Statement of C. Michael Armstrong.
Re: Senate Antitrust Subcommittee Hearing on Convergence and Consolidation in the Entertainment and Information Industries.
Date: July 7, 1998.
Source: This document was created by scanning a photocopy of the original paper copy, and converting to HTML.

Testimony of C. Michael Armstrong
Chairman and CEO, AT&T Corp.
Before the Antitrust, Business Rights and Competition Subcommittee
Senate Judiciary Committee
July 7, 1998

Chairman DeWine and Members of the Subcommittee, thank you for inviting me to testify today about the proposed merger between AT&T and Tele-Communications Inc. (TCI). I understand that this hearing on the convergence of technologies and consolidation in the telecommunications industry has been scheduled for several weeks. I'm delighted at the convergence of your hearing with the announcement of our merger with TCI.

I'm here with three messages this morning: First, AT&T's merger with TCI will benefit consumers. Second, this merger will enhance competition. And third, we still must have the implementation of the Telecommunications Act of 1996 requiring the Bell companies to viably open their local markets to competition.

The underlying principle of this merger is to offer consumers the benefits of the convergence of technology through new and exciting services. By combining broadband technology, such as cable and fiber optics, with communications technology, such as packet switching and photonics, traditional services can be more effectively delivered and new services made efficiently possible.

Yes, importantly, this merger will enable consumers to make phone calls over cable, thereby promising an alternative to the Bell monopolies in areas TCI [begin page 2] reaches. But it will also enable them to have many phone lines for the price they pay for a few lines today. A line for Mom, for Dad, for the children, for the fax, for the computer, at lower prices than today's rates.

Yes, this merger will attach the telephone, the television, and the computer to a common communications connection. But it will also enable more powerful consumer usage of these devices. The computer will be able to view entertainment and make telephone calls as it computes. The television will be able to access and display internet information as it entertains. The telephone will become a ubiquitous internet and information device as the network makes communications in any form a simple person to person, not just a place to place, experience.

Yes, this merger will provide competition to the local exchange carrier connection. But it is not only a competitive alternative for what is -- a phone call. It is also about consumer choice for new service alternatives. Certainly, we look forward to offering competitive telephone service. However, if the kids want some chat space on the internet; or Dad needs a high speed connection for work at home; or Mom wants her own line with her own ring; or the family wants entertainment options more tailored to their interests and budget, these are the kinds of consumer choices we'll be delivering.

Yes, we'll offer services a la carte as well as in packages. And no matter what you order, local or long distance, entertainment or internet, or all the services, we will put it on one bill from one company to serve you.

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When will all this happen? First, we-are hopeful of regulatory review and approval in 9 months or less. In the meantime, TCI independently will be spending $1.8 billion to upgrade their cable network to deliver more entertainment at a higher quality as well as to enable two way capability for internet and information services. This work will be 60% complete by YE 1999 and 90% by YE 2000. It is to this upgraded cable base that we will add the capability for telephone services, at an estimated cost per household of $300-500, depending on the configuration. We plan to pilot in 1999 and begin our deployment in 2000. Build out will be driven by our ramp rate and market demand.

Our goal is to offer all consumers the broadest array of communications services that are modular in choice, simple to use and affordable to enjoy. But this merger is only a step in that direction. TCI connects to 10 million households and passes another 7 million (of the more than 100 million households in the country). For AT&T to be able to serve all of its residential customers and to provide competitive alternatives to the broader market, we will require the use of more facilities.

Thus, commercial arrangements, investment and the availability of local exchange facilities as provided in the Telecom Act of 1996 are required, for AT&T as well as for other competitive local carriers. The Telecom Act defines market opening first to bring competition to the local exchange market and only then to permit Bell entry into long distance. Steadfast enforcement of Sections 251 and 271 [begin page 4] of the Act is essential for new entrants to be able to offer consumers a competitive choice of local services. This merger is not an excuse to avoid opening the local exchange market, but rather a step that highlights the necessity to do so.

The Bell companies, GTE, and other incumbent local carriers will not sit idly by as TCI continues to upgrade its network and add telephone service capabilities.  Although the technology has been in existence for years to turn their copper wires into broadband distribution channels, the Bells did not begin to deploy it until some of the cable companies, including TCI, started to upgrade their own networks. Now every Bell company is aggressively rolling out Asymmetric Digital Subscriber Line (ADSL) broadband capabilities in their major and even medium sized cities. For instance, U.S. West will offer ADSL service in 44 cities in 14 states by the end of this month, and BellSouth will deploy ADSL in 30 markets by the end of 1999.

We think the merger will incent the Bells to accelerate their ADSL deployment and to deploy other Digital Subscriber Line services that operate at even faster speeds, particularly if they want to include a video offering to compete with cable service. Indeed, more competition for broadband services, including video entertainment, is a likely outcome of the merger, as other firms seek to assemble their own package of competing services. Of course, the real winners will be consumers.

To summarize, local competition will be brought about through the strong enforcement of the Telecommunications Act, coupled with pro-competitive [begin page 5] mergers, like AT&T/TCI. It is inevitable that the industry will consolidate and AT&T must continue to invest in facilities to be competitive. Much of this sorting out will be quite healthy; the right mergers can produce stronger competition. Companies are working to assemble the set of capabilities, services and footprints for the markets they are trying to serve. If they need a service or capability in their portfolio, they may have to buy it rather than develop it from scratch in order to compete more effectively and expeditiously.

Each merger will be different and each should be considered on its own merits against a test that looks at whether the merger advances competition. This test should measure not only market power, market opening and other aspects of a competitive market - but what makes sense for a globally competitive American telecom industry.

The AT&T/TCI merger today is about local exchange competition, consumer choice, and technology convergence. But in the end, it is about the future, not the past. A future that enables America to better use technology for consumers to enjoy, for society to benefit, and for our country to continue to be a communications leader.

Again, thank you for your time today and for your continued interest involvement in ensuring that the Act is implemented and enforced. I would welcome any questions.