel video services should be regulated
in the future. Congress should consider the current state of
competition and the additional competition that IP video could bring--
and, if the rules are to be changed, they should be changed for all
providers.
Mr. Chairman, for years the phone companies have protested the
disparity between the way the law treats their DSL service and the way
it treats cable's high speed Internet service. Their plea has been,
``Treat us like the cable companies.'' And I would note that Comcast
has never objected to that.
Now that the phone companies plan to offer video, we say ``welcome
. . . and we agree--you should be treated like cable companies, because
that is what you are.'' And whatever rules apply to one should apply to
all.
I would like to thank the Committee for the opportunity to appear
here today, and I look forward to answering any questions.
Mr. Upton. Thank you.
Mr. Ingalls.
STATEMENT OF ROBERT E. INGALLS, JR.
Mr. Ingalls. Chairman Upton, Ranking Member Markey, and
members of the subcommittee, thank you for the opportunity to
testify today. My name is Robert Ingalls. I am President of
Retail Markets at Verizon, and I am responsible for the sales
and marketing of Verizon's products and services, including
broadband, to our residential and small business customers.
And I want to tell you about the exciting new broadband and
video experience Verizon is ready to deliver to its consumers.
We are deploying a fiber optic network called FiOS, and we have
prepared a short video to introduce to you these capabilities.
I think we have a video. We have a technical glitch.
[Video.]
Thank you. So Verizon is the first broadband network to use
fiber to the premises architecture. And FiOS is capable of
delivering 100 megabits downstream and up to 15 megabits
upstream, which will make it the fastest, most interactive
network deployed anywhere in America.
FiOS gives consumers a super-fast broadband data
experience. It has speed up to 30 megabits downstream and 5
megabits upstream. As we move forward, the bandwidth and
upstream capacity of the fiber system will allow us to offer
consumers a number of other exciting services, including FiOS
TV.
FiOS TV will provide consumers with a video experience that
is different from anything they have today. The tremendous
capacity of the fiber system gives us all kinds of room for
hundreds of digital video channels, local programming, high-
definition and on-demand content. Digital video recording
options will allow content to be distributed throughout the
home.
What we think the consumers are really going to like about
FiOS is the upstream capacity of the system that will connect
them to a world of multimedia and interactive possibilities.
Families will be able to quickly and easily produce, store,
send, and share home videos and share pictures with friends
across the country. Other interactive possibilities include 3-D
gaming, video-on-demand, online shopping, real-time polling,
even setting camera angles while watching sporting events.
I think you see why Verizon is so excited and why our
customers are so eager for this broadband and video choice to
reach the market.
We are deploying FiOS in more than 100 communities across
the country right now. We have begun to introduce FiOS Data,
our super-fast Internet services, with excellent results. Our
plan is to pass three million homes by the end of 2005, with
further expansion as fast as technology and the marketplace
will allow.
We are making all of the necessary preparations for the
commercial launch of FiOS TV this year. We are obtaining
franchises. We are signing content deals with broadcasters and
programmers, working with the software programmers on
interactive features and with the hardware developers on our
set-tops.
The result will be a compelling video experience for
consumers and the true video choice for the marketplace.
Regulatory issues, however, are affecting how soon we will
enter the video market on a wide scale.
First, current law does not serve innovation well. The law
was written for a world where telecom and cable were different
technologies and distinct services. In the converged world we
are in today, those distinctions make less and less sense.
We need a national broadband policy that does not shoehorn
new technologies into old categories. This national policy
should promote broadband deployment, new technologies, and
increased investments by any provider.
Second, as a local telephone company, Verizon has a
franchise to deploy and operate networks. Yet we are being
asked to obtain a second franchise to use those same networks
to offer consumers a choice in video. We believe this redundant
franchise process is unnecessary and will delay effective video
competition for year unless a Federal solution is enacted soon.
Verizon is sensitive to the needs and concerns of local
communities regarding such matters as franchise fees, local
access, and public interest content, and we will continue to
work to address them. But we believe a streamlined, national
franchise process is the fastest route to a much-needed choice
and competition in the video market.
The era of broadband video has arrived. Verizon is eager to
deliver it to our customers. We are also excited by the
opportunities with software and hardware companies, content
developers, and distributors to tap the full potential of this
great new technology. Together, our efforts will empower
consumers, transform communities, and encourage innovation and
economic growth across America for years to come.
Thank you very much. I look forward to answering any
questions you may have.
[The prepared statement of Robert E. Ingalls, Jr. follows:]
Prepared Statement of Robert Ingalls, Jr., President, Retail Markets
Group, Verizon Communications
Chairman Upton, Ranking Member Markey, and members of the
subcommittee, thank you for the opportunity to testify today. My name
is Robert Ingalls, President of Retail Markets at Verizon. I am
responsible for sales and marketing of Verizon products, including
broadband, to residential and small business customers.
I want to tell you about the exciting new broadband and video
experience Verizon is ready to deliver to consumers. We are deploying a
fiber optic network called FiOS, and we have prepared a short video to
introduce you to its capabilities.
FiOS is the first broadband network to use a fiber-to-the-premises
architecture. FiOS is capable of delivering 100 megabits downstream and
up to 15 megabits upstream--which will make it the fastest, most
interactive network deployed anywhere in America.
FiOS gives consumers a super-fast broadband data experience, at
speeds of up to 30 megabits downstream and 5 megabits upstream. As we
move forward, the bandwidth and upstream capacity of the fiber system
will allow us to offer customers a number of other exciting services,
including FiOS TV.
FiOS TV will provide consumers with a video experience that's
different from anything they have today. The tremendous capacity of the
fiber system gives us all kinds of room for hundreds of digital video
channels, local programming, high-definition and on-demand content.
Digital video recording options will allow content to be distributed
throughout the home.
What we think customers are really going to like about FiOS is the
upstream capacity of the system that will connect them to a world of
multi-media and interactive possibilities. Families will be able to
quickly and easily produce, store, send and share home videos and share
pictures with friends across the country. Other interactive
possibilities include--3-D gaming, video-on-demand, online shopping,
real-time polling, even setting camera angles while watching sporting
events.
I think you can see why Verizon is excited and why our customers
are so eager for this broadband and video choice to reach the
marketplace.
We are deploying FiOS in more than 100 communities across the
country. We have begun to introduce FiOS Data, our super-fast Internet
service, with excellent results. Our plan is to pass 3 million homes by
the end of 2005, with further expansion as fast as technology and the
marketplace allow.
We are making all of the necessary preparations for the commercial
launch of FiOS TV later this year:
Obtaining franchises,
Signing content deals with broadcasters and programmers,
Working with software programmers on interactive features, and
Working with hardware developers on set-tops.
The result will be a compelling video experience for consumers and
true video choice for the marketplace.
Regulatory issues, however, are affecting how soon we will enter
the video market on a wide scale.
First, current law does not serve innovation well. The law was
written for a world where telecom and cable were different technologies
and distinct services. In the converged world we're in today, those
distinctions make less and less sense.
We need a national broadband policy that does not shoe-horn new
technologies into old categories. This national policy should promote
broadband deployment, new technologies and increased investment by any
provider.
Second, as a local telephone company, Verizon has a franchise to
deploy and operate networks. Yet we're being asked to obtain a second
franchise to use those same networks to offer consumers a choice in
video. We believe this redundant franchise process is unnecessary and
will delay effective video competition for years unless a federal
solution is enacted soon.
Verizon is sensitive to the needs and concerns of local communities
regarding such matters as franchise fees, local access and public
interest content, and we will continue to work to address them. But we
believe a streamlined, national franchise process is the fastest route
to bringing much-needed choice and competition in the video market.
The era of broadband video has arrived. Verizon is eager to deliver
it to our customers.
We are also excited by the opportunities to work with software and
hardware companies, content developers and distributors to tap the full
potential of this great new technology. Together, our efforts will
empower consumers, transform communities, and encourage innovation and
economic growth across America for years to come.
Thank you. I look forward to answering any questions you may have.
Mr. Upton. Mr. Schmidt.
STATEMENT OF GREGORY SCHMIDT
Mr. Schmidt. Thank you, Mr. Chairman and members of the
committee. My name is Greg Schmidt. I am LIN Television's Vice
President of New Development and General Counsel. We own 24
local broadcast television stations.
Let me begin by expressing local broadcasters' enthusiasm
for the possibilities being discussed today. Video-over
broadband has the potential to introduce much-needed
competition into the multi-channel video marketplace. Doing so
will provide cable subscribers, who are currently locked into a
structure of subscription rates that have escalated 40 percent
in just 5 years, with additional options. It will also give
broadcasters additional options to distribute their local
programming. In short, we welcome any technology that enhances
competition to cable.
As broadcasters, we are no strangers as to how technology
evolves to meet better consumer needs. Imagine for a moment if
I told you about a new cutting-edge technology that would be
digital, would be wireless, and would provide local news and
weather in real time, and, best of all, would be free. That
technology exists. We call it broadcasting. In short, local
broadcasters were wireless before wireless was cool.
Some tend to forget, our industry innovated radio and then
brought about television. Broadcasters proposed and then built
the first digital video distribution system. We developed the
tantalizing images of HDTV broadcasts. I don't have any video
for you today, but I will remind you that 7 years ago this
month, in this room, we brought the first local sports event in
HD, an opening day game of the Texas Rangers versus Chicago
White Sox, and displayed it live in this room from Arlington,
Texas. Broadcasters also created the additional programming
options of digital multi-casting. So as an industry, we see
great potential in the development of video-over broadband.
As Congress unlocks the potential of IP video, it must,
however, be careful to continue advancing its long-standing
goal of preserving a free, over-the-air television system.
Local television remains essential to the fabric of this
country. From its beginning, Americans have turned to
television and broadcasting for vital news and information. In
weather emergencies, like last year's hurricanes in Florida,
when cable and satellite systems were unavailable, local
stations offered a lifeline of information. Viewers turn to us
for coverage of local news and political programming. Our
stations cover the high school sports that communities rally
around. We raise billions for local charitable causes and give
a voice to community organizations. In short, local television
stations are integral to the communities they serve, and the
people we serve, our audience, are the same people you serve.
Your constituents are our viewers. With that in mind, as
Congress examines the regulatory framework for Video-over
broadband, it should continue to hold a robust system of local,
over-the-air television as a paramount goal.
As the technology evolves, government regulation of IP
video may someday in the future become completely unnecessary.
For the time being, however, Congress should ensure that new
entrants into the market operate under the existing ground
rules that have enhanced competition, encouraged diversity of
content, and protected the intellectual property rights of
content creators.
At minimum, a few key protections that currently exist
should be extended into any future regulatory framework. First,
Congress has long honored network affiliate stations'
contractual rights to be the exclusive providers of network
programming in their markets. Congress and the Commission have
also recognized the importance of stations' exclusivity for
syndicated programming. The local advertisements sold by a
station during popular network programming, such as CSI or
Alias or syndicated programming, such as Seinfeld, help fund
our local programming. Congress has applied similar thinking
that supports blackout rules, and these protections, too,
should be extended as Congress moves forward.
Ultimately, if other video providers were permitted to
offer duplicative network and syndicated programming, stations
would lose audience share and advertising dollars. And these
dollars fund the local programming that makes local
broadcasting so valuable. It is, therefore, vital that as
Video-over broadband regulatory model develops, it continue to
respect network non-duplication and syndicated exclusivity.
Second, the retransmission consent and must-carry rules
must continue into the digital age to ensure the continued
liability of the over-the-air model. In 1992, when passing the
Cable Act, Congress recognized that video services that sell
advertising have a direct incentive to delete, reposition, or
even refuse to carry local television broadcast stations.
Congress also recognized that a vibrant over-the-air system
requires access to cable households. The fundamental policies
and basic facts that drove Congress to adopt must-carry and
retransmission consent are as sound today as they were in 1992.
Mr. Chairman, Congress has wisely stood by these principles
over the years to ensure that cities as large as New York all
of the way down to communities as small as Glendive, Montana
can have their own unique broadcasting voices. This committee,
in particular, has repeatedly recognized the value of broadcast
localism when writing the first Satellite Home Viewer Act of
1998 and reauthorizing the act in 1999. And again this year and
last year, the committee made clear its strong support for
localism.
Our industry stands ready to work with the committee in
developing the regulatory framework that fosters additional
competition to cable and satellite operators while
simultaneously strengthening and sustaining America's unique
system of local broadcasting.
Thank you.
[The prepared statement of Gregory Schmidt follows:]
Prepared Statement of Gregory Schmidt, Vice President of New
Development and General Counsel, LIN Television Corporation
Good morning Mr. Chairman, Ranking Member Markey, Members of the
Committee. I am Gregory Schmidt, Vice President of New Development and
General Counsel for LIN Television Corporation. I appear today on
behalf of the National Association of Broadcasters.
Let me begin by articulating how enthusiastic local television
broadcasters are about the possibilities being discussed in this
hearing today. We are excited about new and innovative Internet
services such as video over broadband. Broadcasters, like many others,
see great promise in what this new platform has to offer. Video over
broadband has the potential to introduce much needed competition into
the multi-channel programming distribution marketplace. We see this as
a positive development for consumers and broadcasters.
As we embrace new technologies, however, it is vital that the
policies you adopt continue to recognize the importance of maintaining
a robust system of local, over-the-air television. Competition may
eventually lead to deregulation of all video media, but until it does,
existing policies designed to promote competition, diversity and
intellectual property rights must extend to all multi-channel
platforms. Thus, I encourage you to explore important questions such
as: How will policies designed to protect and promote public access to
important local information be realized for this new service? How will
local rights to content such as sports, network and syndicated
programming be protected? These are questions that you asked and
answered as cable and satellite technology developed. They are once
again questions to be asked as you address public policy issues related
to this new service. And they should be asked in two contexts. First,
how will these policies affect content providers such as broadcasters,
and second how will they affect competition among context distributors
such as cable satellite, and now potentially new distribution
technologies.
LOCAL TELEVISION
The American television system is an integral part of the fabric of
this country. Television is not just an entertainment medium. From its
very beginning, Americans have turned to television and over-the-air
broadcasting for vital news and information. Indeed, often in the case
of weather emergencies, when the multi-channel systems such as cable
and satellite are unavailable, over-the-air broadcasting is the only
way to get life-saving information to the public. Thus, it is not
surprising that Congress, the courts and the Federal Communications
Commission (``FCC'') have consistently recognized that public access to
a healthy, free-over-the-air broadcast system is an important federal
interest.
Our country has made a substantial investment in free, local over-
the-air service. Unlike many other countries that offer only national
television channels, the United States has succeeded in creating a rich
and varied mix of local television outlets through which more than 200
communities can have their own local voices. But over-the-air local TV
stations--particularly those in smaller markets--can survive only by
generating advertising revenue based on local viewership. If new
technologies can override program exclusivity rights of local stations
by offering the same programs on stations imported from other markets,
or effectively block their subscribers access to local signals, the
viability of local TV stations--and their ability to serve their
communities with the highest-quality programming--is put at risk.
To preserve this public access to free-over-the air television,
policy-makers must continue to support the principles of localism and
of local station program exclusivity. These are the principles that
underlie the policies of syndicated exclusivity, network non-
duplication, must-carry and retransmission consent. These policies help
preserve the health of the free-over-the air television upon which the
American public relies.
LOCALISM
The fundamental policy of localism has been embedded in federal law
since the Radio Act of 1927.1 The objective of localism in
the broadcast industry is ``to afford each community of appreciable
size an over-the-air source of information and an outlet for exchange
on matters of local concern.'' Turner Broadcasting Sys. v. FCC, 512
U.S. 622, 663 (1994) (Turner I); see United States v. Southwestern
Cable Co., 392 U.S. 157, 174 & n.39 (1968) (same). As pointed out by
the Supreme Court, that policy has provided crucial public interest
benefits.
---------------------------------------------------------------------------
\1\ Satellite Delivery of Network Signals to Unserved Households
for Purposes of the Satellite Home Viewer Act, First Report and Order,
14 FCC Rcd 2654, 2659 (1999); see Satellite Delivery of Network Signals
to Unserved Households for Purposes of the Satellite Home Viewer Act,
Notice of Proposed Rulemaking, 13 FCC Rcd 22977, 22979 (1998) (``The
network station compulsory licenses created by the Satellite Home
Viewer Act are limited because Congress recognized the importance that
the network-affiliate relationship plays in delivering free, over-the-
air broadcasts to American families, and because of the value of
localism in broadcasting. Localism, a principle underlying the
broadcast service since the Radio Act of 1927, serves the public
interest by making available to local citizens information of interest
to the local community (e.g., local news, information on local weather,
and information on community events). Congress was concerned that
without copyright protection, the economic viability of local stations,
specifically those affiliated with national broadcast network[s], might
be jeopardized, thus undermining one important source of local
information.'')
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Broadcast television is an important source of information to
many Americans. Though it is but one of many means for
communication, by tradition and use for decades now it has been
an essential part of the national discourse on subjects across
the whole broad spectrum of speech, thought, and expression.
Turner Broadcasting Sys. v. FCC, 117 S. Ct. 1174, 1188 (1997).
Thanks to the vigilance of Congress and the FCC over the past 50
years in protecting the rights of local stations, over-the-air
television stations today serve more than 200 local markets across the
United States, including markets as small as Presque Isle, Maine (with
only 28,000 television households), North Platte, Nebraska (with fewer
than 15,000 television households), and Glendive, Montana (with only
3,900 television households).
This success is largely the result of the partnership between
broadcast networks and affiliated television stations in markets across
the country. The programming offered by network affiliated stations is,
of course, available over-the-air for free to local viewers. Although
other technologies offer alternative ways to obtain television
programming, tens of millions of Americans still rely on broadcast
stations as their exclusive source of television programming and
broadcast stations continue to offer most of the top-rated programming
on television.
The network/affiliate system provides a service that is very
different from nonbroadcast networks. Each network affiliated station
offers a unique mix of national programming provided by its network,
local programming produced by the station itself, and syndicated
programs acquired by the station from third parties. H.R. Rep. 100-887,
pt. 2, at 19-20 (1988) (describing network/affiliate system, and
concluding that ``historically and currently the network-affiliate
partnership serves the broad public interest.'') Unlike nonbroadcast
networks such as Nickelodeon or USA Network, which telecast the same
material to all viewers nationally, each network affiliate provides a
customized blend of programming suited to its community--in the Supreme
Court's words, a ``local voice.''
America's local television broadcast stations make an enormous
contribution to their communities because broadcasters are uniquely
positioned to help community organizations promote their causes,
through media saturation and attention from local on-air talent.
Broadcasters help give an organization a voice, and are the main
conduit for members of a community to discuss the issues of the day
amongst themselves. A broadcaster can help an organization make its
case directly to local citizens, to raise its public profile in a
unique way, and to cement connections within local communities. A
broadcaster can help an organization better leverage its fund raising
resources and expertise, its public awareness and its educational
efforts.
Community-responsive programming--along with day-to-day local news,
weather, and public affairs programs--is made possible, in part, by the
sale of local advertising time during and adjacent to network programs.
These programs (such as ``CSI'' and ``American Idol'') often command
large audiences, and the sale of local advertising slots during and
adjacent to these programs is a crucial revenue source for local
stations.
LOCAL PROGRAM EXCLUSIVITY
The FCC has recognized the need for strong and effective rules
enabling television stations to preserve the exclusivity of programming
in their local markets since the earliest days of cable. The first
cable rules, for example, were non-duplication rules to protect both
network programming and syndicated programming for which local
broadcasters had negotiated exclusive exhibition rights.2
The basic principle was that non-duplication was ``something to which a
station is entitled, without a showing of special need, within its
basic market area.'' 3 The FCC explained:
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\2\ Amendment of Subpart L, Part 11 to Adopt Rules and Regulations
to Govern the Grant of Authorization in the Business Radio Service for
Microwave Stations to Relay Television Signals to Community Antenna
Systems, First Report and Order, 38 FCC 683 (1965).
\3\ Id., at 719.
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Our aim . . . is not to take any programs away from any CATV
subscriber, but to preserve to local stations the credit to
which they are entitled--in the eyes of the advertisers and the
public--for presenting programs for which they had bargained
and paid in the competitive program market.4
---------------------------------------------------------------------------
\4\ Id., at 715 (emphasis added).
---------------------------------------------------------------------------
In 1972, the FCC adopted its first rules authorizing stations that
had purchased local exclusive exhibition rights to syndicated
programming to demand that cable systems located in their service areas
delete such programming from imported distant signals.5
While these rules were repealed in 1980 6, eight years later
the FCC reinstated a revised set of syndicated exclusivity rules as
well as revising and strengthening the network non-duplication
rules.7 The FCC concluded that:
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\5\ Amendment of Part 74, Subpart K, of the Commission's Rules and
Regulations Relative to Community Antenna Television Systems, and
Inquiry into the Development of Communications Technology and Services
to Formulate Regulatory Policy and rulemaking and/or Legislative
Proposals, 36 FCC 2d 141, 148 (1972) (hereinafter cited as ``Cable
Television Report and Order''), recon. granted, 36 FCC 2d 326 (1972)
(hereinafter cited as ``Reconsideration Order'').
\6\ Cable Television Syndicated Program Exclusivity Rules, Report
and Order, 79 FCC 2d 663 (1980) (hereinafter ``1980 Report and
Order'').
\7\ 1988 Report and Order.
---------------------------------------------------------------------------
The restoration of syndicated exclusivity protection will
enhance competition in the video marketplace by eliminating
unfairness to broadcasters. It will increase incentives to
supply the programs viewers want to see and it will encourage
the development of a pattern of distribution that makes the
best use of the particular advantages of different distribution
outlets. It will encourage promotion of programming. Although
cable operators may have to make some changes in the way they
do business, compliance costs will not be burdensome and, in
any event, are outweighed by benefits. Specifically, television
viewers generally will be exposed to richer and more diverse
programming.8
---------------------------------------------------------------------------
\8\ Id., at 89. See Amendment of Parts 73 and 76, of the
Commission's Rules Relating To Program Exclusivity in the Cable and
Broadcast Industries, Memorandum Opinion and Order, 4 FCC Rcd 2711,
24 (1989) (``In reinstating our syndex rules, we are attempting to
remove unnecessary impediments on broadcasters' right to contract
(thereby enhancing competition) and to provide an environment that is
more conducive over the long run to the production, diversity,
responsiveness, quality and distribution of programming in order to
ensure that consumers receive an optimal mix of programming.'').
---------------------------------------------------------------------------
In addition to reinstating the syndicated exclusivity rules, the
1988 Report and Order also expanded the scope of protection that
network affiliates could enforce under the network non-duplication
rules. Quoting approvingly from CBS' comments, the FCC concluded that:
In a word, the relationship between broadcast network and its
affiliates is one of intense symbiosis. It is fundamentally
premised both on the network's ability to acquire exclusive
rights from its suppliers, and on the affiliated stations'
ability to enjoy program exclusivity in their respective
marketplaces. This vital feature of the system of free over-
the-air television has been true for over forty
years.9
---------------------------------------------------------------------------
\9\ Id., at 116. The FCC cited to record evidence that when a
small market Palm Springs affiliate lost non-duplication protection, it
lost half of its audience to an imported distant affiliate. Id., at
117.
---------------------------------------------------------------------------
In a similar vein, when Congress crafted the original Satellite
Home Viewer Act in 1988, it emphasized that the legislation ``respects
the network/affiliate relationship and promotes localism.'' H.R. Rep.
No. 100-887, pt. 1, at 20 (1988). It also found that ``depriving local
stations of the ability to enforce their program constraints could
cause an erosion of audiences for such local stations because their
programming would no longer be unique and distinctive.10 And
when Congress extended the distant-signal compulsory license in 1999,
it reaffirmed the importance of localism as fundamental to the American
television system. For example, the 1999 SHVIA Conference Report says
this:
---------------------------------------------------------------------------
\10\ H.R. Rep. No. 887 Part 2, 100th Cong. 2nd Sess. 26 (1988).
---------------------------------------------------------------------------
``[T]he Conference Committee reasserts the importance of
protecting and fostering the system of television networks as
they relate to the concept of localism . . . [T]elevision
broadcast stations provide valuable programming tailored to
local needs, such as news, weather, special announcements and
information related to local activities. To that end, the
Committee has structured the copyright licensing regime for
satellite to encourage and promote retransmissions by satellite
of local television broadcast stations to subscribers who
reside in the local markets of those stations.'' SHVIA
Conference Report, 145 Cong. Rec. H11792 (daily ed. Nov. 9,
1999).
In addition, the legislative history of SHVERA reinforces the
importance of program exclusivity, particularly to broadcast localism.
For example, Congressman Dingell noted during floor debates regarding
SHVERA:
[T]he act will protect consumers and foster localism by
ensuring that satellite customers receive all of their local
broadcast signals when these signals become available via
satellite. Local broadcasters provide their communities with
important local programming. Whether it is local news, weather,
or community events, these broadcasters are there, on the
ground serving their friends and neighbors. See Congressional
Record, H8223, October 6, 2004, H.R. 4518
The FCC has clearly articulated how localism and the ability of
local television stations to fulfill their public interest obligations
are inextricably linked to their ability to enforce local market
program exclusivity. In its 1988 Report and Order, the Commission said:
In fulfilling our responsibility under Sections 301, 307(b),
and 309, we believe the public interest requires that free,
local, over-the-air broadcasting be given full opportunity to
meet its public interest obligations. An essential element of
this responsibility is to create a local television market that
allows local broadcasters to compete fully and fairly with
other marketplace participants. Promoting fair competition
between free, over-the-air broadcasting and cable helps ensure
that local communities will be presented with the most
attractive and diverse programming possible. Local broadcast
signals make a significant contribution to this diverse mix. As
we documented previously, the absence of syndicated exclusivity
places local broadcasters at a competitive disadvantage. Lack
of exclusivity protection distorts the local television market
to the detriment of the viewing public, especially those who do
not subscribe to cable. Our regulatory scheme should not be
structured so as to impair a local broadcaster's ability to
compete. Restoration of our syndicated exclusivity rules will
provide more balance to the marketplace and assist broadcasters
in meeting the needs of the communities they are licensed to
serve.11
---------------------------------------------------------------------------
\11\ 1988 Report and Order, at 74.
---------------------------------------------------------------------------
From a policy perspective, there is no benefit--and many
drawbacks--to delivery of distant signals with programming that
duplicates local station programming. Unlike local stations, distant
stations do not provide viewers with their own local news, weather,
emergency, and public service programming. Viewership of competing
programming on distant stations provides no financial benefit to local
stations to help fund their free, over-the-air service. To the
contrary, duplicative distant signals, when delivered to any household
that can receive local over-the-air stations, simply siphon off
audiences and diminish the revenues that would otherwise go to support
free, over-the-air programming.
The need for local station program exclusivity in medium and small
sized markets is particularly acute. Many of these markets operate in
areas overshadowed by larger markets and have relatively spare and more
diffuse population densities. That is why the Commission, early on,
provided smaller markets with an extra wide zone of program exclusivity
protection.
None of the facts or premises underlying the FCC's determination
that this extra zone of protection was needed 12 has changed
since 1975. If anything, the position of broadcasters has become more
precarious; especially for affiliates in hundred plus markets that
usually operate on a slimmer profit margin and are less likely to be
profitable.13 The erosion of even a few percentage points of
revenue caused by a reduction in the non-duplication protection zone
will undoubtedly affect the service they can provide to their
communities.
---------------------------------------------------------------------------
\12\ Id.
\13\ In 2004 the profit margins for the average affiliate station
in ADI markets 101-125, 126-150, 151-175, and 176 plus were 8.4%, 0.6%,
10.6%, and 1.4%, respectively, and the average Pre-Tax profits for
affiliates in these markets were $616,000, $30,000, $475,000, and
$39,000, respectively.
---------------------------------------------------------------------------
MUST CARRY/RETRANSMISSION CONSENT
Must-carry and retransmission rights are also an important part of
the local broadcast equation. In the Cable Television Consumer
Protection and Competition Act of 1992,14 Congress expressed
its belief that revisions in the law was necessary to ensure the
continued viability of: (1) free-over-the-air television broadcast
service, and (2) the benefits derived from local origination of
programming. Congress recognized that because cable systems and
broadcasters compete for advertising revenue and programming, and
because cable operators would have an interest in favoring affiliated
programmers, the cable provider would also have an incentive to delete,
reposition, or refuse to carry local television broadcast stations. At
the same time, Congress also recognized that cable systems had, in many
instances, received great benefits from local broadcast signals in the
form of subscribership and increased audience for cable programming
services even though they had been able to exploit a broadcaster's
signal without its consent. Accordingly, the 1992 Cable Act adopted a
mechanism whereby stations could elect between assured carriage (must
carry) and no compensation, or retransmission consent, where the
station and the cable operator negotiated over the terms and conditions
of carriage.
---------------------------------------------------------------------------
\14\ See Pub. L. No. 102-385, 106 Stat. 1460, codified at 47 U.S.C.
521 et seq.
---------------------------------------------------------------------------
In upholding the must carry rules, the Supreme Court recognized the
``important federal interest'' in ``protecting noncable households from
loss of regular television broadcasting.'' 15 The Court
described the interest in ensuring public access to the multiplicity of
programming . . . services . . . that over-the-air broadcasting offered
as ``governmental purpose of the highest order.'' 16 And,
both Congress and the Court have acknowledged that the legitimate
public policy goal would not be ``satisfied by a rump broadcasting
industry providing a minimum of broadcast service to Americans without
cable.'' 17
---------------------------------------------------------------------------
\15\ Turner, 520 U.S. at 190 (quoting Capital Cities Cable, Inc. v.
Crisp, 467 U.S. 691, 714 (1984)).
\16\ Id.
\17\ Id. at 1187.
---------------------------------------------------------------------------
The fundamental policies and basic facts that cause Congress to
adopt must carry requirements are as sound today as they were in 1992.
Some 20.3 million U.S. households receive television service solely
over-the-air. Many of these viewers choose not to subscribe to pay
television services for well thought out and legitimate reasons. For
example, they do not want to be locked into the ever-increasing costs
of pay television service and they have additional sets that are not
hooked up to cable or satellite, among others. They feel well-served by
the locally-oriented and public interest programming they receive over
the air and do not see the need for expensive pay television services.
But there are also a large number of viewers who cannot afford pay
television. Twelve percent of American households fall below the
poverty line.18 They should not be forced by government
policy into paying subscriber fees that only escalate over time and
that they cannot afford. They deserve as an option a vibrant, over-the-
air service that provides the benefits of new digital technologies.
Must-carry is necessary to preserve this option.
---------------------------------------------------------------------------
\18\ See Census Bureau says 1.3 million more slipped into poverty
last year; health care coverage also drops, CNN Money (Aug. 26, 2004),
available at http://money.cnn.com/2004/08/26/news/economy/
poverty_survey.
---------------------------------------------------------------------------
A station's second option under the 1992 Cable Act, retransmission
consent, has also worked well. Many stations, including some of LIN's
stations, have used retransmission consent to create and improve
mechanisms that better serve their local communities and regions. LIN
has used retransmission consent in some of its markets to launch
separate cable channels providing local weather information. Here in
the Washington, D.C., area, Albritton Communications, owner of ABC
affiliate Channel 7, has used retransmission consent to launch News
Channel 8 that provides ten hours of local news, weather and public
affairs programming zoned separately for Washington and its suburbs.
In short, the must carry/retransmission consent regime in the 1992
Cable Act has worked as Congress intended in protecting the free over-
the-air broadcasting system and providing a mechanism to help that
system improve service to the local communities it serves.
CONCLUSION
Because broadcast television is universally available and is the
only service used by millions of Americans, when considering public
policies to apply to new technologies such as video over broadband, we
urge you to adopt the same principles of local market program
exclusivity, must carry, and retransmission consent that have served
broadcasting and its local viewers so well for the last thirteen years.
This will not only help ensure the continued viability of a free over-
the-air locally oriented broadcasting service, it will also provide a
level playing field whereby existing video production delivery services
and any new services play by the same rules.
Mr. Upton. Thank you.
Mr. Gleason.
STATEMENT OF JAMES M. GLEASON
Mr. Gleason. Thank you, Mr. Chairman and members of the
subcommittee.
My name is Jim Gleason, and I am President of New Wave
Communications, an independent cable business serving nearly
20,000 customers in the Midwest and Southeast.
As this committee investigates how to deploy new and
advanced video services, it is essential to address two major
components of a successful rollout. What most people seem
focused upon is the first question: Who will deploy these
services? In short, our view is that no industry should be
artificially shackled by the failed policies of the current
regulatory regime while others are allowed to run around
unfettered. Therefore, outdated policies should be reformed or
discarded so that creative competition can be unleashed to the
benefit of consumers.
While that facet is important and merits consideration,
there is a second item that merits equal time: What content
will those services be able to provide?
Based on my extensive experience in the cable business, I
am certain you do not want to carry many of those rules that
have governed the analog world into the IP world. Between the
DTV transition and the telecom rewrite, you have a unique and
historic opportunity to address the significant problems that
exist in multi-channel video competition, including growing
media consolidation, increases in programming prices, forced
tying of channels, and retransmission consent abuse. If you do
not address these problems concurrently, I believe you will not
achieve the flexibility, choice, and price you want for the new
world.
So what should you do?
Now is the time to discard current rules that, if left in
place, will, one, constrain access to programming; two, force
consumers to take programming they don't want; three, allow
media consortiums to raise prices with no regard to what
consumers value; four, hide the reasons for higher rates from
Congress, the FCC, local franchising authorities, and
consumers, and fail to harness the greatest of American tools,
a free market.
Specifically, I want to highlight three changes that must
be made if your goal to provide competition to multi-channel
video at prices consumers will pay in the IP world. They are:
one, treat video services alike, regardless of the means of
delivery; two, change retransmission consent rules to remedy
the imbalance of power caused by media consolidation; and
three, correct rules that allow for abusive media behavior and
control of content.
Point one: Congress must reduce or at least equalize the
regulatory burdens so that all providers of like services are
treated alike. For example, you should either extend or
eliminate, for all providers, franchise fees and other
franchise requirements. Leaving only one provider with this
burden would distort what should be a free and open competitive
environment.
Point two: retransmission consent. Cable operators must, in
essence, purchase the right to carry free, over-the-air local
television signals owned by the big four media conglomerates:
Disney, Viacom, Fox, GE, and other broadcast groups and
stations. This year, broadcasters will leverage retransmission
consent rules to extract nearly $1 billion from consumers
served by ACA members alone for programming that is freely
available over the air. Additionally, some conglomerates use
retransmission consent rules in one market to force cable
operators to carry affiliated programming in entirely separate
markets. This means that consumers who won't even see the
broadcast signal are unknowingly forced to pay for it.
There is an easy solution to this problem. When a
broadcaster seeks payment for retransmission consent in cash or
a carriage of programming, give operators the ability to shop
for a lower-cost network station. This would finally allow
competitive markets to establish a fair market value for
signals that are currently protected by antiquated government
rules that now have an anti-competitive and anti-consumer
effect.
Point three: media consolidation has permitted the
following abuses. The first is lack of local choice. Today, the
big four restricts choice by forcing all of their channels onto
the basic or expanded basic tiers. Two, price discrimination
against smaller and medium-sized cable companies. We often pay
30 to 50-percent higher prices than larger competitors for
exactly the same programming. Three, the media giants cloak
these arrangements with strict confidentiality and non-
disclosure obligations. These clauses prevent Congress, the
FCC, local franchising authorities and consumers from knowing
what programmers are really charging cable operators for
programming. As a result, Congress must address these market
problems and update rules to give local providers more
flexibility to tailor programming offerings to consumer needs.
In conclusion, media consolidation has rendered the current
1970's-era programming laws and regulations outdated and anti-
competitive. You have the ability to update these laws to
protect your constituents with exciting new programs, content,
and flexibility while finally allowing free market to spur
competition. Please seize the opportunity by avoiding the
mistake of carrying a broken regulatory regime and an anti-
competitive programming market into the IP-enabled world.
Thank you, Mr. Chairman.
[The prepared statement of James M. Gleason follows:]
Prepared Statement of James M. Gleason, President and COO, Newwave
Communications, Inc.
INTRODUCTION
Thank you, Mr. Chairman and members of the subcommittee.
My name is Jim Gleason, and I am president and chief operating
officer of NewWave Communications, an independent cable business
currently serving 20,000 customers in Missouri, Tennessee, Arkansas,
North Carolina and South Carolina. My company provides cable
television, digital cable, high-speed internet, local phone VOIP
service, digital video recorders and other advanced services in 10
smaller systems and rural areas throughout the Midwest and Southeast
United States.
I am also the chairman of the American Cable Association. ACA
represents nearly 1,100 smaller and medium-sized independent cable
businesses. These companies do one thing--serve our customers. They
don't own programming or content; nor are they run by the large media
companies. Collectively, ACA members serve nearly 8 million customers,
mostly in smaller markets. ACA's constituency is truly national; our
members serve customers in every state and in nearly every
congressional district, particularly those of this Committee.
To begin, I want to commend you for holding this hearing. My
testimony today details what I think has gone right and what has gone
wrong in the video services industry over the past decade, and I will
offer my thoughts on what lessons should be transferred into the
digital IP world. I believe you stand at an historic moment, when we
shift from the 1970s-era policies of the analog world to the exciting
and enticing future that the digital revolution can provide. I strongly
urge this Committee to seize this moment and to adopt what has worked
in the past and to discard what has outlived its purpose. In short, I
believe it is time for the balance of power between programmers,
operators, media consortiums and broadcasters to be recalibrated for
the digital world so that each is subject to the creative power of
competitive market forces.
I have been in the cable business for 20 years, and I have seen
firsthand the effect that growing media consolidation, rising
programming increases, forced tying and bundling of channels, and
retransmission consent have had on my company and, most importantly for
you, on your constituents. As you analyze what rules should be in place
in an IP-based market place, I believe you must review whether the
current analog rules are really providing consumers with the ``best
television money can buy.'' Now is the time to discard the rules that:
1) force consumers to take programming they do not want; 2) allow media
consortiums to raise prices with no regard to what consumers value; 3)
hide the reasons for higher rates from the Congress, the Federal
Communications Commission, the local franchising authorities and
consumers alike; and, 4) fail to harness the greatest of American
tools, a free market to spur diverse and new programming. Digital
platforms may provide consumers with a wondrous world of new and
valuable programming. But if you allow the old rules stay in place, it
will just be more of the same. Wouldn't it be a shame to clog the
healthy and robust arteries of the new IP infrastructure when you have
the chance to inject new vitality into this space? To provide consumers
with the greatest benefit, it is imperative that you break with the
past and recognize that some old ideas no longer serve the greater
good.
Before describing my views on how to craft the best market
structure, I want to offer one other cautionary point about smaller
markets and rural communities.
Out in the smaller communities ACA members serve from Pennsylvania
to Nebraska to Oregon to Mississippi, it is our core video business
that allows us to finance and provide the high-speed services that
everyone wants in order to bridge the Digital Divide. But unlike
independent cable, satellite providers, telephone giants and major
cable companies are not rushing into these communities to offer high-
speed data or other advances services. The headlines you read about new
services and suites of services are offered to larger communities. If
ACA members' video service cannot survive, I can assure you no one of
us will be around to offer the cable modem services these communities
need. In short, video programming is not ``just'' about programming
choices and rates, but it is also the foundation upon which advanced
services are built.
As I see it, there are four fundamental and specific changes that
need to be made if your goal is to provide the greatest diversity of
video services at prices consumers will pay in the IP-enabled world.
These steps have been detailed extensively in the ACA's recent comments
in the FCC's programming inquiry, ACA's petition for rulemaking on
retransmission consent that was recently opened by the FCC, and in
ACA's comments on the Satellite Home Viewer Extension and
Reauthorization Act. I urge each of you to review these filings because
I believe they embody the core elements of what is wrong with today's
market and provide solutions for a better market tomorrow. The four
changes are:
1. Update And Change The Current Retransmission Consent Rules To Help
Remedy The Imbalance Of Power Caused By Media Consolidation.
2. Treat Video Services Alike As Much As Possible, Regardless Of The
Means Of Delivery.
3. Make Access To Quality Local-Into-Local Television Signals
Available.
4. Correct Rules That Allow For Abusive Behavior Because Of Media
Consolidation And Control Of Content.
What needs to be changed and why:
1. Current Retransmission Consent Rules Must Be Updated To Help Remedy
The Imbalance Of Power Caused By Media Consolidation.
The current retransmission consent and broadcast exclusivity laws and
regulations limit consumer choice and impede independent cable
operators' ability to compete in smaller markets and rural
America by permitting distant media conglomerates to charge
monopoly prices for programming. This situation must not be
carried forward into the IP world or in the post-DTV world.
The current laws and regulations governing retransmission consent
and broadcast exclusivity limit consumer choice and significantly
impede independent, smaller and medium-sized cable operators' ability
to compete in rural America by permitting distant media conglomerates
to mandate the cost and content of most of the services that these
operators provide in local small markets. We estimate that this year
broadcasters will leverage retransmission consent rules to extract more
than $860 million from consumers served by ACA members. Remember, this
is cash out of consumers' pockets to pay for programming that is freely
available over-the-air. And broadcasters don't only demand cash for
carriage. Some members of the largest media conglomerates even require
our cable companies to carry affiliated satellite programming in
systems outside of the member's local broadcast market. In this way,
ownership of a broadcast license is used to force carriage of, and
payment for, affiliated programming by consumers who do not even
receive the broadcast signal at issue.
The programmers can get away with these abuses because the pricing
of retransmission consent does not occur in a competitive market. Under
the current regulatory scheme, media conglomerates and major affiliate
groups are free to demand monopoly ``prices'' for retransmission
consent while blocking access to readily available lower cost
substitutes.
They do so by two methods:
First, the network non-duplication and syndicated exclusivity laws
and regulations allow broadcasters to block cable operators
from cable-casting network and syndicated programming carried
by stations outside of the broadcaster's protected zone. For
example, a Disney/ABC-owned station that broadcasts in a small
town or rural area can use the broadcast exclusivity rules to
block a cable operator from cable-casting a station owned by a
local ABC affiliate in the next market. In other words, the
conglomerate-owned station makes itself the only game in town
and can charge the cable operator a monopoly ``price'' for its
must-have network programming. The cable operator needs this
programming to compete. So your constituents end up paying
monopoly prices.
Second, the media conglomerates require network affiliates to sign
contracts that prevent the affiliate from selling their
programming to a cable operator in a different market. Again,
the conglomerate-owned and operated stations are the only game
in town.
In these situations, the cable companies' only defense is to refuse
to carry the programming. This has virtually no effect on the media
conglomerates, but it prevents your constituents from receiving must-
have network programming and local news. This result directly conflicts
with the historic goals and intent of the retransmission consent and
broadcast exclusivity rules, which were to promote consumer choice and
localism.
There is a ready solution to this dilemma. When a broadcaster seeks
a ``price'' for retransmission consent, give independent, smaller and
medium-sized cable companies the ability to shop for lower cost network
programming for their customers.
Accordingly, in our March 2, 2005, Petition for Rulemaking to the
FCC, ACA proposed the following adjustments to the FCC's retransmission
consent and broadcast exclusivity regulations:
One: Maintain broadcast exclusivity for stations that elect must-
carry or that do not seek additional consideration for
retransmission consent.
Two: Eliminate exclusivity when a broadcaster elects retransmission
consent and seeks additional consideration for carriage.
Three: Prohibit any party, including a network, from preventing a
broadcast station from granting retransmission consent.
On March 17, 2005, the FCC released ACA's petition for comments. By
opening ACA's petition for public comment, the FCC has acknowledged
that the current retransmission consent and broadcast exclusivity
scheme requires further scrutiny. Before codifying a new regulatory
regime for video services utilizing IP, Congress should ask similar
questions and make the important decision to update current law to
rebalance the role of programmers and providers.
Congress, too, should revisit the retransmission consent laws to
correct the imbalance caused by the substantial media ownership
concentration that has taken place since 1992. One solution is to
codify the retransmission consent conditions imposed on News Corp. to
apply across the retransmission consent process. The three key
components of those conditions include: (i) a streamlined arbitration
process; (ii) the ability to carry a signal pending dispute resolution;
and (iii) special conditions for smaller cable companies.
In summary, the retransmission consent and broadcast exclusivity
regulations have been used by the networks and stations to raise rates
and to force unwanted programming onto consumers. This must stop. If a
station wants to be carried, it can elect must-carry. If a station
wants to charge for retransmission consent, let a true competitive
marketplace establish the price.
2. Treat Video Services Alike As Much As Possible, Regardless Of The
Means Of Delivery.
As a fundamental principal of competition, like services should be
treated alike, regardless of how the service is distributed to
consumers, whether by cable, satellite, wireless, copper or other
means. I would urge you to be skeptical of those advocating reduced
regulatory obligations to provide like services, because that is a
harbinger of their desire to eliminate, not promote, competition.
We're here today partly because huge, national phone companies are
asking to be released from fundamental video regulations, such as the
need to obtain a franchise from a local government to use its public
rights-of-way or the obligation to pay a franchise fee for the use of
such rights-of-way. These companies claim that if Congress would only
release them from regulation, they would be able to compete against
cable.
Ironically, the companies asking to be deregulated today had to be
broken up in the not-too-distant past because of their monopolistic
practices.
Furthermore, it is not genuine for these giant, national phone
companies that are on the path again toward consolidation and dominant
market control to say they need Congressional help to compete against
my smaller company or any ACA member.
As the FCC has observed, video competition is local. Competition is
not national, as if it were PHONE versus CABLE versus SATELLITE. It's
my company, NewWave Communications, versus DirecTV and EchoStar, and
now versus SBC, Verizon and other phone giants.
Nearly 1,100 ACA members compete head-to-head against these giant
companies in Dexter, MO, Brownsville, TN, and also in Bloomingdale, MI,
Braintree, MA, Parkdale, OR, Ramsey, IL, and many other towns
represented by this Committee. Compounding this challenge is the fact
that for our members each new customer and mile of cable must be
financed by a loan from the local bank signed by the local owner, while
our mega-competitors are financed by Wall Street.
Direct broadcast satellite (DBS) is an example of this point.
Since 1999, the DBS industry has become a mature, successful
business and a powerful competitor to cable. This is especially true in
the smaller markets and rural areas served by my company and ACA
members. DBS took away cable market share from the start, even before
receiving specific legislative and regulatory relief. In some smaller
markets, DBS has become the dominant provider. And when you consider
competition at the local level, it is not hard to see why.
The typical ACA member company in your state serves about 1,000
customers per cable system. DirecTV serves almost 12 million more
customers than the average ACA member. Similarly, EchoStar serves
almost 10 million more subscribers than the average ACA member. It is
self-evident that these companies benefit from far greater economies of
scale, access to capital and bargaining power over programmers and
other suppliers. As the FCC found, the acquisition of DirecTV by News
Corp. enhanced those competitive advantages. Compounding the problem,
smaller cable operators bear a much greater regulatory load against
these giants. It would no different with the national phone companies
if they are deregulated. Consider the following comparison:
REGULATORY BURDENS
----------------------------------------------------------------------------------------------------------------
Big Telcos'
Current
ACA MEMBERS Obligations DBS (DirecTV--12
(Avg. 8,000 Under Title What Big Telcos are million subscribers;
Subscribers) VI And Asking For EchoStar--10 million
Related subscribers)
Regulations
----------------------------------------------------------------------------------------------------------------
Mandatory carriage of broadcast on Yes Yes To be exempt.......... No
basic.
Must-carry in all markets........... Yes Yes To be exempt.......... Must-carry only in
selected markets
Must-carry for qualified low power Yes Yes To be exempt.......... No
stations.
Retransmission consent.............. Yes Yes To be exempt.......... Yes
Full public interest obligations.... Yes Yes To be exempt.......... Limited public
interest obligations
Emergency alert requirements........ Yes Yes To be exempt.......... No
Tier buy-through.................... Yes Yes To be exempt.......... No
Franchising requirement............. Yes Yes To be exempt.......... No
Franchise fees...................... Yes Yes To be exempt.......... No
Local taxes......................... Yes Yes To be exempt.......... No
Signal leakage/CLI.................. Yes Yes To be exempt.......... No
Rate regulation..................... Yes Yes To be exempt.......... No
Privacy obligations................. Yes Yes To be exempt.......... Yes
Customer service obligations........ Yes Yes To be exempt.......... No
Service notice provisions........... Yes Yes To be exempt.......... Limited to notice
regarding privacy
rights
Closed captioning................... Yes Yes To be exempt.......... No
Pole attachment fees................ Yes Yes .................... No
Channel positioning requirements for Yes Yes To be exempt.......... Only requirement is to
local broadcast stations. retransmit local
broadcast stations on
contiguous channels
Billing requirements................ Yes Yes To be exempt.......... No
Public file requirements............ Yes Yes To be exempt.......... No
----------------------------------------------------------------------------------------------------------------
Before changing the rules now for the giant telephone companies,
Congress should examine the regulatory disparity among all providers
that exists in local markets today and try to eliminate those
artificial and unnecessary disparities. With vibrant competition as the
goal, why should the heavy hand of government weigh on one type of
provider versus another, let alone do so in order to disadvantage small
businesses such as my own that are the heart and soul of local Chambers
of Commerce across this country?
To ensure that local communications businesses continue to deliver
advanced services in smaller markets, Congress should consider
reducing, or at least equalizing, the regulatory burdens on independent
cable.
Moreover, any legislative or regulatory action to treat multi-video
programming distributors differently--whether cable, satellite, phone
or wireless, among others--will skew competition across America.
For these reasons, the Committee should treat and regulate all
video providers alike, regardless of how video signals are distributed
to the customer.
3. Make Access To Quality Local-Into-Local Television Signals
Available.
Another legislative obstacle to competition and rural consumers'
access to local programming is the current local-into-local statutory
scheme.
Because of distance from transmitters, many rural cable systems
cannot receive good-quality local broadcast signals. By contrast, in
local-into-local markets, DBS can deliver clear local broadcast signals
regardless of distance from transmitters. The problem? The DBS duopoly
refuses to allow rural cable systems to receive these DBS-delivered
broadcast signals. As a result, more than one million rural consumers
cannot receive good quality local broadcast signals from their provider
of choice.
The inability to provide local broadcast signals is a serious
handicap--it was this limitation that caused Congress to enact the
Satellite Home Viewer Improvement Act in 1999, which Congress recently
reauthorized through SHVERA. But SHVERA does nothing to solve the local
signal problem for rural cable operators and customers.
Congress can solve this problem by revising the retransmission
consent laws as follows:
In markets where a satellite carrier delivers local-into-local
signals, that satellite carrier shall make those signals
available to MVPDs of all types on nondiscriminatory prices,
terms and conditions when (i) the MVPD cannot receive a good
quality signal off-air; and (ii) the MVPD has the consent of
the broadcaster to retransmit the signal.
ACA's recommended revisions to the laws and regulations governing
retransmission transmission consent and broadcast exclusivity are
modest. But they will advance the widespread dissemination of good
quality local broadcast signals to your constituents and will address
the serious competitive imbalance currently hurting small market and
rural cable systems. Carrying this restrictive situation into the IP
realm would further compound this mistake. All video vendors must be
able to have access to quality signals if they are going to be viable
competitors within the IP-enabled marketplace.
4. Correct Rules That Allow For Abusive Behavior Because Of Media
Consolidation And Control Of Content.
What most consumers do not understand is that my independent
company and ACA member companies must purchase most of their
programming wholesale from just four media conglomerates, referred to
here as the ``Big Four''--Disney/ABC, Viacom/CBS, News Corp./DirecTV/
Fox, and General Electric/NBC. In dealing with the Big Four, all ACA
members continually face contractual restrictions that eliminate local
cable companies' flexibility to package and distribute programming the
way our customers would like it. Instead, programming cartels,
headquartered thousands of miles away, decide what they think is
``valuable'' content and what our customers and local communities see.
ACA members have intimate knowledge of the wholesale practices of
the Big Four and how those practices can restrict choice and increase
costs in smaller markets. By leveraging their broadcast assets, these
cartels make the decisions that tend to lead to the headlines we all
experience. We've seen the headlines: ``Higher rates,'' ``Indecent
content,'' and ``I have 200 channels and nothing is on'' and the like.
Why would we want to carry over a regulatory scheme that propels this
situation into the IP world? Today is the day to recognize that there
is no ``market'' in this market and the responsibility to correct that
situation lies within this body.
To fix this situation, Congress must update and reform the rules so
that:
a. Local providers of all forms and customers have more choice and
flexibility in how programming channels are priced and
packaged, including the ability to sell programming channels on
a theme-based tier if necessary;
b. Tying through retransmission consent must end. Today, the media
giants hold local broadcast signals hostage with monopolistic
cash-for-carriage demands or demands for carriage of affiliated
media-giant programming, which was never the intention of
Congress when granting this power;
c. The programming pricing gap between the biggest and smallest
providers is closed to ensure that customers and local
providers in smaller markets are not subsidizing large
companies and subscribers in urban America; and,
d. The programming media giants must disclose, at least to Congress and
the FCC, what they are charging local providers, ending the
strict confidentiality and non-disclosure dictated by the media
giants. Confidentiality and non-disclosure mean lack of
accountability of the media giants.
Let me explain.
Forced Cost and Channels
For nearly all of the 50 most distributed channels (see Exhibit 1),
the Big Four contractually obligate my company and all ACA members to
distribute the programming to all basic or expanded basic customers
regardless of whether we think that makes sense for our community.
These same contracts also mandate carriage of less desirable channels
in exchange for the rights to distribute desirable programming.
A small cable company that violated these carriage requirements
would be subject to legal action by the media conglomerates, and for
ACA's members, this is a very real threat.
These carriage restrictions prohibit ACA members from offering more
customized channel offerings that may reflect the interests and values
of our specific community.
More Forced Cost and Channels Through Retransmission Consent
As previously discussed, retransmission consent has morphed from
its original intent to provide another means to impose additional cost
and channel carriage obligations. As a result, nearly all customers
have to purchase basic or expanded basic packages filled with channels
owned by the Big Four (See Exhibit 2).
In short, media conglomerates that control networks and broadcast
licenses are exploiting current laws and regulations to actually reduce
consumer choice and to increase costs, all for their own benefit. Such
control should not be perpetuated in the IP or in the post-DTV
transition world.
Forced Carriage Eliminates Diverse Programming Channels.
The programming practices of certain Big Four members have also
restricted the ability of some ACA members to launch and continue to
carry independent, niche, minority, religious and ethnic programming.
The main problem: requirements to carry Big Four affiliated programming
on expanded basic eliminate ``shelf space'' where the cable provider
could offer independent programming.
If new independent programmers are to provide outlets for this type
of programming to reach consumers, you must ensure that they are not
subject to the handcuffs current programming practices place upon them.
Local Flexibility is Needed.
In order to give consumers more flexibility and better value,
changes in current wholesale programming practices and market
conditions are needed for all providers. Operators must be given more
flexibility to tailor channel offerings that work best in their own
local marketplaces.
As I have stated, the Big Four condition access to popular
programming on a range of distribution obligations and additional
carriage requirements. These restrictions and obligations eliminate
flexibility to offer more customized channel packages in local markets.
With more flexibility, cable operators could offer a variety of
options to their customers, including more customized program offerings
that meet the local needs and interests of our customers.
However, without congressional or regulatory involvement or
accountability, the Big Four will continue to act solely to benefit
themselves, without regard to the cost, channels and content forced
upon consumers. Again, this situation must be remedied now and guarded
against in any future IP regulatory regime.
It's important to point out that neither my company nor any ACA
member controls the content that's on today's programming channels.
That content--decent or not--is controlled by the media conglomerates
that contractually and legally prevent us from changing or preempting
any questionable or indecent content.
However, if my company and other ACA members had more flexibility
to package these channels with the involvement of our customers,
current indecency concerns raised by both Congress and the FCC could
also be addressed.
Price discrimination against smaller cable companies makes matters
worse.
The wholesale price differentials between what a smaller cable
company pays in rural America compared to larger providers in urban
America have little to do with differences in cost, and much to do with
disparities in market power. These differences are not economically
cost-justified and could easily be replicated in the IP world as
smaller entrants are treated to the same treatment our members face.
Price discrimination against independent, smaller and medium-sized
cable companies and their customers is clearly anti-competitive conduct
on the part of the Big Four--they offer a lower price to one competitor
and force another other competitor to pay a 30-55% higher price FOR THE
SAME PROGRAMMING. In this way, smaller cable systems and their
customers actually subsidize the programming costs of larger urban
distributors and consumers.
In order to give consumers in smaller markets and rural areas more
choice and better value, media conglomerates must be required to
eliminate non-cost-based price discrimination against independent,
smaller and medium-sized cable operators and customers in rural
America.
With less wholesale price discrimination, ACA members could offer
their customers better value and stop subsidizing programming costs of
large distributors.
Basis For Legislative and Regulatory Action
Congress has the legal and constitutional foundation to impose
content neutral regulation on wholesale programming transactions. The
program access laws provide the model and the vehicle, and those laws
have withstood First Amendment scrutiny. This hearing provides the
Committee with a key opportunity to help determine the important
governmental interests that are being harmed by current programming
practices.
Furthermore, based in large part on the FCC's actions in the
DirecTV-News Corp. merger, there is precedent for Congress and the FCC
to address the legal and policy concerns raised by the current
programming and retransmission consent practices of the media
conglomerates. The FCC's analysis and conclusions in the News Corp.
Order persuasively establish the market power wielded by owners of
``must have'' satellite programming and broadcast channels and how that
market power can be used to harm consumers. That analysis applies with
equal force to other media conglomerates besides News Corp.
Pierce the Programming Veil of Secrecy--End Non-Disclosure and
Confidentiality.
Most programming contracts are subject to strict confidentiality
and nondisclosure obligations, and my company and ACA members are very
concerned about legal retaliation by certain Big Four programmers for
violating this confidentiality. Why does this confidentiality and non-
disclosure exist? Who does it benefit? Consumers, Congress, the FCC? I
don't think so. Why is this information so secret when much of the
infrastructure the media giants benefit from derives from licenses and
frequencies granted by the government?
Congress should obtain specific programming contracts and rate
information directly from the programmers, either by agreement or under
the Committee's subpoena power. That information should then be
compiled, at a minimum, to develop a Programming Pricing Index (PPI).
The PPI would be a simple yet effective way to gauge how programming
rates rise or fall while still protecting the rates, terms, and
conditions of the individual contract. By authorizing the FCC to
collect this information in a manner that protects the unique details
of individual agreements, I cannot see who could object.
Armed with this information, Congress and the FCC would finally be
able to gauge whether rising cable rates are due to rising programming
prices as we have claimed or whether cable operators have simply used
that argument as a ruse. A PPI would finally help everyone get to the
bottom of the problems behind higher cable and satellite rates. We at
ACA are so convinced that this type of information will aid you in your
deliberations that we challenge our colleagues in the programming
marketplace to work with us and this Committee to craft a process for
the collection of that data.
In short, without disclosure, there is no accountability.
CONCLUSION
In preparing to talk to you today, I have held the following image
in my mind from the Wizard of Oz.
If you think things are fine in the World of Television today, then
do nothing and live on in Oz.
But if you are worried about how much television costs or why
consumers can't receive more of the specific types of programming they
want or how they can protect their families from unwanted programs or
why diverse programming struggles to get on the air, then you must pull
back the curtain. What you will find is a cabal of ``wizards'' laboring
at the levers of programming, using broadcast signals and onerous
leverage to gain carriage of other programming that would never make it
on its own.
As a smaller, independent businessman who lives in this arena, I
can assure you that the market needs your help now to fix these
problems. The future IP-based world needs you to act with the wisdom,
heart and courage to face down the corporate media wizards that tell
you everything is fine in order to have you convey these problems onto
the next generation of video services. Do not fall prey to that
argument.
EXHIBIT 1--Ownership of the Top 50 Programming Channels
------------------------------------------------------------------------
Channel Ownership
------------------------------------------------------------------------
BET....................................... Viacom/CBS
CMT....................................... Viacom/CBS
MTV....................................... Viacom/CBS
Nickelodeon............................... Viacom/CBS
Spike..................................... Viacom/CBS
TV Land................................... Viacom/CBS
VH1....................................... Viacom/CBS
Comedy Central............................ Viacom/CBS
ABC Family................................ Walt Disney Co./ABC
Disney.................................... Walt Disney Co./ABC
ESPN...................................... Walt Disney Co./ABC
ESPN2..................................... Walt Disney Co./ABC
Lifetime.................................. Walt Disney Co./Hearst
A&E....................................... Hearst/ABC/NBC
History................................... Hearst/ABC/NBC
CNBC...................................... GE/NBC
MSNBC..................................... GE/NBC
Sci-fi.................................... GE/NBC
USA....................................... GE/NBC
Bravo..................................... GE/NBC
Shop NBC.................................. GE/NBC
Fox News.................................. News Corp.
Fox Sports................................ News Corp.
FX........................................ News Corp.
Speed..................................... News Corp.
TV Guide.................................. News Corp.
CNN....................................... Time Warner/Turner
Headline News............................. Time Warner/Turner
TBS....................................... Time Warner/Turner
TCM....................................... Time Warner/Turner
TNT....................................... Time Warner/Turner
TOON...................................... Time Warner/Turner
Court TV.................................. Time Warner/Liberty Group
Animal Planet............................. Liberty Media
Discovery................................. Liberty Media
Travel.................................... Liberty Media
TLC....................................... Liberty Media
Golf...................................... Comcast Corp.
Outdoor Life.............................. Comcast Corp.
E!........................................ Comcast Corp.
QVC....................................... Comcast Corp.
HGTV...................................... Scripps Company
Food...................................... Scripps Company
AMC....................................... Rainbow/Cablevision Systems
C-Span.................................... National Cable Satellite
Corp.
C-Span II................................. National Cable Satellite
Corp.
WGN....................................... Tribune Company
Hallmark.................................. Crown Media Holdings
Weather................................... Landmark Communications
HSN....................................... IAC/InterActiveCorp.
------------------------------------------------------------------------
EXHIBIT 2--Channels Carried Through Retransmission Consent
------------------------------------------------------------------------
Program Service Ownership
------------------------------------------------------------------------
FX........................................ News Corp.
Fox News.................................. News Corp.
Speed..................................... News Corp.
National Geographic....................... News Corp.
Fox Movie Network......................... News Corp.
Fox Sports World.......................... News Corp.
Fuel...................................... News Corp.
ESPN2..................................... Walt Disney Co./ABC
ESPN Classic.............................. Walt Disney Co./ABC
ESPNews................................... Walt Disney Co./ABC
Disney from premium to basic.............. Walt Disney Co./ABC
Toon Disney............................... Walt Disney Co./ABC
SoapNet................................... Walt Disney Co./ABC
Lifetime Movie Network.................... Walt Disney Co./Hearst
Lifetime Real Women....................... Walt Disney Co./Hearst
MSNBC..................................... GE/NBC
CNBC...................................... GE/NBC
Shop NBC.................................. GE/NBC
Olympic Surcharges for MSNBC/CNBC......... GE/NBC
Comedy Central............................ Viacom/CBS
MTV Espanol............................... Viacom/CBS
MTV Hits.................................. Viacom/CBS
MTV2...................................... Viacom/CBS
Nick GAS.................................. Viacom/CBS
Nicktoons................................. Viacom/CBS
Noggin.................................... Viacom/CBS
VH1 Classic............................... Viacom/CBS
VH1 Country............................... Viacom/CBS
LOGO...................................... Viacom/CBS
------------------------------------------------------------------------
Comparing this with the Top Fifty Channels in Exhibit 1
demonstrates how certain members of the Big Five have used
retransmission consent to gain a significant portion of analog and
digital channel capacity.
Mr. Upton. Mr. Perry.
STATEMENT OF JACK PERRY
Mr. Perry. Good morning. Thank you for the opportunity to
testify.
Decisionmark is a media technology company based in Cedar
Rapids, Iowa. When I last testified before you in February
1999, I introduced our patented Geneva technology. Today,
Geneva rests squarely between the DBS carriers and every local
television station in the United States. Geneva provides real-
time compliance with SHVA. The most critical component of
Geneva being our station-verified broadcast signal area data
warehouse Coronado.
During the 5 years of SHVA and now SHVERA, Geneva has
answered the compliance question 174 million times, and we have
processed 50 million waiver requests for distant network
signals. Our consumer product, TitanTV.com, and online EPGPBR,
was used 26 million times last year by viewers in search of HD
content.
Today I want to talk to you about a new technology we call
``Air-To-Web Broadcast Replication.'' Air-To-Web, we believe,
is the solution to a problem that has long faced local
broadcasters: how to maintain the ability to serve the local
public but over the Internet. The fundamental question has been
whether or not the geographic exclusivity of markets, the
cornerstone of the American system of free, over-the-air
broadcast television, can be replicated for Internet
broadcasting. The answer is yes.
Using Air-To-Web, a local broadcaster can deliver local
content in real time over the Internet to a wired or wireless
device with the same copyright protections currently enjoyed by
broadcast cable and satellite delivery. The bottom line is the
localization of the Internet.
Air-To-Web will make accurate eligibility determinations in
real time using signal strength technology in a broadcaster-
verified data warehouse. Air-To-Web will communicate subscriber
activity to each of the Nation's local broadcasters, giving
them unprecedented real-time ratings data. This reporting will
more accurately measure ratings of minority viewers than has
been the case with the traditional Nielsen reporting system.
Air-To-Web will ensure that the underlying signal area data is
always accurate.
The benefits to the consumers and the broadcasters are
many. Local broadcasters will be able to bring their
programming to the Internet, which will enhance interactivity
with their audience. Consumers will have the benefit of gaining
access to their local stations in real time over the Web. The
net result is more viewers for local programming and more
choice for consumers.
Finally, Air-To-Web also represents an opportunity for
delivering local broadcast television through non-traditional
means. Using Air-To-Web will help foster competition for local
television, allowing consumers to have new choice instead of
being forced to rely on solely over-the-air, cable, or
satellite service.
As you move forward with the legislation addressing the
conversion of digital television and rewriting the 1996
Telecommunications Act, remember that technology does not stand
still. Air-To-Web is new today and has endless possibilities,
and it is just the beginning of innovations to come.
To illustrate Air-To-Web, I have a demo here. My colleague,
Mike Rinehart, will drive while I talk.
[Video.]
Mr. Chairman, I grew up in Grand Rapids, Michigan, so I am
from here. So I pre-entered the address----
Mr. Upton. Be careful about Mr. Stupak. You are missing
half of the State.
Mr. Perry. Okay.
So what my colleague has done is called up Air-To-Web
Broadcast Replication technology. And since most devices, as
you know, are wireless nowadays, we are able to take the
address, enter it in, hit the submit button, and return the
channel line-up. What you have there is the exact channel line-
up, using Air-To-Web Broadcast Replication, for my former home
in Grand Rapids, Michigan. Those are the channels, which are
specifically received at that address.
So if we know the location of a device, of course we know
the Internet is global, but broadcasting is local. If we know
the location of the device, we can make the assumption of what
channels are received there. So instead of putting up an
antenna, we are able to broadcast using the Internet.
Now in the interest of time and fairness, we have also
entered in an address for a Boston location as well. So my
colleague will enter that in.
So the point of the technology is that in the very near
future, there will be a billion devices that are wired or
wireless, which can get high-speed access. The local
broadcasters are unable to use that access because of the
question of eligibility. And so, using this technology, it is
very quick and very easy to say what channels are received
here. And so if we can do that, I think we should let viewers
and broadcasters meet on the Internet. And so, as you can see,
it is very fast. We went out and established the copyright for
each television station. We established the eligibility right
there. And for EchoStar and DirecTV, we do it at the point of
sale, but for Internet broadcasting, we are doing it at the
device. That opens up a world of broadcasting over the Internet
for local broadcasters and viewers.
Thank you, Mr. Chairman.
[The prepared statement of Jack Perry follows:]
Prepared Statement of Jack Perry, President and Chief Operating
Officer, Decisionmark Corp.
Good morning Mr. Chairman and Members of the Committee, I am Jack
Perry President and CEO of Decisionmark Corp. I want to thank Chairman
Barton and Chairman Upton for extending this invitation to testify.
Decisionmark is a media technology company based in Cedar Rapids,
Iowa.-- Decisionmark is a leader in providing software and data
solutions to television and radio broadcasters and consumers. We have
been at the forefront of accurately testing the reach of--local
broadcast signals for the satellite industry in order for satellite
providers and consumers to be in compliance with the Satellite Home
Viewer Act (SHVA) and its updated versions.
We hold an ever-growing number of technology patents and our
patented Geneva technology is what enables household-level predictions
of broadcast signals. Also, our Coronado Data Warehouse, the industry
standard for broadcast signal area and programming data, have served as
the basis for our consumer and broadcaster solutions, including
TitanTV.com, CheckHD.com, and ProximityTV.
When I last testified before you in February of 1999, I described
our Geneva technology, which is used by all of the major networks,
their affiliates and Satellite broadcasters to measure broadcast signal
strength to insure compliance with SHIVERA. To date, we have processed
more than 50 million waiver requests using getawaiver.com. Today I want
to talk to you about a new technology we call Air-To-Web Broadcast
Replication (AWBR).
AWBR, we believe, is the solution to a problem that has long faced
local broadcasters: how to maintain the ability to serve the local
public over the Internet. The fundamental question has been whether or
not the geographic exclusivity of markets, the cornerstone of the
American system of free-over-the-air broadcast television can be
replicated for Internet broadcasting. The answer is, yes.
Using AWBR technology, a local broadcaster can deliver local
content in real time over the internet to a wired or wireless device
with the same copyright protections currently enjoyed by broadcast,
cable and satellite delivery. Bottom line: the localization of the
Internet.
How does AWBR work? It works by meeting the four requirements
necessary for any system to successfully stream local content 24/7 and
be in compliance with a local broadcasters copyright:
AWBR determines what channels/stations a viewer is entitled to
receive by using proven local signal area prediction to determine which
signals are received for each individual subscriber.
AWBR will make accurate eligibility determinations in real time
using signal strength technology and a broadcaster-verified data
warehouse. AWBR will communicate subscriber activity to each of the
nation's local broadcasters giving them unprecedented, real time
ratings data. This reporting will more accurately measure ratings of
minority viewers than has been the case with traditional Nielsen
reporting. AWBR will also ensure that the underlying signal data is
accurate.
The benefits to consumers and broadcasters are many. Local
broadcasters will be able to bring their programming to the Internet,
which will enhance interactivity with their audience. Consumers will
have the benefit of gaining access to their local stations in real time
over the Web or via wireless. The net result is more viewers for local
programming and more choices for consumers.
Finally, AWBR also presents the opportunity of delivering local
broadcast television through non-traditional means. Usage of AWBR will
help foster competition for local television, allowing consumers to
have a new choice instead of being forced to rely on over-the-air,
cable or satellite service.
As you move forward with legislation addressing the conversion to
digital television and rewriting the 1996 Telecommunication Act,
remember that technology does not stand still. AWBR is new today with
endless possibilities and just the beginning of innovations to come.
INTRODUCTION
For some time now it has been technologically feasible to provide
television and radio content to consumers in real time via the
Internet. According to a study by Leichtman Research Group, about 60%
of households in the US subscribe to an online service, and in the past
two years broadband providers have added 12.5 million net new
subscribers. 1 The same study also indicates that over 30
million U.S. households subscribe to cable or DSL broadband
services.2
---------------------------------------------------------------------------
\1\ ``Broadband Internet Access and Services to the Home 2004'',
Leichtman Research, 2004,
www.leichtmanresearch.com
\2\ ``Broadband Booms in 2004,'' Sky Report E-news, March 7, 2005,
www.skyreport.com
---------------------------------------------------------------------------
Not only do Americans have unprecedented access to broadband
services, they are listening to and viewing content streamed over the
Internet in greater numbers than ever before. According to ratings
information assembled by Arbitron Inc. and comScore Media Metrix, 4.1
million people a week listen to three major online radio
networks.3 Furthermore, broadband users accessed an average
of 15.4 video streams per month during the first half of 2004, up 42.6%
over 2003.4 The audience size and the potential opportunity
for Internet streaming are both far too large for local broadcasters to
ignore.
---------------------------------------------------------------------------
\3\ ``4.1 Million People a Week Listen to Three Major Online Radio
Networks According to comScore Arbitron Online Radio Ratings,'' Press
release, International Webcasters Association, December 6, 2004. http:/
/www.webcasters.org/news/20041206.htm
\4\ ``AccuStream Report: User Consumption of Broadband Video
Streams Up 42% in First Half '04'' Press release, AccuStream iMedia
Research, http://www.accustreamresearch.com/news/aug17-04.html
---------------------------------------------------------------------------
With this opportunity comes a challenge--how to maintain compliance
with copyright regulations within a geographically boundless medium.
When granted a license, broadcasters were given the right to transmit
their signal to a specific geographic area and called upon to restrict
their transmission to this area. Advances in technology have moved the
broadcast industry closer to using the Internet as yet another medium
to reach their audience. Unfortunately, there are vexing legal issues
that have stymied the development of the Internet as a medium for
delivery of broadcast television and radio.
Fortunately, Air-to-Web Broadcast Replication (AWBR) technology has
now surfaced with a solution to the issue of broadcasters streaming via
the Internet. AWBR has been proven in numerous pilot projects with
broadcasters and will work in parallel with the intent of the original
free American broadcast system. AWBR will help broadcasters maintain
the ability to serve the local public--via the Internet.
THE PROBLEM: BROADCAST IS LOCAL; THE INTERNET IS GLOBAL
Free over-the-air American television is based on the network-
affiliate distribution system. Networks supply general interest
programming and local affiliates supplement with local interest and
syndicated programming. A mix of local and national advertising sales
funds this system and the territorial exclusivity granted to the local
affiliates is crucial to this model.
Prior to cable TV, territorial exclusivity was enforced via
transmitter licensing. With the advent of new delivery mechanisms for
television, Congress has given cable and satellite TV services
permission to retransmit broadcast television channels under a
compulsory license to a specific geographic area therefore replicating
broadcast television signal areas. Radio has not been subject to such
legislation as yet, but the advent of digital satellite radio services
has raised issues for local radio stations in protecting their licensed
signal areas.
The question remains of whether the geographic exclusivity of
markets, that is fundamental to the American system of free-over-the-
air broadcast television and radio, can be replicated for Internet
broadcasting. Traditionally, the Internet has been a global entity,
providing content to all regardless of location. What is needed is a
way to provide broadcasts, via the Internet, to replicate what
consumers could receive with an antenna--the standard for terrestrial,
cable and satellite delivery.
THE SOLUTION: AIR-TO-WEB BROADCAST REPLICATION
Air-to-Web Broadcast Replication (AWBR) is the solution to the
problem of delivering television and radio content via the Internet.
AWBR can provide the technology and data that will allow television and
radio content to be delivered over the Internet with the same copyright
protections currently enjoyed by broadcast, cable and satellite
delivery. The AWBR solution potentially will provide the means to
authorize, monitor and report on all television and radio content
streamed over the Internet.
The AWBR solution offers:
Accurate signal area prediction technology
Broadcaster-verified data warehouse
Verification process
Ability to help broadcasters control streamed content through their
online programming guides
Currently, there are 2,350 television stations and 13,810 radio
stations broadcasting off-air reaching 104 million households
513. Every household is in control of what they watch and
listen to off-air by simply putting up an antenna. A broadcaster's
signal reach is also their copyright reach, i.e., only those that can
get it with an antenna can watch/listen to it with an antenna. By
installing an antenna, the household automatically places itself within
a broadcaster's copyright area, or it ``activates'' its ability to
receive the broadcaster's signal. With AWBR, streamed TV and radio on
the Internet can be almost as straightforward--AWBR is akin to tuning a
web-enabled device so that it receives the same programming that an
over-the-air reception device would receive. AWBR, along with the
appropriate verification mechanism, provides the technology and data
that enables geographically-restricted Internet delivery of television
and radio programming.
---------------------------------------------------------------------------
\5\ Decisionmark's proprietary broadcast data warehouse as of March
2005.
---------------------------------------------------------------------------
IMPLEMENTING AIR-TO-WEB
For any system to successfully stream local content 24/7 and be in
compliance with local broadcaster's copyright, it must:
Determine what channels/stations a viewer is entitled to receive,
i.e. screen for eligibility. AWBR answers this by using proven signal
area prediction technology to determine which signals are received for
each individual subscriber.
Make accurate eligibility determinations in real time. AWBR's
combination of signal strength prediction technology and a broadcaster-
verified data warehouse is the only way that eligibility can be
accurately predicted in real time.
Communicate subscriber activity to each of the nation's local
television affiliates and radio stations. AWBR will connect with every
broadcaster so they can know exactly how many viewers or listeners are
watching/listening to them via the web--while they are watching/
listening. This opportunity for generating real-time ratings data is
unprecedented.
Ensure that the underlying signal area data is accurate. Local
broadcasters must be able to easily communicate changes in their signal
area. They need to easily change and verify their coverage information
so that off-air and web broadcasts are ALWAYS identical.
BENEFITS OF AIR-TO-WEB
The broadcast industry, artists and consumers alike stand to
benefit from AWBR technology.
Broadcaster benefits
Potentially avoid additional copyright fees
Bring their broadcasts to the Internet
Enhance interactivity with their audience
Artist and content owner benefits
Promote their works visually while a listener or viewer is tuning in
on the Web
Utilize interactivity that is inherent to the Internet
Build loyalty in local markets
Consumer benefits
Listening and viewing devices tuned by Decisionmark
Gain access to their favorite, free local programming online
Allows consumers to continue to listen or watch their favorite
broadcasts via the Internet
CONCLUSION
AWBR has solved the ``Internet is global, broadcast is local''
quandary. With AWBR, broadcasters can implement the same geographical
parameters for Internet streams as off-air broadcasts. This solution
benefits the entire broadcast industry because it expedites the process
and acceptance of local streamed media over the Internet, in real time
and without copyright infringement. Local broadcasters will have access
to their audience via the TV or radio and the desktop and still
maintain agreements with local advertisers. Because of the potential to
reach consumers who may otherwise have missed the programming,
affiliates may be able to achieve better advertising rates. The major
benefit to AWBR is the ability to replicate, via the web, any
broadcaster's exact signal.
In addition, real-time monitoring by broadcasters for compliance
will benefit both broadcasters and consumers. Consumers benefit by
having more local programming available and broadcasters benefit by
learning more about their viewers and in turn, being able to supply
their advertisers with this information. AWBR is the only technology in
existence today with the unique ability to bring local streamed media
to the Internet.
Mr. Upton. Well, thank you very much. That was very
informative, for sure.
Mr. Ingalls and Ms. Champion, in Comcast's written
statement and what they indicated verbally, too, asserted that
like services should be treated alike. Is Verizon and SBC's
planned video service, in essence, the same as what they would
get from a cable company? And if not, how is it different?
Mr. Ingalls. Well, as far as Verizon goes, how we are
different is we are deploying a next-generation network,
broadband, which really enables both the broadcast or linear
programming as well as the interactive content to be delivered
over the set-top. We feel that that is different, because of
the technology, the bandwidth, that we are able to deliver.
On the other hand, we do believe that to apply the legacy
rules to the new technology would be a mistake, because the
opportunity to compete and to deliver this choice to the
consumer is something that will benefit the consumers and the
economy.
Mr. Upton. Ms. Champion?
Ms. Champion. Yes, Mr. Chairman. We are not building a
cable network. There are very distinct differences between
Project Lightspeed and the fiber deployment that we have
brought to you today. Today, a cable network is defined as a
one-way broadcast network. What I have showed you today is the
capabilities of providing customers a lot of choice, innovation
through providing a single IP connection to their home to
deliver an IPTV switched video solution. A switched video
solution is entirely different from today's broadcast model,
which is the vast majority of the content that is delivered by
the cable company today. This switched IP video solution allows
interactivity. It allows the consumer to have great control
over their content. It also allows them to personalize their
services in ways that is not done today with broadcast cable.
You can create your own identity on your Web service, on your
SBC Yahoo! portal. And then that same identity with your
interests for news, sports and entertainment, and music videos
can automatically be populated directly onto your platform of
the television, giving you a lot of control in your family.
I think you have seen the innovation, through the
demonstration today. I think that is just really scratching the
surface of how consumers can take an innovative IP-only
solution and truly change the communications and entertainment
experience by integrating it, making it customized and
personal. And that happens with a true IP platform, which is
what we are bringing to consumers with our plans.
Mr. Upton. Well, let me ask this before I come back to Mr.
Cohen.
I confess, I am a Comcast subscriber, and I have seen
tremendous innovation as a consumer in terms of what they are
able to provide. I can get pay-per-view. I can stop it when I
go into the kitchen to make popcorn and come back. I have
picture-in-picture, so I can scroll through and see a little
bit of what I saw here. I know I have been to the cable show in
the past, not this year, but I have been able to see, you know,
great advancements that are on the way through my scientific
America box in terms of what they are able to provide in the
future as it relates to computers and that type of thing. And
at what point would you say that the services begin to be
offered the same?
Ms. Champion. I think you would have to address directly
the cable companies as far as what their plans are for
investing. I know that from day one, we will be a completely
digital solution. As you probably are aware, today there are
still many, many analog cable customers out in the marketplace
today. All of that just really tells a story that we move into
the marketplace day one as an all-digital, completely IP
solution. And that really sets the bar high as far as the
capabilities of what our platform can do. So with the approach
creating innovation through light touch regulation, we can
really begin to lead the way. I think at the end of the day,
the opportunity here is to stimulate a competitive business
marketplace, and what we are doing is employing the latest and
best technology we have seen, the road maps of where
Microsoft's IPTV solutions can let us bring new solutions to
customers. And I just believe it is just a total leapfrog from
where today's, you know, majority of analog cable customers
have, I mean, you can just look at the track record there as
far as where we are going to be doing from day one.
Mr. Upton. Let me just ask Mr. Cohen to respond before my
time expires.
Mr. Cohen. Sure. Thank you, Mr. Chairman.
Let me start by saying that as a competitor in this
marketplace, I mean, we are excited by what Verizon and SBC are
doing. I think that the demonstrations, the video and the
demonstrations you have seen today have been great. I think it
is a demonstration of how we are going to be. We collectively
are going to be delivering much more value to all of our
customers. I also think it is a pretty compelling demonstration
that regulation hasn't exactly gotten in the way of innovation.
There is a lot going on here, and I don't think we have really
retarded any of that development.
In terms of what is present in the cable world today and
the innovation that we are going to be making, the investment
that has been made, as I said, the industry has invested almost
$100 billion in building an IP-enabled network. Today, that
network, which is incredibly robust, has an effective capacity
of about 5 billion bits per second. The SBC network, by way of
contrast, is going to be significantly less robust. It is going
to have an effective capacity of about 20 million bits per
second. And because of the slightly less robust network, they
are going to be able to deliver a very efficient suite of
products that is going to look an awful lot like the suite of
products we are delivering and an awful lot like the suite of
products that Verizon is delivering, all with slightly
different uses of technology. We are all using IP today. You
referenced your experience using On Demand, the Video On Demand
service of Comcast. That is delivered through IP technology to
the head end. We use Mpeg technology today to bring it from the
head end to the home, but we are already using IP to bring it
to the head end. So that I think if you look at the aggregate
suite of products that all of us are going to be delivering to
customers in the video world, there is going to be great
choice, there is going to be great competition. I think the
winners, the real winners here are going to be the consumers.
Mr. Upton. Mr. Markey.
Mr. Markey. Thank you, Mr. Chairman, very much.
Ms. Champion, Verizon says that their video service, from a
legal standpoint, is covered by the same laws which govern
cable operators. SBC apparently disagrees with that position.
Is SBC's service any different from Verizon's?
Ms. Champion. SBC is building a very robust broadband
network.
Mr. Markey. Is it different than Verizon's?
Ms. Champion. Verizon would have to specify what they are
building, but from very beginning day one, we are very much a
pure IPTV solution, and that provides a total different
potential versus what I believe what----
Mr. Markey. So you are saying it is different from
Verizon's?
Ms. Champion. From the day one, yes. We are different. We
are providing a completely IP video-based solution from day
one, not a traditional broadcast cable----
Mr. Markey. Do you agree with that, Mr. Ingalls? Is it a
different service that SBC is producing?
Mr. Ingalls. Well, the networks are very different. Our
network is both broadcast and IP, so we are providing to the
consumer the benefits of both. And the upstream side also
provides to the consumer the interactivity and control that the
other networks don't have from an upstream point of view.
Mr. Markey. So from a consumer perspective, there will be a
big difference between the two networks that the two companies
are----
Ms. Champion. There is a big difference, yes, sir.
Mr. Markey. Would you agree, Mr. Ingalls?
Mr. Ingalls. Yes.
Mr. Markey. Okay. Now Ms. Champion, when we passed the
Cable Act here in 1992, we provided that all cable programming
be made available to competitors. And we also have compulsory
licensing laws as well, which benefit companies that provide
video service. Now when we do those laws out of the committee,
we then attach public interest responsibility to the companies
that are going to be the beneficiary of it. Do you think that
you should be bound by the public interest obligations that are
then shouldered by the companies that provide that video
service, or should SBC not be bound by those laws?
Ms. Champion. May I ask you to, perhaps, be a bit more
specific about the comments that you are making? I am a
business and product person, so I am not very familiar with the
1992 Cable Act.
Mr. Markey. Well, the 1992 Cable Act is the basis for your
business model, because without that, you would not have access
to HBO or Showtime or ESPN. And as a result, we probably would
not be sitting here today.
Ms. Champion. Well, clearly we will look forward to working
with the programmers in providing customers a complete suite of
programming choices. As a matter of fact, the various
programmers that we work with in negotiating to provide their
content to customers have embraced the idea of the capabilities
of this new platform.
Mr. Markey. In other words, what I am asking you is do you
think you should be bound by the privacy laws that are inside
of the Cable Act?
Ms. Champion. Yes, sir. We absolutely recognize, and on the
basis of SBC's relationships today, we recognize the need to
support the privacy issue.
Mr. Markey. So you believe that that should be a law? You
would abide by the law----
Ms. Champion. Absolutely. Yes, sir.
Mr. Markey. [continuing] on privacy? What other laws do you
think, as you sit there, that SBC and the other phone companies
should be bound by as they move into this video area?
Ms. Champion. Well, we have already addressed the privacy
issue. I believe that we will work with the local channels. I
think there has been some representation today to provide the
local retransmission of services so that we can bring those
services to the----
Mr. Markey. How about the must-carry laws? Do you think
that you should be bound by the must-carry laws?
Ms. Champion. That is what I am referring to, yes, sir.
Mr. Markey. Okay. How many households do you have in the
SBC service area?
Ms. Champion. Project Lightspeed will allow us to reach a
little over half of our households with----
Mr. Markey. No, how many households do you have in your
service area?
Ms. Champion. So it is about--so we will reach 18 million
households----
Mr. Markey. Well, how many households do you have in your
whole--in your service area, there are 18 million total homes?
Ms. Champion. And we reach half of the--36 million
households----
Mr. Markey. So there are 36 million?
Ms. Champion. [continuing] half of them in 3 years. Yes,
sir.
Mr. Markey. Okay. When are you going to reach the other 18
million?
Ms. Champion. Well, obviously, you know, we want to bring
video solutions to customers, that is why today we provide a
video solution for customers in our bundles. We do that through
a satellite solution.
Mr. Markey. No, but when are you going to bring this
service to the other 18 million homes?
Ms. Champion. Well, today we have announced the most
aggressive build-out of any company in cable.
Mr. Markey. No, when are you going to meet the other 18
million homes?
Ms. Champion. And as the technology----
Mr. Markey. In a chart, which I have here, of the business
plan for SBC, what it says is that in the first phase, that is
the first 18 million of the 36 million homes, you are going to
do 90 percent of the high-value homes in your region. You are
going to do 70 percent of the medium-value households in your
region, but you are only going to do 5 percent of the low
value. Now we have another word for those 5 percent. We call
them our constituents. And so the 5 percent, which you are not
going to do, deserve to know what your plan is for them. Those
are the 18 million households that you are not providing a plan
for, even as you ask to be exempt from many of the laws which
govern telecommunications policy. Well, the reason that we are
here is that those are the people who need the most protection.
I really don't have to worry about the wealthiest people in the
towns that are being targeted. I have to worry about the people
who are in the bottom 50 percentile. Those are the people who
need it. So what is your plan for those 18 million households
in the SBC area?
Ms. Champion. We are deploying very aggressively. We are
making good business decisions about investing early and
rapidly to reach the vast majority of our customers. And as
technology develops, and as we enter the marketplace and are
able to show that we can compete and succeed here, we will be
able to evaluate our abilities to go forward. We will have
momentum in the marketplace, plus we will have other technology
choices available----
Mr. Markey. Oh, other technology----
Ms. Champion. May I make one other comment, please?
Relative to the ability to serve customers.
Mr. Markey. So I think you have two programs, then, it
sounds to me. You have Lightspeed for the well-off and ``snail
speed'' for everybody else, that is the bottom 50 percentile.
And I haven't heard yet a plan which you have given to us other
than, ``We will have some other technology for those other
people that we will deploy at another time that I am not here
capable of testifying as to when they will get the benefit of
it.''
Ms. Champion. I sit in front of you----
Mr. Markey. And that is just not adequate.
Ms. Champion. I sit in front of you as a business person
today----
Mr. Markey. Right.
Ms. Champion. [continuing] saying that we are going to be
investing $2 billion between now and next year, $4 billion
between now and the end of 2007. And as any sound business
decision has to be made based on the needs of the marketplace
and the market's response to your services. Technologies
evolved. My friend from Comcast announced that his chairman
even two and 3 years ago didn't know about IP. Technology alone
will allow us to evaluate other choices. We want to bring
consumers choice. We do that today. We provide them solutions
for video today. And we will do so tomorrow with very
innovative----
Mr. Markey. When a cable company goes into a community,
they agree to wire every home in that community. I am asking
you, when you are going to wire, when you are going to provide
the service to the 50 percent, who obviously are not part of
any business plan, I have Harvard Business School in my
District. You only need a three by five card to know to go to
Dover and Weston and Lincoln and Brooklyn. That is not
complicated. The complicated part about providing these
services is to make sure every citizen gets access to them, and
that is what we wanted to hear from you today, Ms. Champion.
And we have yet to hear from you when they get the benefit of
your request to be exempt from many of the laws which govern
all of the other video services in our country.
Ms. Champion. I would point to our track record with DSL,
and I would point to our track record with wireless. There was
no mandated build-out on either of those. I think the record
stands on SBC's intention to bring and compete very
aggressively in the consumer market to bring choice against an
incumbent cable provider who raises prices against----
Mr. Markey. I want your commercial interest and the public
interest drive, and today it has yet to do so, and that is your
challenge in the years ahead. Otherwise, I think you are not
going to have the reception you want in this committee.
I thank you, Mr. Chairman.
Mr. Upton. Mr. Whitfield.
Mr. Whitfield. Thank you, Mr. Chairman.
And I want to thank the panel for being here today and
helping us explore these quite interesting issues.
Like many people, I really admired Brian Robert's
leadership with Comcast, and I actually did read his speech
that he gave out at the U.S. Telecom Association Convention in
2004. At the time, he talked about the issue of regulation and
how the telecommunications marketplace needed to have less
regulation and a level playing field. But today, I want to ask
a question to Mr. Gleason and Mr. Cohen. You can make an
argument that, for example, when you find yourselves competing
with telephone companies for voice service, you want less
regulation. When they compete with you, say, on video services,
you make the argument that they need to be regulated. We
already know that cable, for example, is subject to local
franchise authorities and direct broadcast satellite is not,
and they serve nationwide. So I would ask the question, do we
need to exempt everyone? Do we need to develop new rules only
for the phone companies trying to enter the IP video or do we
treat them in a different way? Mr. Gleason, can we start with
your comment on that and then Mr. Cohen and then anyone else
that would like to address it.
Mr. Gleason. Sure.
Well, I think it is a great question, because that is
really the whole conundrum we find ourselves in here today. And
we do have a host of regulations that we have all detailed on
the cable side and the telephone companies do on the telephone
side. I think to a certain extent, the answer is this
committee, with industry, has got to figure out how we reach
the happy medium. I don't necessarily fully support phasing in
a whole host of regulations on the telephone companies, but
what I am saying is that we have got to have at least
regulatory parity on the video side of the business. So that
may mean that if you want to go down the road of deregulating
certain aspects of the Cable Act, which you may or may not want
to do, then you are going to have to do it for both sides.
Mr. Whitfield. Could you just give us 2 or 3 specific
examples?
Mr. Gleason. Well, I think specifically the most burdensome
part of the regulations that we face are local franchising
authorities, and with that comes the local franchise fee. And
that, in and of itself, makes our product, in essence, more
expensive to consumers and does bring on a host of regulatory
requirements that go with that. I agree with Mr. Markey is that
if you want to get into our end of the business, and I don't
care how you deliver it. I mean, I am listening to an all-
digital solution, so is that to say that if we were to go ahead
and change out set-top boxes and force a set-top box on every
one of our customers and we delivered an all-digital solution,
now we are a network like theirs? And then we should be out of
all of those regulations? I don't think that is where the
intent of this whole discussion surely is to lead that because
everybody has a set-top now our network looks like theirs so we
get out of franchising requirements. But the franchising
burdens are probably the most burdensome. And I would argue
that I tend to agree that one of the reasons we have a
franchise is to use the easements and rights of ways of a
community. And those easements and rights of ways are limited
in their capacity. We can't string 40 different cable and
telephone companies down every community's easements and rights
of ways on poles and underground and what have you and make
efficient use of that. So there is going to have to be some way
that we all comply with franchising requirements, I think, that
are subject to cable onto video products that other providers
provide.
Mr. Whitfield. What do you say, Mr. Cohen?
Mr. Cohen. I essentially agree with Mr. Gleason, and I
think I agree with the general tenure of your question, as
well. Let me go back to voice a second, because you referenced
Brian's speech, and we have engaged in a dialog with many
members of this committee over the past couple of Congresses on
the regulation of voice. I will tell you that Comcast, as a
company, has never advocated the use of regulation as a sword
that we would use against a competitor in the marketplace. So
we do not come to you, have never come to you, and said,
``Regulate our competitor in order to make it easier for us to
be successful in business.'' And that is not the tenure of the
dialog, I think, that we had in voice. I think the complexity
of those discussions related to what legacy regulations in the
telephone area should still continue to apply in a light
regulatory approach to voice. And we have mentioned some of
them at this hearing already: E911, CALEA compliance,
participation in the Universal Service Fund, I mean, the types
of legacy regulation that needed to continue to apply. And I
think that we have almost come to a consensus around those
points, although we are not quite there yet and we have been
working at that for 2\1/2\ or 3 years. And I think it takes
longer than 2\1/2\ or 3 minutes to just glibly say, ``IP is IP
so we should go and deregulate IP on the video side, because
that is what we are doing on the voice side.'' The question is
what are the types of legacy regulations that should continue
on the video side, also in a deregulatory discussion and in a
deregulatory approach in order to stimulate competition. And
again, I think we flagged some of those, but I think we have
just touched the surface today. Mr. Markey's questions were in
around privacy and must-carry and non-discrimination
provisions. I think there are significant issues of localism,
which were codified in local franchising requirements, but it
was protecting not only the rights of ways but local community
interests and concerns. And there are certainly some serious
policy questions that are raised as to who is going to protect
those issues of localism if you completely take LFA's local
franchising authorities out of the business on the video side.
Mr. Whitfield. Mr. Cohen, thank you for those comments. I
just want to be sure to give Ms. Champion an opportunity, too.
I would like to get her comments. And if we have time, Mr.
Ingalls, I would like to get your comments.
Ms. Champion. Yes, thank you very much.
I sit in front of you today with the opportunity to bring a
brand new solution to the consumers. And the approach that has
been used by the FCC and by the Congress to apply a light touch
to Internet services is the approach that has given us the
competence and clarity to proceed with our plan to invest into
this new network and these new services. And relative to the
voice comments, the opportunity of the various providers, pure
play VoIP providers as well as cable companies, to enter into
the VoIP business and to compete over an IP service
environment, I believe is being affected positively and it is
one that we have supported because there is one set of single,
national rules that are being applied to how these services can
be provided and protected for consumers across the United
States. And so we believe that that same kind of capability
will lead to advancements for the video space as well as we
create a complete video solution. So one set of rules, light
touch, the same approach that has been used to date for
Internet rules, applying that as a new entrant to our ability
to enter into the video marketplace.
Mr. Whitfield. Mr. Ingalls, could you make a brief comment
on the local franchising authority?
Mr. Ingalls. Sure.
Very briefly, we have actually gotten franchised in five
communities. We recognize the localism, as Mr. Cohen mentioned,
and have gone to hundreds of local communities. So franchising
is a very cumbersome process. We estimate that we have, just in
the neighborhood like the Philadelphia community, over 250
franchises we have to get in order to offer video service in
that metropolitan area. So we look for a streamlined process. I
like what I hear, as a marketing person, about a light touch
regulation. I think it is about the marketplace. And we support
the local franchise process but would like to see a national
process to circumvent that. And we are not opposed. We have
built into our business case, you know, paying the franchise
fees to the local communities.
Mr. Whitfield. Okay. Thank you.
Mr. Upton. Mr. Doyle.
Mr. Doyle. Thank you, Mr. Chairman.
While it is true that many consumers want these new bells
and whistles along with their voice, data, and video services,
I can't tell you how many times I hear from people back in my
District that what they want is simply lower bills. Do any of
you here on the panel believe that IP-enabled services will
promote enough competition in which to say a basic tier of
cable gets cheaper or a basic phone plan gets cheaper? I mean,
I understand the new and improved features, but what about
good, old fashioned, cheaper rates?
Mr. Gleason. Well, I would like to address that, because I
think in my comments I noted that one of the questions is
exactly that. Right now, and we hear this all of the time, and
I hear the same thing from our customers. You know. They say,
``I don't really want MTV.'' Well, but in our store, we are not
like a grocery store or a bookstore. In our store, our
wholesale providers force us to sell you all of this host of
channels onto an expanded basic platform, and so if you want to
get Nickelodeon, you have to take MTV. And so I am not sure
that the IP discussion here is going to change the fact that,
for the most part, four companies control all of the channels
on the cable network. At some point, in order to address costs,
you have got to address wholesale costs. But a company like New
Wave or the association that we are a part of, American Cable
Association, certainly does not have the market power to ever
affect that change. So my opinion is, until we come up with a
way, and we have a suggestion that we have suggested to the FCC
of coming up with a programming price index that would be
submitted to the FCC every year on which programmers would
supply them with their rates for each cable operator and what
that price index changes every year. We believe if we had
something like that, or other ideas, that that would rein in
wholesale price increases. But I don't think those pricing
phenomenons are going to change until wholesale prices change.
Mr. Ingalls. And if I could make a comment. And
responsibility for the consumer market within the Verizon
territory, I have seen what competition can do to pricing.
Clearly, if you just look at the history of long distance
pricing or local pricing, it has come down. Competition brings
many benefits: choice, value, simplicity to the consumer. But
something that is very important, as you said, to your
constituents, is price. There is a GAO study that I was made
aware of that showed when wired competition was brought to
cable, it actually shows that in that 2 percent of instances
where it occurred, prices were actually 15 percent lower. When
we have built and announced FiOS in the Tampa area, the
incumbent cable company actually, in response, has lowered
their rates and offered new and creative packages.
So competition really is going to help the constituents.
And they may not want the interactive, because that is really
what we are bringing. We are bringing a network that is going
to provide mainstream services to those that just want
broadcast or the interactive services that are looking for the
integrated converged solution.
Mr. Doyle. Ms. Champion.
Ms. Champion. Yes, thank you very much.
Yes, I absolutely believe the consumers will benefit from
lower prices. Competition in a business marketplace allows
consumers to have choice, and that puts the spotlight on an
incumbent cable provider, in this example, to have to respond
to the dynamics of the marketplace by a new product, a brand
new service coming in and entering. I think the key thing that
I would like to make a comment there is that the incumbent
cable provider clearly has a lower cost structure. Our ability
to move into a marketplace aggressively, very quickly, and
being able to scale, being able to serve millions of
households, will allow us to get in, improve our operating
capabilities, and continue to help us work to drive prices and
our cost structure so that we can compete as a new entrant in
the video space with IPTV.
Mr. Doyle. Thank you.
Mr. Cohen, I want to ask you. I read in your testimony that
you said you believe the state of competition in the cable
video industry is so strong that portions of Title VI of the
communications act may no longer be necessary. I wonder if you
want to expand on this statement and highlight portions of the
act that you feel, in fact, may not be necessary any longer.
Mr. Cohen. Well, I think we have actually already touched
on a number of these today. I mean, I think it is, as this
committee looks at the telecommunications act, and by the way,
I think we are of the school that a targeted rewrite is
probably of greater wisdom than an complete and total rewrite.
But looking at burdens in the act, looking at burdens around
franchising, by way of example, is certainly a productive
exercise. Looking at some of the other rules and regulatory
burdens that apply in a unique way in Title VI as opposed to
the balance of the telecommunications act. I think as you go
through this inquiry, and you have heard from this panel today,
you have a very different marketplace and a very different
dynamic occurring that in either 1992 or 1996, the latest two
revisions of the telecommunications act, and I think that that
justifies a different regulatory approach, or at least
consideration of a different regulatory approach.
Mr. Doyle. Thank you, Mr. Chairman.
Mr. Upton. Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman.
And I am glad my colleague mentioned that, because that is
really the question I was going to ask, you know, the
communication act here. And my focus was going to be on how do
you change the bureau focus, because really, what we are
looking at now is a whole new world versus the way the FCC was
designed and the different bureaus. And you know, you have got
the communications laws in, you know, 1927, 1934, 1984, 1992,
1993. A lot of the members here were there in 1996. I was
running that year, and I remember all of the lobbyists going to
all of the members' offices. But even those who were the
authors of that 1996 rewrite, I mean, based upon 9 years of
being on this subcommittee, you couldn't envision where we were
heading. So I think what would be helpful, too, and that is
part of this testimony is how do we restructure the FCC to meet
the new technological age? Now that may not be a surgeon
approach to what some of the deficiency is. But I mean, there
just makes no sense today that, you know, when we have
competitive prices in the cellular industry, prices are going
down, I mean, where are they in the telecommunications act? And
how do we get, when there is convergence, and we have VoIP, how
do we justify a different regulatory scheme when you have the
convergence of broadband that you all will be competing with?
So I am just going to throw that up as a generic question.
Actually, Mike asked it very similarly. But I would rather, you
know, you all come to our offices and really look at the FCC
and its organization, based upon the law, and help us make
sense of how we then rewrite this so that we have pure
competition in, really, in essence, what we are calling as the
broadband arena of delivering a multitude of services over
various different pipes. Let me just stop there. Does anyone
agree or disagree or if I said something really----
Ms. Champion. I just want to say I accept your opportunity
to come talk with you about how technologies are changing. I
think the reality is there, and you nailed it, was that
customers' needs are changing. They are looking for new
technology. They are time shifting, place shifting all of their
communications and entertainment. And that means that, you
know, in the past two or 3 years, and what will happen in the
future, really needs to be considered. I think that will happen
by business and government working hand-in-hand to create a
uniform approach to address these issues today. So I appreciate
your invitation and look forward to doing that.
Mr. Shimkus. Well, go see Ray Fitzgerald. Write his name
down.
Ms. Champion. Okay. Very good. Very good.
Mr. Shimkus. Start there.
Anyone else want to comment on that?
Mr. Cohen. Congressman, I mean, I think, again, you really
did nail the issue there, and I mean, I would reiterate what I
think the principles of that review should be, which is to keep
in mind the purpose of regulation. It should not be to pick
winners or losers. It should be to foster facilities-based
competition to treat like services alike and to create an
overall competitive environment that benefits consumers while
preserving those aspects of legacy regulation that implicate
important social considerations and that need to be protected.
Mr. Schmidt. Congressman.
Mr. Shimkus. Yes.
Mr. Schmidt. The most important content to your
constituents is local news, weather, and sports. And we saw a
number of demonstrations this morning, which were very slick,
if I might say, but they didn't include local broadcasting. So
I think any video play, you have to take into account local
broadcasting and get that there. And putting free, over-the-air
TV free over-the-Web creates competition.
Mr. Shimkus. Right. And obviously, those that have followed
this committee for many, many years, know that I have been a
strong advocate for the local broadcasters because of the
safety concerns. And I always point to the 1993 flood that
happened in the Midwest. And who was there reporting on the
levies that are breaking and getting people out of the flood
plain? It was the local broadcasts. And but that is all part of
this debate. Same regulations, same requirements across the
board. But there was a comment made that, you know, we are very
schizophrenic as Members of Congress, you know what I am
talking about. Let us level the playing field. But then the
comment was made legacy regulations that are in the public
good, I represent a large rural area, so we know what we are
talking about with legacy regulations, which is making sure
that rural areas have the same access to this technology as
anyone else does.
Anyone want to add to that in that comment?
Mr. Ingalls. If I could make a couple comments. One, I
think you have touched upon the wireless model as a model of
lower prices and choices. I mean, technology is still being
developed. There are no regulations driving it. We see Verizon
Wireless deploying EVDO across the United States at a very fast
rate, so broadband is available in that way.
As far as the rural comment, we also are committed, as we
build out a fiber network, which is not a short bill, we are
going to pass about 35 to 40,000 homes a week and keep ramping
up. So we don't have an 18 million plan. We are just building.
But in the rural communities, we are testing today broadband
access in a wireless way using Y-max and Y-fi technology. So we
are very supportive of providing broadband access, video
access, and from the local programming point of view, we also
believe local broadcast. We are very supportive of that from a
retransmission consent. So I think it is not a surgical thing,
as you said. It is a significant change. Because on the other
side, to enter voice, nobody is applying for any franchises.
For us to enter video, we have to apply for franchise. That is
a big difference. And I think leveling that playing field,
looking at the whole gamut, is probably very valuable.
Mr. Gleason. I would just add, since you brought up the
rural aspect, and our association represents a lot of rural
cable operators, our membership, just to keep in mind, has done
a phenomenal job over the last 4 years of deploying broadband
services in very small rural communities. I know I am
headquartered in Sikeston, Missouri and so is Galaxy, which
serves a town like Carrier Mills in your area that has
broadband services.
Mr. Shimkus. Good research.
Mr. Gleason. Thank you.
Well, I am not very far away. But our membership has been
very aggressive in deploying broadband services to rural areas,
so those services are available there now.
Mr. Shimkus. Great.
Thank you, Mr. Chairman. I yield back my time.
Mr. Upton. Ms. Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman, for holding this
important hearing.
I have two questions.
The first to SBC and Verizon. I absolutely agree that we
should approach any regulation of the Internet carefully. And I
have often argued against cumbersome rules for new
technologies. But I can certainly understand why your
prospective competitors object to your entering the game on an
uneven playing field. How do you suggest that we address their
legitimate questions about fairness while still permitting you
the leeway to innovate and bring new services to customers?
And my second question, and I want to get it in now so that
we divvy up the time, is for Microsoft. Your company has done a
lot of work in the area of standards and interoperability. And
you have battled with your competitors and, in some cases, the
government over how to make the Internet even more open and
more accessible to all technologies and services. The
television industry has had an even more difficult time
creating interoperable standards for electronics. And my
question to you is will the advent of television on the
Internet exacerbate these problems or help to solve them.
So why don't we start with SBC, Verizon, and then go to
Microsoft? Thank you.
Ms. Champion. Thank you very much.
Your comment was regarding the playing field, and I would
like to just reply to that by saying what we are looking for is
one playing field where Internet innovation and Internet
technologies can be treated the same. When we bring services to
your home, there is going to be one Internet pie to bringing
all bits together: voice, video, and data. Relative to VoIP
entry, the cable companies are clearly eating into our core
business, and with VoIP, the cable companies and pure play
providers have been provided one single set of national rules
to enter into the marketplace and are being treated as a new
entrant with Voice over IP and without telephone legacy rules
and regulations. And I also want to add about the voice
comment, with very little incremental investment. So we have
got one playing field, uniform rules, being able to enter into
a new business as a new entrant without any of the legacy rules
associated to providing essential services for voice. So those
aren't being applied. What we are asking for is one playing
field where we can apply the same kind of light touch
regulatory rules to the entry of video where we are making
significant business investments to accomplish such.
Ms. Eshoo. Mr. Cohen, do you want----
Mr. Ingalls. And my comment----
Ms. Eshoo. Just before Microsoft gets in, Mr. Cohen, did
you want to say something--no? All right.
Mr. Ingalls. Did you want--if I could.
Ms. Eshoo. Yes.
Mr. Ingalls. You know, the level of the playing field, from
my point of view, is exactly what we are looking for, and
frankly, I am not advocating that we apply legacy telephone
rules to the Voice over IP market, but as Ms. Champion said, I
think there are new entrants here that are coming in without
applying for a franchise, as I mentioned, and so they are
entering the market. So leveling the playing field, to us, is
to kind of equalize the ability to enter into the other's
businesses.
Let me give you a specific example of what I mean.
Applying for a franchise is now applying into a boundary
that is a cable franchise boundary. We are structured as a
network based upon the way the telephone network was built, so
we could build fiber to the home, FiOS, in a central office,
and it could encompass five different franchises of which are
not all served by that central office. So franchise
requirements are an unnatural overlay to our network topology.
So we are just looking for a way to streamline the franchise
process so that it fits with our legacy network as cable is
obviously taking their legacy network and made it fit to the
telephone world without any rules being overlaid as to where
they go or don't go.
Mr. Mitchell. So the short answer to your question is that
it is explicitly our objective to make sure that that doesn't
happen when it comes to developing the software solutions that
enable Video-over IP. There are several different components of
that. One is simply the fact that the Internet itself has been
able to be very successful by having an explicit protocol
approach that enables the evolution of other forms of services
on top of the network. So for the last 10 years, you have seen
the Internet take on many different types of applications
because there is a common base of accepted standards. In terms
of the video case, you have to look at rights management and
security and on the encoding schemes. In all of these areas, we
are working to ensure that the software solutions effectively
have replaceable components that can evolve over time, so that
the same type of evolution that you are able to see on the
Internet works.
And finally, I would just add that it is, for us, in terms
of developing the IPTV solution, for example, that SBC is
deploying, it is explicitly our objective to ensure that we
enable the ability of retail devices from many manufacturers
within the next few years once all of the technology is sorted
out. It has been, from the beginning, part of our design
approach.
Ms. Eshoo. Thank you. I am going to yield back, Mr.
Chairman.
Mr. Upton. Mr. Walden.
Mr. Walden. Thank you very much, Mr. Chairman.
Mr. Cohen, you said something that I thought really hit the
nail on the head on what we are trying to sort out, and that is
that we need to review all of the rules for all of the
providers. And as I sit here and listen to all of your
testimony and kind of think about this, you know, the world
really has changed so rapidly, and I am a broadcaster, a radio
broadcaster by profession, 19 years in the business, and you
know, it is phenomenal to me how things are changing and how,
you know, the 1934 act requires us to do certain things, and
then other people come along and compete in my community that
doesn't have to do any of those things, and yet I am supposed
to do all of these community standards, you know, which I think
is actually going to be the survival of community broadcasting.
But it does raise some really difficult challenging questions
about how you provide content to people who want it while also
dealing with this issue of serving the community and allowing
those who are charged with that as part of their obligation to
survive economically. I mean, that is kind of cutting to the
chase.
And I am curious. I think it was Ms. Champion who talked
about your system was unique in that it was switched IP video,
a whole digital system and that would be unlike cable and it is
two-way, not one-way, if I got you right. And so I am curious,
for the cable providers on our panel, because I have got
digital cable, aren't you also getting into a two-way system
and digital capability as well? So how are you really going to
be different? I mean, maybe you are right now, but 6 months
from now, 3 hours from now, are you going to be that much
different?
Mr. Cohen. I think your question says it exactly right. I
think not only is there going to be convergence among
platforms, there is going to be convergence among services. As
I said, we are already two-way. We already use a significant
amount of IP in our system. We will inevitably use a switched
video component to the delivery of our service in the very near
future. The platform is already enabled for that. I think, as I
said in response to a previous question, the SBC model uses
switched video because it is an efficient use of the particular
platform that they are building out, which happens to have much
less overall capacity than the platform that cable has built
out. But there are clear advantages to interactivity and being
able to deliver personal----
Mr. Walden. And you were talking about the difference
between the bandwidth of your platform versus Ms. Champion's,
right?
Mr. Cohen. Right. Our platform has an effective available
capacity of 5 billion bits per second whereas the SBC platform
has an effective capacity of about 20 million bits per second.
Mr. Walden. So you would have, like, plenty of capacity to
do multi-channel must-carry, then?
Mr. Cohen. I should have seen that coming. I mean, of
course the issue----
Mr. Walden. I just wondered if you had the capacity. I sort
of sense maybe you do.
Mr. Cohen. And of course the answer to that question is
that the capacity that we have built----
Mr. Walden. Yes.
Mr. Cohen. [continuing] that we have developed needs to be
available for the services that our customers want to receive.
Mr. Walden. Right.
Mr. Cohen. And we would have capacity----
Mr. Walden. I sort of anticipated that answer, too.
Mr. Cohen. We have capacity to carry loads of extra
channels, but they should be channels that our customers want,
not just those----
Mr. Walden. Now let me go to that point. And I understand
that argument. But let me go to that point, because public
television has some pretty remarkable agreements on multi-
channel must-carry. What is the difference, from your
industry's perspective, about that agreement versus what over-
the-air broadcasters are trying to require as well? Is the
difference that one has advertising and one doesn't?
Mr. Cohen. No, actually, it isn't. I think it is a
difference of whether government should mandate the carriage or
whether there should be commercial negotiations and
discussions----
Mr. Walden. Are you all engaged in commercial negotiations
and discussions?
Mr. Cohen. With many different broadcasters.
Mr. Walden. Okay.
Mr. Cohen. We just announced a deal with NBC for some
multi-cast.
Mr. Walden. All right.
Mr. Cohen. And so we are engaged with the networks and with
local broadcasters in those discussions.
Mr. Walden. Perfect.
Mr. Cohen. And what we want to have, and let me just give
one fact----
Mr. Walden. Yeah, sure.
Mr. Cohen. [continuing] because it is incredible. If you
apply multi-casting must-carry, we have must-carry obligations
with 23 broadcasters in Los Angeles.
Mr. Walden. Right.
Mr. Cohen. So imagine that we might have to carry 23
weather channels of the broadcasters having cameras pointing
out their window looking at the weather.
Mr. Walden. But given none of those ever is right, maybe
having 23 options----
Mr. Cohen. Right. It is comparable weather, put it that
way.
Mr. Walden. All right. Well, but I want to make another
point, which is sort of off this point, but it is all in this
together, because some of our colleagues in the Senate then
want a mandate on over-the-air broadcasters that they cover us
``holier than thou'' candidates when we are running for office,
if you are a commercial broadcaster, but not if you are a cable
caster or Verizon or SBC, to give free air time and free
access. Can you imagine if the same burden applied to video
providers and audio providers in Los Angeles and New York? Can
I get 100 minutes of free time on your system?
Mr. Cohen. I am not sure about 100 minutes, but----
Mr. Walden. Ninety-nine? Can we----
Mr. Cohen. You should know. I think we have talked with
many of you, Comcast pioneered something last year called
``Candidates on Demand'' where we provided----
Mr. Walden. And nobody clicked.
Mr. Cohen. Actually, you would be surprised. We----
Mr. Walden. Well, you understand what I am saying, and that
is part of the----
Mr. Cohen. The Senate race, it was wildly popular. We gave,
basically, 35 minutes to each candidate, seven issues, 5-minute
videos. We put it up on our On Demand platform for free.
Mr. Walden. Okay.
Mr. Cohen. And it actually was fairly popular, and it is
something that we intend to roll out----
Mr. Walden. And I commend you for it. But that is also one
of those legacy requirements that it out there on some
providers of video content and audio content that is not on
others.
I want to go to the issue of retransmission consent and
all, because I sensed a slight disagreement between Mr. Gleason
and Mr. Schmidt, I believe. What do you do where you are in a
legacy, call it an ``old line business'', if you want to call
it that, where you have an agreement that says, ``I have got
market exclusivity for this program.'' Should we open up that
program to anybody, because we have a new technology to deliver
it, or is there still this legacy right that, as the provider
and contracted provider for that program, you should have that
right in your market to have exclusivity?
Mr. Schmidt. Well, Mr. Walden, obviously, we believe that
if you have the contractual right, you should have the ability
to enforce it, and the point that goes to your earlier comments
about the importance of localism is that the rules, that we did
not emphasize in the testimony, are primarily aimed at
protecting smaller markets who not only would be vulnerable to
an international threat, but even from their adjacent markets.
Would Grand Rapids broadcasters buy exclusivity versus Traverse
City? Probably, if we could. And the same issue is large on the
Internet. So the syndicated exclusivity and the network non-
duplicative rules are really intended to preserve the universal
availability of local news, weather, and sports, which are the
beneficiaries of the rest of the system. So in this instance, I
don't think there is any doubt, really, that these are quasi-
intellectual property rules, but they are also intended to
preserve the local reach. And while I see that the label up
here on this thing is ``twisted pair'', which I assume refers
to Mr. Gleason and me, we really are bound together. And I
think his beef is actually more with Mr. Cohen than it is with
the broadcasters, particularly the small market broadcasters.
And I fear that the solutions that he proposed to eliminate
these protections will harm local broadcasters and the local
content, which is, in significant part, what drives his
business as it is today. So I think the enemies are not the
small, local broadcasters with whom he is negotiating
retransmission consent and having to occasionally carry and
must-carry.
Mr. Gleason. Well, let me be clear about my comments, too,
on retransmission consent agreements. I completely agree that
we need to carry local broadcast channels in our markets, and
they are a very important part of our product offering in our
areas. And I think we should be carrying those, and I think
that that opportunity is already there for broadcasters to make
sure they are carried, and it is called must-carry. But what I
have suggested in my comments is that where this dynamic
changes, when a broadcaster elects retransmission consent and
now wants cash for carriage that is obviously going to fall
straight to the consumer for a free, over-the-air broadcast
channel, then that has changed the negotiating dynamic,
particularly for small market cable systems where we don't
affect enough eyeballs in a particular market. So if that
channel is dropped, we don't have enough effect for the
broadcaster to notice, thereby giving them much more market
leverage, because we can't go import an out-of-market station.
So----
Mr. Walden. But you do charge your viewers, because they
have to pay a subscription in order to be able to watch the
program that the over-the-air broadcasters are giving to you or
now negotiating a price for, right?
Mr. Gleason. We do charge a nominal charge for limited
basic service----
Mr. Walden. Yeah.
Mr. Gleason. [continuing] which is generally that broadcast
basic service----
Mr. Walden. Sure.
Mr. Gleason. [continuing] that is getting cable out to
those homes, and I would argue in most cases, extending
broadcasters' reach.
Mr. Walden. Sure. It is a partnership.
Mr. Gleason. But that is usually a very low-cost level of
service and generally pays for the cost of delivering the
service. But if we are now going to layer on specific fees per
customer to watch those broadcast stations, then that changes
that dynamic of that level of service. And our argument is that
if you do decide to charge, then we should be given the option
to shop.
Mr. Walden. I see.
Ms. Champion. Mr. Congressman, may I reply to the comment
related to the bandwidth that is involved here?
Mr. Walden. Yeah, you are going to do multi-channel must-
carry?
Ms. Champion. Well, no, sir. But the point that was made by
Mr. Cohen here is really an apples to oranges comparison. As
you know, a cable company shares their bandwidth across all of
the users in their area. And what we are talking about is a
dedicated connection providing a very secure and private
connection for that individual home, that dedicated bandwidth
that is available to them versus an environment that is shared.
And I would also like to say I sympathize with your request
regarding having free time. I would just like for the various
cable companies to allow us to advertise some of our services
relative to what we want to present into the marketplaces,
which today they do deny us that opportunity on many, many,
many occasions.
So I appreciate your request for the free time.
Mr. Walden. You can always buy radio advertising.
Ms. Champion. Yes, we do. Thank you very much.
Mr. Upton. Especially in Oregon.
Mr. Boucher.
Mr. Boucher. Thank you, Mr. Chairman.
I also want to thank this panel for sharing with us today
what I think is a very stimulating discussion of highly
relevant issues.
Let me take the opportunity, Mr. Ingalls and Ms. Champion,
to have you clarify the extent of which you are willing to
accept Title VI obligations. Let me just tick off a couple of
things, and I would like both of your responses as to whether
or not you are willing to accept this, as you offer your multi-
channel video service. You might just note these as I go down,
and you could respond to all of them collectively, no need to
respond to each one: retransmission consent, network non-
duplication, syndicated exclusivity, the must-carry
requirements, sports blackout, the program access requirements,
which basically say if you are originating your own content,
there are circumstances under which other multi-channel video
providers should have non-discriminatory access to your
content, privacy for customer information, and set-top box
interoperability. There may be some other elements of Title VI.
I think this captures most of it.
Mr. Ingalls, would you like to respond first?
Mr. Ingalls. It is a long list. I couldn't write fast
enough, but I will try to hit a few of them.
First, privacy is something that, as a common carrier, we
operate under today. So from a privacy requirement, there is no
question that that is something we support and we clearly
endorse. I mean, I think the key point here is that, you know,
entering the video market that we are entering, as the new
entrant, we are looking to take this playing field and level
it. Things like must-carrys, sports blackout, those are issues
that I think are to be discussed. I guess I have the benefit of
being a businessperson focused on the business market, trying
to get customers, so I am not, you know, deeply familiar with
the rules that you mentioned, but I will say Verizon has
demonstrated in our negotiations to get into this business that
many of the things that you referenced, we are negotiating with
the appropriate authorities trying to make sure we comply as we
enter the business, the local franchising authorities being an
example.
Mr. Boucher. So your answer is some of these but not
necessarily all.
Mr. Ingalls. I can't tick off one by one. Again, I didn't
write fast enough, but----
Mr. Boucher. All right. Ms. Champion, would you like to
respond?
Ms. Champion. Yes, sir. Thank you.
As a multi-channel video provider, as a satellite company
is, we would endorse and follow the same requirements as they
have adopted and the same rules have been applied to a
satellite provider.
Mr. Boucher. Okay. Well, that is a clear answer. So you
would basically take the set of rules applicable to satellite
multi-channel video providers and say that you are willing to
accept those?
Ms. Champion. That is correct.
Mr. Boucher. All right. Let me address the questions
relating to franchise, because we are going to have a debate
here about this, I can see that coming. And this is truly
interesting.
Mr. Ingalls, I detected in some of your answers to
questions posed by other members a general willingness on the
part of Verizon as it offers its service to pay the franchise
fee. I also have seen other statements made by Verizon
suggesting that you would be willing to abide by the public
access channel requirements that attend franchise agreements.
But are there elements of the franchise agreement that you
think should not be applied to your service as it is introduced
into local communities?
Mr. Ingalls. Well, yes, I did say we are willing to pay the
franchise fees. We have negotiated five franchises and are in
the middle of negotiating hundreds. As part of those franchise
agreements, we are negotiating public access, educational,
government channels. We are willing to provide that. I think
the issue here is the process by which you get franchising
authority. The cable industry built their business based on a
monopoly franchise in local communities. And as we look at the
market as really the fourth entrant now with two satellite
providers doing reasonably well in every market, we are looking
for a more streamlined process, so is a State-level franchise
or even a Federal-level franchise the right way to level this
playing field? So simplifying the process to get a franchise is
something we clearly want.
Mr. Boucher. What are you asking us to do?
Mr. Ingalls. I think this committee, we would very much
appreciate looking at the franchise and rules, looking at a
national franchising policy that would apply some of the local
franchise conditions that have existed, which we have
demonstrated the willingness to support so that we could enter
the market. As I said earlier, in a given community like
Philadelphia, 250 franchises to serve the Philadelphia
marketplace.
Mr. Boucher. And so are you going to propose to us elements
of what this national franchise model should be?
Mr. Ingalls. We would love to sit down with you and lay out
for you exactly how we think the franchise----
Mr. Boucher. All right.
Mr. Ingalls. [continuing] model and process should look.
Mr. Boucher. Ms. Champion, could you speak to how SBC's
position with regard to local franchising might differ from
what Verizon has said?
Ms. Champion. The intention of SBC to build the 18 million
households between now and 2007 would mean that we would be
proceeding against over 2,200 unique franchise negotiations and
processes. As an IP-based service, we believe we should be
treated as a new entrant under the light touch IP rules of the
Internet. Specifically related to build out, that is the----
Mr. Boucher. Well, let me ask you this. Are you asking us
to adopt a kind of a national franchise model along the lines
of what Verizon is suggesting or are you saying that we
should----
Ms. Champion. Yes, sir.
Mr. Boucher. [continuing] basically--oh, you are?
Ms. Champion. Yes, sir, that is exactly--one set of
national rules, unified rules to help overcome this patchwork
of, you know, varieties of rules and regulations across the----
Mr. Boucher. Okay. I am trespassing on others' time, but
two quick questions.
Would you be willing to pay the local franchise fee?
Ms. Champion. We will absolutely be willing to work with
them. We live in these communities. We want to equalize across
the players.
Mr. Boucher. Okay. I take that as a yes.
And would you be willing to abide by public access channel
requirements? I mean, these are two things which Verizon says
it is willing----
Ms. Champion. The must-carry----
Mr. Boucher. No, no, local access. You know, you have paid
channels on cable and, you know, educational purposes covering
the town council, that kind of thing.
Ms. Champion. The whole nature of this platform is
different than traditional services are, so we have a lot of
flexibility to provide public interest features and services to
the communities, so----
Mr. Boucher. So I take it the answer is generally yes.
Mr. Markey. Would the gentleman quickly yield?
Mr. Boucher. I would be happy to yield.
Mr. Markey. Okay. You said that you would be willing to
abide by the rules that the satellite companies abide by?
Ms. Champion. Multi-channel provider satellite rules.
Mr. Markey. All right. Does that include the turning over
of 5 percent of capacity to non-commercial, unaffiliated
programmers? That is one of the rules that was part of the
satellite package.
Ms. Champion. Oh. I would have to look into that. I am not
sure I understand what all of the specifics are of that rule.
Mr. Markey. Okay. Does it include the obligation to provide
test signals throughout the entirety of a broadcaster's local
signal area?
Ms. Champion. As I stated earlier, we would follow the same
guidelines as the satellite providers, so if that is one of the
stipulations, then----
Mr. Markey. Those are the satellite rules. So you would
abide by those satellite rules that I just gave to you?
Ms. Champion. Yes.
Mr. Markey. Okay. Thank you.
Ms. Champion. Yes.
Mr. Markey. Thank you.
Ms. Champion. You are welcome.
Mr. Boucher. All right. Thank you very much, Mr. Chairman.
I yield back.
Mr. Upton. Mr. Ferguson.
Mr. Ferguson. Thank you, Mr. Chairman.
I have a few questions, and I want to try and get through
these quickly.
A quick question for Mr. Ingalls.
I am very interested in the issue of a level playing field,
particularly as you roll out your fiber network and others as
we get into this particular issue and how competitive that
playing field will be. I know you have already addressed this
issue a little bit, but I want to ask you more specifically.
How much are you spending on your fiber development and your
deployment and how does that compare with some other folks in
the industry in terms of your rollout?
Mr. Ingalls. Yeah, we are building, as I said earlier,
really a next-generation network. We spent $1 billion in 2004
to pass approximately 1 million premises. And we have announced
that we have committed to do 2 million premises in 2005. Our
capital budget has increased. As a combined company, it is
about $11.3 billion this year, not just on fiber, but you can
work backwards. If 1 million is $1 billion, 2 million this year
is close to $2 billion. So we are investing heavily. It is
about the capability of the network.
And if I could just add one more comment that hasn't been
clear. The network really is a combination, so when we talk
about 100 megabits downstream and 15 megabits upstream, that is
just the data connection. We still are providing hundreds of
digital channels coincident with that. So it is not
constrained. So we really have the capacity here that can
deliver.
Mr. Ferguson. How does that compare with some of the other
companies? Are you tops in terms of the money you are spending
right now in deployment? Are you----
Mr. Ingalls. I believe we are spending as much--I really
don't know everybody's checkbook, but I think we are spending
as much or more as anybody.
Mr. Ferguson. How do you decide where you are going to
deploy?
Mr. Ingalls. Our decisions on deployment are based upon
multiple factors. One, I have responsibility for over 30
million households. So we look at the market we have announced
in 14 States. We are deploying in every major market initially.
We have only announced plans, as of right now, to about 100
central offices or communities. We have plans built now through
the early part of 2006. This is a very evolving plan, so we
have not announced everywhere that we are going over the next 5
years, but as I said, we are building at the rate of about 35
to 40,000 a week and ramping it up, so we should be
accelerating it. The decision on where we build is based upon
the market, the opportunity, and frankly, partly on the
competitive intensity, because today we have cable companies
announcing they are entering the telephone business without
applying for the franchise, which they don't have to, and we
have to provide that same package of services. So we are really
looking at competitive intensity as one of the big drivers of
where we go.
Mr. Ferguson. When you decide to deploy in an area, is it
economically feasible for you to hit 100 percent of that
community in the first year?
Mr. Ingalls. Not in the first year. It is pretty hard. If,
you know, you look at metropolitan markets like New York City
or even the Washington market or Boston, it is a pretty large
community, so it is really a 2 or 3-year plan to cover a
market. So when we choose to go into a market, a metropolitan
area, we really look at the efficiency of building it, the
efficiency of marketing, because the big benefit here is to be
able to market to the whole community, not to have what I would
call like a Swiss cheese approach where we are only in certain
neighborhoods. So our intent is to build out the whole area as
we go to a market.
Mr. Ferguson. But it is sometimes economically not feasible
to do it in the first year?
Mr. Ingalls. No, it is really a matter of physical ability
as well as economics. We can't pass millions of homes in 1
year, so that is why, in the first year, it is difficult. But
as I said, over a two or 3-year period, we plan on covering a
market that we have chosen to go into.
Mr. Ferguson. Okay. Thank you.
For Mr. Cohen, Comcast now offers data, voice, and video
services, which have traditionally been regulated under Titles
I and II and VI of the act. Practically speaking, how does this
sort of regulation work for a company like yours, which offers
many different services to many different customers in many
different States, as you do?
Mr. Cohen. Well, I don't want to repeat what people have
been saying today, but I mean, I guess the question puts your
finger on some of the complexity that exists in the current
structure of the communications act. And in particular, we have
a VoIP product that, as all of you know, falls somewhere
between Title I and Title II and aspects of it can be regulated
under both of those titles. I think that where the
communications act creates confusion and retards competitive
entry, it needs to be reexamined. I think that, generally
speaking, on a philosophical level, we believe that lesser
regulation is better than more regulation, but we believe that
regulation should not be used to pick winners or losers, to
favor particular technologies, and that, generally speaking,
like services should be treated alike in the regulatory
treatment.
I think our concern, having gone through several years of
work with members of this committee and others, just on the
VoIP side, just on the Voice over Internet Protocol side, when
I think where we were two or 3 years ago in terms of
restructuring the regulatory approach and all of the mistakes
we would have made by the first look at it, I get a little
nervous when we talk about just a meat ax approach on the video
side where we say because it is an IP network and because we
are using IP technology to deliver this service, no regulation
is necessary. And so I think the dialog that we have all had
here today, frankly, the multiple invitations to continue the
dialog and to make sure that we create a regulatory approach
that fosters all of the objectives that we have talked about,
which I think, generally speaking, are shared by all of the
members on the panel, will result in a restructuring of the
1996 act in a way that will benefit consumers and benefit
competition but preserve critical aspects of legacy regulation
that are necessary to promote important social policies.
Mr. Ferguson. I think you would find a lot of people on
this panel who would agree with that.
Thank you, Mr. Chairman.
Mr. Upton. Mr. Gonzalez.
Mr. Gonzalez. Thank you very much, Mr. Chairman.
I guess my first observation, and I apologize, I was absent
during some of the questioning that would be very relevant to
what I want to speak to, and the first assumption, I think, is
always that I think individuals, the witnesses, and many of the
individuals in the audience go back to their offices later and
I think they actually say things like, ``These guys really
don't understand the technology, the members of this
committee.'' And then they say, ``Gee, and we know they don't
understand sound business practices.'' Well, you may be right,
but it doesn't mean that we are not going to regulate. So be
really careful what you ask for. The amount of specificity and
detail, you know, we hear it from that end and then you get it
from us, because we are trying to obligate you on all sorts of
stuff that may or may not lend itself when you get in there
into the real practice. So I guess, you know, this is just, you
know, beware. All of us should beware of what we are trying to
do. We are trying to accommodate changing technology, right?
And we have traditional companies, the wire line companies,
that are moving into these new technologies. We have got to
figure out how that is going to happen, how we will foster
competition, and how we will be in a position to actually
enhance and promote this technology. And I know I wasn't here,
I think, when Mr. Markey eluded to is SBC, or anyone else
similarly situated, more or less redlining or whatever.
And I guess my question to Ms. Champion, I just always
assume certain things, if I look at cable companies and I look
at Time Warner in San Antonio in the 20th District. You know.
They have Voice over Internet Protocol available now. They have
always had their cable lines there. I know when SBC went into
broadband, well, you know, we had our phone line coming in. But
what we are talking about here is something a little different,
and you are expanding and going into something different as
well as other companies. Do you all look at markets and fear,
as you start off, in order to remain competitive and make a
profit, which is still a legitimate business goal in America
today, do you look at a customer profile and say, ``This is
where we are going to go,'' get off the ground, and then see
where else we go? Because I really believe you have to do that
to survive, and then to expand, and maybe into certain
communities that, at one time, maybe weren't as attractive or
such. I mean, that is just kind of a common sense approach that
I have always felt about everything. I may be completely wrong,
and I would ask that you please address that particular view or
concern of mine.
Ms. Champion. To survive, you must apply sound business
practices. And that means that you have to start and build. The
course that we have ahead of us is a very challenging course to
enter as a new video provider, an IP-based solution for our
customers. So yes, we have to start and then build on our
capabilities and create momentum. We are competing against the
incumbent providers, and as much as they entered our business,
they entered into the voice business and are entering into the
voice business without the legacy constraints and the legacy
rules of an incumbent voice provider. So the path forward for
SBC is absolutely we want to serve our customers. We have the
most aggressive, 50 percent plus, than anyone sitting, other
than at this table, you know, that is talking about reaching 18
million subscribers. So our goal is absolutely to get there.
And as technology evolves, we will have even more capabilities.
But the key for us is to enter this marketplace, to make these
investments, let these capabilities develop, and then let us
work through that process very quickly over the next several
years to determine, just as we did with DSL and just as has
been done with wireless technology, where both of them have
grown rapidly without mandates on building areas to serve
customers and provide customers with the solutions that they
want. Customers, at the end of the day, are what is going to
dictate the sound business choices that SBC makes relative to
the investments of billions of dollars of shareholders' money.
And so what we are looking for is the ability, with a light
touch entry, to enter this marketplace with a new solution and
a powerful solution that allows us to serve customers.
Mr. Gonzalez. Thank you.
The way I see the big question, and I think the way it has
been presented by committee staff to me during the briefings,
is really how we categorize different service and providers:
voice, data, video, what will they be subject to, what is still
fair to carry on as far as certain obligations in the way of
contribution by existing companies and so on. And if we could
just rather stay focused on those things. I think Mr. Gleason
had something on retransmission, the problems we have with
that. We know from the broadcasters on multi-cast, we know the
problems with digital and high-definition whether this will be
carried or not carried. And I would like that we would be able
to address those things. But I would rather that the industries
themselves come to some sort of an agreement so that it doesn't
require us to move forward or allow any regulatory agency to
take that particular issue over. But those are my observations.
But we do appreciate that you have come forward, that you
provide us the insight regarding the change in technologies and
trying to explain it to us. You know, believe it or not, we are
capable of understanding, when we listen. And also, there is
nothing wrong with bringing out the market dynamics and
explaining those in detail sometimes to us.
But again, I would yield back at this time.
Thank you, Mr. Chairman.
Mr. Upton. Mr. Pickering.
Mr. Pickering. Mr. Chairman, thank you.
Let me really quickly give what I think is the context of
the decisions before us as policymakers where there is
consensus and then what our objectives should be as we examine
our policy decisions. The context, the 1996 act has been fully
implemented and the old world is over. There is no longer long
distance and local. As we see the mergers and acquisitions, we
are going to concentration. Probably in the next 2 years, where
there are four Bells, I wouldn't be surprised if there are only
two Bells: Bell East and Bell West. There is a concentration
occurring in wireless from seven national probably down to
three or four. Cable is experiencing the same thing.
As we see the completion of the act and then we see the
concentration of the industries, all sectors, and that is not
necessarily a negative thing, it leads us to convergence, which
is one of the objectives of the 1996 act. What we are talking
about today is the quadruple play or the four play that you can
offer data, video, voice, wireless and then offer consumers
that. That is, I think, a good outcome. But it is very critical
that as we go into concentration and convergence that we still
maintain the core objective of the 1996 act. Even though the
1996 act now deserves reform or revision or modification, I
think the objectives of the act should be the same and that is
to maximize competition, maximize choice, because when you do
that, you maximize investment, capital investment into new
applications, new technologies, and that core objective is what
we should consider.
The other objective is that we are competitively neutral,
that we don't favor Bells over cable, or cable over Bells, or
wireless or other new entrants, that we should try to find a
way, even though I do not think it is possible at this point to
have regulatory parity, it is possible to have fairness. And I
have said this before, when you are raising children, I have
five boys, you treat your children at different stages
differently, but you hope you treat them fairly, so at the end
of their youth, as a mature adult, you can release them into
deregulatory parity.
So that, I believe, is what our objective should be. There
is a danger with concentration that we could have not a
monopoly, but in a lot of our markets, duopolies. I do not
think that would be a good outcome. I think that we want to see
three to five competitors in each segment or each sector of our
markets. And so as we look at our decisions, we should say,
one, we are going to be competitively neutral, we are going to
maximize competition, and we want to try to maintain three to
five competitors in each of our markets.
So having said that, if those are objectives we can agree
on as a committee, then where are the consensus points that we
have reached? I think on IP-related services, the consensus
points are that IP-related services should primarily be
regulated at the Federal level. I think that is a consensus.
Now there are partnerships with States and localities even
under that, but in general, their primary jurisdiction should
be Federal. I think that there is consensus on the social
obligations: USF, E911, law enforcement, CALEA, in concept, not
in detail. I think that there is consensus that we should do
intercarrier comp as we go forward.
Now where we have remaining questions or concerns are how
do we treat networks, incumbent networks, and how do we treat
content, access to content. And how we choose those two answers
will determine if we reach our policy objectives. So in that
context, I would like to ask my questions.
Ms. Champion, you testified earlier that as you enter into
video, that you would like to see legacy regulations removed.
Is that your position?
Ms. Champion. We are building a new network that is an
entirely IP-based solution, so yes, the legacy rules, as a new
entrant, should not be applied.
Mr. Pickering. Now is that the same position you take at
FCC?
Ms. Champion. Yes.
Mr. Pickering. According to your proceeding to the FCC that
is now pending currently, your petition says a declaration that
IP platform services are not subject to Title II will not
affect the applicability of Title II to legacy
telecommunication services and networks. So before the FCC, you
are saying it would in no way affect existing regulation of
legacy networks and services by either State or Federal
regulation. The other point that you make is that services may
remain unregulated but will have no effect on rights of access
to legacy non-IP-based services and certain facilities that
support them. And it goes on to basically say that as we have
seen the completion of the act and competition emerge, we have
had FCC action to deregulate the network, the broadband
decision, those beginnings of deregulating the network as
competition emerges but still maintaining minimal regulation of
legacy networks. You are testifying differently than how I read
your proceeding at the FCC and the outcome as far as maximizing
competition.
For example, I would like to ask Mr. Cohen this question,
if you remove legacy regulations to networks, cable right now
partners with C-LEC's to offer VoIP, is that correct?
Mr. Cohen. We do have to partner with C-LEC's to offer
VoIP, because we need the connections to customers off of our
basic network.
Mr. Pickering. And so if C-LEC's no longer can have access
to loops and transports, can you offer VoIP, the voice service
today?
Mr. Cohen. I think we would need different partnerships,
but we would have to structure different business relationships
with some different players.
Mr. Pickering. And what partner could now, that exists
today, if no partner can get access to loops and transports,
how could you offer VoIP? Where are you going to find this
partner?
Mr. Cohen. We will find a partner at this table.
Mr. Pickering. Oh, you are talking about here?
Mr. Cohen. Yeah.
Mr. Pickering. But I am talking about if we were to do as
SBC testified and that we took away all access to the incumbent
network, how would ISPs and cable offer voice today? I think
the answer is you would not be able to.
Mr. Cohen. I think that we would not be able to in the way
you have raised the question.
Mr. Pickering. Yeah.
Mr. Cohen. That is correct.
Mr. Pickering. And then the question is----
Mr. Cohen. I am not sure I understand, but----
Mr. Pickering. Now let us go back to the objective. We want
to maximize competition in voice. Now I am going to come back
and I am going to say what the Bells would probably want me to
say as they enter your market, and this gets back to fairness,
not parity but fairness. If we want to maximize voice
competition and your quadruple play as you enter into their
market, you need access to their networks, is that not correct?
Or your partners need access, at least the minimal elements of
the network, is that correct?
Mr. Cohen. I think that is correct.
Mr. Pickering. Now on a preemption policy, you had
testified earlier, Mr. Cohen, that you would want them to go
through the same franchising, city by city. Is that correct?
Mr. Cohen. I think what I testified to was that under
current law, I believe that is what the requirement is. And I
allowed that as this committee looks at and evaluates the
competitive marketplace and weighs all of the factors, one of
the factors this committee should look at, I think it was in
response to Mr. Doyle's question, was the applicability of
franchise requirements not only to the Bells but also to
incumbent cable providers.
Mr. Pickering. But if we followed that policy, it would not
be consistent with a primary Federal jurisdiction, and it could
actually act to slow competition in video and the investment,
the capital investment, and IP video. And so what I would like
to do is work with everyone to find those areas where we could
preempt, remove all basic barriers to entry so that we can
speed competition and investment in both video while
maintaining competitive choices in voice and the ability of
everyone to compete in both markets. There will be different
treatment but the same objective in both markets.
And so I would look forward to working with the chairman of
this committee to find additional points of consensus as we try
to maximize competition in all markets.
Thank you.
Mr. Upton. Mr. Inslee.
Mr. Inslee. Thank you. And I share Mr. Pickering's goal
that ultimately we will come out with a bill that leads to an
industry that is just as well behaved as the Pickering
children. So we set the bar kind of high here, but I hope we
are going to get it.
I want to thank Mr. Mitchell for joining us and thank you
all for seeing the wisdom for using Microsoft products in this
effort as well. It is the hometown team, and I appreciate that.
Mr. Ingalls, I wanted to ask you how important are video
services in your, sort of, business plan, and what do you
really consider the major hurdle to full implementation that we
should be knowledgeable about?
Mr. Ingalls. Yeah, as far as our business plan goes, I
think Mr. Pickering eluded to it, whether you call it the
triple play or the quadruple play, the market is converging. It
is about voice, video, and data. And as we sit and look at the
market evolving, we are losing market share on our legacy
business to providers of the triple play where we have
partnered with DirecTV, as an example, to offer a bundle. We
believe to compete, our business model requires us to deliver a
high-end network, which we are building with FiOS, that will
really differentiate us from both what SBC and Comcast have
talked about today, because we really are providing a very
unique business and capability to our customers. The upstream
capability is not to be diminished. And our basic offering, it
is two megabits upstream. There is a lot of capability there
that will be offered to the consumer, you know, and I alluded
to it in my testimony talking about just the idea of sharing
media with your friends and family. So Mr. Pickering has five
kids. My guess is at some point in time he is going to share
his album over the network as opposed to on pictures. And to do
that with two megabits upstream instead of, you know, something
less, like 768, is a significantly different experience.
So building that network is critical, because we really
made the decision to go all of the way to the home, because we
know speed is really one of the key issues and requirements of
our customers.
On the other side, what is the biggest roadblock to getting
into the business? I have said it several times today. The No.
1 issue in trying to roll out to the market is negotiating
hundreds, if not thousands, of franchises across all of the
local communities, and we really are talking about thousands.
And so we have many people deployed today who are sitting in
rooms negotiating in these hundreds of cities. We only have
five franchises. We have been at it for over a year trying to
get there. So that is a huge issue. And as I stated earlier to
Mr. Boucher's statement, yes, we would like to see a policy
that does streamline that. I do understand the fairness issue,
but I also understand the value of competition. And I think
competition is going to drive investment and investment, as you
all know, will drive jobs. We are going to hire 3,000 to 5,000
new people this year just to build the fiber network across our
footprint.
Mr. Inslee. Thank you.
Mr. Gleason, you mentioned something intriguing, and I
wanted to make sure I understood it, on retransmission rights.
You said something to the effect that you would like to see a
right to bid competitively for other, as I understand it,
geographic areas for syndication purposes. Could you elaborate
on that on how you see that as a solution?
Mr. Gleason. Sure. As we have discussed, right now, if a
broadcaster elects retransmission consent, we have to negotiate
to come to an agreement to carry that broadcast station that we
want to do. But at the same time, that broadcast station is
given network non-duplication rights, meaning that if they are
an NBC affiliate, for example, we have to negotiate to get
retransmission consent for that NBC affiliate within our given
market. But we also can not import an NBC affiliate from a
neighboring DMA or over satellite, for example. And we have got
no problem with must-carry or a station that elects
retransmission consent, but now when they want to charge for
that free, over-the-air signal, we are in a no negotiating type
of position in that there is no competition for that that
establishes the price that that station may want to charge. So
our position is that we should be able to import an out-of-
market station, or in essence, how we have put it with the FCC,
give us the right to shop for a better deal, and we think that
that will more clearly establish what the value that station
places on their retransmission consent price.
Mr. Inslee. And from the broadcasters, how would you
respond to their criticism how that affects their locality of
the broadcast content?
Mr. Gleason. Well, I can say I think localism is extremely
important, and we want to carry the local broadcast stations,
and that is why we have must-carry. And that is why it is free,
over-the-air broadcast, and the station can elect must-carry
and the local programming will be on the cable system.
Mr. Inslee. Okay.
Thank you.
Mr. Upton. Ms. Cubin.
Ms. Cubin. Thank you, Mr. Chairman.
You know, I think most everybody up here has said that we
have some objectives in what we are doing, and you all know
that, too. And that is maximize competition, maximize choice on
a competitively neutral platform. But I would like to add one
other objective, and that is that rural America gets served.
And you know, that is going to be the basis for every decision
that I make. And I say that I am a little bit cynical about a
lot of things that I hear, although I know that they are true,
but they don't necessarily apply to Wyoming. For example, when
I was traveling around the State a few weeks ago, you know, we
were driving, and for 50 minutes, we didn't even have cell
phone service in Wyoming. So I feel like we are being left
behind in a lot of the promises that are being made. And to me,
that is just not acceptable. So I just want you to know that
every decision I make will be based on whether rural America is
being served and really being served in a true way.
So my first question will be first for Mr. Schmidt and then
response by Mr. Gleason.
With the prospect of so many new companies providing video
to consumers, what mechanisms are in place to ensure that
smaller co-ops, like those in Wyoming, will have access to
programming? And do you think that they will just lose out in
negotiations and that we will see a big increase in exclusive
agreements like the NFL has with DirecTV?
Mr. Schmidt. Well, there is a major issue, a major problem
for broadcasting that has come up indirectly today, and that is
the problem that we are required by law to be open,
unencrypted, and available to everyone. So unless we are
carried on a secondary basis through a subscriber-based system,
we get none of those revenues. You may have noticed this
weekend that there was a major development on the sports front
where ESPN obtained Monday Night Football. ESPN is going to pay
twice as much as ABC could pay and probably get 60 percent of
the audience. That basic calculus is what is playing out
through the video marketplace everywhere: high-quality
programming, high-value programming is migrating away from the
local broadcast system and on to the subscription services. We
can share, in a small way, through the retransmission consent
mechanism, where when people are charging for our product we
can get some percentage of what they charge.
The problem I have with the bidding system that Mr. Gleason
is proposing is that he is going to be pitting Cheyenne against
Denver, and I don't think that battle is a fair battle. Denver
is going to win it. The cities are going to win over the rural
areas. They may not win it directly, but eventually, the Denver
stations will be able to pay more.
Ms. Cubin. Absolutely.
Mr. Schmidt. The networks will decide to go through the
Denver stations, because it is more efficient, and we will lose
the localism at the edges of the service in exactly the areas
you are talking about.
Mr. Gleason. And I have said repeatedly to protect
localism, elect must-carry and then that way that local station
is guaranteed to be on that network. You know. I would argue on
the sports rights fees, that is the whole heart of the rest of
our argument is that we have a problem, the smaller cable
operators, like many that would serve in your area in Wyoming,
if ESPN is going to pay double what ABC was paying, do our
customers really care that it is not on channel 7 and it is now
on channel 17? I don't think they do. And that is why we
believe we need to have the ability to tier certain types of
programming on cable so that, again, the four major media
conglomerates don't control the entire dial. It is not all
shoved onto expanded basic. We have got to come up with the
ability to sell consumers the types of services that they want
to get, and I think if that ability were there, you may not
have seen that recent development.
Mr. Schmidt. I don't disagree that your problem is that you
are paying too much for cable programming, but you are paying
too little for broadcast programming, for free, over-the-air
broadcasting.
Ms. Cubin. And this subject of franchising has been
discussed. I just want to go on a little bit more about it. I
am a direct person. I need really direct answers.
Mr. Cohen, from what I have heard today, the way I
understand it is that you want to be able to offer Voice over
IP, but you don't want phone companies to have IP video
legislation. You feel, once again, if I understand this
correctly, that there is enough video competition with
satellite and that is one of the reasons for that. Playing
devil's advocate, I would suggest that wireless competition
exists for phone companies, and the problem, as I see it, is
that franchise areas are not necessarily geographically in the
same place as phone service areas. So why is it we shouldn't
fix this in an IP title in the communications act? Because it
seems to me that that would help increase competition and
therefore the number and quality of services in rural America.
Mr. Cohen. With all due respect, I don't agree with the
characterization of what I have said today.
Ms. Cubin. Okay. Well, that is why I am asking.
Mr. Cohen. I think on the voice side, I have endorsed the
consensus that I think we have been working toward, and by we I
mean the entire telecommunications industry with members of
this committee, over the past two or 3 years, and I think we
are almost to the finish line there and think that the
appropriate balances have been struck in those compromises. I
absolutely have repeatedly said that we welcome the competition
from the Bells in the video marketplace. I think it makes our
product better, and I think it improves the experience for
customers. And I have not and will not defend the current
franchising status quo. As the largest cable company in
America, I will guarantee you that we have experienced more of
the pain and suffering that you experience through the local
franchising process than anyone who you have heard from today.
And what I have said, however, is that before you go in and
simply say, ``Let us eliminate franchising,'' let us recognize
some of the important public policies that were designed to be
protected by the franchising process, issues of localism,
issues of non-discrimination, issues that we have talked about
here, issues of franchising fees and local revenues, and pegged
channels and public access television. I mean, I think, by the
way, collectively, and I know that there is a huge amount of
disagreement about this, that as you restructure the
obligations that are imposed on competitors in the 1996 act,
that we make sure, No. 1, that we are truly fostering
competition; No. 2, that even light regulation is not picking
winners or losers; No. 3, that we are stimulating facilities-
based competition, which is what all of us endorse and believe
in; No. 4, that we treat like services alike; and No. 5, that
we make sure that the ultimate regulatory scheme protects
important legacy social policies and regulations that I think
everyone would agree are important to protect. And I think that
is the tough task of this committee, and I think the dialog
today has helped to expose where some of the friction points
are going to be as you go through that analysis.
Ms. Cubin. Thank you, Mr. Chairman.
Mr. Upton. Mr. Radanovich.
Mr. Radanovich. Thank you, Mr. Chairman.
Most of the questions, I think, that I have had have been
answered, but I would like to pose a couple of questions, too.
Mr. Cohen, I appreciated your comments about what ought to
be the objectives of any telecom rewrite, and I just want to do
my best to make sure that there is regulatory parity in what we
do. And with that in mind, it seems to me the toughest part of
the rewrite will be on the franchise issue. And there has been
some discussion amongst Verizon and SBC about the willingness
to look at things like national franchising or State
franchising. I would be interested to know what your thoughts
are on that, whether that is, you know, a common meeting ground
area.
Mr. Cohen. Yeah, I think that is going to be one of the
questions we all have to work our way through. I think everyone
has to remember that the local franchising requirements in
Title VI didn't just appear in Title VI because somebody wanted
to empower local governments to extort from cable companies.
And that was not the public policy objective that was present.
And I was not around then, but I think what happened was that
there were a series of important issues around localism and
local interests and that the Congress determined that the best
way to protect those interests was by having local franchising
requirements and let the local governments protect those
interests.
I am a little concerned when we talk about Federal
franchising, because I wonder who then is going to be charged
with protecting whatever localism and local interests that we
might all agree deserve to be protected. I mean, is this
committee going to sit and make franchise fee determinations?
Is the FCC going to do that? When you move to the State level,
you are getting closer to the local issues, and there may be a
better opportunity to do that. By the same token, I mean, I
want to say that I hear from Verizon and SBC that the way in
which they provide service doesn't fit neatly within the way in
which local franchise areas are drawn, and I hear and share
their pain with the administrative burden and inconvenience of
local franchising regulations.
So I think it is those types of issues that we have to
discuss to be able to find the accommodation where we have got
a model that works for their business model that provides fair,
and I will adopt Congressman Pickering's word, a fair sharing
of regulatory burdens on all competitors in the marketplace,
but by the same token, it provides a structure where important
issues of localism can be protected going forward.
Mr. Radanovich. Right. Right. All right. Thank you.
You mentioned something earlier, too, about your problem in
Los Angeles with the 23 stations on the must-carry provision.
How would you solve that? I mean, is there a way to solve that
problem?
Mr. Cohen. Well, I think Mr. Gleason's testimony and
comments are very interesting on the must-carry issue. I didn't
really come here today prepared to discuss it in full. I mean,
when you have 23 must-carry stations in a single market, and
obviously I picked the market in the country with the largest
number of must-carry stations.
Mr. Radanovich. Right. Right.
Mr. Cohen. I think I make the point really to drive home
the tremendous problems and issues that would be put in place
by having multi-casting must-carry, because you are taking
those 23 must-carry stations and giving them three, four, or
five extra channels, and all of a sudden you have now got 100
must-carry stations in a single market. I mean, I think if you
are going to address, in a particular market, the number of
must-carry stations, you could probably address that issue,
which really doesn't go to Mr. Gleason's issues, by tweaking
the definition of what you have to do in order to be a must-
carry station, which might reduce the number of stations that
have those rights in a regulatory environment.
Mr. Schmidt. I might point out, Mr. Radanovich----
Mr. Radanovich. Yes. Sure.
Mr. Schmidt. [continuing] that we are talking bandwidth
here. You can divide it up into tiny little slices, but really
the bandwidth load is no greater, because the station is six
megahertz digital than it is six megahertz analog.
Mr. Radanovich. Got it. Thank you. Thank you.
Ms. Champion, I want to ask you, on the issues, you have
been grilled a lot, I think, on SBC's willingness to service
rural areas as part of any discussion on a telecom rewrite. And
I am curious to know a little bit more about your thoughts on
achieving that. It has got to be part of our concerns on this
part of the table to make sure that people are served, both
that they are served but also served cost-effectively. Give me
your thoughts on that, on rural delivery, but also on your
willingness to abide by indecency standards that are imposed
upon the cable producers.
Ms. Champion. Yes. Regarding the rule question, our
position is basically this. We have to enter the marketplace
and begin to expand our capabilities. That means investments
will be made into new technologies. And as this IPTV platform
becomes available in the marketplace, there is absolutely, as
we see in the technological advances recently, there will be
solutions that I believe will help us solve some of the density
issues around many of the rural areas. It is a physical
situation today. And so as technologies evolve, we read every
day about advancements with wireless technology, Y-max, et
cetera, I believe there is a combination of technologies that
will let us achieve our goal to serving our customers across
our footprint, and we will adopt those technologies to provide
customers solutions. The day there are physical and economic
situations that really----
Mr. Radanovich. Maybe I can ask you, would you be willing
to abide by any standard that is set up in a telecom rewrite to
make sure that those areas are provided?
Ms. Champion. Well, my preference is that you would have a
light touch approach to this. Just as with wireless and with
DSL, we have been able to make investments and expand our
footprint. So I wouldn't be looking for mandates that would
specify that. I would be looking for the ability for us to
deploy technologies and to make investments----
Mr. Radanovich. Okay.
Ms. Champion. [continuing] based on sound business
practices to serve customers across the footprint.
Mr. Radanovich. How about the indecency deal?
Ms. Champion. Well, we absolutely will abide by the rules
of the FCC and other Congress issues related to managing the
content that is available to subscribers.
Mr. Radanovich. Thank you.
Thank you, Mr. Chairman.
Mr. Upton. Ms. Blackburn.
Ms. Blackburn. Thank you, Mr. Chairman.
I want to thank all of you for your patience and for being
here today. I know it has been a long hearing, and as we got
the schedule of who was going to be here today, I thought, ``My
heavens, seven people on a panel.'' You know. But it is such a
great conversation, and it is helpful to me, and I am sure to
many of my colleagues, to listen to the exchange between you
all and your thoughts on how you approach this. I am out of
Tennessee, and I represent a lot of the content producers,
whether it be music, whether it be television, whether it be
film, and of course, there is tremendous interest in what is
going to happen with this bill. And today, we have heard a lot
about infrastructure and we have heard about finances and
franchises and taxation and competition and regulation and what
it means to your business.
But I want to go back to something. Mr. Ingalls had touched
on it, and Mr. Cohen had touched on it. And this is the
compliance cost. As you look at dealing with the local
franchises is you look at the Federal regulation. And Mr.
Ingalls, and then Mr. Cohen, if you will each answer, Mr.
Ingalls, for the cost to Verizon to comply with the local
franchising authority, and then Mr. Cohen, if you would address
that for Comcast. What is it costing you as you go in and you
negotiate these local franchise agreements and the amount of
time that you are spending on that? What is the cost of
compliance for that, if you will address that?
Mr. Ingalls. Well, I think the biggest cost will be the
franchise fee, which we fully understand we will pay, and it
ranges, you know, 2 to 5 percent, depending on the
jurisdiction. In terms of resources, it is cost a fair amount
of resources, so I can't put the budget on that, but we have
dozens of people deployed across the country negotiating with
local jurisdictions. So the real cost is franchise fees. And
then when you look at building the network that we are
building, we don't really feel there is a cost with the must-
carry issues or the peg channels, because we are building a
network. And that is one of the points that is really important
here is I think this isn't just about IP. This is really about
the network, and it is voice, video, and data. And so we are
building a network that has the capacity to accommodate the
local programming requirements. So those are not big costs. It
really is the franchise fee.
Ms. Blackburn. Okay.
Mr. Cohen?
Mr. Cohen. I am sorry. I was coughing before. I didn't want
to cough into the microphone.
I think I would certainly agree with Mr. Ingalls. The
largest cost is the franchise fee. We probably have several
hundred people who are engaged in franchising. Our rough
franchise number, you will all have a heart attack when you
hear this, we have over 5,000 franchises and average length is
about 10 years, which means that every year, about 10 percent
of them are being re-negotiated. So that means we are doing a
new franchise agreement, basically, more than once a day on an
annual basis somewhere in the country. And I might be able to
give you some more specific numbers, which I would be happy to
forward on, if we go back and do a little analysis of them.
Ms. Blackburn. That would be great. I think it would be
helpful to us, you know, to look at not only the dollar costs
of the franchise fee but the human capital cost and the
agreements and the maintenance of those agreements.
Mr. Cohen. I am sure we can put together some numbers,
which we will get to the committee.
Ms. Blackburn. That would be helpful. Thank you.
Quickly to Ms. Champion and Mr. Ingalls. Competition and
looking at content. My content providers are very concerned
about what they see as the peer-to-peer file swapping, and----
Mr. Ingalls. I am sorry. I couldn't hear you.
Ms. Blackburn. The peer-to-peer file swapping.
Mr. Ingalls. Oh, okay.
Ms. Blackburn. And we are concerned about the Internet
traffic and peer-to-peer file swapping, the copyright
infringements that are there to our songwriters to our content
producers. So in light of the discussion of the file swapping
and the copyright infringements, it seems to many of my content
producers that facilitating or enabling Video-over IP might
further contribute to the significant online piracy problem
that they are addressing every single day. And in your opinion,
do you think that this committee should explore mechanisms for
ensuring that Video-over IP does not exacerbate this problem?
Ms. Champion. I believe this platform has the ability to
really simplify and solve some of those issues and being able
to introduce for those various content providers a way to bring
their content to users and then users to be able to legally
purchase, providing them choices and options that maybe didn't
exist before, even on a pay-per-use or on a pay-per-selection
process. You know, part of this process here is about building
a very robust back-office system and capabilities that will
help fundamentally support various content owners to reach more
customers and to monetize that in effective ways. So I believe
there are some great capability here to bring growth and
management of their content.
Ms. Blackburn. And you all are taking steps?
Ms. Champion. Our platform is being built. You know, there
is a very significant investment, $4 billion. A big chunk of
that is about our back offices and being able to support use
and sensitive type services for digital consumption. And that
is the nature of what this platform is about. It really
unleashes a whole capability that we haven't even gotten to
today about fundamentally allowing new consumption legally
whereas options today may not be as easily and readily
available to consumers. So it is about creating a whole new
platform for digital content consumption, which can really help
various providers.
Mr. Ingalls. If I could just add on, you know, as Ms.
Champion said, the platform really is the key enabler, and I
think the back office is a key component. But we are, today,
negotiating with content providers. It is one of the key
questions as we have attempted to close those negotiations, and
we have committed to stand behind the digital rights management
and protection for the content providers. And it really is the
systems. We are in a new generation now, and so the
capabilities that we are building into this multi-billion
dollar investment do just as Ms. Champion said provide
protection and hopefully put in the hands of the content
providers a new revenue source through, whether it be
subscription or pay-per-use.
Ms. Blackburn. Thank you. Thank you.
Mr. Upton. Thank you.
Mr. Stearns.
Mr. Stearns. Thank you, Mr. Chairman. I didn't do my
opening statement. By unanimous consent, I would just like to
put it as part of the record.
Mr. Upton. All members were allowed to do that.
Mr. Stearns. Okay. You know, I think, as many of us are
aware, and I think as Mr. Boucher and I both adopt a bill sort
of classifying this new IP-enabled services with a new
definition, ``advanced Internet communication services.'' And
so we are trying to really break out of the inflexibility of
the regulatory titles, because we don't have anything in Title
I or II or even Title VI of the telecom act, which really
describes what we are trying to do. So we are attempting to
promote a regulatory certainty, which encourages investment in
these areas and so to get the flexibility. I think there are
two questions I have. Mr. Mitchell will search in his testimony
that where ``subject to regulation, IP services should be
exclusively within Federal jurisdiction.'' I guess the question
for all of the witnesses, does everybody agree with that or
disagree? And maybe if you disagree with it, you might comment,
and I will assume everybody else agrees with it.
Okay. The second question I have is, Mr. Cohen, you
indicated today that you do not support different rules for IP
video services. But what about a two-way interactive service,
regardless of how they are provided, that, let us say, arguably
today, perhaps could not be defined as cable services. So that
is the question for you.
Mr. Cohen. Well, I mean, I think that was a subcomment of
my view, my general view that like services should be treated
alike. And I would note that in our On Demand platform today,
we are providing a robust, two-way, interactive service, which
is not unlike the two-way, interactive service that SBC and
Verizon will be providing over their networks. The
comparability is much closer than the lack of comparability.
Mr. Stearns. So you would define that as a typical cable
service then?
Mr. Cohen. Whether it is a typical cable service, it is
enabled in 90 percent of the households across the Comcast
footprint. I think over a relatively short period of time, it
will be comparably available across all cable company
footprints in the country.
Mr. Stearns. So you don't support different rules then?
Mr. Cohen. I think the answer is that we don't support
different regulatory treatment for like services.
Mr. Stearns. Okay. And this is a follow-up with one of the
questions, I think, dealing with indecency. And this is for Mr.
Perry. How will your technology enable parents to better
control indecent material on television?
Mr. Perry. Well, the No. 1 thing that our technology does
is it makes sure the right content gets to the right viewers,
so we preserve the local broadcaster's copyright. In doing
that, we are opening up broadcasting to a PC. And PCs can be
used then to set filters. In fact, of our 500,000 users of
TitanTV today, we have many users that have customized their
interactive program guide to only show those channels that they
wish their family to see. So the fact that we are broadcasting
to a PC opens up a whole host of possibilities for controlling
indecency.
Mr. Stearns. I have got another minute, Mr. Chairman,
before, and I think we can still make the vote.
I think, Mr. Cohen, you have answered this, but I wasn't
here when you answered it. You assert that additional
competition would be presented by the Bells ``warrants a
comprehensive reexamination of existing regulatory framework
adopted when the video marketplace was far less competitive.''
And I think, did you point out the rules then that Congress
should change for this whole video industry?
Mr. Cohen. We do endorse the work of this committee. We
think that the competitive environment has changed since 1996
and it is absolutely appropriate to review the rules and
regulations that apply. And I have given a couple of specific
areas, including VoIP and the local franchising area and some
of the other regulatory parity that may exist in other titles
of the existing communications act but is not in Title VI
today.
Mr. Stearns. Thank you.
Mr. Upton. As much as I would like to give a lengthy
closing statement, looking at the clock, and we have a couple
of minutes on a series of votes. All of us appreciate your
testimony today and look forward to working with you in the
months ahead. Thank you.
[Whereupon, at 1:11 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Response for the Record by James M. Gleason, President, NewWave
Communications, and Chairman, American Cable Association
Question: Do you believe that the concept of ``net neutrality,'' as
we have seen in the area of IP-voice services, will eventually become
relevant when it comes to the field of IP-Video? In other words, does
anyone foresee a time when network operators will have the opportunity
to block the services of other video providers? And if so, how do you
think such a problem should be remedied? By some sort of pre-emptive
legislation or a sort of post-hoc reaction by the FCC to each case?
Answer: Net neutrality is less relevant in the video world because
of the difference of the product offering. A voice product delivered by
any provider is the same product no matter what network it is offered
through. In the video world it is harder to create a product that would
be ``net neutral.'' There are five major programming conglomerates that
control of 80% or more of the available television video content in
America. These conglomerates will dictate what the video product will
look like whether it is carried on telephone, satellite or traditional
cable backbone, and no matter the retail provider. Congress should
address the issue of video programming tying, bundling and control of
video content by the five major media conglomerates, including
retransmission consent, if Congress' intent is ensuring continued
growth in the video IP sector for the American public. Cable and phone
providers will provide access to their networks if Congress can give
them back control over their bandwidth. If Congress goes down a path of
restriction/access on a networks bandwidth, then Congress will be
picking winners and losers rather than allowing the marketplace to
function as it does best.
The key from a legislative perspective is to treat like services
alike. Rather than focusing on specific issues such as, ``net
neutrality'' and bandwidth restrictive measures, Congress should not
create blanket laws in regard to IP-enabled services. Rather, Congress
should address each product category separately and create common laws
within the specific product category across all platforms of providers.
This would ensure a ``level playing field'' for all providers and
network owners.
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