Address by Elaine McHale, AT&T.
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.

Thank you Scot. Thank you George. You are a hard act to follow. But let me try to do so effectively.

Let me start first by saying, of course, we do share the goal of rolling out broadband deployment rapidly, and as quickly as possible to all Americans.

But we also have another goal that we have charted in the Telecommunications Act of 1996, which was to bring competition to the local exchange residential consumer. We have today, in 97% of the country, 97% of the customers lack a choice. And AT&T's purchase of cable companies was all about, hand in glove, moving forward on those two policy objectives, because, with our cable properties, we will deploy, after we have invested significant sums, we will deploy cable telephony services, as well as high speed Internet access services.

Now, in order to do that, obviously, we need the consent of the FCC, and also of local franchising authorities. In case of TCI, we needed about 2,000 municipal consents. In the case of MediaOne, we have about 630 local governments to consent to our transfer.

And, in that process, not surprisingly, AOL, and the Bell companies, GTE as well, have teamed up to oppose our merger, and to argue that we should have an open access requirement. Essentially, those unbundling requirements that Congress imposed in 1996 to break open the 100 year monopoly of the local exchange companies. And I think that four years after the Act was passed, probably not many of us anticipated we would be where we are today, which is competition just on the fringe.

Now, we know why the Bell companies want to slow down our merger. They obviously want to protect their own positions in the local exchange market.

And, I think AOL has a similar position. AOL has done wonders to bringing the Internet to consumers. They are today the market in the Internet user market. They hold about a 40% market share. And the cable companies are interested in entering that market to challenge their position, and today have a very small position in the Internet services market.

Nationwide, all cable companies together provide service to about a million cable modem access subscribers. So, contrary to the claims of AOL and the RBOCs, we do not hold a monopoly position or market power in the provision of Internet services, and much of the rhetoric that we hear from AOL in support of the open access debate, and also from the Bells, is in anticipating a market failure in a market that has not yet developed. And it is not so that this country will regulate in anticipation or in advance of a market failure.

The breakup of AT&T was not because we thought anticompetitive behavior might occur, but because we had ample evidence that in the Bell system anticompetitive conduct did occur, and the remedial action there was appropriately taken.

Now, the FCC, I don't believe, has punted on this issue. They have looked at it twice. And, they have proceeded on the basis of fact, rather than rhetoric. In the advanced services proceeding, in January 1999, in January of this year, the Commission concluded that multiple methods of increasing bandwidth are, or soon will be made available to a broad range of customers, and at this time it would not be appropriate to impose an open access requirement on the broadband system of cable companies. The Commission envisions that different companies would use different technologies, and that each of those technologies would have advantages and disadvantages, and they saw the potential for intermodal competition, like that between trucks and trains and planes in transportation.

In light of this, the Commission found that there was not evidence, and they did not foresee, that the consumer market for broadband would become a staid monopoly or a duopoly. Over and over again, the Commission, in both its former records, and in its statements by individual Commissioners, have laid out their vision of multiple broadband pipes to the home. This is a vision that we share. The FCC had an opportunity to revisit this issue again in the AT&T TCI merger, as did the Department of Justice, which ____ was asked for open access to be enforced as a condition of merger. And there again, the FCC concluded that it would not be desirable at this time to impose a requirement.

Importantly, the FCC found, and Wall Street echoes this view, that the deployment of cable broadband was prompting others to deploy alternative paths. Now, that is the fact that AOL and the others would like to ignore. They speculate about the position in the future. But they don't, and cannot, refute the evidence that fills everyday about the dynamic of the competitive marketplace that is causing broadband to be deployed.

Let me give you a few examples. From the ground zero position in 1998, where the Bell companies and GTE had zero DSL capable lines in the marketplace. From the start of our announcement of the AT&T TCI deal we began to see a accelerated rollout of digital subscriber technology, which will bring the broadband capability over the telephone network. SBC announced a new discounted package of telecommunications and video services, wireless, dialup, and high-speed DSL, and offered those at prices from 6 to 35 percent lower than their retail base. They now expect that their DSL service will pass nine million homes and businesses by the end of 1999. That is more than the eight million households that would be able to receive cable modem service. Bell Atlantic accelerated its deployment, and they plan to double the number homes and businesses that they will reach to about 17 million, they plan in 1999.

U S West launched similar initiatives rolling out a lower cost part time DSL service, a creative option for a consumer. And Bell South currently sells DSL wholesale to 16 Internet service providers, and expects to provide DSL service to the top 30 companies, top 36 (?), excuse me.

Now, AOL has responded directly to AT&T's merger also by entering into partnerships with these companies to provide high-speed Internet access services. As a result of these arrangements, 65% of their customer base will have an AOL broadband option available to them by the end of this year.

Editor's Note: see, Hughes Electronic Corp.'s press release announcing the Spaceway project, March 17, 1999.

But, AOL is also sharing our vision that others will be in this game. They have invested 1.5 Billion Dollars in Hughes Electronic Spaceway project, which will deploy a two way broadband capability on about the same time frame as the roll out of cable on a mass basis, about 2002.

Now, this outpouring of responsive offerings, as I said, contrasts dramatically with the trickle of related activity before AT&T's merger announcement with TCI and MediaOne. DSL was devised in 1987. The Bell companies began to talk about commercializing it in 1990. But, it was not until they had the spark in the marketplace that they actually began to deploy it to the home.

It is on that basis that the FCC has proceeded. And I think that the Chairman has said it best when he said that the challenge to us all is to resist the urge to regulate. The market is working. There is not any need to do so.

And, it, I think, it is unrealistic to assume that imposing a forced access requirement would not slow the deployment of both cable telephony and Internet high-speed access services.

It will surely raise the costs. There is not a one of us who cannot honestly think that it wouldn't engage us in thorny issues, like cost allocation, and pricing decisions, and what is the OSS, and what is the colocation rules. And it is not a simple path, of simply saying offer non-discriminatory access.

Now, do I think it will never happen? Do I think it is technologically impossible? No, I don't. I think when, that, there will come a point when we will figure out get those bits to flow over the cable network, and we will do it on a scalable basis. But, I think, appropriately, we should do it as framed by a commercial agreement, to recognize the contributions each party brings to the table. [applause]