TCS Daily

Cannon Loads in a Telecom Bill for the Judiciary Committee

By James K. Glassman - May 3, 2001 12:00 AM

All circuits are busy on Capitol Hill as lawmakers wrestle with revisiting the landmark Telecommunications Act of 1996. Soon after Easter, House Commerce Committee Chairman Billy Tauzin (R-La) was among the first to dial in with an answer.

His measure passed out of subcommittee April 26th in at a surprisingly close 19-to-14 vote, and big and small newspapers across the land editorially scored Tauzin's approach as one that would further solidify the Bell companies' hold on local phone markets.

Not even the first week of May had expired before Reps. Chris Cannon (R-Utah) and John Conyers (D-Mich.) teamed up to provide consumers competitive, high-speed connections by way of a different legislative route: the House Judiciary Committee. It's a path Cannon sees as possibly speeding relief from the glacial local rollout of advanced telecom services.

"[T]he reason the Bell operating companies haven't done more is because they've chosen not to do more," Cannon told Tech Central Station Host James K. Glassman, a day before introducing his measure on May 3rd. "They've chosen to litigate and try essentially to hold back the flow of the Missouri River here in a futile attempt to maintain their monopoly."

Glassman and Cannon also talked about rural access to telecom upgrades, local and federal regulatory approaches, and dealing with the myriad privacy issues confronting Internet use. Concerning the last, Cannon says, "[W]e need to provide people with a measure of confidence in e-commerce if the Internet is going to continue to grow."

James K. Glassman: It`s been a busy few weeks for telecommunications issues in Congress. First, Congressman Tauzin introduced his bill, H.R. 1542, and now there are news reports that you, Congressman, and Congressman Conyers are introducing your own telecom legislation next week. How does your legislation differ from Congressman Tauzin`s?

Rep. Chris Cannon: This is an area where smart people have a hard time understanding, and good people can disagree. It seems to me that we must allow the market to disseminate broadband access. And that is really one of the most important issues before Congress today. It`s certainly one of the most important issues on my agenda. You know, my friend Billy Tauzin argues that the only way to deploy more broadband is to totally deregulate the regional Bell companies like Qwest, Verizon, SBC or Bell South.

My view of the Tauzin-Dingell bill is that it will allow the Bells to extend the monopoly they have over local phone service into the realm of data. Billy`s bill would remove all of the incentives Congress provided in 1996 to encourage the Bells to play fairly in the telecommunications market place. As the Information Technology Association of America said recently, the Tauzin-Dingell bill is like allowing children to eat dessert before they eat their vegetables. It allows them to get into the lucrative data business - and screen out their competitors - without having to open their networks to free market forces.

Corporations are supposed to be self-serving; you cannot expect them to help establish competition without providing them a reason to act fairly. Thus, by eliminating the carrot and the stick that would otherwise force the Bells to compete on a level playing field, you will end up, in fact, slowing down the dissemination of broadband.

I oppose the Tauzin-Dingell bill because I think it will re-establish a monopoly that has proven itself over a long period of time to be counterproductive to innovation. In short, I believe it would be counterproductive to broadband dissemination.

You know, Jim, yesterday, Reps. John Conyers, Darryl Issa and Jerry Nadler introduced two bills to give competitors the tools to pry open the Bells` monopolies.

The American Broadband Competition Act would close a loophole that currently allows the Bells to escape anti-trust enforcement. Without sufficient anti-trust enforcement, the telecommunications field will eventually resemble the airlines: few choices, high prices, and poor service. The second thing our legislation would do is to create a region-wide alternative dispute resolution process for interconnection agreements. Right now, when a competitive company like Covad has a dispute with one of the RBOCs,. It has to take its case to EACH public utility commission to get relief. This causes massive gridlock, and a waste of time and resources. Our provision for alternative dispute resolution would allow a challenger to bring its case to one arbitration board, and it would have to live with that board`s determination, even if the case doesn`t go the challenger`s way. It will give a sense of finality so that all of the parties can get past the disputes and do what they should be doing - installing more high-speed Internet connections.

Finally, it makes a violation of the 1996 Telecom Act a per se violation of the antitrust laws. This is a big stick to use in leveling the playing field.

Glassman: Is one of the problems with the Telecom Act of 1996 that it didn`t really provide - it was not really clear on whether the Bells had to open up their local switch? It gave them incentives, but it didn`t say, "You must do this, or else." What you`re saying is that if they don`t do it, it`s an antitrust violation?

Cannon: Yes and no. The issue is not strictly about opening up the Bell networks; the 1996 Act created a process whereby they have the incentives to allow competitors to compete. They can choose not to open their networks - but the consequence is that they cannot do interLATA voice or data. My bill looks at the overall patterns of Bell behavior to see whether their activities constitute a pattern and practice of anticompetitive behavior. If they do, then they have violated the antitrust laws, and should be liable as such.

Glassman: Okay, fine. Now, the Bell companies are claiming that H.R. 1542, the Tauzin-Dingell bill, would make broadband available in rural areas where it`s not now. Now, you are a representative of a very rural state. What is the current deployment of broadband in Utah? Do you believe that the Tauzin-Dingell bill would really increase broadband deployment in rural areas?

Cannon: The Bells` arguments don`t wash in Utah. That is because Qwest found that rural service wasn`t profitable enough for them, and so they divested themselves of virtually all of my rural areas; other RBOCs have done the same. So if the Bells argue that they need to be deregulated to provide rural service, that is a red herring; they don`t intend to build out into the rural areas because right now, the economics just aren`t there. The rural digital divide is nothing but a Trojan horse argument to justify deregulation.

Let me just make on interesting point: Utah is the seventh most urban state in the country. That`s because we have a lot of territory that is owned by the federal government and uninhabited. But my state is actually pretty urbanized.

With that, we are finding a mini-silicon valley taking hold in my district. With companies like Novell, eBay, Intel, and Caldera there, we have one of the highest per capita computer usage rates in the country. That is why the broadband issue is so important to me.

I think the analysis about rural telecom and rural broadband service is more about economics than regulation. It takes longer to get to the rural areas, the same way it took electricity and it took indoor plumbing longer. One of our guys made a point that we could`ve had the electricity divide, or the indoor plumbing divide a 100 years ago simply because it takes longer to cover those rural areas. But deregulating these guys isn`t going to speed up the process. They`re just going to spin these things off and go to where the cash cows are. And the cash is in data with voice as data.

Glassman: Right. So, essentially what you`re saying is that the Tauzin-Dingell bill would allow the Bells into the lucrative data part of long distance without fulfilling their obligations under the Telecom Act to open the local network. And if that happens, there won`t be any competition.

Cannon: These are words that I think we`ve all on the competitive side have said almost exactly the way you`ve said them, Jim.

Glassman: So that brings me to my next question, which is that the Telecom Act has been in effect now for five years. We`ve only seen in five states that the Bells have been certified as having opened up a local loop enough to get into long distance. What does your legislation do to open up these local markets to the kind of competition we all want?

Cannon: In the first place, the reason the Bell operating companies haven`t done more is because they`ve chosen not to do more. They`ve chosen to litigate and try essentially to hold back the flow of the Missouri River here in a futile attempt to maintain their monopoly.

Glassman: Is one of the reasons they have not done more due to the anticipation of Tauzin-Dingell or some legislation like it passing?

Cannon: I think that is part of it, but we have a long period of time here. Five years is an eternity, much longer than five mortal years when you consider the evolution of the Internet and electronic communication. So I think their motivations are diverse. I will tell you that last year, between the Tauzin bill and the Goodlatte bill, there was enormous pressure from the RBOCs for a change that would give them relief from having to open up. One of the reasons I really don`t like the Tauzin-Dingell bill is that it gives the Bells encouragement to maintain their territoriality. This is a fight over whether they can go back to the bad old days of a monopoly phone system.

Glassman: I interrupted you. My original question was how will your legislation change the situation that we`ve seen over the last five years?

Cannon: What we want to do is give tools to the competitors of the RBOCs to stop the anti-competitive behavior. In other words, what we want to do is give some balance back to the people who would be competing so that they can compete more effectively.

By the way, a big, big element to this competition is the ability to raise capital. So these little shifts are going to be significant to the long-term financial health of the competitors.

Glassman: There seems to be a move afoot in some state legislatures and public utilities commissions around the country to force the Bells to compete by structurally separating the companies into wholesale and resale companies. Does your legislation address this so-called structural separation issue?

Cannon: Our legislation does not. We considered structural separation, but as a conservative, I have an issue with the government breaking up companies. That being said, I would only support structural separation as a last resort.

Glassman: Do you think there`s a federal role here?

Cannon: Sure. But it's not the time for structural separation. If there is a federal role, its antitrust enforcement.

By the way, the rumor that we were considering structural separation came from Rick Boucher, who was speaking to the U.S.Telecom Association and suggested that we were going to submit a bill that would do that. That was news to us. That got a lot of headlines for a while there. But our view of that is that that`s a last resort, and we`re a long way from doing that. However, there are people on the Commerce Committee who are not happy with the Tauzin-Dingell bill, who are also thinking of structural separation as an alternative.

Glassman: Now, speaking of the Commerce Committee, the Telecommunications Subcommittee of the Commerce Committee passed the Tauzin-Dingell legislation out of subcommittee last week by a 19-to-14 vote, which is pretty close. Do you think that the contentiousness there, even though it was passed very quickly, increases the chances for your legislation in the Judiciary Committee?

Cannon: The quick answer is "yes," but it`s a little more complicated than that. In the first place, that bill got out because of a lot of pressure by the Chairman. And we think that vote, as close as it is, doesn`t represent the reality even on the Commerce Committee.

But there`s another problem that just happens in Congress: the jurisdictional question between committees. Judiciary has a role when it comes to antitrust and issues related to antitrust. So, you have issues of committee jurisdiction, which are real important. When we get to the floor, I don`t know whether the chairman of the Commerce Committee will be able to satisfy all of those members who aren't on the Committee that have serious concerns about unleashing the Bells

Glassman: Do you have any idea what will happen when you get to the floor? Will these bills be taken sequentially, and if one passes, the other would fall by the wayside?

Cannon: No. We may have a review of the Tauzin-Dingell bill in Judiciary, which will slow that process up significantly. We have crafted our bill to be a Judiciary Committee bill, and therefore, may even get to the floor faster. Ultimately, we have the Cannon-Conyers bill, which is the bill we`ve been talking about. There`s also the Conyers-Cannon bill, which is a more aggressive bill, and which could be a substitute for or an amendment to the Tauzin-Dingell bill. But the short answer to your question is that our bill and the Tauzin bill will likely be considered on parallel tracks in the Judiciary Committee. If they get to the floor, its anybody`s guess.

Glassman: Speaking of the Judiciary Committee, why is that the Judiciary Committee seems to be the focus of a lot of Internet issues, such as privacy, copyright, even tax issues?

Cannon: The Judiciary Committee`s role is actually quite interesting in this regard. When I first came to the Judiciary Committee, I got tied up in traffic on the Georgetown Pike and ended up on the Courts and Intellectual Property Subcommittee by the grace of Chairman Coble, who knew that I wanted to be on. This time, we had a whole raft of new freshmen lawyers who joined the Judiciary Committee. All of them wanted to be on the renamed Subcommittee on Courts, the Internet, and Intellectual Property.

Our role in Internet issues originally stems from two areas: antitrust and intellectual property. Antitrust enforcement brought tech issues to us via the Bell monopolies. But the protection of intellectual property in the digital age has also been a key part of our legislative role. But as a general matter, the Judiciary Committee provides the legal context for which we do the big ideas, as opposed to the control of the particular industries that tends to be the case with the Commerce Committee.

Glassman: I know you`ve been active on Internet privacy issues, and they`re a great deal of concern to Tech Central Station as well. You have introduced a bill with Congresswoman Eshoo on privacy. What would your legislation do?

Cannon: The first thing it will do is create the context for the discussion, and we think that`s very important. Privacy issues are very, very, very big. What we`re trying to do with this issue - with the legislation we`re doing right now - is quite narrow. That narrow purpose is to help people understand that when they`re on the Internet, the data that`s accumulated about them is not going to be used improperly. Privacy is a key issue for the Internet. A recent study by Forrester Research found that consumers left nearly $12 billion in e-commerce transactions uncompleted because they were concerned about how their credit card data would be used. So, we need to provide people with a measure of confidence in e-commerce if the Internet is going to continue to grow.

The Cannon-Eshoo privacy bill, H.R. 237, aims to accomplish that.
  1. We would require web sites to post their privacy policies so that consumers can be informed;
  2. We would mandate that consumers could opt out of information sharing if they so choose;
  3. The bill would set civil penalties for noncompliance, enforced by the Federal Trade Commission, other federal agencies, and in some circumstances, the state attorneys-general;
  4. It would provide a safe harbor so that companies qualifying for certain privacy seals like e-Trust would be deemed to be in compliance with the law;
And it would preempt state laws so that companies don`t have to deal with 50 different standards set by 50 different states.

Glassman: By the way, just as an aside, we had a conference at the American Enterprise Institute in which a couple of professors laid out an interesting idea of having competing privacy regimes among the states and allowing companies to choose their privacy regime in the way they now choose the state in which they`re chartered as a corporation. States would get reputations for having either strong privacy rules or not. Then consumers could then make a choice among them. In other words, the idea being that it`s really hard to come up with a privacy regime in general, and the best way to do it is through competition.

Cannon: That would be absolutely fascinating because I, as a states` rights person, generally speaking, I have a problem with preemption. Internet privacy, however, is one of the areas where preemption may be appropriate, but I think we need some creative thinking here.

Glassman: As a former venture capitalist yourself, to what do you attribute the cause of so many tech companies going out of business, or being on the brink of going out of business, over the last 12 months?

Cannon: That`s a great question. The answers are diverse because the companies themselves are diverse. But clearly, the overall economy and the shrinking of capital for those kinds of ventures is significant. Secondly, the uncertainty of the legislative and regulatory environments - at least when it comes to broadband companies. The capital markets hate uncertainty, and bills like last year`s Goodlatte-Boucher legislation ultimately undermine the stability that investors need to continue financing - which is the life blood of any tech start-up.

Glassman: Well, I think we`ve just about covered everything. I really appreciate your time.

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