Address by George Vradenburg, Executive Vice President of AOL.
Re: access to cable facilities which provide Internet access.
Event: Georgetown University Law Center panel discussion.
Date: October 5, 1999.
Source: This document was transcribed from an audio recording. Copyright Tech Law Journal. All rights reserved.
Let me just open the discussion by giving you my perspectives on why it is that we ought to be fully committed to continue the thirty year policy of the FCC in this country of requiring competition in our local infrastructures as the best way to get consumer adoption and user driven innovation -- a neutral presentation. [laughter]
I have, in truth, interestingly, in the last month, Scot, been to Europe, and just got back last week from China. And, intriguingly, those regions of the world are very inquisitive about how it is that the United States has done it right in the Internet. Why is it that America's GDP growth, now one third of it, is attributable to IT and Internet technology developments? How is it that we have been able to keep our inflation rates down, and yet see rising wages in this country, due to increased productivity gains? How is it that we have seen such a ferocious pace of gain in the Internet space? Such a rush of venture capital into the space? Close to Eight Billion Dollars the first half of this year in venture capital, rushing into the Internet space. Why is it that we have had such a ferocious pace of innovation and investment in Internet services in the United States, they ask. Why is that Europe is lagging behind us? Why is it that the penetration rates in Europe perhaps one third of the penetration rates in the United States? Why is it that the average Internet user in Europe uses the Internet on a daily basis less than 25% of the amount of time that an American Internet user uses the Internet?
And of course, China, you have got a completely different perspective. But, in fact, if one goes into that country one finds that the enthusiasm for the Internet is perhaps unequaled in the world. They are -- they want the Internet there. They to figure out how to get it in to China. They want to ascertain whether or not it is not simply a telecommunications service, and subject to the foreign investment restrictions associated with telecommunications. But, put aside their investment, foreign investment concerns, they are asking themselves, how do we capture the kind of productivity and growth characteristics associated with the Internet for their country, as they attempt to reform and modernize their society, like the United States is going to _____.
So what is the answer? Why is it that we have been so successful with our Internet in this country? Why is it that we have seen 5,000 Internet access providers enter into business in this country, tumbling over themselves to offer different price feature combinations to consumers across the country. To have consumers take up the Internet in such a rapid pace, faster than any other medium in history, in the United States, because of the diversity of choice that users have. And on top of 5,000, 6,000 independent Internet access providers in this country, we have portals galore. We have business models that are rapid formation, and rapid transition, and rapid revolution. We have American business transforming itself. We have millions of web sites, and thousands signing up every day.
And on top of what? On top of what infrastructure? A monopoly infrastructure. An old voice system built at a different time, different place, with a history that is quite extraordinary, that basically, copper wires, a monopoly infrastructure.
And on top of this monopoly infrastructure, this little pinprick of a monopoly, we have built the most innovative, competitive, dynamic, investment attracting industry in the history of this country.
Why is that? How is it that we got to this point? It has been a sustained, not by necessarily consistent, not necessarily without problems, but a sustained commitment in this country of 25 to 30 years to open up our telecommunications system to competition. We allowed, surprisingly, but not surprisingly, we distinguished between data service and telecommunications service, the computer, the various Computer I, I, and III decisions. So in fact, we did not subject our data services to the same kind of regulation that we subjected our telecommunications services.
We allowed foreign devices, in quotes, to be attached to our telephone system, at a time when our telephone monopoly insisted that attaching the devices would bring that system to a crushing halt. And in fact, when the dominant telecommunications company at the time resisted mightily any attachment of foreign devices, a fear that in fact, the technical quality of the system would deteriorate and fall apart.
When, in fact, it took us ten years, fifteen years, to finally get competition in long distance services, notwithstanding the assertions of the then dominant telecommunications company, that to, in fact, create competition in long distance services would deprive them the ability to cross subsidize, would make local telephone services in this country unaffordable. Not true.
In fact, we had to break up that telecommunications company in the early '80s. And we did so on the sustained, consistent premise leading up, which took us some time to get there, that we ought not to allow a local telecommunications carrier to determine who we select for our long distance carrier. What kinds of equipment we ought to be able to attach to that system.
And in fact what we have done, over the period now of years, is recommitted ourselves to the same competition in the '96 telecommunications act, that we need to force our local infrastructures to open themselves to competitive carriers. That in fact we need to share information infrastructure in order to create competition.
And while there are certainly debates around the edges of this Act, like exactly how much opening there ought to be, the sustained premise has been that cost based interconnection arrangements with independent service providers is the best way to achieve competition in our local telephone infrastructure. And indeed, depriving the ability of the local telephone infrastructure to select their long distance carrier, and indeed, we went further than that, we keep our local phone companies out of the long distance, out of the long distance business in order to ensure there is no ____ is the best way to competition, in, not only telephone, but also in all of the other independent data services can run through a telephone system. And the consequence of that has been, that notwithstanding the fact that we have a monopoly telephone infrastructure in this country, that we have the most robust data services competition in the world.
Now we move to a situation where our comp -- our local infrastructures are potential competitors. Where, in fact, we have another infrastructure that is potentially available for broadening communications, data communications. And we are re-examining all of the premises on which we have had thirty years of history.
And surprisingly, the FCC has sort of taken a different tact, and said, notwithstanding thirty years of a sustained conscious policy in this country of assuring competition through our local infrastructure by assuring that it is open cost based interconnection, we have decided that now markets ought to prevail, whatever that may mean, and that in fact that what we ought to do is allow this regulated monopoly, to continue in its current regulated state, but not extend the current interconnection requirements, or non-discrimination requirements associated with video programming into the Internet.
And on the premise that this is going to somehow stimulate more competition, more innovation, and more investment in the cable infrastructure than we have had in the past, we are off on a course now where we are examining first premises all over again, of what we have been doing with our public telecommunications system in this country for nigh over thirty years. We have learned some lessons. And yet we seem to be now insisting that we re-examine all of those premises. And so what we have at this moment in this country is a system in which the cable infrastructure are closed to competition with no requirement for interconnection, let alone cost based interconnection, is being permitted to vertically integrate. On the view that somehow permitting them vertically to integrate, without any interconnection requirements, without any, let alone, cost based interconnection requirements. Just letting them vertically integrate, now is going to create the incentives for investment and innovation.
For thirty years we have decided, with thirty years of lessons behind us, that exactly the opposite was true. And yet we are now taking on a different course with respect to the cable infrastructure. And I assert to you, that in fact, the proposition is rather straight forward: we have learned over the past 25 to 30 years, that depriving the local last mile provider from being able to force consumers to take the long distance provider, or to take the services dictated by the local infrastructure provider, that is not the route. That is not the route to consumer choice. That is not the route to competition. That is not the route that has caused the most rapid take up of a new a medium in this industry. And it is not the route to get tremendous investment. And yet that is the route that we seem to be taking.
So, I would assert that the fastest route to the broadband rollout of services is to create the kind of competition in broadband that we have had in the narrowband environment, and indeed, force all of that competition that we see at the service level down into the infrastructure. How do you do that? You make the cable infrastructure and the telephone infrastructure compete for service providers, by offering lower rates, lower connection rates, lower local transport rates. So that we can drive costs down to consumers. So that we can drive the same kind of user based innovation, user based choice, and user based competition, through the broadband environment that we have had in the narrowband environment.
And that we ought not to misread our own history, and think that somehow the government's doing nothing, means that the government is doing no harm. Because the government has been actively involved in these marketplaces for years, certainly in the telecommunications environment, in the old voice environment, certainly in the cable environment, because, the cable environment itself is the product of local government granted monopoly, regulated at the local level.
And to those who say, aren't you just trying to regulate the Internet? Of course not. No one is suggesting that we ought to license or regulate the services that are provided by the Internet or broadband or narrowband. And if in fact dealing with the infrastructure and requiring it to be open to competitors has never been seen in the telephone environment as regulating the Internet. Indeed, it has been the regulation of active government involvement in the local infrastructure on the telephone side which has created the absence of market entry barriers into the Internet services in the narrowband environment. The same principle ought to hold in the cable environment.
Now it seems to me that, therefore that, the propositions that ought to pertain in terms of accelerating the dissemination, the deployment, of broadband services, are this policy of openness, the policy of interconnection, and that we ought to proceed on the same basis in the cable environment, and the broadband environment, that we have proceeding on in the narrowband environment, and that that is the lesson of the last twenty-five years.
The FCC ought to read its history correctly and apply the same kind of accurate engagement in here, to assure that there is no barriers to entry to small competitors, and to user based competition and user based choice in the broadband environment.
Thank you very much. [applause]