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Date: July 9, 1998 0*   X` hp x (#%'0*,.8135@8:0*H&H&@@Ԍ` `  MR. ZELL: Thank you very much. I'm going to just dig right in here. My name is Joe Zell. I'm the president of the data and Internet division of U.S. West Communications. I came to this company six years ago to try and bring some innovation to a sleepy old RBOC and start building some of these new data services. We have absolutely demonstrated that record of innovation in enterprise. And I want to talk you a little bit about what we're trying to do now. ` `  Our vision for the consumer and small business market is what we've been describing as Web tone. My goal in life right now is to figure out how fast I can bring low priced, high speed, high bandwidth services to all of my marketplace. That is my objective. And I want to be able to share with you the facts since I am deep into this deployment on where my real costs are, what the real barriers are, and if you really do want to get service out to the consumer before the satellites go up, then I guess I would ask you to listen to these things because they're real. ` `  I have now deployed in the last six months into 223 central offices this ADSL capability. I'm at about a million and a half homes past now. Clearly, more than any other RBOC. We're dead serious about making this happen. I've brought the service to market at about a $60 price%?0*H&H&@@ point, about $40 for the underlying ADSL component. My intention is to drop the price into the $40 to $45 range as fast as I can, probably in a few months. ` `  But from my standpoint, it is absolutely critical that we do aggressively deploy these services to our consumer because that is what they want. We have many, many great examples. I don't have time here today to go through them all with you. I'll just pick out one example about what the impact can be of getting Internet to places where it's not going to get to otherwise for a long time. ` `  We just did a deployment in New Mexico and Arizona in support of the Bureau of Indian Affairs to try and bring Internet access to 26 schools, grade schools and elementary schools elementary and secondary on Indian reservations. These schools cannot get high speed Internet access. Their only hope was that I happened to have already built out a 360 node frame relay data network across my territory, and I was able to, sharing that backbone, bring them high speed Internet access over frame relay. ` `  But interestingly enough, because in New Mexico, there's a excuse me, in Arizona, I had to cross a LATA. The interesting difference is that in New Mexico what the schools pay versus what they pay in Arizona where I had to pay for a LATA crossing, because I had to go off inefficiently route, go to a long distance carrier, buy the%@0*H&H&@@ facility, put it in. That's added about $3,000 a month to the connection for those schools. ` `  It means about $800 a month to each of those individual little schools on a reservation. That's real money. It's not the full value of a teacher's salary, but it adds up. And the point is, it is absolutely irrational, economic attacks that's being placed on it. ` `  From my standpoint, what's important here is that we've gone as far as we can with this high speed Internet ADSL deployment. I cannot afford to go any further for three simple reasons. ` `  One is, there is a significant bandwidth tax that I have to pay. I'm not allowed to build an Internet backbone. I can't be a peer network like every other ISP and anybody else at this table. And therefore, for me to just terminate my Internet traffic, God forbid I should get any, but they're just terminated. ` `  I've got to spend a thousand to two thousand dollars per megabyte per month. You do the math on it. You figure out how I'm going to try and bring Mr. Rural America if I'm having to pay someone else that kind of money clearly 20 times what the economic cost is of that Internet backbone capability. That's number one. ` `  Number two is this current set of LATA restrictions, clearly devised to serve the voice long%A0*H&H&@@ distance market, does nothing but increase the backhaul inefficiency for me connecting up small places. If you'd like to see maps, I'll be happy to submit something to the Commission to prove this to you. This is just mathematics. ` `  And what's happening is every time I'm forced to go live within LATA boundaries and pay interexchange carriers, it's adding costs to the service. And you know, like it or not, we do have the benefit of shared economics. The fact that I have built out a frame relay network, and that if I got interLATA relief limited for data use only, that I might be able to share that backbone for frame relay traffic, for Internet traffic, for ATM traffic, for other data services, is absolutely to the benefit of my customer. That's the way that we will achieve being able to drive low priced services out to the consumer market. ` `  My competitors are basically saying that they want open and nondiscriminatory access to unbundled loops and colocate space. U.S. West is enabling that. We have gone with cageless colocation. We are providing those capabilities to Covad and to many others in our territory. I'm not suggesting that their life is easy, but I am suggesting that we are trying to make this possible because we do believe it. ` `  I think it's clear today from the panel that we have got abundant competition, both here and now, and coming%B0*H&H&@@ soon in the form of facilitybased satellite, MMDS, LMDS, unlicensed radio wave, cable modem, you name it, there's plenty out there. What's happening right now is that you're putting me in a position where I can't serve that customer, because I cannot lower my costs enough to get them beyond the 40 cities that I've currently deployed. ` `  So, I just want to beg you to consider the real economic benefits to the consumer of enabling me to carry out further deployment of this service. ` `  CHAIRMAN KENNARD: Thank you, Mr. Zell. Mr. Crowe? ` `  MR. CROWE: Thank you. Given the short time I have, I'm going to focus on a couple of points. My written submission contains far more detail. I'll speak in conclusions. ` `  My name is Jim Crowe. I'm the former CEO of MFS Communications where we, I think, had as much experience with unbundled loop as, perhaps, any other company, perhaps, more than all the rest of the companies combined, I think, by count. We also, after the acquisition of UUNet, had significant experience in the real world of broadband. After our merger with WorldCom, I was the chairman there for a period of time and then left to start Level 3. ` `  And simply put, the problem that we are trying to solve, I think, has been framed in the wrong terms. I%C0*H&H&@@ believe for a long time that proper solution means defining the problem correctly. And in our case, I think the problem is simply that communications costs too much per unit, not that it costs too much, but it costs too much per unit. The goal is to continuously drive down the unit costs of bandwidth. ` `  Just our vocabulary today illustrates my issue. We talk about deployment. We talk about upgrading. We talk about a period of time as if that's sufficient, and then the issue will be dealt with, that's the end of the problem. ` `  And of course, what's happening is a complete revolution in our industry where the economics of silicon are finally coming to communications after 70 or 80 years of monopoly, oligopoly equipment providers selling to monopoly service providers. We have the promise of watching bandwidth per unit drop now at a very large and continuous rate for as far as the eye can see. ` `  I choose that word, "as far as the eye or term, "as far as the eye can see" deliberately. We spent the last hundred years building a network that's about extending our ears at a cost most of us find reasonable. The new network that we're all discussing here is the very early start of building an infrastructure that can extend our eyes around the world at a reasonable price. This is going to happen. It's going to happen because the market demands it because%D0*H&H&@@ there is such tremendous leverage on all parts of our economy to this kind of communication system. But I think the Commission has a real role in making sure it happens at a more rapid rate than it otherwise might. ` `  Let's fact it. Today, all of the providers have assumptions about average asset lives that are unrealistic, 11, 12, 13 years at a time, when the underlying technology is doubling in price performance. Perhaps, every 15 to 20 months. We've got dividend payout ratios, including a company here to my right, that are 70, 80 percent of earnings at a time when it's apparent enormous amounts of capital are necessary to rebuild this network. ` `  We've got regulatory policies that charge rates per unit of demand, per minute, et cetera, at a time when we're trying to push down unit prices. And that's at direct odds. It's a break on that sort of thing. What's necessary as a whole new approach to regulation, one that views its role as supporting the market, because none of us here at this table, in spite of our technical backgrounds, know where there this is all taking us. ` `  Anyone at the table that believes they knew where technology is going believes they know where technology is going to take us in the next five years ought to tell us what their predictions were five years ago. I'd submit to you that today, technology is moving quickly, and it's%E0*H&H&@@ fundamentally unpredictable. In fact, our whole business plan is built around building a network that can accommodate unpredictable technical change. We may or may not succeed along with everyone else at the table, but the market has to work. ` `  Specifically, I think there are two things the Commission ought to do. First, look at its role as a steward of the market much the way the Securities and Exchange Commission does. Step in only when necessary. Continue to encourage industry participation, independent industry bodies to set standards to set economic terms. And view your role as one of a steward of the market of technology. ` `  And second, the biggest single issue I think today was well stated by Mr. McMinn. He's absolutely correct about the realities of unbundled loops. I'll simply say this. In theory, it's nice to say that everyone has access to those loops, but the fact are they need conditioning and a lot of it. ` `  And the facts are that the RBOCs today sell bits to form voice over those loops at a hundred times the rate that their competitors want to sell those same bits on those same loops. It's the IBM main frame to PC problem. You're asking RBOCs to help build the gallows with which their competitors expect to hang them. It's not realistic%F0*H&H&@@ economically. ` `  The Telecom Act is not realistic economically. If you want it to work, you've got to separate the loop, not the advance technology, not the DSLs. Those can be provided by anyone. ` `  But the loop itself is an essential facility in the sense that you use that term, Mr. Chairman, in your recent speech to the American Communications Bar Association. It's an essential facility. It will be for the foreseeable future, and it's vital to all Americans that that be put to its highest and best use by innovators, including U.S. West if they happen to have a great idea. But you can't have one competitor own a bottleneck and expect them to willingly make it available to competitors. ` `  I see my time's up. Thank you. ` `  CHAIRMAN KENNARD: Thank you, Mr. Crowe. Well done. We're rapidly running out of time so I think what we'll do in the question and answer period, is rather than go to each Commissioner for questions seriatim, we'll just have sort of a free for all. And I have found that we've had the most interesting en bancs when we can get some of the high powered talent out there to direct fire at one another. ` `  So, I'm going to try and get a little of that going, and I'll start by asking just one question. And as%G0*H&H&@@ background, I really agree with what Mr. Crowe just said that the appropriate role of the Commission, the regulator, is to be a steward in the marketplace. We all know the cost of regulation to consumers and to innovation. And we have today an interesting phenomenon because we're of sort poised at the starting gate of a new technology or the deployment of a new technology. ` `  So, I'd like to ask anyone who wants to answer this question. Let's just wipe the slate clean for a moment. Assume that all of these technologies are poised at the starting gate: cable, wireless, wire line. What would you advise us would be the most deregulatory, i.e., the most minimally regulatory way that we can provide a framework for the deployment of this technology? And I know that some of you may not agree that we can have a clean slate, but just bear with me for a moment here. ` `  Mr. Shadman? ` `  MR. SHADMAN: Chairman Kennard, I think the most important contribution that you can make for this discussion is actually if you could draw that line because as we go around the table, we do seem to sort out go back and forth on market ` `  CHAIRMAN KENNARD: Steve, we need Mr. Shadman's mike on him. ` `  MR. SHADMAN: I'm sorry. As I said, I think the%H0*H&H&@@ most significant contribution is actually if you can draw that line and sort of focus the discussion on a going forward basis, instead of sort of going back and rehashing all the other issues that the Commission can deal with inanother forum. ` `  And I think, as you look around the table, I mean, clearly, we're all sort of chomping at the bit to go after the opportunity that's out there that we can all see. Some of us want others to kind of be held back and then, you know, give them a head start, and then let them let the others catch up later on. I think if you can really draw the line and focus the discussion on what is a level playing field going forward or what are essential facilities that need to be provided? ` `  I mean, in terms of spectrum, you have access to all customers when you have hundreds of megabits of spectrum in LMBS. You have just chosen not to deploy the technology to get to those individual customers. ` `  So, I think if you can draw the line, focus the discussion on going forward, what is the minimum set up requirements to create that level playing field, I think that's the biggest contribution you can make. ` `  CHAIRMAN KENNARD: Well, that is the question then. On the wire line side, though, what are those essential facilities?%I0*H&H&@@Ԍ` `  MR. SHADMAN: It's clear to me that on the wire line, I mean, you can't really separate the wire line. You have two wires going into millions of U.S. households. And the remaining households are maybe 30 percent of them are another drop away from having that second wire going into actually, two wires going into individual homes. ` `  And I think as long as there is some equal access to that wire, which is in our case, the unbundled loop, if you can guarantee that that is being made available on equal footing to all players, I don't see any reason why companies that can go to the market and bring five billion dollars of investment need incumbents to finance their startup costs. ` `  CHAIRMAN KENNARD: So, you think the only essential facility is the loop? ` `  MR. SHADMAN: And colocation. ` `  CHAIRMAN KENNARD: And colocation. ` `  MR. SHADMAN: Obviously, where those loops are coming in. ` `  CHAIRMAN KENNARD: Okay. ` `  MR. ZELL: I'd like to just add to that if I could, Chairman. The suggestion that the solution to enabling that is somehow creating a separate subsidiary, a separate entity, some has gone as far as saying, completely defeats the purpose. What we end up having here is a debate about, what's it take to really demonstrate that someone is%J0*H&H&@@ getting fair and equal access? ` `  And we fully agree that we need to be able to demonstrate that they are getting that fair and equal access, because if they are going to be able to compete on a wire line basis over our loop, that's what's required. Putting me in a separate subsidiary or a separate entity far worse, only means that you have just cut a million people out of my territory that I'll never get to, because all it does is add inefficiency and add cost. ` `  I considered it. When I joined when we started thinking about deploying ADSL, we looked at the option of being a CLEC in our own territory because we thought it might actually allow us to do it faster. And our conclusion was that it added so much cost to us in our case, that it completely defeated the purpose of us sharing the benefit of our shared economics and our scale and scope with the consumer. Because nobody else is going to Los Cruces, New Mexico. I mean, until satellite comes, there is no other option for those customers in my opinion. ` `  CHAIRMAN KENNARD: Mr. Medin? ` `  MR. MEDIN: Is this on now? Great. One point I think ought to be made about this whole issue of rural markets, I actually don't necessarily believe the problem is in the last mile. That is to say, the actual mile from either the headend out to the home or from the CL out to%K0*H&H&@@ the home. The big problem with rural markets, Los Cruces, New Mexico, is actually, intraLATA transport between them and the backbones. ` `  People like Jim's company and Sprint have laid lots of fibre transcontinental. There's lot of competition in that space. You look at what Quest is doing and all the other competitors. The problem has to do with getting from the backbones' point of presence in some area, in some LATA, out to these remote areas. ` `  In the metro areas, we have cable operators have fibre facilities. CAPS which have fiber facilities, et cetera. There's lot of glass around which forces the RBOCs to be competitive there. But a lot of the rural markets, the only glass that's in place, that gets to the COs, is owned by the RBOC. And it's been my experience, that the moment that you touch an RBOC facility or buy something from an RBOC, you're on a different price model that just can't you just can't make multimegabyte access work reasonably. ` `  So, one thing we're doing is actually looking at putting in a relatively low speed ET1 line into these smaller headends and then building a satellite overlay on them that we can beam down data into our caches and other things inside those markets. You know, the glass can carry oodles of capacity as the Sprint guys are rolling out WDM%L0*H&H&@@ facility. ` `  There are a very few RBOCs who have put WDM into their infrastructure. There's all this unlit glass that's there. And it's all sitting there, basically, because they've got a price model for business access that they want to protect. ` `  So, you know, that's just the way I see it. ` `  MR. MORRIS: I would agree with that also. That's, leads to the point, that the bottleneck is not necessarily the same in a rural area as it is in an urban area. You may have transport that needs to be included in whatever bottleneck you consider for rural areas because there's all economically today, the one choice of how to get there. ` `  It's governed by average access charges that the Commission has some control over. And as those access charges are reduced for transport, then that broadband plant will be better utilized for others to innovate, including U.S. West, who recognize that they can't set up a separate subsidiary to serve those folks economically, either. ` `  The same is true of many of us. We cannot compete there if we have to construct colocation cages and all those other things to get to those customers and use the high cost transport to get back to a concentration point. ` `  COMMISSIONER TRISTANI: Mr. Chairman, can I just%M0*H&H&@@ say something, since you've all been talking about Los Creces, New Mexico, and I just wanted to clarify a little bit here. It makes it sound like Los Creces is this tiny little village. ` `  In New Mexico, it's the third largest city. I can't remember exactly on numbers, but I think it's well over 50,000. And I hate to hear that that's even hard to reach. So, ` `  MR. MEDIN: Plus, there's a huge NASA facility there, which does Tedris Groundlake. There's actually lots of fibre that goes into. ` `  COMMISSIONER TRISTANI: We also have a good university there with a good basketball team. But I think it underscores a point about the problems in the bigger states and in the rural states. ` `  People in New Mexico think Los Creces is urban. But the way it's being discussed, it's one of those hard to reach areas. ` `  MR. ZELL: Could I just clarify relative to New Mexico, since it is mine to serve, among others? There are a couple of interesting observations there. One is, in support of what Milo said, it is absolutely correct that the cost that I incur to try and serve progressively smaller cities and towns, has a lot to do with, not only what do I have to pay to backhaul the data to that from that city%N0*H&H&@@ to the Internet. I had already mentioned that I have to pay to hand it off to an Internet provider, whereas, most of these other companies don't because they can peer. But the backhauling is a significant piece of it. ` `  Principally, what I'm trying to say here is that the economic advantage that we get from a 706 limited interLATA relief for data only, we won't do anything else on it, is that it lowers my cost for bandwidth, and it allows me to build a shared backbone, back haul network that allows me to drive down that cost to getting to those smaller locations. ` `  The other unique situation in New Mexico, however, is the Public Utility Commission, largely at the request of one of our competitors, a CLEC ESpire, I think formerly known as Prince, essentially went after all of our cost data. They wanted us to provide all of our cost data for these innovative new services to our CLEC competitors. So, we said forget it. We'll just pull out of the state if that's what competition's all about, if you want to come in and check my books and challenge my prices, it's not going to work. ` `  So ` `  COMMISSIONER TRISTANI: Is that the same reason you pulled out of Oregon, also? ` `  MR. ZELL: No, Oregon is resolved that tariff went into effect yesterday, as did Washington. So, we had a%O0*H&H&@@ couple of states where there were problems. But in New Mexico, we have a state public utility commission that is kind of swung to the other extreme. ` `  MR. CROWE: Mr. Chairman, you asked, I think, what can the FCC do? ` `  CHAIRMAN KENNARD: Yes. ` `  MR. CROWE: To assuming there was a blank sheet of paper? Well, first of all, I think is to separate universal service subsidies from industry economics. Today, they're mixed up. One of the providers is expected to use the honor system to distribute the goods developed through universal service. And that doesn't work. ` `  While there is a real need for subsidy, I also know quite a few folks, for instance, in Wyoming, that have networks perhaps many, many, many times the average American who are getting the benefit of universal service. That makes no sense. Got to be targeted in the open by policymakers, not by industry participants for those that can afford the kind of access that we all think is necessary and the policymakers finally decide is necessary. It shouldn't be intermixed with industry economics. ` `  Second, you can do what I think you recommended in your speech. That is, distinguish between essential facilities and those that can be competitive. Today, at least in my view, there's one essential facility. That's%P0*H&H&@@ the copper loop. Not ADSL, not advanced services, not trunking, not switching, not long haul. The market will provide capital to compete with all of those and already is. ` `  But that loop is not in a condition today to accept advanced services. One of the players has to do something to it to make it available to competitors, and they have no interest, no economic interest in doing so. ` `  MR. MCMINN: In fact, an economic disactive disinterest from doing it. ` `  MR. CROWE: Well, sure. They're acting in their economic interests. What else would they do? ` `  MR. MCMINN: I asked ` `  MR. CROWE: And finally I have one last point. And finally, I think you got to remember that today's wide band today's broadband is tomorrow's narrow band. This process is just starting. It's going to be continuous. We're headed the bandwidth of the optic nerve, by the way, isn't characterized yet. But it's in the gigabits, perhaps hundreds of gigabits a second. So, we've got a long, long, long period of time before we deliver the kind of bandwidth that people demand. ` `  And individual assumptions about technologies winners and losers, whose got to provide the service, will prove inaccurate. You've got to let the market operate. ` `  CHAIRMAN KENNARD: Thank you. Mr. McMinn?%Q0*H&H&@@Ԍ` `  MR. MCMINN: Yeah, I would agree wholeheartedly with Jim that it is the last mile that is the critical bottleneck. You know, Joe worries about his cost of backhauls being his highest costs. That's the third or fourth highest costs that I pay. I pay for loops. I pay for colocation. I pay for power. I pay for floor space. I pay for a lot of other things to the ILEC that make them a much bigger cost element of my service. ` `  And they're actually not very interested in selling me that stuff. I asked every single ILEC that I deal with who in this corporation, is paid a sales commission for how much revenue I generate for you? And each and every ILEC they say, "absolutely no one." And they laugh at the notion that they might want my revenue. That is a conflict of interest. ` `  And the only way it's going to be resolved is to split the provision of the things that I'm buying that I want to buy a lot more of away from the group that actively wants to discourage me from buying them. ` `  COMMISSIONER NESS: Mr. McMinn, would having a Section 272 separate subsidiary structurally separate subsidiary, address some of the concerns that you're raising as opposed to the competitive carriers separate subsidiary? ` `  MR. MCMINN: I'm not a legal expert. I come into this whole mumbo jumbo much like Milo did only in the last%R0*H&H&@@ several years. So, I won't I can't directly answer your question relative to the legal requirements. Let me answer it from a business standpoint. ` `  I want them on equal business footing, so that whatever I can do, they can do. Whatever I can't do, they can't do. And so, their incentive is aligned their economic incentive is aligned directly with mine. ` `  COMMISSIONER NESS: Would anyone else like to answer that question or have experience with that question? Mr. Chrust? ` `  MR. CROWE: I hate to admit this, but 10 or 12 years of working in communications has made me more of a legal expert than I would like to be. And I think if you want to well, what I think is an excellent model for what can work in terms of structural separation, look at Empire City Subway. That's the organization that provides conduits to all comers in New York. It's owned by BellAtlantic now. It's a completely and structurally separate subsidiary, and it works. It works very well. ` `  COMMISSIONER NESS: So, you agree that structural separation would provide the type of competition that you would ` `  MR. CROWE: With the term "structural" of course, having to be carefully defined. ` `  COMMISSIONER NESS: Mr. Chrust?%S0*H&H&@@Ԍ` `  MR. CHRUST: I would say in answer to this and in direct answer to the Chairman's point in terms of suggestions, I'd say, first, understand the incentives of the three constituencies you're hearing at this En Banc hearing. One is the incumbent protecting his market share. Two is the interexchange carrier trying to reduce his access costs, which is his largest costs for his primary source of revenue, which is voice communications controlled at the local level by the incumbent, which allows him to pay those 70 percent of earnings out in dividends. ` `  Having stated that, I would suggest three alternatives or three recommendations. One is a separate company, not a separate subsidiary. I don't think there is great risk in creating a separate company and insuring that that company has no incentive to delay or block any of the facilities that are essential from being provided to all others. ` `  Second of all, I would make sure that local and long distance remains separated for some extended period into the future dealing with a market power issue. And third, I would argue that enforcement of the equal access issues, the operating issues, be very aggressively implemented and monitored over the next number of years. ` `  MR. ZELL: But if you want to mix it up, I just want to point out that these are mutually exclusive%T0*H&H&@@ outcomes. If you want to create a separate entity, clearly that will give you a very clean easy way of assuring that people get access to that essential unbundled element. It just will absolutely have the adverse effect if the objective is to try and find a way to serve all Americans with new high speed data services. ` `  Don't kid yourself. There is a huge economic impact to solving the problem that way. ` `  CHAIRMAN KENNARD: Mr. McMinn? ` `  MR. MCMINN: No, it won't. Joe, you're looking at it as if you are a CLEC that has to pay your exorbitant prices. And that's why the business case didn't close. If you are a CLEC that pays prices to an ILEC that's encouraged to lower their costs, they will be lowered dramatically and the business case will close. ` `  MR. CHRUST: Can I also suggest one last point, at least from my end that I think is getting lost here? Much of the debate has surrounded around the existing copper loop. It seems to me the incentives ought to be directed towards creating alternative local broadband capacity, because if we don't do that, we will find ourselves, because of Jim's comment in the ever increasing demand for local bandwidth, in an environment where DSL will not meet the demands of the marketplace. ` `  COMMISSIONER NESS: These are not mutually%U0*H&H&@@ exclusive objectives. ` `  MR. CHRUST: No, I'm just ` `  MR. CROWE: And I'm afraid we've bumped into physics here at a certain point. Facts are at the portion of the electromagnetic spectrum that wireless operates, we're in the megabits and gigabits. When you're up in the wire line fibre area, we're talking about taraHertz and tarabits. ` `  And I'm afraid we're talking about water mains and garden hoses in the same sentence. Wireless is not going to provide the kind of broadband access that all of us want into the future. Certainly, it has its place. For lower density and mobility, it's excellent. But just as a matter of physics, you're not going to see a competition between, you know, glass and the tarahertz and wireless in the megaHertz and gigaHertz. ` `  CHAIRMAN KENNARD: Mr. Medin? ` `  MR. MEDIN: Actually, if you feed a wireless network with lots of fibre optic cells, you might be able to actually do a lot better job of that. ` `  MR. CROWE: You can't antenna means. Wire to hook it up. ` `  MR. MEDIN: Well, that's right. But the point is the actual last mile might not have to be fibre. ` `  MR. CROWE: Substitute technologies.%V0*H&H&@@Ԍ` `  MR. MEDIN: Yeah. I would also just agree that I think in a lot of cases, we're trying to figure out ways of slicing the kidney bean here. The thing that you want to do, that the Commission ought to do is create incentives for alternate technologies, i.e., you know, cable, the wireless guys, et cetera, to go after it. Because as an engineer, it's been my experience that when you deal with remarketing of facilities or you're buying wholesale/retail, you don't get tremendous big tremendously large price swings. ` `  When you go in with totally different technology, you have much more churn, much more opportunity to actually change the whole model of how businesses are provided and served. And creating those incentives so that operators with alternative facilities can, you know, have a reasonable shot at making a profitable business, will actually do, I think, a lot more to actually lower the cost of existing infrastructure than just reselling existing stuff. ` `  CHAIRMAN KENNARD: Mr. Hooper? ` `  MR. HOOPER: Yeah. I just wanted to comment on, Commissioner or Mr. Chairman, your comment on the essential elements. And I agree with everything that's been said about the unbundled loop as the essential element and colocation. But I would also add the OSS system. I mean, no one's talked about that. And the provisioning rate that the ILECs will allow you to provision.%W0*H&H&@@Ԍ` `  I mean, we do business in Southern California right now, and we alone, in Southern California with PacBell, exhaust their capacity for unbundled loops as one operator. They've got to be able to expand their capability if you do create these separate structured subsidiaries. Without that, they still control the bottleneck. ` `  COMMISSIONER NESS: That actually brings a question to bear on Mr. Zell's comment. You seem to suggest that there's no earthly way that you're going to be able to provide the services but for interLATA relief. One way of getting of interLATA relief would be through opening up your local market to competition and meeting the checklist requirements. You still have to provide separate subsidiaries to provide long distance service. But can you comment on that? Why isn't that, certainly, something that you ought to be working towards? ` `  MR. ZELL: Well, we believe that we are working towards it. I know that that's a subject of great debate because you all evaluate how hard you think we're working towards it. And I guess from my perspective, I just want to go back and reiterate. I understand your point that we have got to figure out a way to make sure that competitors have access to those essential elements. And that is our intention. I do want to work that out. ` `  All I'm trying to suggest is, I am in the business%X0*H&H&@@ of running the business. I am not a lawyer. I am just trying to figure out a way to drive this out to our consumer market, and I understand where some of those economic hurdles are. And that's what I'm trying to eliminate. ` `  Clearly, this ability to get in sometime in my lifetime, with interLATA relief just for data services, may keep us from becoming dead man walking relative to these new services. ` `  COMMISSIONER NESS: Can anyone, lawyer or nonlawyer, point to anything in the law or legislative history that suggests that Congress used the phrase network elements or any telecommunication service or interLATA services to apply only to voice, not data, not circuit switch not packet switch? Can anyone point to any language in the law or legislative history? ` `  Mr. Shadman? ` `  MR. SHADMAN: Unfortunately, I'm not a lawyer so I won't be able to help you with that. But since I'm sort of maybe a business person and an operations person, I think that law was clearly intended not to forever and ever put certain companies in servitude and indentured servitude. But it was more of a sort of a historical perspective. ` `  And clearly, the intention was most of those things had to do with the market power in the voice world. I think they have gone around and around. There is no%Y0*H&H&@@ market power as far as the incumbent LEC's are concerned. I can tell you that probably the combined ILECs represent less than 10 percent of the total data market that we are talking about at this point. There is no existing market power. I mean, clearly, the incumbents have incumbency, and they have market power in existing voice services. And that, I think, is a much more complicated process to go through. ` `  So, that's really, I think, the issue. And can I maybe pose one more item? You mentioned the 272 issue. I think whatever the Commission does has to encourage the efficient use of the central office, which is another part of what's needed to install these allotments. And I think that 272 restrictions does force the incumbents to do actual physical installations, as opposed to a virtual arrangement, which are much more efficient. And I think that combination should be available to all parties to use that space much more efficiently. ` `  CHAIRMAN KENNARD: Mr. Morris? ` `  MR. MORRIS: If I could go back to the prior Chairman's comment where he said, "What we need is not a voice network that can carry data, but a data network that can carry voice." I think if we look at a separate subsidiary, what we're doing is believing that we're in a static environment where we can divide voice from data. We simply cannot do that.%Z0*H&H&@@Ԍ` `  If you look at the Sprint ION network, it is digitizing voice. Voice will go over it. It will be just another bit on the stream. ` `  If what you do is set up a separate data subsidiary for several ILEC's, it is not a large step to digitize voice. You have deregulated their network, created a de facto monopoly in that where they are first to deploy in many areas, not made that a level playing field. ` `  So, I don't believe that you can create a separate subsidiary called data subsidiary and have that work. You may consider the local loop subsidiary as something that might be of merit, but you certainly can't divide it along voice and data lines because those are merged together today. ` `  CHAIRMAN KENNARD: Good point. Mr. Chrust, I think you'll have the last word today. Mr. Chrust? ` `  MR. CHRUST: I just wanted to actually just address a point that Jim had made, which seemed to imply that wireless technology and the local loop had relatively limited application, and I couldn't let that go. ` `  MR. CROWE: Forgive me if I gave that impression. ` `  MR. CHRUST: I think it's important to understand that the fibrebased carriers in the United States have gotten to a grand total of about 10,000 buildings. WinStar has gotten to about 2,500 in about onethird the time. And%[0*H&H&@@ we fully expect that within a two to four year period, we'll be in at least as many buildings as the fibrebased carriers at the local loop level delivering in excess of multiple OC3 capacities to each building we address. Thank you. ` `  CHAIRMAN KENNARD: Thank you. Commissioner Tristani, did you have another comment? ` `  COMMISSIONER TRISTANI: I just want to make a closing comment. ` `  CHAIRMAN KENNARD: Okay, please. ` `  COMMISSIONER TRISTANI: I want to thank the panelists. This has been, for me, in my nine months here, the most interesting en banc that we've sat at. And I don't know if it has something to do with at least six of you are engineers. I don't know, maybe more. But even though I'm a lawyer, it's very refreshing to hear from you, and look forward to working some more on these difficult issues and hearing more about solutions for the rural world, which may be the same solution for everyone. But there are definite concerns, because it's access and bandwidth for all America that we're talking about. ` `  CHAIRMAN KENNARD: Thank you, Commissioner. Commissioner Ness, closing remarks? ` `  COMMISSIONER NESS: Just want to thank all of the panelists. You've provided us with a lot of information which we can proceed to analyze the situations. Thank you.%\0*H&H&@@Ԍ` `  CHAIRMAN KENNARD: Commissioner FurchtgottRoth? ` `  COMMISSIONER FURCHTGOTTROTH: Well, I will echo the comments of Commissioner Ness and Commissioner Tristani in thanking you. I agree with Commissioner Tristani. This has been one of the liveliest and most useful panels that we've had here, and that's a testament to what you brought to the table here today. So, I appreciate that very, very much and look forward to working with you closely as we resolve these issues. ` `  I'd also like to thank the FCC staff who made this possible. In particular, Rebecca Dorch and Marcelino FordLivene. Also, Stag Newman, Dr. Bob Pepper, Dale Hatfield, Larry Strickling, Audrey Spivack and Jeff Lanning in the General Counsel's office. ` `  So, thank you all very much for coming. ` `  (Whereupon, at 1:15 p.m., the hearing was concluded.) %]0*H&H&@@  ? (! ]   ` X VsHeritage Reporting Corporation &(202) 6284888V "REPORTER'S CERTIFICATE ă  ?X  FCC DOCKET NO. : N/A  ?  CASE TITLE : En Banc Hearing July 9, 1998  ?x  HEARING DATE : July 9, 1998  ?  LOCATION :  Washington, DC  I hereby certify that the proceedings and evidence are contained fully and accurately on the tapes and notes reported by me at the hearing in the above case before the Federal Communications Commission. Date: __7998__ ___Elaine Kim________________ Official Reporter Heritage Reporting Corporation 1220 "L" Street, N.W. Washington, D.C. 20005  ? <! TRANSCRIBER'S CERTIFICATE ă  I hereby certify that the proceedings and evidence were fully and accurately transcribed from the tapes and notes provided by the above named reporter in the above case before the Federal Communications Commission. Date: __________ ______________________________ Official Transcriber Heritage Reporting Corporation  ?  <!PROOFREADER'S CERTIFICATE ă  I hereby certify that the transcript of the proceedings and evidence in the above referenced case that was held before the Federal Communications Commission was proofread on the date specified below. Date: __________ ______________________________ Official Proofreader Heritage Reporting Corporation