House E-Commerce Hearing on Internet Bottlenecks

(May 8, 1998)  The House Telecommunications Subcommittee held a hearing on Thursday on Internet bottlenecks and electronic commerce.  Most the testimony dealt with regulatory and technological matters pertaining to bandwidth bottlenecks, but the hearing also covered IP telephony, the Internet Protection Act, encryption, and Internet taxation.  Vint Cerf and other industry representatives testified.

Rep. Tom Bliley (R-VA), Chairman of the House Commerce Committee, offered a simile for the hearing: "the Internet is like an eight lane super-highway.  Unfortunately, it is connected to most towns by a single lane dirt road."  He explained that: "Most homes and small businesses are connected by slow modems and low capacity lines that have changed little over the past three years."

No Representative or witness advocated new regulation.  Pointing out that it is uncertain where the technology is going, Rep. Rick White (R-WA) stated that "it would be really dumb for us to chart a course in a particular direction."

Rep. Edward Markey (D-MA), Ranking Minority Member of the Telecommunications Subcommittee, stated that "today's hearing deals with the Barons of Bandwidth."  He also reiterated Markey's Law.

Rep. Billy Tauzin (R-LA), Chairman of the Telecommunications Subcommittee, presided at hearing.  He advocated minimal government regulation, and passage of the Internet Protection Act.  "HR 2372 establishes a simple policy.  The Internet should be free of the infectious regulations" that affect telecommunications.

Rep. Oxley (R-OH), devoted much of his comments and questions to Internet taxation.

Rep. Sawyer (D-OH) advocated only minimal government regulation because "the secret of what we are doing lies in the entrepreneurial spirit."

Rep. Bart Gordon (D-TN) discussed the problem of developing consumer confidence in conducting transactions over the Internet.

Others members of the Subcommittee who attended, but did not participate in the questioning of witnesses, included Reps. Gilmore, Klink, and Eshoo.

Vint Cerf

Vint Cerf, who was one of the founders of the Internet, constituted the first witness panel.  He is now SVP for Internet Architecture and Engineering at MCI Telecommunications Corp.

He estimated that there are 30 million computers on the network, and 70 million users (and it is doubling every year).  He also stated that 75% of Internet traffic is web related. 

While Internet businesses such as Amazon.com and Cybercash have succeeded, "they are experiments.   They are not guaranteed as business propositions yet."  He also observed that "the web favors products that have a lot of configurations" such as computers.  He pointed out that auto sales and insurance also have many configurations.  He also predicted that interactive multi-user games will continue to grow in popularity, and that soon players will video conference their games, taking up much bandwidth

The Internet is being used for things for which that it was not designed, including video, radio, and IP telephony.  However, Cerf stated that all that is needed to carry these is bandwidth. "The edges of the net is where the real bottlenecks are."

Rep. Boucher (D-VA) and Cerf debated when universal service obligations ought to be imposed in connection with IP telephony.  (See, transcript.)

Cerf had three policy recommendations for the Committee.

• Cryptography: it is necessary for privacy, security, authenticity, integrity, and confidentiality.  "We need cryptography in the civilian sector and it needs to be pretty powerful stuff."
• Taxation: internet transactions should be taxed.  However, to tax Internet transactions differently from others would be bad.  "Tax the transaction, not the medium."  "It makes no sense to tax things because they happen to be bits on the Internet."  Although, he conceded that "multistage sales taxes is a conundrum."
• Protection of copyright.

Second Panel of Witnesses

• Alan Taffel, VP, Marketing, UUNET.
• Michael Rouleau, VP, Marketing, US West.
• Paul MacAvoy, Prof., Yale School of Management.
• Harris Miller, President, ITAA.
• Milo Medin, SVP and CTO, @Home.
• Larry Williams, VP, Intl. and Gov. Affairs, Teledesic.

The first two witnesses in the second panel where from a long distance company, and a Regional Bell  company (RBOC) - two camps which do not see eye to eye on many issues, including bandwidth problems.  Alan Taffel, who works for WorldCom, placed the blame for slow Internet connections on the local loop (usually a RBOC):

"The universal bottleneck is the local loop, the transmission line connecting the home to the LEC central office.  This loop is owned by the LEC or RBOC, and it only go to one place: the LEC's central office.  This situation has two negative effects on Internet access: 1) it restricts the amount of data capacity which can be carried over the line, and 2) it creates congestion problems.  Both of these effects derive from the fact that the data traffic is forced to be treated like voice traffic."

He also explained why Digital Subscriber Line (DSL) technology, which could allow the local loop to carry data at 10 to 20 times the capacity of current voice traffic, is not being utilized.

"DSL on the local loop remains a stumbling block, however.  And not for technical reasons, but for regulatory reasons.  In order for this all to work, the local loop needs to be available to Internet Service Providers (ISPs) in an unbundled format.  ... But the LECs often refuse to provide these loops at cost-based rates as mandated by the Telecom Act of 1996.  Bell Atlantic recently persuaded NY state regulators to exempt XDSL data network lines from the network elements required to be made available by Bell Atlantic for combinations by CLECs for purposes of Sec 271 checklist compliance.  This limits most customers to getting plain old telephone service (POTS) from CLECs.  ... the local loop, therefore, will remain the primary means of conducting commerce over the Internet.  And that loop is a monopoly service not generally available to ISPS. ... the Telecom Act of 1996 requires the LECs to sell unbundled loops for just this purpose.  However, the force of the Act is being postponed and diluted by LEC court actions and state regulatory leniency."

Taffel suggested that the government "enforce the telephony laws so recently enacted, before imposing any of the old rules on the Internet."

RBOC representative Rouleau testified differently.  It is not the RBOCs' fault: it a regulatory problem.  In particular, the FCC should use Section 706 of the Telecom Act to lift regulatory barriers that prevent the RBOCs from investing in and deploying high-speed data technologies that would alleviate the bottlenecks. 

The third witness on the panel was Paul MacAvoy, a Professor from Yale, who submitted a three page statement, and a ten page resume.  He blamed access bottlenecks on the telecom regulators who rely on "Ding Bat economics" to set prices at the bottleneck.

The FCC has retarded "the creation of these bundles of most in demand services that make up the future information infrastructure,"  Said MacAvoy.  For example the RBOCs are not permitted to provide seamless local exchange/long distance packages because they are being thwarted by long distance companies and FCC Section 271 proceedings.  Moreover, MacAvoy predicts that the FCC will block or inhibit enhanced access to Internet services.   "This is why the proposed HR 2372, the Internet Protection Act of 1997 is a necessary step for Congress to take ..."

The Committee also heard from two witnesses about new technologies for providing high bandwidth Internet access.  Milo Medin testified on behalf of @Home, which provides Internet access over cable television infrastructure.  @Home is a Kleiner Perkins company.

Larry Williams, from Teledesic, testified that his satellite company is "an Internet in the sky" which will deliver access to 95% of the earth's surface.   He also said that in areas where fiber lines exist, his company could not be competitive, but in rural areas it would be competitive.