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Public Workshops 2007 Telecommunications Symposium "Voice, Video and Broadband: 9:10 a.m. through 5:23 p.m. Reagan Building
C O N T E N T S Opening Remarks THOMAS O. BARNETT, Assistant Attorney General, Antitrust Division Panel I Moderator: YVETTE TARLOV, Attorney, Telecommunications and Enforcement Section, Antitrust Division Panelists: JOHN THORNE, Deputy General Counsel and Senior Vice President, Verizon Communications Inc. Panel II Co-moderators: CARL WILLNER and LUIN FITCH, Attorneys, Telecommunications and Media Section, Antitrust Division Panelists: SEAN C. LINDSAY, Associate General Counsel, Qwest Communications International Inc. Panel III Moderator: HILLARY BURCHUK, Attorney Telecommunications and Enforcement Section, Antitrust Division Panelists: THOMAS W. HAZLETT, Professor of Law and Economics, George Mason University School of Law Panel IV Moderator: NANCY GOODMAN, Chief, Telecommunications and Media Section, Antitrust Division Panelists: EVAN R. GRAYER, Vice President Broadband, DirecTV Group Closing Remarks DEBORAH A. GARZA, Deputy Assistant Attorney General, Antitrust Division
P R O C E E D I N G S Opening Remarks MR. BARNETT: Good morning. I appreciate all of you coming to our symposium today to talk about telephone and video issues. I will start off with a caveat about the current state of our technology in telecommunications. If all of you could, turn off all of your BlackBerries and cell phones. I am told that it will interfere with our electronic equipment, and there are people who are trying to listen in, as well as watch in person. so we very much appreciate your cooperation. That will also help minimize any interruptions if anyone gets a call in the meantime. We do appreciate your coming today. I think that this is a very exciting topic. It is a very exciting set of industries. As we look out from the Antitrust Division across the economy, there is no doubt that telecommunications and television is one of the most dynamic sectors of the economy. The changes that have taken place over just the last 20 or so years are nothing less than breathtaking. From my perspective, I think of wireless voice communications. You can now reach out and touch somebody merely by pulling out a little handheld device, kind of like what I saw in Star Trek, and dial a few numbers and talk to anybody on the face of the planet, or virtually anybody anywhere on the face of the planet, and you can do things we had only imagined. There is BlackBerry e-mail, text messages, surfing the Internet, all from the convenience of wherever you are sitting or standing. According to the CTIA, many of us are doing just that. As of June of this year, there were 243 million wireless subscribers in the United States. That is an 81 percent penetration rate. As of June of that year, there is 12.8 percent of the population who have cut the cord, who do not have a landline telephone connection. That is something that is up from 7 or so percent just two years before. As of June of 2007, wireless minutes in use were 1.95 trillion, and there were 28.8 billion monthly text messages. There is no doubt that this is an important and widely used service. From the broadband perspective, I think back 20 years to 1987, and the Internet was unknown to the American population. In the 1990s, we were talking about dial-up modems, and if you had a 56K modem, you were top tier. Now we have companies putting fiber optic cables into homes with almost a limitless transmission capacity. Again, the penetration here is very impressive. According to the FCC, from December 2000 to December 2006, the number of high-speed broadband lines increased from 6 million to over 82 million. The number of residential high-speed broadband lines increased from 5 million to 58 million. Similarly, the number of residential high-speed fiber lines increased from under 2,000 in the year 2000 to over 750,000 last year. The number of satellite and wireless high-speed lines increased to almost 3.4 million as of 2006. Again, when I was growing up and I wanted to watch television, I had access to four channels, all analog, all broadcast over the airwaves. Now most of us have access to hundreds of digital channels, and an increasing number of them are in high-definition digital. We can receive the video over the air, over a cable, or over a fiber optic line. From a competition perspective, these developments are all to the good. In addition to expanded product offerings and the increased quality of products, we are seeing increased competition from separate platforms. At one point, we had a single copper wire running into our homes, and that is how we got our telephone, and we had the antenna on top of the house for the television. Now we have copper and fiber optic lines running into the house, coaxial cables, wireless communications, voice over the Internet protocol, or satellite transmissions. Other technologies are on the horizon, including broadband over power lines and mobile wireless broadband. The increase in the use of these technologies and across platform competition clearly has benefitted consumers. As just a couple of small examples, the cost of long-distance communication, which used to be a very significant part of your telecommunications bill, has dropped dramatically. People talk about free long distance in the not-too-distant future. There are indication that where new providers, new facilities-based providers of video/television communication have entered and introduced competition that prices have fallen. While all these are wonderful, we also recognize they don't come free. According to Standard & Poor's, the wireless carriers in 2006 invested over $23 billion in their wireless infrastructure. On the fiber optic side of things, just two companies have announced that they are spending approximately $25 billion to build out their fiber optic network, and according to the National Cable and Telecommunications Association, the cable industry is investing in 2006 over $12 billion in constructing and upgrading their cable facilities. So this is a very dynamic industry. It is doing wonderful things, and people are investing and taking risk with many billions of dollars. It is all very exciting. So why are we having the workshop today? The reason we are having the workshop is that not all of the news that we hear from the Antitrust Division's perspective is good. We believe that cross-platform competition is a good thing for consumers. We periodically hear, however, about factors that may be slowing the expansion of this type of competition. Some of those barriers are impediments that may be technological. Trying to provide high-speed broadband service over power lines or through mobile wireless networks certainly presents major technical challenges that have not been completely solved. Some of the barriers may be economic. As I have just discussed, the cost of building out a nationwide network is many billions of dollars. Some of these impediments may be regulatory. These could include, for example, requirements that a new provider of telephone, broadband, or video services obtain regulatory approvals from a large number of local governmental authorities. The Antitrust Division cares about these issues for two interrelated reasons. First and foremost, expanded competition enhances consumer welfare by increasing the number and kind of product offerings, and by reducing the cost of those offerings. Second, the Division must consider the degree of current and potential competition in a range of contexts. These include our review of proposed mergers, investigations of potential anticompetitive nonmerger conduct, and discussions with other governmental entities on the competitive benefits of proposed governmental actions. We are looking forward to this session and learning more about these important issues. I do want to say that we appreciate the written submissions that have already been sent in. Indeed, we appreciate them so much that we have decided we are going to extend the deadline. In fact, we have heard from a few folks that they had trouble meeting the deadline, and while we announced a cutoff -- and I can't remember what it was -- we will continue to accept and promise to consider any written submissions that we receive by December 31st of 2007, the end of this year. We also recognize that there are far more of you who are interested in coming here to speak today than we could possibly accommodate in a one-day session. We have tried our best to cover a range of interests in those who are going to be able to speak. For those of you who we were not able to accommodate, we do encourage you to submit your comments in writing, and we obviously will take those into serious consideration. We hope to synthesize the information we obtain, both in the discussions today and in the written submissions, and produce a report on these issues sometime next year. So I want to thank all of you for coming. I want to thank you for your written contributions, for your participation in the discussions today, and finally, I particularly want to thank our staff who have put in a tremendous amount of effort organizing this, preparing the agenda, lining up the panels, dealing with the submissions. I thank them for the work they have done so far and the work that they will do after the workshop. So thank you very much for coming, and with that, let's get started. Thank you. [Applause.] Panel I Entry into Multichannel Video Services MS. TARLOV: Good morning. Thank you, Tom. You are always a hard act to follow, but we will give it a shot. I am Yvette Tarlov. I am an attorney in the Telecommunications and Enforcement Section of the Antitrust Division. I will be acting as the moderator of our first panel on entry into the multichannel video market. Many of you, I am sure, have probably seen or received ads about Verizon's FiOS video service. Our first panel will explore the extent to which regulatory or other constraints continue to act as barriers to entry into the video market. We also will be discussing the competitive impact of new entry into the video market: How have the incumbent cable companies responded? Have prices gone up or down? Finally, we will be discussing the significance of offering bundles of services, including video, the so-called "triple play" or "quadruple play." We have five distinguished panelists to address these and other questions this morning. Our first speaker is John Thorne who is the Senior Vice President and Deputy General Counsel for Verizon. John is responsible for a variety of Verizon's legal work, including antitrust, intellectual property, and privacy. He is no stranger to the public speaking circuit. In his spare time, he is an adjunct faculty member at Columbia and Georgetown law schools. Our next speaker will be John Goodman. For the past six years, John has been the Executive Director of the Broadband Service Providers Association. The BPSA is comprised of broadband service providers who provide video, high-speed Internet access, and telephony over facilities-based, state-of-the-art broadband networks throughout the country. Our third speaker is Grier Raclin. Mr. Raclin has been the Executive Vice-President, General Counsel, and Secretary of Charter Communications since 2005. Mr. Raclin oversees Charter's legal and regulatory affairs, as well as its business development, programming, procurement, and facilities departments. Our fourth speaker is Jane Lawton. Ms. Lawton has served as the cable communications chief for Montgomery County since 1996. Her division of Cable and Communications Services oversees the negotiation and administration of cable franchises for the county. In addition, Ms. Lawton is serving her second term in the Maryland General Assembly, representing District 18. Prior to that, she served four terms as Mayor of the Town of Chevy Chase, Maryland, as well as being on the town council. The last, but not least, speaker is Hal Singer, President of Criterion Economics. Dr. Singer's areas of expertise are antitrust, industrial organizations, and damages. He has applied this expertise in a variety of industries, including telecommunications, Internet, and video programming. Hal has published extensively on these topics and has served as a consultant and testifying expert in a variety of antitrust cases. Once all of the panelists have completed their presentations, I will pose some questions to each of them. We will then open the floor to people from the audience to pose questions, and there will be volunteers going around with microphones for each of you to use. Before I turn over the panel to John, I would like to acknowledge the invaluable contribution of my colleague, Rebekah Goodheart, in putting together this panel. Thanks. MR. THORNE: Good morning. First of all, thank you for the invitation to be here. I am going to be brief. I am not going to use a PowerPoint. I did submit a fairly detailed paper that is up on the DOJ website, and I would refer you to that if you want a coherent, logical, more complete than I can be on the hoof version of this, but thanks to Tom Barnett, Deb Garza, Nancy Goodman, Laury Bobbish, Yvette Tarlov, Rebekah Goodheart, Carl Willner, Luin Fitch, and the many of you that we have worked with on other things for hosting this. This is an important topic. I would like to actually spend my entire 5 to 10 minutes echoing Tom's excitement about the business because that is how people at Verizon feel about this now, but I am going to move a little bit beyond that. I will start with the fact that Verizon is spending by itself $23 billion pulling fiber to homes and offices and multiple dwelling units throughout a multi-State area. We are hoping to reach quite a few million customers in a reasonable length of time. The $23 billion is sometimes expressed as a smaller number, sometimes 18 and sometimes slightly different numbers, because if you put fiber in, some of the cost of maintaining the copper can be subtracted. So you can look at it two different ways, but the new money out the door putting in fiber is $23 billion. Verizon is offering a substantially better product than any in the market, and in many places, we are offering it at a lower price than the poorer product that the cable incumbent is offering. I will put my antitrust hat on for a second. I got to tell you, it is the most pro- competitive thing I have ever worked on. I have worked on several, but this is the most exciting that I think we have done. Consumers love the product. We do get some complaints, so I've got to tell you. The complaints are along the lines of "When can I get FiOS on my street?" We get constant e-mails. All my friends ask. My neighbor in Chevy Chase has it, I live in D.C., "When can I get it?" Consumer Reports magazine, February of this year, has an article that, I think, is entitled "Fiber Joins the Fray" that begins with these words: "Cable Internet service has met its match." In our latest survey of more than 34,000 subscribers, our first to assess "the new kid on the block," readers gave Verizon's fiber-based FiOS service top marks across the board. FiOS users were more satisfied with the service's speed than were users of cable. They were more satisfied with FiOS's cost. FiOS got higher marks for both reliability and technical support than did cable or DSL. That is the good news. The bad news? Consumer Reports always has bad news. The bad news is that your chances of getting this promising new service today are slim. Verizon's FiOS currently is being offered to about 6 million homes in roughly one-third of the states where Verizon is otherwise a telephone provider. The article goes on to say, "Plus, the very threat of a cable competitor can have an effect in the few markets where Verizon has rolled out its fiber to the home service. For example, cable has responded with lower prices on broadband, among other incentives." I can go on about how cable has reacted to us, and I do actually in the written submission, which I would recommend to you. Long-run students of this industry -- again, the paper details who they are and their findings -- governmental bodies ranging from the Government Accounting Office to Congress to the Justice Department, the FCC, the Commerce Department, professors who study the economics of this business over the past few decades -- you are going to hear from a couple I think later today, Hal Singer and Tom Hazlett -- repeatedly have concluded that new entry by a wireline rival is good for customers in terms of price, number of channels, quality of programming, all the other dimensions on which consumers evaluate the service. I can tell you that if you look at what the cable companies that are threatened by this development say, you see the same thing. They are not saying "Oh, we don't care" or "Verizon is not a force" or "Customers don't care." I would refer you, for example -- again, there are lots of examples, and I have some in the paper -- on May 3rd of this year, the chief operating officer of Cablevision, Tom Rutledge, said on the transcript of his company's quarterly earnings call that, "Churn" -- churn, that is the loss of a customer -- "Churn was impacted by FiOS competition." Then he got a question from the floor. The question was "Will your churn increase further because of FiOS?" and his answer was "It is a function of how franchises are granted and when they are granted." Now, you all know what that means, but I am going to emphasize the point. When the chief operating officer of an incumbent cable company says it is a function of how franchises are granted and when they are granted, he is telling you that if Cablevision had some ability to affect how and when the franchises were granted, he could affect his churn. He could keep his customers. He will lose his customers to competition if Verizon can enter faster. Now, the entry barriers that Verizon has faced and is facing are partially recounted in the paper that I put in. I got the question from Rebekah and Yvette in preparation for this, what are the current most important entry barriers that are slowing down your bringing this good new product to consumers? I can answer that question, but I think the question actually reflects a mind-set, and I don't want to take issue too much. I think the right question for you to ask is not just what is the problem of the day because the problem of the day has changed every day. If you look back over time, this is an enduring problem. It is not a one-time problem that gets fixed with a one-time solution. For example, you can go back 21 years to the Preferred [Communications v. City of Los Angeles] case. In that case, Los Angeles said that the incumbent cable operator was going to be the only one. There was going to be an exclusive, de jure, single cable operator in Los Angeles. The Supreme Court, Justice Rehnquist -- then justice, not chief, said no. There is a First Amendment right to provide cable TV service, this kind of speech. So, 21 years ago, the municipalities were told, "You cannot issue single cable franchises. Additional entrants must be allowed." Twenty-one years ago. It was 15 years ago that Congress wrote in the 1992 act that a franchising authority -- I am quoting from the statute -- "A franchising authority may not grant an exclusive franchise and may not unreasonably refuse to award an additional competitive franchise." Well, that was 15 years ago. You would have thought maybe 15 years ago, the barrier of franchising had been lifted, and yet regulators have had to continue coming back to the problem not just of franchises, but others. There were three reports issued this year by the FCC. March 5 of this year, the FCC found the current operation of the franchising process unreasonably interferes with competitive entry. That is the heading from one of the sections of the report, and that was a docket that was opened in 2005. In November of this year, just a few weeks ago, November 6th, the FCC issued a second report and order on that same topic. It was still an issue. November 13, just a couple weeks ago, the FCC ruled that a different problem, multiple dwelling units, when a new entrant like Verizon is on the verge of entering a market, the cable companies scurries to sign up MDUs into long-term contracts, so that the residents in the apartment building can't get the competitive service. November 13, the FCC ruled those exclusivity agreements with the MDUs "caused significant harm to competition" and are "an unfair method of competition." That was a docket that was opened this year. That problem was addressed by the FCC this year. I expect the cable companies will appeal that decision. That may not actually get resolved right away. Verizon is very appreciative of the work the FCC has done. We are very appreciative of what Congress has done in the 1992 Act and in other acts. We are very appreciative of the support of the Justice Department. We are appreciative of what the state legislatures have done in some states to make it simpler to get franchises. The question, what are the current problems, is not quite the right question. This is an enduring problem that needs an enduring solution. To be specific in answering the question, I want to make sure, Rebekah, I have done this for you. I think the two current largest problems are one, access to multiple dwelling units and, second, the interconnection necessary in order to get interconnection with an incumbent cable's PEG channels. Often the way this works is the incumbent has put in a studio or other PEG facilities, and the new rival has to connect. It is a fairly simple thing. You may hear about more of this on the subsequent panels. Those of us who have been through the 1996 Act know that it is not that hard to interconnect to facilities, but somehow that has become an issue, and we detail some of that in the submission that we have put in. Let me wrap up and just say again I am very appreciative to have a chance to be here and answer questions a little later on, but I think the right perspective for looking at this problem is that this may be one of those rare situations where this agency and its unique tools should be brought to bear. Thanks. MR. GOODMAN: Good morning. I am John Goodman, and I also want to express my appreciation for being here today. I am also always a little threatened or awed by being in this kind of an environment. I am a nonlawyer, and I am profoundly aware of the fact that I am surrounded almost overwhelmingly by lawyers. My actual start in this industry is also a full cycle in that the first thing I did in the industry was to work for a BSP or a broadband service provider -- some people call them "overbuilders" -- where we built a network in St. Cloud, Minnesota, and that network was put into place competing with Charter, who is sitting here today, and Qwest, who is on a panel later today. So it has been a very interesting thing for me. As I think you are aware, the BSPs are always building networks that do the bundle, and one of the topics today is the bundle and how significant that is. It is also the case that BSPs are always in a competitive position. They have always come into markets where there is somebody else already offering all of the services that they bring. One of the names that you may be familiar with is RCN. They offer services here in the greater Washington area. Other BSPs are Knology, Prairie Wave, SureWest, Everest, et cetera. This is a diagram of the basic system structure that a BSP brings to the market. [BPSA Slide 3] Now, the interesting thing about this basic structure is that it is now being emulated or duplicated with different technologies by most of the players that are coming into the market. The key to this structure or understanding it is that everything inside this box is a private network being operated by the operator. The key to what it can do is the headend. The headend is the connection between the entire outside world, whether it is pulling in video content or connecting to the PSTN or connecting to the Internet, et cetera, and the subscribers that have signed into the network. One of the things that I would point out is that this structure is creating perpetual change. Most of you can understand what we are now calling a three-screen strategy. We have all turned off our BlackBerries, but what is happening, in part driven by this structure and by technology, is that you have content and connections that are now bouncing between the three connections. You used to have the world of TV in its own world. You used to have an Internet PC living in its own world, and then you had a telephone that didn't have a screen. In today's world, you have connections and information that are bouncing between all three screens. That is for the panel kind of my daily life. Some things, I choose to watch on my TV. Some things, I watch on my PC. There are other things that I monitor that have a similar content on my telephone, which is no longer an independent thing. One of the questions is the bundle and how important is that. BSPs have now been selling the bundle for about 10 years, and we decided that we will disclose some of our key numbers in terms of where we are. [BSPA Slide 4] It is pretty clear that the service that is the most important, that has the highest take rate and also economics is video. Fully eighty-nine percent, on average, of our customers take some form of video service. In today's world, about 70 percent of all of our customers are buying some type of bundle. A little over a third are buying all three. The two services that are growing in penetration fairly quickly are broadband and telephone. Not all of the BSPs were offering service from day one when it comes to telephone, but at this point, all of them have migrated to -- if they didn't do switched telephone, they are doing VOIP telephone. So they are offering all three services, and what we expect is the telephone numbers to go up. By the way, all of this data is in the comments that we filed and posted. So you can come back to it there. So the bundle is essential. When you go back to the 1980s and you had overbuilders that came into the market and they only offered video, they failed financially. The difference today in terms of this particular business model, is that you are offering the bundle. You do not have to come into a market and get a dominant market share in any individual service, but you can create enough revenue to survive and do okay. As has been already touted, this is a very capital-intensive business. If you go back to the early entry days, there was a misconception that this business was going to print money, and that is just not true. At the same time, it is a very powerful business model that is becoming very profitable today for the people that are still in it. Some other questions have been raised as to whether these wireline entrants do or do not have significant impact on competition or on consumer welfare. One of the studies that was most significant to finally isolate markets where you have multiple wireline competitors was a Kohl and DeWine study in 2004. This one has been cited now in several of the recent proceedings, including the MDUs and franchising. It is third-party evidence that you do have significant impact when you have an additional wireline competitor come into the market. One of the keys is that the impacts that were identified back then are still going on today. It was not an isolated situation that has really changed. The other thing that I would point out to you is a GAO study that has not has much visibility, but the GAO did a second study where they wanted to see how DBS penetration rates fared in different markets, and in going after this data, what they discovered is that in rural markets, the penetration rate of DBS is pretty high, 29 percent. As you moved into more urban and suburban markets, it dropped down to 18 and 13 percent. When you look at it from a technology standpoint, when you are out in a market where you don't have an upgrade, where DBS is competing with a traditional cable system, the penetration rate is actually the highest, 36 percent. When you come into a market where the incumbent cable or other operators have fully upgraded to the bundle, guess what you find? You find that the DBS penetration rate drops to 16 and 14. In the recent work done by the FCC, they have acknowledged that there are DMAs, major market areas in the country, where the incumbent cable operator still holds nearly 78 percent market share. So what we have is an industry structure where DBS has had significant growth and offered a lot of new competition into the marketplace over the last 10-15 years, but we still have major market segments that have an incumbent operator for video that has an 80 percent market share, which is a very, very strong, nearly dominant position, especially when you consider that the DBS share is split between two providers. So you have an incumbent provider in a major market that may have an 8-to-1 advantage over the next nearest competitor for that service. The other issue that I want to point out is the connection between broadband and video. It has become increasingly apparent, especially with the FCC, that you can't deal with policy issues any more in isolation. When we implement good policies that promote the further expansion of video competition, given that the networks that are being built also offer broadband, what you indirectly do is create a better platform for broadband deployment. A key quote from the FCC's franchising order states that the two are now intrinsically linked. You really can't deal with them in isolation as you go forward, as you look at antitrust laws, as you look at policy, those kinds of things. Three recent actions are worth your looking into and becoming familiar with. One is the extension of the 628 prohibitions. Back when the rules were enacted, they said if programming content was subject to vertical integration and it was delivered by satellite [to the cable headend], it had to be offered on fair and equal terms to competitors. That rule was subject to sunset in the last year, and the FCC went ahead and extended it, and I will talk about that in the next slide. You also have franchising and actions that have been taken on MDUs. The one that I would like to point out to you or ask you to focus on a little bit is programming access. There is a further rulemaking that is pending at the FCC involving the "terrestrial loophole." Right now, under the [FCC's program access] rules, if the [vertically-integrated] content that is being distributed goes through a terrestrial network, there are no rules that assure access, and that is why it is called the "loophole" or the "terrestrial loophole." Because of the development in the industry, a terrestrial network can carry anything that historically was delivered by a satellite. There are many circumstances where a terrestrial feed is going to be preferred - including better economics, better quality, and other issues -- to a satellite feed for regional content. When the FCC extended the current rules, it was a 5-0 vote. We haven't had a lot of 5-0 votes from the FCC in recent years, but this one was unanimous and very strong, and they identified a number of market characteristics that they felt were germane and significant to the decision to extend the rules. We believe that all of the arguments that created this 5-0 vote also play into the terrestrial loophole. The FCC actually closed the terrestrial loophole in the Adelphia merger Order. They decided that it would be anti-competitive if sports programming and other programming in that merger was made unavailable to all of the competitors involved in those markets. The FCC has now issued a new NPRM, called MB No. 07-198, that takes up the issue of the terrestrial loophole and whether they should take action to close it, to treat all vertically- integrated programming in the same way. We expect it is going to be a legal debate. Does the FCC have the authority to do that? Since the foundation of the legal debate is antitrust law, we think there may be some room for you guys to be involved in this one. We are taking the position that the FCC does have the authority, both based on Sections 628(b) and 706 [of the Communications Act of 1934], for those of you that are familiar with those statutes, and quite bluntly, we are going to be asking for congressional and DOJ support to have the FCC take this action at this time. The key message I would like to leave you with is that, BSPs have been in the market for 10 years, and in some sense, they have the longest history of dealing with whatever competitive issue you want to talk about, whether it is predatory pricing or franchising issues or all the rest of them, and all of them can be material. We have come to the conclusion, based on our experience, that the foundational issue for any new wireline competitor is ultimately fair access to programming content. If that access ever diminishes, you are going to have some issues with how quickly and how healthy new competition is. MR. RACLIN: Good morning, everybody. I am Grier Raclin from Charter Communications. It is a pleasure to be here. I guess one thing I learned today is I ought to be a little more gentle on my team that goes out and negotiates interconnection agreements since the litany of woes they come back with sound remarkably like some of the woes I have heard today. I am going to spend a minute, if I can, and only a minute talking a little bit about Charter. I recognize that most of you here in the swamps of the Potomac, where I was for 20 years myself, probably have never heard of Charter. It is a large cable company, about 6 million subscribers in 29 states. That makes it about the third-largest publicly held cable company, the fifth largest MVPD [multichannel video program distributor]. We say publicly held because when Cox went private, they are roughly our same size. Any day of the week, if we buy something or they sell something, we are bigger or they are bigger, and we don't know what they are anymore since they have the luxury of being private, from my perspective. So we say publicly held, but we are the third-largest cable company. We provide a full suite of services, as many large MSOs do, TV, high def, video-on- demand, et cetera, high-speed Internet which we are increasing the speeds on, telephone service, and then we bundle them, which we will get into in a minute. Charter has been around since about 1991 or 1992, but Charter as it exists today really started in the late '90s when Paul Allen rolled up a number of large cable systems and grew it into Charter. Since that time, since we have talked about franchising, we have obtained thousands of franchises. In fact, one point I will make later is that in 18 months, we obtained over 2,000 franchises. So we have a certain amount of limited tolerance for claims that it is an impossibility to do that. One of the things I have been asked to talk about a little bit is our view of the market today, and I think it can be summed up pretty easily. Our view of the market is that it is already robustly competitive, and it is going to become more competitive as time goes on. For years, we have competed with the satellite companies, which are a lot larger than we are. They have over 30 million subscribers compared to our little less than 6 million, a thirty-three percent market share, and $28 billion in combined revenues, which is significant. The number one cost driver in the cable business is the cost of programming, and the larger you are, the less per head you are going to pay for your programming. So, when you get up to 30 million subscribers, that gives them a tremendous cost advantage over us. In addition to that, we compete with other cable companies, overbuilders, municipal cable companies (and if you want pleasure sometime, try competing against your regulator), private cable companies (which originally started out as SMATVs, antennas on large buildings). One of the ways the ILECs have found around franchising rules is they actually go in and build out as a PCO [Private Cable Operator]. So PCOs now are often affiliated with ILECs, and probably, that will grow with the exclusivity rule which we are happy to talk about later and answer some questions on because we obviously have a different view of things. Local telephone companies are another competitor. Charter is not in a number of large communities. Most of our systems are in smaller communities, rural communities, and therefore, the local telephone companies, the rural companies, really are a large part of our competitive market, and they have a tremendous advantage in that their networks were built at taxpayer expense. So we get to not only compete against our regulators, we get to fund our competitors as well. Of course, the ones we are here to talk about today are the ILECs. The RBOCs have gotten the most attention and for good reason. Whenever they come into any market, they invoke a lot of well-deserved attention, given their size, and they are having a fair amount of success. Verizon, for example, claims a little less than 5 million houses. I heard that maybe it is 6 million, but in any event, their build-out is going quite well. They claim to have over 700,000 new subscribers and are gaining 17,000 subscribers a week. That is pretty impressive. Including their DBS partnerships, they have 1.5 million subscribers making them about the tenth largest multichannel video provider. AT&T is building out a little different technology, a little less robust, but in a much broader area. It has about 126,000 customers to what they call their U-verse video, which is their enhanced DSL product, and they are adding at about 10,000 a week, but if you include their satellite partnerships -- and both the RBOCs have partnerships with satellite companies, and have provided what has been called a "synthetic bundle" for years, and again, it is not new competition, it is just a different version of it -- they have over 2 million customers, making them about the ninth-largest, I guess, MVPD. Their successes has good reason. They have tremendous advantages over all cable companies and, certainly, over Charter. They have huge capitalization and revenue flows. Just to give you an example, this is the chart of our competitors' revenues. [Charter Slide 5] The top line is AT&T's revenue. The second is Verizon's. The third is Comcast's. Then you have DirecTV, Time Warner, DISH, and Charter. Verizon, the second-largest, is larger than all the cable companies combined. They have the revenue flow, rate supported by the way, that allows them to undertake some of these massive projects that we would like to undertake. If you look at their market capitalization, it is even more dramatic. [Charter Slide 6] They switch order, but AT&T's market capitalization makes it over 400 times larger than Charter. Verizon is over 200 times Charter's market capitalization, which is the funding source for all their build-out and their programming. It is a tremendous advantage. In addition to these capitalization and revenue flows, they have got in place networks. They are enhancing their network. It is an expensive proposition. It is a complicated proposition. In fact, I would venture to say it is probably a little more complicated than they expected at the beginning. The video business is very different than the voice business, but what they are doing is upgrading an existing network, an in-place network with in-place personnel, in-place systems, infrastructure, and back-office systems. It is a huge advantage, and of course, they have got these tremendous brand names. While they are only beginning, they are going to be very strong competitors in the market. So what is the future? The future is just kind of more of the same, as far as we can tell. The RBOCs are promising pretty dramatic growth. Verizon projects it is going to pass 18 million houses in the next couple of years, have 3 to 4 million subscribers. They will basically be able to do in a couple of years what it took us six years to do because of their scale. AT&T is on track, they claim, to pass over 8 million houses by 2008, and they are dedicating a lot of resources to get this done. We also have the power companies. I have been in Washington for 20 years, and for those 20 years, I have heard about power companies going into communications, but they recently have overcome some of the technical problems that delayed them. So I think you are going to see power companies entering far more vibrantly than you have seen in the past. IPTV is a very sexy topic. It is interesting. I think it was the Conference Board that came out with a study recently that said that over 16 percent of American households have access to video programming over the Internet in the last year, 16 percent in one year. IPTV is being entered into by the major programmers, the Disneys, the ABCs, the CBSs, as well as a litany of small companies, some not so small like Netflix and some very small ones you may never have heard of, but they are coming out with it, and I think it is going to be a very vibrant competitor, direct to the consumer even. It will bypass the broadcast stations and just come right over the Internet, and of course, mobile delivery platforms, probably the most vibrant thing coming in the future, such as a Google platform. One thing, I guess this is a subject for another panel, but the Antitrust Division and this industry is going to be focusing on dramatic changes that are going to happen in the mobile phone industry as the Verizons of the world open up their networks to non-proprietary phones, and some of the development you have seen in the Internet, I think you are going to see it in mobile telephony. So mobile phones are going to be probably, in the long run, the vehicle for delivery of video programming. We have heard a lot, and if you read John's [Thorne] paper, you have read a lot about all the problems that Verizon has faced in building out its network. As I have said, we got 2,000 franchises in 18 months. It is not an impossibility. A couple of the claims made were that we stopped the franchising process. I think as our regulator on the panel will tell you, the existing incumbent not only doesn't have a role in that process, we often find out about it after it has taken effect. So I would like to say that if we control the local franchise authorities and can stop them from doing things, I haven't seen a case of that yet. The second thing that is alleged is that we filed lawsuits. An important thing to understand is that not one of the lawsuits that were filed by Charter or any cable company that I am aware of ever challenged the entry of a competitor. The sole basis for the lawsuits that we were part of and everyone I know of in the industry -- and maybe there are others that I don't know about -- was simply to seek equal treatment based upon equal treatment provisions in our franchises. If you are going to let new entrants in and relieve them of certain requirements, you have got to relieve us of those requirements. That was the total basis for the lawsuits, and I think they are justified, and they didn't stop anybody from entering, as far as I can tell. New entrants have gotten a lot of relief from these franchises. As has been mentioned, the FCC has already granted huge relief. States have done it as well. You have got statewide franchising in over 18 states. I heard this morning, actually, it is up to 20 now, so between 18 and 20 states, and you have 6 or 7 others that are going to do it later in the year. As I say, the FCC has been very, very busy granting relief, in fact, really uniquely to some of our competitors. For example, the satellite companies, the PCOs are not subject to the rate regulation we are subject to. We have been denied the MDU exclusivity, including in existing contracts. I thought there was some kind of constitutional provision about that, but I guess I was wrong. The program access rules, DBS is not subject to them but we are. I mean, we would love to get an NFL Sunday ticket. Must-carry requirements, along with the syndicated non-duplication rules, effectively grant broadcast stations a monopoly in each one of their markets, something we are not entitled to. RBOCs are given unique relief from all the woes in John's [Thorne] paper about how long it took and the build-out requirements. The FCC gave them relief from that, did not give that same relief to us, did give us relief on some of the other areas, but told us to wait until our renewal. It doesn't sound so bad until you realize that some of our franchises go out 10 years, so this effective on renewal thing really is just a sleight of hand. In fact, it doesn't give us any relief at all. On the set-top box waiver, Verizon is getting a permanent waiver for what they only gave one-year waivers to the cable companies. The list goes on, but one thing I think you would have say is that the FCC has been, shall we say, a hospitable environment for the RBOCs. I will wrap it up quickly in terms of what our response is. First, competition is not new. We have faced competition from DBS for years. The RBOCs are probably the third or fourth competitor in our markets. So we don't overreact. Contrary to what you have seen, we do not immediately drop prices. In fact, Keller, Texas, one of the areas everybody talks about, is one of the first areas to have competition. If you tracked it, you would find that actually cable prices rose there after Verizon first entered because it was a pre-arranged raise, and there wasn't any reason to drop it. What you have seen in terms of dropping prices hasn't been a reduction of the rate cards. It has been rolling out of the bundle. The number-one competitive response we have to competition is to roll out a bundle which effectively lowers the price of the service pretty dramatically, and that is what the RBOCs use to claim that their competition lowered prices. Well, they just raised their prices, Verizon did, 20 percent in two years. So I am not too sure competition has led to a lowering of prices. We also roll out new enhanced products, more high definition, higher speed Internet. We are also increasing bandwidth. The number-one problem for a cable company, other than getting programming, is having the bandwidth to transmit it. So we are trying to roll out technologies to get up to the level of bandwidth that FiOS offers -- FiOS is a very robust product -- increasing distribution channels by going through retail outlets, and obviously improving customer service which is our Achilles' heel and something we have done a lot to improve and still have a ways to go. So I will conclude with two points. One, in our view, competition is longstanding and robust. It is going to get more robust. It is going to be a stronger market, but the last thing that the market needs is more regulatory involvement. The market is working quite well. I wish I could say I have enjoyed all the competition, but it is working quite well from a market perspective, and I would suggest that we just leave it alone and let it continue and let the market decide. Thank you. MS. LAWTON: Hi. I am Jane Lawton, the cable administrator for Montgomery County, Maryland. Montgomery County is the suburban district right here next to Washington, D.C., and it is a densely populated county with over a million residents and over 350,000 households. My office negotiates and administers cable and telecom franchises, monitors service quality and resolves customer complaints, oversees and supports 11 PEG channels, and coordinates the siting of wireless facilities. In the past 12 years, my office has handled five cable franchise transfers, a franchise renewal, three competitive franchise applications and approvals, 18 telecom franchises, and approved over 1,200 wireless sites for 15 providers. As you heard before, I serve at the state level. I work at the county level. I used to serve as a local official, and my first job was as a special assistant to the Speaker of the U.S. House of Representatives. So my legislative and public service background actually have given me an expertise in public policy, local and state regulatory processes, economic development, and most important, consumer protection. I know cable customers and cable providers first-hand because my role is to consider their needs and their access, and when there is a problem, whether it be federal or state or local, they call my office. I know firsthand the impact of the cable and telecom industry's behavior on customers and also on providers. In Montgomery Country, we know that triple-play services are essential to all our residents. We want competition, and we have competition. Without state franchising legislation and before the FCC did anything, we had negotiated three competitive wireline franchises who compete in head-to-head markets: Comcast, RCN, and Verizon. We are about to award a fourth franchise to Cavalier Telephone. Montgomery County is pro-competition. For that reason, we are equally aggressive about exercising our full array of police powers to protect consumers and to ensure that all providers are treated equally. Our robust regulatory environment is obviously not a barrier to any of these competitors who have similar franchise agreements, who all support PEG and I-Net and who all enjoy enormous success in our markets. It is not accurate to suggest that local government favors the incumbent or refuses to give new entrants fair treatment. We have been helpful in the emergence and survival of competitive services. Montgomery County is, as far as we know, the first market in the country with four wireline competitors serving the same area. Our experience confirms what the previous speaker was also speaking to, that the state of video competition is determined by economics, not local regulations. There are examples throughout the State of Maryland of communities that have negotiated individual franchises and have supported competition. My comments that are on-line include a big study that shows that. Montgomery County wants all our residents to have access to the services, not just the highly affluent or those in the urban areas, because we consider these services essential. Our franchises have build-out obligations, and two of the providers are meeting them very well. The third has only faltered because of economic problems due to declining investment by Wall Street. This further confirms that it is economics and not local regulation. We accommodated them when they had this challenge. The application of local regulations with an even hand creates a competitive environment that is stable and conducive to business investment. The current efforts by the FCC and state legislatures to completely change this process may, in fact, slow competition. In 2000, we had our first competition, and our new entrant believed that the incumbent was engaging in predatory prices. They came to us for help. Eliminating local authority is actually a hindrance, not a help, to competition. Under our present franchises, basic rates are the same throughout the franchise area. It is difficult to engage in predatory pricing and ensure that one area of the county is not prohibited access by pricing and doesn't subsidize the other. Building standards and testing requirements also help ensure a quality product. Instead of serving as a barrier to entry, our franchise ensures wider access to services and helps providers by giving them a level playing field. Local government also has a legitimate role as a landlord and manager of the public rights-of-way. These are a public asset, and as such, they or their use can't be given away to competitors or to incumbents. This valuable real estate is already shared by all of the utilities, as well as individual homeowners who consider it their front and back yards. Some of our most serious problems arise with regard to the condition and safety of construction activities. Incumbents and competitors alike complain about cut lines, space on poles, impact of street cuts on build-out plans. In fact, when Verizon constructed its FiOS system, our incumbent came to us to report and seek help for hundreds of line cuts. These are real problems that require real management. To John's [Thorne] point that he made earlier, we in Montgomery County offer a neutral hand-off for our PEG channels. Providers assert that competition will improve customer service, spur lower prices, give higher quality service, and offer a wider array of programming choices. Unfortunately, our experience to date has been that this hasn't happened. New entrants have not lowered prices or improved customer services. We have watched the prices go up, the quality of service go down, and programming choices haven't changed significantly. It is the market, rather than local regulation, that determines what the prices do. The FCC's 2006 report shows that prices rose 6 percent, but our experience in this market is even more dramatic. In 2000, when we got our first competition, our incumbent's rate was $36.85. One competitor arrived in 2000 and then another one in 2007. Since that time, there have been no reductions, and Comcast price now is $60.35, a 63.8-percent increase and probably among the highest in the country because our market, our customers, will pay it. Verizon entered the market in 2007 and announced an initial rate that was slightly lower than the incumbents', but they also raised the rate even before they started service, and they just announced a $5 rate increase. This year, RCN's rates will go up by $3. Customers who are attracted to the bundled services find that they run out. They reach the end of their package deals, and they are startled at the increases. My own increase which happened just last month was a 40-percent increase, from $119 to $170. A customer's only choice for relief is to change providers. As competitors enter the market and incumbents anticipate the loss of revenue, they are cutting customer service, raising and creating new fees, and changing customer policies to enhance their bottom-line profits. Since competition came, Comcast has invented new fees, transaction fees, truck trip fees, wiring protection, guide fees. Verizon has a truck trip fee of $79.95. RCN has a fee of $49.95 to pick up your converter box, or you can send it in a mailer for $22, or you can deliver it to another State. Customers are gauged at every turn. Because there are no federal standards for cable modem service, consumers have no assurance that they are getting what they pay for. We have also seen changes in customer service policies that deal with privacy, forced arbitration, and other issues that put customers at a disadvantage and limit their legal remedies. One concern across the country is privacy, and several years ago, Comcast changed their privacy policy to one that our county attorney says goes beyond what the federal government allows. This summer, Comcast announced an arbitration policy where customers could only opt out, and then when they went to the website to do that, it was not functional. Against this backdrop, you can imagine how surprised local government officials were that this division of the Department of Justice offered comments to the FCC and also wrote directly to state legislators without public input to tell them that local franchising retards broadband deployment and will delay consumer protection. I ask you, where is the evidence that build-outs resulting in consumer choice has been faster in state-franchise states, and where is the evidence that they have had reduced prices or resulted in better customer service in state-franchised states? I am a state legislator, and I can tell you if I got a letter from the Department of Justice telling me how to vote on a state legislative piece, I would be outraged. And I would be totally outraged if I got a letter that told me how local franchising was happening in my local district. I know my district, and I know what is happening there. I challenge this panel to find a state that has more consumer choice than we do in the State of Maryland. The only states that begin to compete are Massachusetts, Delaware, Pennsylvania, and New York. None have state franchising laws. The only states with a state-franchising regime that began to compete are Virginia and New Jersey, and those states have the most aggressive build-out policies of any state-franchised states. Compare those to Texas where two and one half years ago, the RBOCs got permission to go in free to serve communities, and they are still in the single digit for penetration. In North Carolina, South Carolina, Kansas, and other states with state franchising laws, the RBOCs have yet to roll out competitive franchises. While you can't document the increased choice in these states, I can document that consumer protection standards have gone down and that compensation for use of public assets has suffered. I know the nature of county and state legislatures, and I know that customers and providers both benefit if franchising is left to the local government. State government is not equipped to handle customer inquiries on a daily basis, and state government has no role in managing or coordinating the activity in local rights-of-way. Consumers now depend on these new services for their communications needs, but without national standards and without local governments' supportive role, they have little assurance that the products they choose are equitably priced, reliable, or even accessible. Consumers deserve more, not less. Local, state, and federal government should work together to ensure that the public has access to the same high-level services at reasonable prices and with confidence that the policies won't change after they sign their contracts to undercut their protection. The public looks to local government for assurance and consumer protection every day. The public and the competitive providers alike will benefit when local government is supported at the federal level. Thanks very much. DR. SINGER: Good morning. My name is Hal Singer. I am the President of Criterion Economics. I am the token economist on this panel. I think my job is to keep the lawyers honest and maybe tell a joke or two. My presentation is going to focus on the welfare effects of telco entry into video markets, and I will touch on a few policy issues as well. MS. GARZA: In light of the circumstances and the time, we have made a decision to terminate Panel I and to resume with Panel II at 11:15. That doesn't reflect on any thought that the Panel I discussion wouldn't have been very good, and we apologize to the people on the panel, but we will have the written comments. So what we will do is resume back here at 11:15 for Panel II. Thank you, and thank you for your patience. [Break taken from 10:16 a.m. through 10:52 a.m.] Panel II Entry into Telecommunications Services MR. WILLNER: I am glad to see everyone back again after the very unfortunate event on our first panel. Given what happened with Jane Lawton, we have decided not to continue with the last presentation and the discussion on Panel I and simply move to Panel II. I would just like to say to everyone good morning and welcome to the second of our four symposium panels. I am Carl Willner. I am an attorney with the Antitrust Division of the Department of Justice in our Telecommunications and Media Section, and I will be one of the co-moderators for this panel, along with Luin Fitch, another attorney in our section who will be the other co-moderator. You have heard the first panel this morning discussing competitive entry into multi-channel video services, and our panel will be addressing the flip side of the developing competition for bundles of voice telephony, broadband, and video. We will be dealing with entry into the voice telephone services that have traditionally been dominated by the regional Bell operating companies and the other smaller incumbent local exchange carriers. We will be addressing what modes of entry competitors are using, how widespread that competition is now and is likely to become, and what obstacles new entrants into telephone services still face. Bundled service offerings have become widespread, and as our first panel did, we will be considering how those offerings have affected the nature of competition, as well as what implications they have for complex antitrust issues such as market definition. In telephone services for residential customers, cable television systems have increasingly become recognized as the leading source of facilities-based wireline competition to the incumbent telcos, and this will be a major focus of our panel, but there are also other types of competitive local exchange carriers serving some areas and other forms of entry or potential entry, such as wirelines, wireless substitution that are often discussed. We will be considering the competitive impact of these possible alternatives and how they are affected by regulatory, economic, or other limitations. We have a distinguished panel of speakers to address these issues, presenting the perspectives both of incumbent telephone carriers and competitive entrants, as well as independent economic expertise. Our first speaker toward the end of our panel lineup will be Sean Lindsay, Associate General Counsel of Qwest Communications International. Mr. Lindsay handles antitrust and commercial matters for Qwest and has worked in-house for 12 years at various telecommunications companies. Qwest, the smallest of the three remaining RBOCs, covers a, geographically, very large region of 14 western states. Unlike the two larger RBOCs, AT&T and Verizon, it does not have its own facilities-based wireless affiliate. Qwest has reported suffering extensive line losses over the past several years, which are attributed in large part to competition from cable companies and other CLECs, as well as wireless substitution. It has frequently requested regulatory relief from federal and state authorities and has been successful in obtaining regulatory forbearance from the FCC in significant parts of Omaha, Nebraska, where it faces Cox as its major competitor. Next, we will hear from Alexandra "Sandy" Wilson, sitting next to Luin. She is Vice President of Public Policy and Regulatory Affairs for Cox Enterprises. Ms. Wilson has been with Cox since 1994 and is responsible for developing and implementing its public policy strategies. Formerly, she served as chief of the Cable Services Bureau and in other significant positions at the FCC. Cox has been one of the leaders among the cable operators in entering telephone services nationwide, with over 2 million digital telephone customers using both circuit switch and voice telephony. That represents a third of its total number of cable subscribers and over a quarter of homes with telephone service. Cox is now reported to be both the fourth largest cable operator and the tenth largest telephone company in the U.S. Our third speaker in the center of the panel lineup will be Stephen Perkins, General Counsel of Cavalier Telephone. Mr. Perkins has practiced in antitrust and other fields of law before coming to Cavalier where he has worked for nearly nine years. He has been heavily involved in implementing Cavalier's entry into video services, opposing RBOC forbearance petitions, and seeking access to co-location, transport, and unbundled loops to combine with Cavalier's own facilities. Cavalier, a competitive local exchange carrier, provides retail and wholesale voice, data, and video services, principally in the Mid-Atlantic and Midwest, and unlike many CLECs, it is focused on addressing residential customers in addition to businesses, gaining several hundred thousand subscribers. Where it operates, Cavalier offers a third alternative for triple-play bundled products to residential customers, in addition to the telephone and cable companies. Fourth, we will be hearing from Jill Canfield, next to Steve on the panel lineup. She is Senior Regulatory Counsel of the National Telecommunications Cooperative Association which represents several hundred smaller incumbent telephone carriers across the United States. Since 1998, Ms. Canfield has represented NTCA in filings with the FCC, federal courts, and other agencies, and providing expert advice to member companies. Like QWEST, many of NTCA's member companies have had to defend against or anticipate telephone service entry by cable companies or other forms of competition, and even in the more rural areas of the United States, they have worked to develop their own competitive bundles in response. Finally, we will hear from Dr. Simon Wilkie, Executive Director of the Center for Communications Law and Policy at the USC Gould School of Law at the end of our panel lineup. He will provide an expert economic perspective on the issues our panel is considering. Dr. Wilkie has had extensive experience with the telecommunications industry and previously served as chief economist at the FCC under Chairman Powell, and he has published widely on subjects such as spectrum auctions, game theory, and telecommunications regulations. His most recent research has involved the wholesale telecommunications market. After all of the panelists have spoken, we will have a discussion of the issues among the moderators and speakers, and at that time, we should also have an opportunity for some questions from the audience. There will be a couple of people moving around in the audience carrying microphones. So, if you want to ask a question, please connect up with one of them, and they will provide you with the mike. I would also like to remind everyone at this time to turn off your cell phones and BlackBerries, if you still have them on, and now let me turn to our distinguished speakers to begin their presentations. Sean? I am Sean Lindsay. I am an attorney in-house at Qwest, and I think I know most of the people in the audience from one place or another over the course of years, but we at Qwest appreciate the opportunity to present the information that we have and to discuss the issues here with all parties. I was talking with a couple of friends in the lobby prior to the meeting, and it occurred to me that perhaps the best visual demonstration I can give of the reasons for the developments and the ways of the developments coming about is this toy. Carl, ultimately, we didn't need it, but he asked me to bring on a flash drive, a copy of my presentation in case we needed to reload it onto the laptops that are driving the computer presentation. This holds 2 gigabytes. The second part of the visual is this, which probably you can't see. This also holds 2 gigabytes. The only difference between these two is this was designed and manufactured about three years ago, and this was designed and manufactured last year. Moore's Law was working quite well, long before the Telecom Act was enacted in 1996, and it shows no current signs of slowing. Moore's Law is the governing, from my perspective. It governs the competition paradigm in local telephony, just as it does in a variety of other markets. Let's pause for a minute. When the Telecom Act was adopted in 1996, it was not creating competition. It was trying to shape it when pointed in a particular direction, but before it was adopted, cellular telephones had been deployed. They were the size of bricks, but they worked nonetheless. Telephone companies were buying cable television companies in order to provide telephone over cable facilities. In 1993, I believe, U.S. West made a multi-billion-dollar investment in Time Warner to that effect, and also the economic dynamics of the telecommunications market haven't changed since prior to the Telecom Act. High-value customers are still the principal focus of new entrants, and new entrants take advantage of regulatory arbitrage in order to maintain regulatory structures or promote regulatory structures that both facilitate their entry and then subsidize it once they have entered. Finally, the last element that I will address in the course of my remarks is that the regulatory structure itself hasn't changed wildly either. At the very heart of residential telephony is a subsidy. 1FR lines continue to be substantially subsidized by other types of services. The extent of those subsidies, the manner of those subsidies, and the above-market pricing of other services have all been addressed by the entrants of competition, but the 1FR continues to be priced below cost. A lot of things have transpired over the last 11 years since the Telecom Act was passed. There have been scads of transactions. As I was building this slide, I actually had about 17 more pages that could have been built in here to talk about the transactions. Transactions come about because of all of the need for capital accumulation and the ability to expend it. There have been many, many, many of those transactions, but still the ultimate drivers come back to Moore's Law and the size of integrated computing circuits. High-speed data networks are being deployed extensively throughout the country, and this, as Carl alluded to, creates an opportunity for competition that didn't previously exist, and it is competition not solely for the opportunity to provide broadband services. We will come into that in a moment with some of the more data-oriented slides that I am going to present. The relevant factors continue to be the desire to enter high-value niches. What it means for Qwest, competitive forces, yes, they come from the cable television companies that are providing telephone service in the regions that were traditionally served by the phone companies, but also two principal other areas. Wireless. I have been quibbling and arguing with various counterparts at the Department of Justice for years to the effect that wireless is, in fact, a meaningful competitor that ought to be included into the product market associated with local wire line telephony, but as the facts will show in a few moments, I think that that has almost become indisputable at this point, but also, every home that has a high-speed data connection, by definition with the advent of Vonage and VoIP.com and a thousand other small VoIP companies, it is tantamount to a local wire line communications device. Disregarding that, I think can mislead us in market definitions. In 2000, Qwest had 17.6 million lines in service. Today, we have 12.1. In 2000, there were 1.4 million CLEC access lines. Today, there are 4.1. We didn't just reverse the numbers. Those are significant measures, but they are not the most relevant ones. The most important one, I think is the number of wireless subscribers. In 2000, there were 12 million, slightly more than 12 million wireless subscribers in Qwest's region. Today, there is 27 million. That is more than all of the CLECs' lines in service and all of Qwest's lines in service combined, and it is more than all of the CLECs' lines in service and all of the Qwest lines in service even in 2000, but that still doesn't exhaust the market definition for residential telephony. VoIP providers are difficult to measure. I don't have great metrics for you that I can present to you, but so far as I know, nobody has come up with very reliable measures of them. I would advocate and will continue to advocate that the right measure for evaluating VoIP provision is the number of broadband lines in service because as soon as you have a broadband connection, you have the ability to receive VoIP telephony services. This slide essentially repeats the same exercise, but emphasizes that over the course of the last seven years, competition has not decreased, and over the course of the last seven years, the number of lines in service has not decreased, and over the last seven years, the demand for telecommunications, it has had some dips, but it hasn't substantially decreased. What you see reflected on this slide relating to the line losses of Qwest, Verizon, and AT&T is competitive inroads, and the competitive inroads are not limited to the percentages of lines no longer in service that are reflected here. That is part of it. You need to add also the wireless lines in service that Carl talked about and that Attorney General Barnett referenced earlier today and also the high-speed data lines and service. Just as a reference -- and this chart is a little bit difficult to read, and I apologize for that -- broadband and dial-up, I at one time had an argument with Larry Frankel about whether those were the same market, but at that point, I believe we were in approximately this area. I don't think there is any question at this point that broadband is, in fact, the paradigm that is going to be relevant for the next several years. This is the other chart that I wanted to draw particular attention to. The number of residential high-speed data lines in service shows the same kind of a shape to the graph that we have learned to expect from computational graph performances as well, and this is the last chart that I want to draw your attention to. These are metrics measured not every year, but every six months. So, from June of '03 until June of '04, there was about a percent-and-a-half increase in penetration. From June of '04 to June of '05, there is about a 2-percent increase. From June of '05 to June of '06, there was about a 3-percent increase, and the line is getting steeper. Wireless is a meaningful competitor to local telephony, and at 11.8 percent as of December of last year, we are interested in looking at the FCC's data that should be released shortly that will tell us exactly how much higher than that number the current market reflects. There are lots of new toys on the market that will allow people to take advantage of WiFi developments. While WiFi may be in the past reasonably considered one of those interesting items that people talk about for potential new entrants that are both difficult to prove and difficult to measure, Sprint has begun deploying these. T-Mobile has begun deploying them. The challenge for antitrust lawyers, whether you are defenders or law enforcement officials, is trying to figure out how you are going to take into account the portion of the market that is affected by these providers. WiFi is here, and it is growing. In Qwest region, we have people deploying WiFi as a telephony device and facilitating VoIP over WiFi, Netgear, Vonage, Skype. There are lots and lots of them. I will spare you the remainder of the charts and graphs that are available through the Department. Qwest welcomes the opportunity to compete. Carl asked me to be sure to at least reference the extent to which regulatory structures affected or didn't affect the degree of competition in our markets. For that lesson, for that learning, I go back to the same dynamics that were in effect and in application before the Telecom Act was passed. That is to say, 1FR our residential wire line service continues to be very heavily regulated. It is a price point. Most of Qwest's region, we offer it for $12 and change. There is a $6 CALC [carrier access line] charge added onto that, and so for most residential customers, a telephone line in service costs them about $17 or $18 in our region. Most of the entrants, as might readily be understood, look at that price point and either price slightly above it or slightly below it, depending on what they are offering. Over the course of years, that figure has stayed roughly flat, which I think means, Carl, that the price has gone down in market terms, but however one chooses to measure the impact of inflation on those prices, in the end, while telephone companies continue to be providers of last resort, both a burden that we accept and that is required of us, the 1FR will continue, at least for the foreseeable future, to be below cost. Other opportunities and technologies may surpass that. For example, there are VoIP companies that are now able to provide VoIP over a preexisting broadband connection for less than the $18 price point that was available before in our regions. The lack of ability to de-average 1FR prices throughout a region and the need for universal service fund support for the same reason, because of the need for de-averaging, because of the impact of the lack of de-averaging drive a number of dynamics in our industry, as they have for the last 10 years. I will stop there and be happy to entertain questions at the end. MS. WILSON: Good morning, everybody. I am Sandy Wilson. I am really glad to be here today to participate in this panel. My first confession is I am not an antitrust lawyer which will become evident quickly I am sure as I talk, but I have been working with Cox since 1994, as Carl mentioned, when I left the FCC, and in that time, it's 13 years, it is really remarkable what Cox has done in terms of getting into the phone space. When I started, it was a fairly small cable company providing one service, and it provided it very well, but it was the delivery of one-way video services, and now we operate state-of-the-art broadband networks around the country, and we are providing the triple-play, and we also have some wireless interest as well. So it has been a remarkable journey and adventure, not for the faint of heart, but fortunately, it has a happy ending. Let me just tell you a little bit about Cox. We actually think we are the third-largest cable company. I think we are sort of neck and neck with Charter there, but we have nearly 6 million residential customer relationships, and it is interesting, we no longer just describe ourselves by the number of basic video customers that we have because, in fact, we have got over a half-a-million non-video customers, people who do not take video from us. We have got 3.6 million broadband customers, and at 2.3 million residential phone customers, that does make us the tenth-largest phone company in the country, although we are obviously still tiny compared to Verizon and AT&T. I think combined, they have got something like 100 million. We have gotten into the business sector as well. We serve about 187,000 business customers, mostly in the small and medium business sector. We are in multiple states. We are here in Fairfax County. We are in Omaha, Nebraska, where we duke it out with Qwest; Phoenix, Arizona; Orange County, California; mostly urban and suburban areas, although we do serve some rural communities at the fringes of our markets. Our market orientation has always been, obviously, we do serve the mass market. We always have, but we have long positioned ourselves as sort of the trusted provider of the services that we offer, and a real strong focus on providing high-quality service and also being "Your Friend in the Digital Age," as one of our marketing tags, sort of helping consumers integrate new technology into their lives in a simple way. That heavy investment in customer service over the years, we used to take a pounding when we were a publicly traded company, Wall Street. Our margins were smaller than most other cable companies, but we really do think that that longstanding commitment to serving the customer made it possible for our customers to consider taking us as their phone provider, and we have also heavily invested in our network. I think we have now spent about $16 billion since the '96 act in private capital, making sure we have got a state-of-the-art network. We have been recognized repeatedly for that quality. I think we have gotten 10 J.D. Power and Associates Awards for phone alone, and as I said, it is really what enabled us to get into the phone business. We are actually celebrating our tenth anniversary this year in the residential phone business. We were the first cable company to role out the triple play. We did that in Orange County, California, in 1997, and of course, voice over IP wasn't around then. So we started off with digital circuit switch technology, and in more recent years, we have added packet switch technology, but our customers don't know that. We hope they don't care. Many markets were actually offering both, but we sell it all as Cox digital telephone. So it is the same customer experience, whether it happens to be using packet switch or circuit switch technology. We are fully facilities-based, and we have had relatively low usage of unbundled network elements over the years, and that has really I think been critical to our ability to kind of thrive in the marketplace. The question of whether or not customers wanted a choice in phone and whether or not they would buy it from their cable company, obviously, both of those questions have been answered with a resounding yes. They love our service. Although we have been in the business for 10 years, we are still adding customers at a pretty good clip. I think we added about 370,000 in the last 12 months alone, and we now have more than 25 percent phone penetration company-wide. One of the things we tried to chat about with Carl is what has been the impact of going into the phone business from just an overall customer perspective, and it turns out our phone customers are very loyal. Sixty percent of them take all three triple-play services from us, and churn is much, much lower for the folks who are taking phone. Very interesting. As a result of just the great consumer reaction, we have committed to offering phone and broadband throughout our footprint. So we are now serving or offering telephone and broadband to virtually 100 percent of our potential customer base, a little different than I think what Sean was talking about, others going in and just targeting certain neighborhoods. We found it is a great product, and people like the value proposition, and that is regardless of socioeconomic status. I wish to say we -- I did mention that we were getting into the business sector. I mean, obviously, we are not. We don't have a national footprint. We are, at most, a regional player. We do think that the small- and medium-size business sector is pretty underserved. So we have targeted those in particular, and we are enjoying success there as well. I have been talking on the topic of cable telephony for as long as we have been doing this, so 10 years, and for a long time, I was sort of the lonely petunia on the onion patch, but the good news is that the other cable companies are now investing heavily as well, and according to NCTA, cable telephony is now available to around 100 million homes, and they think that about 12 million are taking it. So that is quite a ramp-up in a fairly short period of time. NCTA also commissioned a study saying that residential phone customers could save an average of $135 or more a year. Small business customers could save $500 or more a year, and the nationwide savings for those two groups combined could exceed $100 billion over the next five years. So that is a great consumer story, too. How did we get where we are? Obviously, it was not easy, and it was not for the faint of heart. It took a lot of time and money and training. Just as the phone companies have discovered getting into the video business, the video business and the voice business are very different things. We had to scale up. We had to make sure we had enough economies to scale and scope within our footprint certainly early on in order to support the cost of a circuit switch, and IP technology has made that much easier to do. We had to upgrade our network. We had to harden it. We had to activate the return path. We just had to put into place all the complex billing and back-office operations that you need in order to provide a highly reliable service that also complies with some pretty different regulatory requirements than we were used to in the video world. I do think that there were also a significant number of regulatory obstacles, but I think that Congress and state public utility commissions and the FCC and the Department of Justice, I actually think over the last 10 years have done a very good job, maybe not perfect, but a good job at sort of identifying what the obstacles are and moving them out of the way. So, obviously, just allowing competitive phone service to exist in the first place was a huge thing to accomplish. Then the '96 act, of course, worked hard to establish an appropriate and pro-competitive interconnection regime, still working on creating a competitively neutral universal service and inter-carrier compensation scheme. They have dealt with a lot of numbering issues, making sure that new competitors get access to numbers in a reasonable way, and then trying to figure out how do you adapt those requirements, those regulations that deal with sort of social policy obligations, how do you adapt that to an increasingly competitive world, so lots of discussion about how do you apply CALEA, how do you apply E911 universal service, et cetera. I do think that Cox has been very appreciative, too, that over time, policy-makers do seem to have come to the conclusion that promoting facilities-based competition is where they should devote most of their attention I think early on, sort of the different modes of entry that were authorized in the '96 act, whether sort of resale or leasing unbundled network elements or building your own network that are treated a little more on par with each other, but I think they have understood that it is important at the end of the day to make sure that companies are investing in facilities, and I think their policies have moved in that direction, and that is a good thing in our view. Of course, we have been chugging along, sort of rolling out the service and figuring out how to make it work and make sure it is reliable and all that, and in the meantime, the landscape has just changed dramatically. Sean's charts show that. There has just been a ton of change in this marketplace, and there is little doubt that it is increasingly competitive. Consumers increasingly have many, many more choices, and that is all to the good, although some of the competitors have exited, and there has been some stranded investment. I am sure there will be some customers who aren't sure whether all this competition has been a good thing for them. I don't think we are entirely there yet. I don't think we are quite at competition nirvana, but we are certainly heading there. There is still some more work to be done. If you were to say to Cox, what are some of your key policies or priorities, I think, first, we still believe that you need to have meaningful interconnection protections, both for circuit switch and for IP-based services, although obviously as the market changes, those can be looked at, and they are being looked at by the FCC through forbearance petitions and in other ways. Second, just because we do have this interesting mix of both circuit switch and IP technology being used to deliver the same product, we really think that it would be great to have a uniform approach to regulating competitive voice services, regardless of the underlying technology. I know it will be a challenge. There's differences between the federal government and the state governments and then some pretty interesting and thorny regulatory classification issues. I still do think it would make sense to kind of harmonize things, so that the customer experience is what drives the regulatory regime, not underlying technology. Then lastly, I think it is fair enough to pursue retail deregulation of ILEC services as long as that is done with caution. I think policy-makers at both the state and federal level need to pay close attention to what is actually going on in their markets. If you have got sustainable competition thriving, then price deregulation is appropriate. We also think that as the market continues to become more competitive that policy-makers can safely narrow the filter that they use to think about regulations that are applied to voice services in general, protect core goals like universal service and others, that there are things like equal access requirements or price regulation of CLEC services which, believe it or not, we still face in some states. We think those are probably fairly outdated. So let me just sum up by saying it has been a great decade for Cox and the phone business, and I don't think we ever envisioned we would be where we are today, but there ought to be many more changes, too. I am sure one of the things we will talk about is what is the impact of bundling, what is the impact of wireless growth, and I think the good news is that at the end of the day, consumers are all going to regulate, and regulators won't have nearly as much to do with their day. MR. WILLNER: Steve? MR. PERKINS: Good morning. I am Steve Perkins with Cavalier Telephone. I thank everyone for being here, and we appreciate the invitation to present our views here today. Sandy's last remark reminded me of one of my former colleague's comment after he left us and took a job with Comcast, which was you would be surprised how many problems disappear when you own the last mile. It has been a great decade for Cox telephony, and it has been a challenging decade certainly for those of us who rely on unbundled network elements' last-mile facilities to provide service. That is the model that Cavalier started with nine years ago or so, building fiber networks, as Cavalier's founders had done in Michigan, deploying our own switches, having our own customer care, our own billing, all of that stuff except that last mile of copper to the home from the CO. Along the way, there's been some changes. We started out planning to be a voice competitor in two markets. That quickly changed into being a voice competitor and a data competitor in more markets, and as some other players began to see some of the pitfalls and problems and challenges of telecommunications, particularly some of the power companies that had gotten into that business, we acquired some more operations, including some very interesting issues when you stretch fiber across the Peace Bridge into Canada. There's some interesting issues there. The company has more recently expanded into offering video services, the triple play. We found ourselves in an unfamiliar alliance with Verizon on that issue with franchising. What we offer is not a cable TV service. It really is an Internet Protocol TV. It is IPTV. We cobbled together our own system for doing that. We found a set-top box. We got some code. We actually recently acquired a company that wrote some of the encryption software, and it really is a little browser device that sits on top of the TV and feeds it essentially a DSL type of a product. Where we have gone with that is working with the copper last-mile facilities, the thing that Verizon seems determined to leave behind, that AT&T is perhaps a little bit schizophrenic about using the fiber-fed nodes and the copper into the individual premises. We are relying on all copper out of the CO, and we are pushing a 15-meg ethernet service over that. We are pushing video over it and voice. We have got a triple play product that sells for $79.95 a month. We are in triple-play because we have to be. That is where the competitors are going, the big competitors in the marketplace. Carl mentioned that we have several hundred thousand customers. It makes us a fairly big CLEC, but not a very big player in the overall market, and so we follow the market leaders, where they are going as bundles, and we have to beat their pricing because we don't have millions upon millions of dollars for marketing budget. We have to compete on price and on the quality of our service, and if we don't price below what others are offering, we are out of the market. One of the topics that Carl asked us to address was barriers to entry, regulatory and otherwise. I have been sort of on the ground level of entering the voice market and now also entering the video market, sitting there watching the switch techs try to get up the SS7 links and the 911 trunks and just from the ground up starting to offer voice service. We probably have a little different perspective on things as a result of that. I think Grier Raclin mentioned the incumbent's advantage in terms of an established network, and it is an advantage. It has been there for a while. They may have forgotten about it. You go into some new markets, and the experiences can be varied. When we went into the voice markets in Virginia, we saw very cooperative local governments in terms of franchises or rights-of-way agreements, a little haggling here and there about how the insurance section should be worded, what the amount of the bond might be to damage to the rights-of-way, but we were up and running pretty quickly. Notwithstanding the better recent experience with Montgomery Country in the video realm, Maryland as a whole was a different story on obtaining rights-of-way access and franchises. We saw a lot more demands for in-kind services, for outright monetary compensation. There was a lot more emphasis on what the competitor should just hand over to the locality. As a result partly of that, we wound up leasing dark fiber in Maryland, not building our own transport network and owning the actual fiber on the poles or in the conduit like we do in the Central Virginia and Tidewater Virginia areas, like we do in Philadelphia. Philadelphia was yet another story. The interesting issue that arose there was local organized labor saying this can be easy or it can be hard, you can hire X many of our guys in these positions, and it is a little far away from the rarefied world of the Antitrust Division and the Reagan Building here, but a guy said, "Well, here is the gun I carry out in the field in case things get a little rough." I can tell you the former colleague I mentioned and I were sitting there nicely in our suits. We thought we haven't really dealt with that sort of issue before. It is a little different tack. So there are some interesting things that come up on a day-to-day basis that can be challenges in the regulatory realm or challenges I mentioned from organized labor. Also, we ran into some issues with pole attachments with the power companies. I think we moved past that. We actually wound up on very good terms with the company we litigated with the most, which was Dominion Power in Virginia. We wound up acquiring, first through a separate ownership structure and now in our own company, their long haul network, and we are on very good terms with them. Again, that was another example where localities can get into issues with them because we had somewhat protracted litigation with the park authority up in Northern Virginia, which we did manage to resolve recently. In terms of ongoing issues that we have, they basically stem from what I mentioned at the outset, use of the incumbent, the incumbent's last-mile facilities. I often speak solely of Verizon, but now we are also, in the last year, out in former SBC land, now part of the new AT&T, out in Michigan and Ohio. We are transitioning a former UNE-P customer base onto a facilities-based network comprised of fiber that we have built in individual metropolitan areas, and again, the incumbent's last-mile facilities. The issues with regard to the use of last-mile facilities are kind of legion. They break down into sort of operational issues. We have had a variety of issues that we have discussed over the years with Verizon and AT&T. There's examples up here. I am happy to speak to any of the individual ones if people think it would be helpful. There is also the sort of constant regulatory battles which tend to make things very uncertain. It drives up costs. It also I think acts as a barrier to investment in a business model like the one that we have pursued. I don't think you will see too many start-ups going out and trying to use unbundled network elements, given all of the pressures and the issues. Some things that seem somewhat esoteric can have a very strong day-to-day impact. A good example of that is the fiber-fed loops that we cannot access on an unbundled basis. So certain developments in the residential market, certain business customers, we will get a "no facilities ever response" when we order a loop, and we cannot serve that customer. You add on top of that the exemptions that the incumbents enjoy with fiber to the curb and fiber to the premises. You add on that, COs that are non-impaired for competition. It starts to really cut down into the potential customer base that you can serve. I mentioned some of these other issues I have listed here, and these are, again, pragmatic things like the private multi-tenant landlords. In a growing number of businesses, we will see an issue where a landlord will say, "We don't want you on the premises. Go away, or we are calling the police. Your tech cannot enter." Well, if you are trying to get a circuit up and running or repair a circuit, that is a problem, and you really, essentially, can't serve that customer. There is a prohibition on carriers requiring exclusive access to a premise, but there is not a prohibition on landlords doing it. So you end up in a very obvious conflict between private property rights and your pro-competitive goals under the '96 Telecommunications Act. There are some other issues I have listed here in terms of some of the challenges to facilities-based competition, or to competitors, I should say. I was reminded in the course of preparing this that the antitrust laws exist to serve competition and not competitors, but one of the biggest ones I think is the FCC's emphasis on intermodal competition. When you decide to abandon other unbundled access to these existing networks that have been in place, in some cases, a hundred years or more, you really just sort of foreclose, cut off, and abandon potential innovation of the type that Cavalier has engaged in recently, offering the higher Internet connectivity speeds over copper, offering video over copper, and you really wind up with a sort of dirigiste policy where you are going to say, "All right. We have got the people that own the wires into the homes. They are going to compete, and we will see how it shakes out," and I would submit that that is a real challenge to competition, to competitive pricing, and to innovation. I sum that up on this last page. I mentioned the first two points, but also, I have an example here about what has happened to competition in Virginia. AT&T has recently petitioned to raise their prices above the incumbent's rates, essentially exiting the market. AT&T stopped marketing when UNE-P went away, and I think if you see some of these regulatory initiatives like forbearance succeed the way the elimination of UNE-P succeeded, you will see additional competitors leave the market, and I think you will end up with a duopoly, and you will be in a situation where the goals of the Telecommunications Act are really almost completely abandoned. You will have essentially the same people that were in the market before 1996, cable and the incumbent. I mentioned the loss of innovative services. That is true for businesses as well as residential customers. I think the CLECs sort of led the way in these multi-use T1 circuits, Smart T's or whatever trade names they go under. We have also got a vital role for facilities-based competitors in the wholesale market. That is an area where we have been able to compete in the past, providing metro fiber or long haul fiber more recently, to wireless providers and to other carriers. We have served wireless, CLEC, and those are certainly points of potential competition for the incumbent. There are a couple of things I just wanted to mention here at the end. I was reminded by the brave new world of FiOS of what happened to me in one of the ice storms in Richmond a few years ago when all the power was out, but the phone line still worked. It was Christmas Eve, and we were able to plug my laptop in, get a dial-up connection, and find out what the road situation was and leave. Since we were without power for a week, that was a very good decision. We packed up our dog and headed for Virginia Beach. The last point I will mention on that is that we do provide an alternative to government and emergency responders. Consider, if you will, something like a U.S. Coast Guard vessel with a voice-over-IP connection from a competitive provider. If that competitive provider goes away, there may not be a good alternative in the wings for them. There may not be somebody that can patch together a network the way a small competitor like Cavalier has to create a solution for that type of situation. Those are some of the issues that we see in the facilities-based world, the unbundled world. Thanks again for the opportunity to appear here today, and I would be happy to address any questions. MR. WILLNER: Thank you, Steve. Jill? MS. CANFIELD: I do have slides. Thank you very much for the opportunity to come here. I am Jill Canfield, and I am senior regulatory counsel at the National Telecommunications Cooperative Association. I am not an antitrust attorney either, nor do I want to be an antitrust attorney, but I am charged with making sure our association doesn't violate antitrust law. So figure that one out. I am going to give the rural incumbent local exchange carrier perspective on some of these things, where our members' businesses are going, what is driving it, what are some of the obstacles they are facing. I have to talk, obviously, in sort of the aggregate or on anecdotal kind of information because I don't have that inside business perspective that most of the panelists that are here are able to provide. When we discuss the services the carriers provide and why we really need to look to the customers, what are their demands, who is best equipped of all of the potential competitors to meet them, the obvious place to look we think is at the young people. They are the early adopters of technology and the future paying customers as well, and the habits that they develop today really determine the future usage of the consumer. NTCA's Foundation for Rural Service recently did a survey of 1,100 rural youth, ages 14 to 24, on their telecom usage, and we really got some surprising information and some not so surprising information. What we found is that 9 out of 10 of these young people have a mobile phone today, and about the same number have Internet access at home. Three-quarters of those with Internet access have a broadband connection in their house. The number with only dial-up has actually decreased significantly, 14 percent in just one year. Half of those with a broadband connection have a DSL connection in their home. Twelve percent have a wireless connection, and unfortunately, our survey didn't really get do they understand that we meant the pipe coming into the home, not necessarily their home network. Only 8 percent had a cable modem, and I think that is a feature of the kind of service you get in rural areas. DSL penetration is high because you don't see the cable in the very rural areas. Forty-five percent of these rural youth receive their video today via a satellite, their DBS providers. Only 20 percent have a traditional cable video provision in their home, and what we found from these people is that 14 percent receive their video today already from a telephone provider. So that is not far. It is only 6-percent less from those that receive it from the traditional cable provider for their video service. As far as what services these rural youth care about, 88 percent considered their mobile phone service an essential service, and 77 percent considered a broadband essential. It is really interesting. I have a six-year-old, and what does my six-year-old ask for? A cell phone. He is six. Who is he going to call? But yet, that is what they want. As for the traditional wireline phone, that has gone down as far as who considers that an essential service. A percentage of the rural youth who considered that essential, it is down 10 percent in just the last year. The wireline phone, you don't see people asking for a phone in their room anymore. They want a cell phone. Three-quarters of those with a mobile phone say that they only use a wired phone when they are in their own home. They don't seek out a pay phone anymore, or use it even in a friend's house, and another interesting factor is there is simply no brand loyalty whatsoever among these people. They don't even know who their provider is or how much the service costs, primarily probably because their parents are the ones buying it and paying for it, but it shows that you are not developing a brand loyalty with young people living in rural America. By looking at this, you can understand why NTCA's members have really focused in recent years on capturing the broadband customer. Here we have a little plug for NTCA's members, who we are. All of NTCA's members are incumbent local exchange carriers. Half hold wireless licenses today, whether they are providing a fixed service in the home where they can't quite get to the most rural customers or several also hold mobile wireless licenses, the CMRS licenses. Nearly all of our members offer broadband and Internet access to at least part of their service territory, if not the entire territory, and the number offering video is growing at a tremendous rate, and I will talk a little bit more about that in a minute, but we are almost at half of our members providing video right now. Generally, I would say that our members do a better job than the larger carriers at serving rural areas, no offense to Qwest over there, but I think that we can quantify that in the most rural communities. This is just to give you an idea of where our members are. This is a map to show you. The blue areas there are the metropolitan communities, and the green areas are the nonmetropolitan communities. The red here is the service territory, the territory served by the independent telcos. What you can see from this is our members served where the people are not. We have several members who can tell us that their service territory, they pass one household per square mile. Now, living on the East Coast, we think we know rural because we go camping and things like that, but I am telling you, unless you have toured one of these service territories, you really don't know rural. You drive around and you wonder where do these people buy their groceries. There is really not a lot there. The competitive pressures for these rural incumbent local exchange carriers are very similar to any ILEC out there today. The minutes of use is declining. People are using their cell phones now. There is increased emphasis on the broadband pipe, who is bringing the broadband connection into the home. Eighty-seven percent of our members say that they face broadband competition from at least one other provider today, and even in the most rural communities. That is pretty significant. Most face competition only in their cities and towns, but a significant minority, 47 percent, say that they have competition for broadband throughout their entire service territory, and as far as what it is, what the competition that concerns them the most, it is the cable offering voice. That is the biggest competitive threat right now. How do our members try to capture that broadband customer? What are their marketing ploys to do so? Well, the biggest thing they offer is free installation. We have price promotions. Bundling is big. About 59 percent of our members say today they bundle their services, and I expect that number to increase as we see more of the cable companies entering the voice market, and also, one of the factors that drives the marketing promotions in rural communities is simply what are they hearing about that other companies outside of their home market are offering. They watch TV. They hear about others, AT&T is offering or Verizon is offering. They hear about these things, and they expect even the small local provider to offer it as well, free hardware, free software, nothing unusual there. It is generally understood around NTCA and I think probably the industry in general that one of the key drivers for broadband deployment, especially in rural areas, is going to be video. It is generally not going to be entering the video market. It is not a giant money-maker, but you need it in order to retain your customer. You need them to have the reason to bring the broadband pipe into the home and offer them that triple play, so you retain your customer. A recent survey showed just how many of NTCA's members are either offering or planning to offer video. You see right now, it is already at 63 percent. Now, it is important to recognize that that 63 percent includes traditional coax cable providers. The rural incumbent local exchange carriers were allowed to get into the original cable market. So we do have traditional cable providers, and probably, that is a pretty substantial proportion of that, but we also have members who have agreements with the satellite providers and are providing a DBS service to their subscribers, and then we have the IPTV product, the Internet Protocol Television product. Where you see those members who are not currently offering video, but they are planning to do so, my belief -- and I think that there is a good reason for that belief -- is the members who are looking to get into video and are planning to do so are looking at an IPTV product, rather than a satellite product or a cable product. Then you see there that 17 percent there right now have no plans to enter the video market. My best guess there is that these are going to be very rural areas where either they already own the cable company, so they are not facing voice competition from the cable provider, or there simply is no cable provider in their service territory, and believe it or not, that is a substantial number of our members who don't have traditional coax cable providers in their markets. As far as barriers to deployment, you are probably going to see quite a bit of difference here when you look at the rural areas compared to urban areas. Rural areas simply have much higher deployment cost. The loop lengths are very long to get to your customer, and when you are only serving one customer per square mile, that is a lot of fiber or cable or whatever to run to that customer, and you are not getting huge returns on your investment. Long loops. If you are doing a DSL, you have to upgrade to be able to provide broadband over those long loops. Obtaining cost-effective equipment is pretty big at 32 or 33 percent. This is something that you are going to find simply because of the size of our members. They lack the buying power of a major player in the market. So they are generally the last to get the equipment, and the equipment they get is going to be more expensive on a per-subscriber basis. It is simply more difficult. It is more difficult for small carriers to enter anything new. I am going to give you a couple of graphs here that just shows how our members have perceived the barriers to broadband deployment over the last few years. You see that deployment cost has remained pretty steady, and it is still the most significant barrier to deploying broadband. Regulatory uncertainty has kind of ebbs and flows, and it really has depended on what are the issues the FCC is considering at the moment we take the survey. Inter-carrier compensation got really huge there for a while. So there was more concern. Now it has kind of gone off, and I suspect universal service now is being considered, although not in a way that is causing our members a tremendous amount of anxiety. Long loops is a big concern. Cost-effective equipment, it hasn't changed a whole lot, but the one thing that really has changed is the issue of customer demand. At one time, that was the biggest obstacle to deploying broadband in our members' eyes was the customer demand. They could build it, but they weren't coming, and you see that that has decreased significantly over the last few years. That customer demand is now there. Some of the key issues I would say for our members in making sure that they are able to survive and compete in the marketplace, not just in providing voice service, but also your broadband, your video, offering that triple-play, and also with the wireless market. We have a significant number of our members who are in the wireless business. Universal service. I was asked to give sort of an explanation, just in case there are a couple of people who aren't terribly familiar. Everybody, on your phone bill, you usually have a thing that says payment to the universal service fund. Everybody pays in, and it is a policy goal. It is in the '96 Act and even before that, that everybody everywhere in the country should have access to comparable services at comparable prices. So people living in lower cost areas, like all of us, pay into the fund, so that people living where my members serve don't have to pay the true cost of getting service there because it would be cost prohibitive. So it helps even out, so everybody gets the same service for about the same cost. One of the major issues right now -- and this is one that I am spending actually most of my time right now, believe it or not -- is access to video content. This is huge because it is driving the broadband deployment, and our members see that they need to be able to offer that triple play. You see a lot of what we call "tying arrangements" with your vertically integrated cable companies where if you take one station that you want that is the must-have programming, you have to take their 12 other stations as well, and by the way, it must be on your basic tier, and you must pay per subscriber. So they have got all of the power, the negotiating power we as independent telephone companies have not. It is take it or leave it. Compensation for use of the network, that is the inter-carrier compensation issues there. Most of the traffic goes over the wired network at some point or another. Who is paying for that if we no longer have the wire line connection in the home? Regulatory certainty is a big deal. Where is our business going to be five years from now? Where are the revenue streams going to be? Then one that I think hits the small carriers particularly hard is the unfunded mandates that come out of the regulatory bodies. Just to give you an example, CPNI, because we have a deadline that is potentially looming, Customer Proprietary Network Information, the companies have to put a whole bunch of new protections in trying to protect the privacy of your calling habits. It sounds like a great idea. The regulations, there's a lot of them, a lot of things that need to be complied with, and when you are a company with less than 10 employees, though, having a whole set of new regulations for maybe 2,000 subscribers, it is a little bit much, and it is very, very expensive to comply, and we have things like CALEA or E911 mandates that simply won't work in rural areas, but they are being employed across the board without consideration for whether or not the technology exists, whether the rural companies can get there, and it becomes very difficult for our members to survive and compete, especially in that wireless arena. With that, I am going to pass off, and I welcome your questions in a little while. DR. WILKIE: Hi. I am Simon Wilkie, an economist. Unlike Hal on the first panel, I think my role here is to annoy everybody else on the panel. I just wanted to tell a quick story based on the Cavalier experience. I didn't quite understand before the interconnection between the '96 Act and the right to bear arms, such a key part of getting entry, but I will tell a story. Back in Australia, my brother started an independent trucking company, and he bid on a contract and ended up with broken arms. The next day, he went out and hired a driver who was known as "Shotgun Steve." So, apparently, this has a long history in terms of getting entrance into the market. It is not just telecom. What I want to do today is just say what we need is more economics, better economics, more economists at the DOJ. That is not a surprise that these are fundamentally really hard issues, and that the impact of intermodal competition and bundling has made the analysis trickier, and any economist who is selling a panacea is selling you a bill of goods. What I want to do is just run down a quick overview of some fundamental antitrust principles that I think are important here, how they are being impacted by these technology developments and strategic developments, and we will go through a couple of concrete examples of why I think this is making life hard. We shouldn't have a rush to regulate. We shouldn't have a rush to deregulate. We should proceed with a preponderance of caution. I am not going to say what the right answer is here because I don't know it, and nobody else does. The type of issues I am going to talk about are, one, what is the impact of bundled products, touched on by the earlier speakers, what is happening with market segmentation, and what are the barriers to entry, and then I have got just one quick throwaway comment on the role of wireless. Traditionally, the FCC and even the structure of the panels today has been based on traditional market definition, which is that we have a telephony product, we have a TV product, and we have a wireless product, and the FCC is essentially structured that way in terms of the bureaus, but once we had bundled products, then what is the good, and moreover, what is the definition of market dominance, how do we do a test, what is the SSNIP [small but significant and nontransitory increase in price] test with the bundled products when I have competitors selling different bundles with different elements in it. Some parts, I can unbundle and roll my own. How do we judge competitive prices and things like that, these become trickier issues. Also, as mentioned by several panelists today, consumer behavior changes in significant ways as we move from unbundled markets to bundled markets. One of the key issues here I think also affects market definition is the difference between telecom services and access to those services via a wireline or a cable loop. We can think of it as being different. In many cases, they are actually different products, I am going to argue. Market segmentation makes the analysis difficult. Price discrimination makes the analysis difficult. Geographic market definition and deployment is very important. When we look at national averages, these tend to be very misleading, as was mentioned before, that the rural markets might be completely different from certain urban markets. The differences can be quite dramatic across short distances. Market definition. What is the product? Are we talking about access, or are we talking about the services? One argument that we frequently hear is wireless substitution. What we have seen is that there is a vast migration of minutes from landlines to wireless lines. We have also seen a drop in the number of lines, but when economists do careful econometric studies of the degree of substitution and when we look at the access line, is there any evidence that the wireless substitution is sufficient such that it is in the same relevant product market, formally in the DOJ sense. They all say no. Now, it might be that they all say, "Well, it is getting close to yes," but it is still no. It might be that we are at that point with these recent increases that have been reported, or it might be that those are data errors. We don't know at this stage, but even though we have the vast migration of minutes, we don't see any ability to constrain access pricing. Similarly, we have a similar experience with entry via VOIP, as mentioned. If we looked at switch versus IP telephony product, cable entrants have had experiences using both technologies, and VOIP in particular has led to rapid deployment in the last few years. So we have had an explosion in VOIP uses, and as was mentioned, anybody with a broadband connection can run VOIP over it, unless it is being blocked by a provider, which has been known to happen. So, again, I think what we have got there is the phenomenon of minute substitution, but VOIP can't provide access substitution because you need the access line still. One thing that is interesting that the DOJ should undertake would be a systematic study of the number portability data. That is, I have seen data that suggests that there are significant differences in number portability for the same cable company. Think of a company like Cox, and it is not Cox that I am talking about, that has offered both a POTS [plain old telephone service] product and in different geographic markets a VoIP product. If it was a full substitute for access to the original line, then people would port their number. Right? What you find is that number portability data is dramatically different, in particular, for some of the reasons mentioned like E911, emergency backup, the ability to just keep receiving calls on your old phone. People tend to keep the old access line. What they are doing is substituting the minutes. So, therefore, if we say, "Oh, look at the number of VOIP lines that are out there," we can safely deregulate the market, then that is not true for the access market. Prices will rise. I am not saying that is a good thing or a bad thing. I am just saying don't tell me that that is competition if it is going to constrain prices. It is not necessarily true. Now, it might be that having prices rise is a good thing in particular when you have got issues with geographic de-averaging and the cost subsidies that have been mentioned earlier. So I am not saying what the welfare conclusions are. I am just saying don't tell me that this is going to constrain the price of access. So premature deregulation could harm consumers in these markets, and that leads to my next point which really isn't a new point. This is a very old point. Wall Street understands this, and a lot of this industry, the entry has the characteristics of a natural monopoly; that is, that there are large sunk costs. These sunk costs are changing dramatically over time, but they are sunk. They are not recoverable. So Verizon is spending we heard $23 billion on its FiOS project. It is not going to say, "No, we don't really like this market. I am going to take the glass back out of the ground, sell it back to Corning, and maybe turn it into stemware," not so likely. These are the fundamental characteristics of the industry. Now, what is driving Verizon's decision, back when I worked for those guys, for years the number that we got for household pass was $2,900. That was the average cost of doing a deployment. I see many people nodding their heads because that number was around for 10 years, and it never changed. Then we had the technological development of passive optical networks, and Verizon went ahead bit the bullet and realized that with scale, it could get that number down to $700. So that is really the fundamental thing. It is that technological change that is driving that decision to entry. $2,900, your stock goes in the toilet. $700, maybe you can sell the story. However, it is still a $700 sunk cost. That is $700 you are going to get to recover. So this leads to what I think Craig Moffett has called the "dumb pipe paradox," that if I have two pipes selling access to the same home and they are both selling a homogenous product and we have price competition, it should drive price down to marginal cost. One of these guys is not going to recover the customer, and they are not going to recover their cost. Right? That is the nature of the equilibrium. I have six copper loops coming into my house. I use one. They are all owned by AT&T, and it is not so much an information highway, unfortunately, as a super highway. I asked them to remove the five that I don't want, but they wouldn't. If there were six different competitors selling that cooper loop to me, the price would be zero because it is all sunk cost. However, there is only one. So the dumb pipe paradox is if you really had full-blown competition for homogenous product, then somebody is going to lose money. These guys are not dumb. So what that is telling us is that is not the equilibrium. So, therefore, they are going to do something else. They are going to differentiate the product and do market segmentation. That is the only way you can recover the cost. So the way that the 1996 Act was worded was let's let these guys into each other's markets, and then we can replace regulation with competition. It is fundamentally flawed. It is not logically true. It is an empirical question. What does this tell us? One way that these guys differentiate the products, of course, the first way is to do bundling. Before if the ILECs weren't able to offer video and the cable guys could offer the triple-play, that gives them a strategic advantage and a differentiated product. So here, the traditional economic analysis, the traditional bundling literature of an economist, it is almost entirely worthless. We need new economic models. This is hard work for us guys in academia. We really should put our graduate students on this. The more interesting stuff is too hard for geezers like me. The more interesting stuff is actually coming from the guys in the industry, if you listen to what they are telling you. So the economic model says that we should be bundling substitutes, the more differentiated the products, then we can raise the stand-alone prices. That is not really what we are seeing. We should see significant bundled discounts compared with the competitive price for the stand-alone products. It was mentioned that Charter offers a discount. It is not a discount vis-a-vis if I went out and rolled my own bundle by getting the lowest price for each of the three different inputs. What is really going on here? The industry tells us that it has reduced churn. You have bundled these products, and people churn less. If you churn less, that means you are with the company longer. That means the consumer has a higher net present value. That means your stock price goes up. What are the welfare consequences of that? We don't know because we don't have a good model of churn. So the increase in the net present value of a customer, that is, even if there is no change in prices, no change in revenues, this is a more valuable strategy to the companies because churn goes down. What is the correct way to think about this? Well, there is a model that was developed by Roy Radner. It is a very technical paper called "Viscous Demand." He actually developed it back when he was working for AT&T, but published it years later. The idea is the following, that consumers aren't behaving like economists assume. We don't always shop around for the lowest price. I may randomly look at my bill, and usually, it is something that annoys me, like there is some event, it is a service outage, how much am I paying for this crap, or else I am going to move my location. Something has to trigger me. Some event has to happen for me to go look at my bill, and then the annoyance factor has to be so high that it overcomes the transaction cost of me actually going and changing the service. In that case, you have an equilibrium with price dispersion, different prices. So what does bundling do? Bundling increases that threshold. Now I have got to switch three services out rather than one. So that means the customer is more sticky or more viscous. That means we are going to get greater price dispersion in the equilibrium, greater product differentiation, and so people in the DOJ and the FCC, we thought about using this model and extending it, but it is really a small part of economics because it is not the standard model, but I think it is really the right way to approach the problem, antitrust with viscous consumers or viscous antitrust. This means that the welfare analysis is tricky. Us academic guys have been lazy. We haven't really done the work of what the correct welfare test is in these type of models. So what does this mean? As I said, the equilibrium has to involve segmentation. The segmentation, as Sean mentioned, could be geographic, which is that you enter a particular part of the geographic market, "I am just going to go after these high-value customers, for instance, and not go after the others, and then I am going to try and capture and control this 20 percent of the market," or it could be in product dimension. So what we should be expecting to see is this happening in the equilibrium. This leads to an anomalous problem, which is you can have the equilibrium, all prices can rise. That doesn't necessarily mean consumer welfare goes down because you have got the increase in differentiation. So the welfare is not obvious. Can this happen in practice? Is it just abstract theory? In this industry, we find it happening all the time. There is a nice theory paper on competition increasing prices by Yongmin Chen at University of Colorado-Boulder and Mike Riordan, former FCC chief economist and DOJ chief economist. They have a nice theory paper on this. Yongmin has got a recent paper with Steve Savage, also at Colorado, where they looked at broadband penetration. They looked at what happened to cable prices when actually Qwest put a DSLAM into a CO. They find increased differentiation and prices going up. The Goolsbee and Petrin paper, which studied the impact of DBS competition on cable pricing, in the working paper version which is more expansive than the version that was published, they also found this result that you got rising basic service prices and increased competition for the high-value NFL ticket-type customer. Finally, we just had this example where we introduced pricing flexibility in California, and lo and behold, what happened, we got greater price dispersion, and the prices of things like inside wiring and that type of stuff that were de-regulated all went up. So what can I say today in terms of policy conclusions? What I am saying is we need more research from my part of the world, but what are the three barriers here? They are the same things that they have always been. We have heard it today over and over and over again. Interconnection. The incumbent can delay interconnection to delay entry. It can raise their rival's cost. Even though they are under an obligation to interconnect, it can take 18 months to 2 years and millions of dollars in litigation to get the deal done. So this is raising your rival's cost. On the flip side, as we have heard, the telcos have the same problem with getting access to essential programming. This is a fundamental problem. You have got an essential input that the other guy needs. The second big issue I think is that the FCC has targeted this issue of exclusive agreements with multiple-dwelling units, but out in the west, there is a similar agreement which also applies to telecom, which is exclusive provider agreements with these master-plan communities. Some of these master-plan communities are enormous, thousands, tens of thousands of McMansions, and the developer signs a deal with one provider to be the exclusive provider for that new community. That means the entrant can't get in because the developer might seal up the conduit, for instance. So this clearly is, by definition, a barrier to entry. In return, maybe you are getting accelerated deployment. So, again, the welfare analysis is tricky, but I think this is one thing that is clearly identified as a barrier to entry that the agency might want to look at. Finally, there are issues related to the old chestnut special access, which as we heard from some of the other panelists, even if you are providing your own last mile, then the second-to-last mile, the interconnection between the COs, you have got to buy that from the incumbent. Again, that gives the incumbent ability to raise rival's cost. Traditionally, those prices were regulated. The FCC started to deregulate them in 1999, and recent forbearance positions has extended the ability to price-discriminate. So this is all a way to raise your rival's cost. The FCC capped SBC's and Verizon's prices in the 2005 mergers, but I believe those caps are expiring very soon. So we will have a natural experiment to see what happens to prices. Then I finally wanted to mention, if I have got a minute still, wireless entry. Again, I want to draw the distinction. You ask the question, what is the product we are talking about. We see minute substitutions like crazy, but in terms of competitors for wire line access, fundamental access and broadband, there is not much leap in metro PCS, for instance, target particular demographic groups and offer an unlimited plan for like 35 bucks a month. I am a bit out of date. So the last data I have is that the average wireline phone uses 1,800 minutes a month, and the wireless phone, 800 minutes a month. Most of the wireless plans are cost prohibitive in the sense of offering a substitute for the wireline product. Very often, it is a complement. It is certainly a complement in my household. In terms of broadband, we have a long history of wireless entrants, entering and then failing. There is a slide Stag Newman put together for the FCC Technical Advisory Committee of this, and tracking entry and then indeed, exit from the market. The AWS auction, the last big auction the FCC had, we had no significant new entrant getting into the market. We have got the 700 megahertz auction coming up. This is sort of the last best opportunity to get a new broadband entrant in there if we feel that that is important, and so one proposal is to do what works where we know when we had a similar problem in 1994, we imposed spectrum caps, just a limitation on what fraction of the wireless spectrum anybody could hold. After the auction, you can relax the caps, which is exactly what the FCC did in that case. Any merger or transaction would go through DOJ review. So the problem with not having a cap is essentially you are allowing the incumbent to buy the entrant through the auction process, short-circuiting any DOJ review. If you have the spectrum caps, I am going to say that no one firm can own more than a quarter of the spectrum in any particular geographic area or purchase that amount in the auction, then an entrant enters. Then if the incumbent wants to acquire the spectrum, that is fine, but it will go through a review. So that might be one way to address that issue. However, I think as clever as that is, the horse has left the barn. So that is it. The market is evolving. There are interesting things going on in technology and also just the strategy. This makes the world much more complicated than any economist will tell you. So I think it is much more interesting to hear from these guys about what is going on in the world, so that I have got better sources of information. Thanks. MR. WILLNER: All right. Thank you, Simon. We have a few minutes left for questioning, and let me take the moderator's privilege of asking a question first to a couple of the panel members. We have up on our platform the two great rivals in Omaha, Cox and Qwest. So I would be interested in hearing from both of you, your perspectives on what impact the competition between Cox and Qwest in the Omaha market has had for consumers, what sort of benefits they received, and also what has been the impact of the FCC's grant of forbearance in that market, if it has affected consumers or competition positively, negatively, or not at all. MS. WILSON: I am happy to take a stab at it. Omaha is a very interesting market because U.S. West, I believe, built a cable system many years ago. So we have actually been going head to head on the triple play for some significant period of time. MR. LINDSEY: It is embarrassing to admit, but we actually built it originally as a video dial tone platform. MS. WILSON: But turned it into a cable, as I recall. MR. LINDSEY: We did. MS. WILSON: Right. I can remember early days when I joined the company at Cox that it was a significant entry, and of course, there is DBS out there as well. I am sure it made us better there, prepared us for phone and broadband. Cox is in that market, and I think consumers, I would say, have benefitted. We did have an interesting discussion about forbearance and what exactly should the commission forebear from, and I think the ultimate result that the commission came up with was fine with Cox, but again, we are a facilities-based company. What the commission did was forebear from the requirement to sell any number of UNE-Ps, including unbundled loops, but left in place as sort of the physical interconnection requirements of 251(c)(3). So I think that there are other competitors in the market who are not happy with that result, but I don't think it has necessarily impacted Cox. MR. LINDSEY: I think it is maybe instructive to keep in mind that when Qwest originally filed its forbearance petition, the FCC handled the forbearance petition by examining wire center by wire center, which is a nice way to examine the way that telephone companies and telephone competition used to exist, and the FCC granted the 24 wire centers that we requested forbearance from, from regulation with respect to those wire centers. The FCC granted forbearance with respect to nine of them, and unfortunately, unfortunately, from Qwest's perspective, not only was the 9 substantially less than the 24, but they are kind of patchworked throughout the City of Omaha, which really has prevented us from utilizing that forbearance to make significant market-wide or MSA-wide kind of marketing and pricing initiatives of that sort. We are pursuing other forbearance petitions in other locations, but we don't think that there is really any question that the City of Omaha is subject to lots of vigorous competition, and I think I am in the position of having to at least admit that Cox I think has more customers in the City of Omaha proper than we do. MR. WILLNER: We have heard a fair amount both from Qwest and from Dr. Wilkie today about the issue of wireless substitution and its impact on the market, and I was interested in addressing the same issue to the rest of the three who have not dealt with that in as much detail in your presentations. Are your companies seeing much wireless substitution, and if you are, what are you doing to respond to it? MS. CANFIELD: I will start, I guess. Across our member service territories, again, what you said over there, I don't know that it is a complete substitution for those who already have the wireline phone in their home, but it is definitely a complement. It is taking minutes of use away. But as you see, the younger people coming up, they are going directly mobile. It is not a substitution. They are just never starting with the wireline phone, and that is where we see our members going to that broadband pipe. They feel that they need to make themselves relevant, if you will, on a going-forward basis, and the way they do that is to offer the broadband pipe into the home. So it is not just a wireline phone anymore. It is the whole service of telecommunications, the whole suite of services. MR. WILLNER: Steve? MR. PERKINS: I don't think it is a substitute from our point of view, partly for some of the reasons Simon mentioned. I think younger people, people in apartments perhaps might use a wireless-only option for their telephone, but like was just mentioned, most homeowners or customers we have will view the line to the house as something they need, that access line. One of our triple-play customers, they put all three services on that, and they will use wireless to substitute minutes and they will use wireless for other reasons. I look at my own personal experience. When I had a house in Richmond, we had three active telephone lines in the year 1996 to 2000 or so. One was a dedicated fax line. One was a business line, and one was a personal line. Well, my wife and I now each have wireless phones from our employers. We don't need that at home. We have an electronic fax number, an e-fax number, so we don't need that line, but we still have an access line because we need that to deliver our DSL and our telephone. So I think that is where it is going. It is not a substitute, but it has perhaps a profound impact on the number of wire lines that you track. MR. WILLNER: Sandy, how do you see this? MS. WILSON: I think there has been a ton of change in the wireless world, and people tend to think of it, obviously, principally at the moment as a voice service, but it is obviously growing rapidly into being a data provider as well as a video or content provider. So I think we are probably starting to think of it more as a mobility issue as opposed to a wireless phone issue, and obviously, we are very interested in it, as is anybody who is in the marketplace, what role is mobility playing in people's decisions to buy your services. MR. WILLNER: Luin, do you have a question you want to ask? MR. FITCH: Well, I would like to ask Steve. John Thorne from Verizon this morning talked about how retiring the copper plant offsets some of the costs of laying out his FiOS network, and I was just wondering to what extent that phenomenon is going to limit the potential for copper-based -- you know, third wires into the house as fiber optics gets more popular. MR. PERKINS: I think it cuts the legs right out from under us, literally. We have got a petition at the FCC on copper retirement, along with a lot of other carriers. We need to preserve that copper line into the home. As I mentioned, that is a line-powered access line, too. It has got a lot more reliability, a lot more durability to my mind than the fiber does. If you have got these powered systems out there, they have got maybe four, maybe eight hours of battery backup. If you have got a big power failure, you start looking to some of the other events unfolding in the world. Whether or not you believe there is climate change, if there is more variability in weather and more power failures, you are going to be deploying more fiber at a very bad time. So there are some interesting issues down the road with that. We think it is something that was built over decades at ratepayer cost, and it should be preserved as an option for consumers. MR. WILLNER: Simon, we have talked a lot today about the intermodal competition in the U.S. and the movement toward a more facilities-based model of competition here. Now, that is not the same thing that is done everywhere in the world. I know, for example, the European Commission has recently announced telecom policies that are going to rely very heavily on wholesale competition as a basis for providing the retail deregulation, and I wanted to ask for your perspective on those alternatives. Over the long run, what do you think is going to serve consumers better, the facilities-based model or the more wholesale competition-oriented model? DR. WILKIE: I think the reality is that the European market structure is different to the U.S. in that the U.S. is special in that it has such a widespread deployment of cable. So we have the luxury of a second facilities-based competitor. In the long run, more facilities-based competitors I think would be better. That would be the more effective mechanism because as long as it is wholesale, essentially the service offerings are limited by the one infrastructure, and the retail prices are ultimately dependent on the wholesale price. But in cases where, as I said, the paradox is that you can't have an equilibrium that supports many facilities-based entrants if you have large sunk costs. So I think there is actually a role for both. I think we overreached in '96, but there is a preference for facilities-based competition with wholesale where it is needed. MR. WILLNER: I did promise to provide an opportunity earlier for audience questions. So let me ask at this point, before we wrap up, if anyone in the audience does have a question. If so, if you could raise your hand, someone can bring you a microphone. Is there anything for this panel? [No response.] MR. WILLNER: No? Luin, would you like to ask another question? MR. FITCH: Well, I would like to ask Simon. You mentioned the deregulation in California, and there has been substantial deregulation of retail telephone services, but many jurisdictions maintain tariffing requirements, published prices, rate averaging, which I think Sean suggested inhibited the incumbent's ability to match cost and prices. To what extent do you think the continuation of regulation impedes the development of a real full market competition? DR. WILKIE: That is a tough question. I think that in a sense, the role of de-averaging, there is a tension there between the universal service goals. So, essentially, de-averaging means that you want prices to go up in the more sparsely inhabited areas. That is also the areas where you are not going to have competition because the economics of entry are not viable. So tariffing and imposing nondiscriminatory requirements causes a tension, which is that you are limiting the ability of the incumbent to respond where there is competition, but inhibiting their ability to raise prices where there is no competition. So, again, I hate to keep saying this, but the welfare effects are ambiguous, but that type of requirement would encourage entry, but would the entry be just regulatory arbitrage and would it be socially beneficial is a different question. I am generally in favor of greater de-averaging. MR. WILLNER: Do any of the members of our panel have questions for each other? Sean? MR. LINDSEY: One for Sandy. Does Cox offer wholesale services to other carriers like Cavalier in the City of Omaha? MS. WILSON: In Omaha? I don't believe so, but I am not sure. MR. LINDSEY: I have one question, and maybe it is because I am still stuck in an old paradigm, but I stumble over the idea that wireless services are not directly competitive with wireless access. I think I paid close attention to the arguments that have been presented, but at some point, assuming the trend that was reflected on that chart I put up continues, probably even by now, since we are at the cusp of December of 2007, we are probably at 16 to 17 percent of the homes in the United States no longer have any wireline access. They have replaced that entirely with wireless. At what point do we decide that that is real competition? DR. WILKIE: The point is it is empirical. MR. LINDSEY: And substitutional competition. DR. WILKIE: And substitutional competition, right. So the point is when the degree of substitution is high enough that it impacts prices, so that is purely an empirical issues. MR. LINDSEY: But I think the panelists really reflected that prices -- I would suggest that cable and wire line aren't directly competing either since the prices haven't moved down. DR. WILKIE: Right. So here is the experiment. In markets where you have -- we have examples in New York and Ohio. You count wireless competitors. You say the market is competitive. You deregulate based on competition. Access prices go up. So that tells you that the data is telling us that wireless isn't able to constrain the access price. So the question is it is not what the level it is, but it is the level of substitutability, how much are people going to switch, what is the substitution. That is really the key driver. So it is not so much as level as change. Now, obviously, if that was to increase, then the greater the percentage share that has cut the cord, the more market segmentation you are getting. So the question is do they eventually become two different products for a different reason because it is serving different parts of the market. It is interesting. I am a little weary of these numbers of showing this rapid increase because, as we saw with the recent FCC tabling of a decision the other day, when you talk about a percentage, then you have a numerator and a denominator, and the FCC isn't always the best at calculating, not in a consistent way. So we actually don't know how many households there are. MR. PERKINS: Well, don't you also have to look at the services that are being delivered, too? You know, we all have dropped calls or choppy calls on our wireless phone, but if I have FiOS or I have Cavalier's IPTV and I am Joe Sixpack, I don't want to necessarily have that phenomenon with the Fiesta Bowl I am watching, you know, the signal drops out, comes back, you miss a key play, or if I am watching the latest replay of a Balanchine ballet perhaps or whatever it is. So, again, it is not the level. It is the degree of substitutability, and it may be the degree of substitutability is much higher for young people who have grown up with wireless being their first experience. As I say, all the studies say the degree of substitutability is increasing, but we are not there yet. It may be that we are there today with the new data. Nobody has done the study yet. MR. WILLNER: I think we are coming to the end of our time now, but I do see one question in the back. So please introduce yourself. ATTENDEE: Thanks. I appreciate the opportunity. I am Jim Kohlenberger. I am with the VON Coalition. I really enjoyed Sean's presentation because I think it highlighted some of the exciting things that are happening with nomadic voice over IP and some of the things that voice over IP has happened, but I think you indicated that there weren't necessarily numbers on where that market is. I noted in the Cox presentation that there is this micro study, $100 billion in consumer savings from voice over IP competition, which I believe is predicated on both cable-based, voice over IP competition, and nomadic competition. What is interesting that has happened in the last couple of years on voice over IP is, as we have seen very swift regulatory change in that market, the actual number of folks who are using nomadic voice over IP, I believe, is .6 percent of all voice subscribers. TeleGeography then just recently came out and I think indicated that while cable, voice over IP is growing very rapidly, that nomadic voice over IP now, actually the growth rate is on the decline and is almost zero. So that .6 percent is kind of where we are at. Presuming that all of those exciting things that I think we saw on the screen are something that policy-makers want to promote, what are those things in the regulatory space, policy-makers, ought to be doing to kind of foster those kinds of choices? MR. WILLNER: Does anyone want to take a shot at that? MR. LINDSEY: I am not familiar with what "nomadic voice over IP" means. MR. WILLNER: You might want to explain that a little more. ATTENDEE: So there's two types of what we call "interconnected voice over IP," things that the FCC has determined are substitutes for traditional home services. They are fixed kinds, which are the kind that cable provides where the underlying connection is provided with it, and then there is all of the other kinds which are the Vonages, the SunRockets, the Speakeasys, all of the things where they don't provide the broadband connection with it. It is the type of connection that you can buy it independent of the underlying network. MR. LINDSEY: It seems to me that the most important thing that phone companies can do to facilitate that kind of competition is to offer naked DSL. In fact, we do. I think that Verizon does. I think that AT&T does. I know that some of the VoIP companies have had some technical stumbles in recent months, but they seem to be, so far as I can tell, resolving those matters as they arise, and I expect that to the extent that they are encountering current intellectual property issues as they resolve those, I can't see why a naked DSL line or a naked cable modem line wouldn't provide them with everything that they need, other than the billing and back-office arrangements. I think some of the companies that you mentioned seem to have very sophisticated and able billing and back-office operations. Those seem to be like the obvious barriers to entry, and by the naked DSL, naked cable modem line offering, I think that they are pretty much enabled to compete if they have the technological wherewithal to do so. MR. WILLNER: When Qwest didn't offer naked DSL as part of a merger condition, unlike perhaps some other companies, what was your calculus in doing that? MR. LINDSEY: We looked at it and concluded that we had customers that were turning off their telephone lines because they were switching over to VOIP, and we would rather keep them as a customer for a high-speed data line than lose them as a customer for a phone line or a phone line plus a high-speed data line. This is basic economics. We had the install base. We had the install cost, the incremental cost of providing a DSL line. It was better than losing them entirely to competition. MS. WILSON: Cable, I don't think has ever tied any of those three services together, and to this day, we have people, actually a fairly significant number, who buy only phone from us or only broadband. ATTENDEE: And then they can just put a VOIP service over the broadband? MS. WILSON: Right. But I would ask the question. If I had my policy-maker hat back on, it has been a long time since I wore it, but what do you think is driving that flat-to-declining growth rate, and is it a regulatory barrier, or is it something else? ATTENDEE: I think this is one of the most dynamic regulatory-changing spaces that there has been. I think the FCC has done about 12 different orders in the last year and a half with 30-day time frames. For most of these, I think 97 percent of them are small businesses and find it very difficult to implement systems on a 30-day kind of time frame. So I think a lot of it is a regulatory type of challenge. It is something where when you don't have control of the underlying network, things become I think a little bit more challenging to implement things that do require access to the underlying network. Say 911, for example. There is 98 million Americans today who live in areas where a nomadic voice over IP provider can't connect to the 911 network itself, for example, and thus can't market services. So these are kind of regulatory barriers. If voice competition is a notable goal, which I think we presume was the goal of the '96 act and presumably is a goal today, if we have only got .6 percent and this is the promise that we are all looking at, how do we boost that? I think we are kind of missing it in a regulatory domain. MR. WILLNER: Sean, did you want to respond? MR. LINDSEY: Yes. I don't think we should underestimate the impact that Vonage's intellectual property challenges have presented to the entire industry. I agree, certainly. You have to get to a particular size at least of investment before you can build the back-office operations, billing, operations, 911 interfaces, those kinds of things. Those tend to be technological. They tend to be software-based. Once you have achieved the sufficient scale to development those things, then it is a matter of marketing. Vonage, if I remember correctly, at least based on the advertisements that I was watching, about two years ago had the biggest media blitz that you could possibly desire for that kind of an operation. They basically shut it down while their current IP problems came about. Again, I am rehearsing from what I have learned from watching from the outside. I don't have any insight into what is going on inside of them today, but they seem to be reaching settlements, and to the extent that they are reaching settlements and they continue to be a viable operation, then I assume that they will begin ramping up marketing ads once again. But if I am a smaller-than-Vonage operator, what I watch is to say, "Let's see what happens to Vonage. I am not going to put another $10 million into my software development until I know whether that software development is going to have to be thrown out the window because of intellectual property obstacles." So I think that what we are seeing in the last 12 to 18 months is really an idiosyncratic function that relates to a particular set of problems that I am not in a good position to know whether they are being overcome, but at least based on public reports, they appear to be in the process of being resolved. So, rather than think of the flattening or the dip as trending for the future, I think that it is a relatively explicable set of data that shouldn't reflect what is going to happen. Obviously, I will be interested to watch 12, 18, 24 months from now, but I am not sure I would change a regulatory path in order to address what appears to be a specific problem with a specific company. MR. WILLNER: Well, I wish we had more time to continue this very interesting discussion. I do need to let people have a chance to get their lunch before our next panel on wireless begins at 2:15. So let me thank all of the speakers on the panel for their very interesting presentations and thoughtful responses to questions, and we will look forward to seeing you all back here at 2:15. [Applause.] [Luncheon recess at 1:04 p.m. through 2:15 p.m.] Panel III Wireless Technologies MS. BURCHUK: Good afternoon, and welcome back to the Telecommunications Symposium. I am Hillary Burchuk. I am an attorney in the Telecom Section, and my principal responsibilities include the wireless industry. This morning, you heard about some of the entrants into the broadband space, and this afternoon, you will hear about some of the more recent broadband entrants. According to the FCC, at the end of 2006, approximately 23 million of the 82.5 million high-speed lines were provided through technologies other than DSL, cable, and fiber. Of those 82.5 million high-speed lines, approximately 27 million of them were supported by fixed and mobile wireless technologies. Here with us today are representatives of some of the leaders in the wireless broadband space who will tell us about their services and the plans to provide a third pipe to the home, as well as an economist who has thought, written, and spoken about these issues. Before I introduce the panelists, I would like to thank two of my colleagues who helped me put together this panel, my good friend, Larry Frankel, and one of our economists, John Henly. We are first going to hear from the panelists, and then I have a few questions, and then we will take questions from the floor. Unlike the panelists earlier in the morning, I am going to shake up the order, and I am going to start with our economist, and then he is going to set the tone, discussing overall the broadband product and the spectrum policy. Then I am going to have the providers speak in order, depending on how you look at it, either the largest down to the smallest or the oldest company down to the youngest company. First, we have Tom Hazlett, who is a Professor of Law and Economics at the George Mason University School of Law. He has written extensively in economic and popular journals on the economics of the information sector, with a focus on spectrum policy. Next, we will hear from Hank Kafka, who is from AT&T, where he is the Vice President of Network Architecture. He has 25 years of telecommunications experience and is responsible for creating the target architecture and road map for AT&T's technology through the network layer, which includes the core technologies for wireless, broadband, cellular, and wireline. Then we will hear from Bin Shen from Sprint Nextel. He is a Vice President who is responsible for Broadband Product Management and Partnership Development. He has played an instrumental role in providing Sprint Nextel's vision of the wireless interactive media services, and the completion of the next-generation mobile broadband business plan. Next, we will hear from Gerry Salemme from Clearwire where he is a Director and Executive Vice President in charge of Strategic Policy and External Affairs. He has more than 30 years of experience with telecom government affairs, regulatory and public policy. He has been with Clearwire since 2003, and now oversees Clearwire's spectrum strategy and acquisition and development. Finally, we will hear from Bill Wallace who is the chairman of DigitalBridge. He is one of the founders of DigitalBridge which was formed in 2005 to provide wireless broadband to underserved areas. Without further ado, I will turn it over to Tom Hazlett. MR. HAZLETT: Thanks, Hillary. I appreciate the Department of Justice putting the economist on first. I know the symposium focused on identifying entry barriers, and I think some might suggest that putting the economist on first might constitute an entry barrier, but maybe that is productive here. If you are willing to get through the economics, then you deserve to enter this market. So we will see how this goes. I did want to give a bit of an overview here. Now it is my turn to see how I can use the convergence buzz word, now well into its third decade, in perhaps a somewhat different way, and that is to talk about the multidimensional convergence that we have here in wireless broadband. On the one side, we have voice and data networks and seem to be converging and becoming one and the same, competing head to head. On the other side, of course, we have fixed and wireless going head to head. This makes for some exciting times. One way to think about wireless broadband is to think more generally about broadband. Here in the United States, of course, we have two principal wireline or fixed broadband technologies, cable modem service and DSL, digital subscriber line service provided by telephone companies, and we have engaged in a very nice natural experiment in regulation to promote more competition in this space, given the duopoly nature of the head-to-head technology competition. We actually engaged in mandatory network sharing rules that allowed cable modem service to be unregulated, with the cable networks not having any obligations to share their facilities with independent third parties, and telephone companies having rather important obligations to do that. So competitive local exchange carriers like Covad have historically had the opportunity to use the telephone networks at regulated prices for wholesale access, but not the cable network. So we can see how this went. Prior to an important deregulation in the first part of 2003, cable modem service actually invested, the cable operators invested much more aggressively and held about a 2-to-1 advantage fairly steadily '99 through 2002. This is in subscribership in the U.S. Now, if we fast-forward through 2006, we can see that following the end of line sharing which was the important deregulation that has occurred, line sharing was, of course, a regulatory rule that had these entrants using the incumbent lines for service to retail customers. Line sharing allowed that wholesale price to be effectively quite low, and those low prices were essentially revoked by a decision of the Federal Communications Commission in February of '03. Following that, cable modem service continued to attract customers at about the same linear pace it had previously. This is the top line here, and these are millions of customers in the U.S. But DSL service actually deviated from its pre-deregulation trend and actually kicked up quite substantially. So that by the end of 2006, you had about 10 million more households than you would have had if the pre-deregulation trend had continued. So some of us have actually concluded that the data speak loudly here. This natural experiment is important for us to grasp and to incorporate into our future regulatory deliberations. The fact is that we are not going to be able to fiddle with mandatory sharing rules and get the competition we want. We may get the performance we want, but certainly not the number of providers if two is too small a number. So that turns us to what is sometimes called the "'third pipe' wireless." Certainly, the wireless market is robust, doing well in voice. We see now in 2007 where there is over 2 trillion minutes of use in the United States per year. By the way, out of the 2 trillion minutes, about 1.85 trillion minutes are junior high school girls. I don't know if you knew that. [Laughter.] MR. HAZLETT: So the trends here, as currently estimated, are that the growth of the market really is not going to be in voice over the next several years, but in data. So that really does bring us to the broadband question of how much competition we are likely to see, and the wireless carriers are already well underway, as Hillary mentioned actually in her statistical intro, to trying to enter the broadband market by way of mobile telephone networks. Presumably, we will see this trend intensify. Let's quickly go over some of these key wireless data players. Obviously, we have already talked about the principal wireless networks in the United States offering voice service. We might have more of these, but we have regulatory lag in this country. It took us several years beyond the European Union to issue so-called "2G," second-generation digital cellular licenses back in the 1990s, and it has taken us several years longer to get around to 3G. As a result of that, these wireless players in some cases had to merge to gain access to sufficient bandwidth on a subscriber-adjusted basis and incorporating some economies of scale to be able to upgrade their networks to mobile broadband. Certainly, the AT&T acquisition by Cingular in 2004 was driven by a desire to access more spectrum and to build a broadband network; Sprint Nextel, a very similar story. T-Mobile was denied the opportunity to merge and gain access to spectrum that way, and had to wait until 2006, and in fact, at present to gain the access to spectrum. So we have seen that because --- and this is the flip side of U.S. policy -- the place where U.S. policy has been good is in having fairly liberal rules for the use of that spectrum that is out there. So there has been a lag in U.S. spectrum policy getting the spectrum out to the carriers. On the other hand, we have had very liberal rules for what the carriers can do with it once they get it. So we have seen the emergence, in fact, a laboratory competition taking place here between the CDMA alternatives, EV-DO and wCDMA, which was legal in the United States market because of this liberal policy, illegal in Europe, and then the Europeans had to open because 3G and so-called "broadband technologies" worked so much better with the sort of non-European technologies. Obviously, the regional carriers, which I am informed have no influence in the market, despite their multi-million-dollar market caps, apparently discussed on a previous panel, but there are regional carriers which actually are quite important in terms of market share, obviously smaller than the national networks, but still significant, particularly if Leap and MetroPCS might merge, as has been contemplated. Then often ignored as within the wireless space because of these liberal rules, we have an enormous amount of sort of back-and-forth between various players and service providers, including companies like BlackBerry -- that would be Research-in-Motion -- which offer, quote/unquote, "network services" without having any licenses or spectrum assets, but simply buy access to radio spectrum and complementary networks from the existing firms. This goes on in many, many dimensions. We have pure play entrants, obviously, now in the wireless broadband space. We have some on the panel today, and a possibility of a new one coming by a sort of regulatory design, if Frontline does indeed emerge as planned in Washington with the D block license in 700. Other entrants are certainly on the margin. SpectrumCo, a consortium of cable operators bid in the AWS auction. In disclosure, I was part of the bid consulting team on that and it did emerge with 20 megahertz nationwide. Obviously, satellite operators were involved there as well, but did not emerge with AWS spectrum, but are thought to be potential entrants. And also there are the application providers, Google, Microsoft, Apple. Apple is obviously now in the wireless space through contractual arrangement with AT&T. Google importantly, extremely important in the applications world, is also spending a lot of time, effort in organizing consortia and potential entry into wireless, and of course, recently announced the Google phone which, as some people have noted, was only lacking the phone. [Laughter.] MR. HAZLETT: Just to say a quick word about regulation, if you examine mobile markets globally, it is actually quite interesting. You get exactly what you might suspect; that is to say, retail prices for wireless service decline with spectrum, with more spectrum, and then with more competition. Of course, more spectrum also gives you more competition. I should also say that deregulation effectively creates more spectrum as well. That is to say, if you have looser rules on what carriers can do with radio spectrum, that allows more innovation to take place. The obvious example is the United States without technology constraints on operators was not limiting what the operators could do to migrate to 3G technologies. So the U.S. market has migrated to 3G long before 3G licenses, so-called "3G licenses" were put out because the United States has not restricted that migration. So that has been very important. You can see the results of this license flexibility, the so-called "property rights model" granting flexible use to carriers and letting the market work out the business models, the technologies, and services provided. The cellular markets in the United States have actually done very well on this count. Their success is clear. Prices are relatively low internationally, despite the lack of spectrum put out by regulators and innovation of technology or despite some of the press accounts of this actually doing very well in the U.S. Other experiments and further liberalization actually have taken place in some markets around the world. One is Australia where a more explicit property rights regime was established in the 1990s, and that has eliminated entry barriers, by and large, relative to other markets anyway, and this is a Wall Street Journal report from about two and a half years ago that notes that multiple wireless broadband carriers were already competing in the marketplace in Australia. This competition has spread well beyond Sydney, around the rest of the country, but this open policy, due to the reforms of the 1990s, has proven very beneficial in developing new technologies. So the U.S. policy, just with a little thumbnail, I would say is very positive in terms of liberalizing the actions and the flexibility of the options of carriers for the spectrum that is allocated for many of the licenses that are out there now. Negative, certainly, against the U.S. and things that we ought to be cognizant of and try to improve would be the regulatory lag in getting licenses out and sort of the misinterpretation of what is happening in the marketplace with respect to unlicensed spectrum. It is not technologically or economically displacing the property rights model. Quite the reverse, the property rights model has proven its effectiveness, and it is entirely compatible, by the way, with exactly the applications that are cited as successful and unlicensed. So we are now obviously flirting with re-regulation, some of the 700 megahertz proceedings, and in my opinion, that would be a step in the wrong direction. I will just leave you with what I think is a very classic statement about U.S. spectrum policy. Hillary saw my slide. She thought this was a mistake. How did this get in here? To me, this is hysterically funny. I guess the members of the communications bar don't take this as anything other than another headline for another day, but it just turns out that if you are dealing with the regulatory system here -- and this is not only a mark of U.S. regulators, certainly, but the one thing that the lawyer can tell his client with some certainty is that he can't obtain a delay. So I like it when it is put in terms of a spectrum auction delay hitting a fast track. By the way, this is for a 700 megahertz auction which has been delayed over seven times. I counted seven some years ago. So we are supposed to have this thing starting by statute in January, and we all know that it will happen, but surprises sometimes do happen. Anyway, that is it. Thank you. MR. KAFKA: Good afternoon. Thanks for the opportunity to speak. I am Hank Kafka with AT&T. I am a little bit unique as a speaker here. I looked through the bios quickly on the panel sessions. I am not an antitrust attorney. I am not any kind of an attorney. I am not an economist. I am not a corporate officer. I am basically an engineer, so a little bit unusual for the audience, but what I am going to try and do is I am going to focus my talk on the capabilities of wireless broadband, some of what has happened in the past, what is out there now, and what is being deployed today and what the future capabilities are. I will talk through some of the technologies and the field experience that AT&T has had with deployments of various families of technology, and then look at a bit about how those technologies will evolve in the future and what those capabilities should allow us to do as we go forward. This chart is an illustration, and it shows that wireless has had and continues to have multiple competing technologies. You just heard a little bit. The top line here represents the cellular technology areas, and we basically had in the U.S. two kinds of families of cellular technologies for quite a while, the GSM, HSPA, UMTS line on the top, and going through the CDMA, EVDO line on the bottom, on the lower line there. Those have evolved over time, starting out with no data at all to basic below-dial-up-speed data through some moderate-speed broadband to where we are at today in the HSPA kind of range in the GSM family where we have actually evolved to have what I think are comparable to wireline kinds of broadband services and capabilities that are being introduced and being put out there. It isn't stopping with that. That technology is actually evolving within that third generation bubble that is continuing to evolve and add capabilities, and there is intensive work going on right now in standards organizations to define the technology called "LTE" or long-term evolution in the 3G area. That technology should have standards complete by the end of next year and have equipment starting to show up from manufacturers kind of late 2009, early 2010 time frames. All of those continue to add more and more technical capabilities, more speed, and more capacity. It is basically driven by Moore's Law of Progress in ICs, the ability to do more digital signal processing in those areas. But that is not the only set of wireless technologies that is out there. It has got the longest history, but in the kind of late '90s time frame, it was noticed that you could start to reasonably think of deploying fixed wireless technologies for broadband delivery, and at that point in time, those fixed wireless technologies needed to take a different technical approach than you could with mobile technologies to get the necessary speeds and efficiency. So there are a number of prestandard fixed wireless capabilities that were deployed. AT&T, in fact, deployed several versions of this, and it really worked very well. In fact, it worked better than our simulations and models had indicated it would in the field. We offered successful services there, but it had some challenges. Because it was prestandard, it was difficult to get the volumes necessary to make it sufficiently cost effective for broad deployments. A couple of things have happened since then. IEEE standardized the technology initially as a fixed wireless technology, and now it, in fact, has evolved to a mobile technology, 802.16e, the mobile form of the technology, and then the WiMAX Forum formed a set of interoperability standards that further kind of tightened the specifications, so that you could go to significant scales with it. AT&T has, in fact, deployed either prestandard WiMAX or WiMAX technology in Pahrump, Nevada, and several cities in Alaska, and it has been pretty successful. We have got good customer satisfaction. It had pretty good take rates on it. It is evolving. Just as the 3G technologies are evolving, WiMAX is now accepted as a 3G technology by the ITU. It is adding a release 1.X. There is active standards meetings next week to further define and increase its capabilities, and there is also work getting started on a next version of a standard 802.16m which is going to significantly increase the speeds and capabilities of WiMAX again. So that has got its own technology timeline, and it is making similar sets of progress. Municipal WiFi is also an interesting area. I think that municipal WiFi, as it first came out, had a lot of hype associated with it, and I think it can easily be said that it was overhyped. We actually have deployments underway in three different cities with municipal WiFi networks, and from a technology standpoint, it does work. The municipal WiFi capabilities are there. It does not meet the hype that was initially generated around it, back when it first started to get considered, but the technology is out there working, providing service in one of those three cities now. It has been turned over to the city. It does have some challenges with it. In the case of where we have been doing these deployments, you put the nodes on light poles, and one of the assumptions that everyone, including us in the cities, had going in is that there was power going to the light poles 24/7. As it turns out, in significant sections in some of these cities, one light pole controls the power for a whole string of another set of light poles. So it works at night in those areas, but it doesn't necessarily work on all those poles during the day, not quite the ideal service. Again, in the areas where we have deployed it, we have kind of renegotiated the geographical deployment areas and/or mitigated some of those, and where you have power and mounting capabilities, you can use wireline or wireless back haul to get the traffic off of the light poles. It is a workable technology. Now, the other challenge in that area, in fact, where a lot of the excessive hype was, was around the business models and the free service business models which have proved to be challenging, but I think the key thing is that there is a big tendency when something gets overhyped and then doesn't meet the overhype to say, "Ah, it's worthless." That is not the case. The technology does work. It doesn't meet what was stated about it. For that matter, WiMAX when it was first advertised was said it could do 70 megabytes at 50 miles, and it can't do that, but it can do a lot of very good things, and it is a very viable technology. All of these three technologies are evolving. I have got this green bubble out at the end, IMT-Advanced. The ITU is defining a technology called IMT-Advanced that is definitially starting in 2008, and that is going to be what a true 4G technology is going to be. That actually will extend beyond even these advanced forms that are under work now that are being standardized. These forms will be adapted and extended to go to even higher speeds. Indoor fixed locations, some of the requirements suggested that could get up to a gigabit kinds of speeds, typically 100 megabits in highly mobile environments, the kind of ranges and capabilities. So we have got an ongoing continued progress of broadband as it moves forward. To give you an example of the kinds of speeds and the histories of speeds, I am going to take one of these technologies, the GMS families, since that is what AT&T has the broadest deployment of right now. You can look at the downlink speeds and the uplink speeds and see that we started out with the early GPRS technology, kind of the early phases of generation two, 2G, of kind of really dial-up modem-like speed. EDGE technology starts to work pretty well for text and graphics browsing. UMTS extended that a bit in the evolution of UMTS to HSPA, and by the way, HSDPA is the download part of HSPA, and HSUPA is the upload part of it. So we are at points now where the devices that we announced in October can reach in typical applications in the field and real-world cases, 600 kilobits to 1.4 megabits downstream and 500 kilobits to 800 kilobits up. So we are definitely in the range of deploying viable broadband, true broadband technologies. The deployments are to the point now where when I am using my PC, when I had EDGE capabilities, my first choice would be to see if I could find a WiFi link somewhere or use a WiFi-in-the-hotel link, set something up like that, and then if I couldn't, I would resort to EDGE and kind of live through that, sending large files and e-mails and presentations like this back and forth. I am now at the point with the HSDPA technologies and talking to my peers that have pretty much the same thing, once you have this in place, you don't kind of bother to switch over to WiFi. You just bring the HSDPA up and go, and you get really good performance. It works well as a true broadband technology. If we start to extend and see what is going to happen as we go out into the future, this kind of capability is using the typical field speeds. With LTE, as an example, we don't have typical field speeds yet because there is nothing out in the field to go and measure yet. So I am going to switch gears and switch scales and go from typical field speeds, which are constrained by the distance from the cell site and interference and noise and all kinds of other things and talk about theoretical peak speeds to kind of show what the trends look like overall in technology evolution. Again, I am staying with the same HSDPA LTE family. The main trend that you see here, the yellow areas are focused on the upstream and the downstream speeds. The yellow and green are the HSDPA technologies, and even within HSDPA, we have got multiple releases in adding new peak speed as it goes. Typically, we are at about 3.6 peak downstream and 1.5 peak upstream today, and then that is expanding to 14 meg downstream, peak speeds for the next couple of years, using existing standards capabilities. New standards extensions are starting to just get into place. It will allow that to get up to 41-meg peak speeds downstream, and then as we jump to the new technology platform LTE, that starts out at those kinds of speeds, and in the lower parts of these red lines in the LTE space show what happens when you use the current 10 megahertz of spectrum that is used by the HSDPA technology. You start to get some advances, and those lines will continue to rise, but you also get a change in that you can use more spectrum to get more broadband services, and it can use twice or four times as much spectrum actually, eventually, as you can use in UMTS now to really ratchet it up to peak speed. The key messages here I think is that we have now reached the point where wireless broadband is, in fact, competing with wireline broadband, or at least the technology I will say is competing with wireline broadband from a technology standpoint, that it is happening in fixed and portable and nomadic applications and in mobile applications, and the technology evolution is going to continue that as we go into the future into the 4G technologies and beyond 4G. Also, as was mentioned, there are multiple technology families competing, and sometimes you have heard wireless talked about as the third pipe, and I think that is actually kind of inaccurate because in most areas, even today, you can get wireless broadband, 3G kind of speed wireless broadband from at least two providers. Right now, today, it is becoming the third pipe and the fourth pipe, and as you will hear from the next speaker in the not-too-distant future, it is going to have a fifth pipe going into quite a few of the metro areas. So there is a lot of broadband capabilities going into place. It is very successful, very competitive. We are just at the early stages of ramping this up and kind of converting the wireless network into a true broadband network. Thanks. MR. SHEN: My name is Bin Shen from Sprint Nextel. As you all know, we are in the process of deploying a pretty large WiMAX network nationwide. So today, I want to give you an update regarding why we want to do that, where it is now, what is our mission here, why we think we can grow the market, and what are the critical elements to make this business model successful, and the status of deployment today. I think the implementation actually works very well. Tom and Hank talked about economics, talked about the entry barrier, talked about competition, and Hank talked about the technology. I am more focused on the business perspective, what it means to the end customers, to the marketplace. I am sure Gerry is the expert on the spectrum, and I am not going to steal his thunder there. First slide, please. We believe the wireless broadband opportunity is now. As Hank just mentioned, there are a lot of experiments and trials in the last many years actually around the wireless broadband. AT&T started Project Angel for the first time. We also have a different kind of fixed wireless broadband product operated by Sprint prior to the merger, but we really believed the wireless broadband is available in a cost affordable kind of format now, and that is why we are in the process of making such a huge investment, to really provide these services to the marketplace. Why we believe so, if you look at this chart, broadband service on the left-hand side here really stands for the landline broadband penetration by household. I think it is consistent with Tom's statistics there. On the left-hand side if you look at the voice growth, the voice growth in terms of the wireline voice versus wireless voice, there is some history we can learn here. When the wireless voice really started hitting the maturity stage, penetrating most of the households, that is when the wireless technology started to emerge. At that time, I think you have probably heard of the famous consultant assessment for AT&T, that mobile voice only will hit about 1 million subscribers maximum, and look at today how many people are using mobile voice. I think when people are used to having voice at home, they want to take voice with them, that is part of their lifestyle. It becomes ubiquitous, and then technology really catches up, the infrastructure catches up. We drive the cost down, and make the coverage really good. So it is kind of a natural trend for voice really riding on the landline voice adoption curve, and it keeps penetrating into people's lives. We look at this trend, and then we look at the broadband market. Broadband is really penetrating a lot of households. Broadband is in over 15 percent of households today in the U.S. If you look at the last few years, the growth of the Internet services, including Google, including the e-commerce, it reaches about $120 billion revenue. That kind of growth, especially over the last five or six years, I think is all primarily driven by broadband adoption. You can really provide a platform for the customer and consumer that really enjoy the type of services that we can have in this Internet environment. So we believe that kind of growth is going to spill over to the wireless environment because it is in people's nature to really want to be free, and they want to take the service with them. Today, a lot of Internet experience to most people is really sitting at home or in an office with the browser, with a desktop kind of PC or laptop. That is the experience they relate to the Internet. Tomorrow, it doesn't have to be that way. Tomorrow, broadband can connect to a kiosk. Broadband can connect to a digital signage. Broadband can be very transparent to the customers, and be any terminal device where one can connect to the broadband. I think they all can connect to the Internet, any kind of network service there. We think people are really starting to get used to the broadband idea. I think they really can appreciate it in terms of what kind of service they can enjoy in the ongoing environment. So wireless broadband not only provides a viable alternative to the home and office environment, but it really can expand the broadband market to a much more pervasive environment. So that is why we think why it is now because we think landline broadband is hitting the saturation point, and that is where we think the wireless broadband really makes sense to allow people in terms of lifestyle. The next point is that is we really want to make sure the broadband and Internet experience are pervasive to people. As I mentioned just before, today most people relate to getting on the Internet is by going to your PC and launching your browser. That means to get on the Internet. But if you ask a lot of people today, there is a lot of new media. The SUV has navigation system, and has back-seat entertainment system. I saw a lot of people who have DVD players and carry onto the airplane. Why not those devices? Don't you wish 20 minutes before getting on the airplane, when you really finally think about what could you do to spend the five hours from here to Los Angeles, and you could download a movie, you could select a movie at that point in time? You can download it to your DVD player, to your multimedia players. That can also be a broadband experience and Internet service. I think it is very natural for people to say why don't we connect those kind of devices. So we think that pervasive broadband means it is accessible. It doesn't mean necessarily only that we have coverage everywhere. It means that broadband can show up in any type of device. Anything you carry, anything you touch can be connected to the Internet. It can be oxygen that just goes with you. So that is what we mean by broadband needs to be pervasive. So, if you look at our device road map in terms of what we tried to produce, what we tried to work with our partners, and what we tried to introduce, the ecosystem, here is our road map. In 2008, not only do we have a traditional PC card modem for the home and laptop, we are also starting to introduce multimedia devices, devices that can be Internet players, can be multimedia players, can be music players. We are starting to introduce them in 2008. It takes about five years for WiFi transition from a PC card form factor into an embedded device form factor. In the first year, we are going to introduce that with WiMAX because we think WiMAX has a great ecosystem, and can also ride on the WiFi success and accelerate that pace, to make that more kind of accessible to the end users. In 2009 and 2010, we are talking to a lot of planners. There are a lot of good ideas from consumer electronic companies and from the computer industry to really try to embed the WiMAX chip set into those kind of different form factors, into the card, into the multimedia players, into the UMTC, or through mobile devices. So, when we have that type of accessibility, then it is up to consumers to use that. I think we can make the service very easy. People can subscribe on a monthly basis, or people can use on an ad hoc basis. People can pick up a camera, and if you think about it, they can upload their image to the Internet or share with their family. That kind of package can be provided directly by Sprint Nextel or directly by Kodak and Sony. We can work with them, and make that easy for the customers. So what are the critical elements necessary to make that a success, and why do we believe that we can really achieve those critical elements? We think there are three critical elements here. First of all, again, we need to make sure the chipset will be in the devices. That is a critical link. In order to make sure the chipset can be in the devices, we really need to make sure the wireless chipset is really low cost. Today, if you look at the HSDPA cost or CDMA cost, because it is still coming from a traditional cellular technology kind of environment and its ecosystem, after three or four years, it is still very expensive. For multimedia devices, about $200 or $300, adding another $75 to $100 chipset, it is not affordable for the customers. When we look at this issue and we select the technology, we think WiMAX will provide a very robust, competitive chipset environment that will drive the cost of the chip very low. Today, my group has a chipset ecosystem program. On our radar screen, we recognize there are about 25 chipset providers in the world that produce the WiMAX chipset. If you look at the traditional 3G technology, after so many years, there are not too many chipset providers in the marketplace. For the first year in 2008, our chipset cost and margin is going to be in the $20 to $40 range, so much lower than the 3G technology. So I think it is a very friendly environment for consumer electronic companies and computing companies who are thinking about embedding the wireless capability into their devices. So that gave us a lot of confidence that we can make it happen with the right ecosystem partner. The second piece is really the open network. You see a lot of people starting to announce the open network. I think in the mobile phone industry, Sprint Nextel is the first company to announce that we are going to be an open network and open to the devices, open to the applications. The reason is that we recognize that in order to be a viable player in the Internet world, we need to be open. Openness creates innovation because we cannot innovate our own. We need to invite a broader community to produce innovative devices, innovative applications, and take advantage of these capabilities and drive more traffic onto our network. So we believe that is the success model, and we are going to follow that. The third piece is to make the service more affordable. It is one thing to talk about speed. We can always have high speed. If you look at the end price, the customer always can afford more. They can have more speed because they are willing to pay for it. Sprint Nextel is probably the leader, the number-one leader in the mobile broadband market today. We have probably the largest customer base, but if you look at our customer base, the majority of the customer base are still business customers because the service is too expensive, because of the cost structure we have on this 3G network side. That to me is not a success yet. For success you really make everything affordable. Today, broadband already is affordable to 50 percent of households. We want to have that type of a mass market adoption. We want to make sure the service is really affordable. So that is why we selected the WiMAX technology. We think the WiMAX technology will achieve one-tenth of the current 3G cost, and that will give us a lot of flexibility driving adoption by the mass consumer market. If we can make the consumer happy, we can make the business customer using the service happy as well. So that is affordable service. In addition to that kind of low pricing approach, we also want to make sure that is flexible. Today, most of the plans we have are monthly plans or prepaid plans. Tomorrow, actually, you can buy a day package. You can buy a day pass. In 2008, most of the laptops will start to have WiMAX embedded in the laptop. Once you see our network, once you see the Clearwire network, you have a choice to get onto these networks. You can have a choice to select WiMAX connectivity for a day. So it will be very flexible with a very low barrier to entry for customers. Where we are right now, we are very busy. I have many meetings every day dealing with a lot of interoperability issues, and software release issues, but we are making great progress. I am very confident that WiMAX technology will work very well. We have over 10,000 cell sites already being assessed, ready for WiMAX deployment. We have ordered over a thousand base stations and antennas from our infrastructure partner, Samsung, Nokia, and Motorola. We already started the field testing. We actually will make the first service market launch this year in Chicago, Washington, D.C., and Baltimore, and we will have commercial services the second quarter of next year. So I think we are still right on track in terms of hitting this timeline, and recently, we completed the first market-to-market life kind of a data session which is not an easy task because we are talking about Motorola equipment in the Chicago market, Samsung equipment in Washington, D.C., and Baltimore market, and with three different locations to have a live session. Please check it out. This is the internal ceremony we have done. [Video clip presentation.] MR. SHEN: That is in Herndon, Virginia. The middle is in Arlington. The other one is Chicago. [Video clip presentation continues.] MR. SHEN: It is off-the-shelf video chat software. You can see what kind of latency we have across the whole nation. So we are very excited about the progress we have. Certainly, we have some challenges. Today, it is a regulatory kind of forum here. I think there are some key related challenges we have. We have tried to provide an alternative for broadband into the retail market, not only for the mobile, but also for the home and office. However, we still rely on backhaul from the incumbent providers in order to have cell site connectivity. If you understand the wireless network, you can market 10 megabits per second, 15 megabits per second to the end users, but your weakest point, your bottleneck is actually your cell site connectivity. So this is a major challenge. If you look at the marketplace, it is about a $15-billion special access. AT&T and Verizon account for 82 percent of the special access market share. We think there is a cost issue. We have significant concerns about the regulatory environment in terms of how we will really get this kind of service at a competitive rate, and the lack of a competitive market to improve a timely response rate. I have always been told by our network team that it takes a while to get the backhaul being ordered and being ordered from our competitors. So that is one big issue, and we have to solve this. The second issue has to do with the spectrum option kind of policy here. Even under 2.5 gigahertz, we still have a lot of wide space between the licenses in these markets, and I think there still needs to be a clear auction policy. Otherwise, it will slow down our efforts to provide a service in those kind of areas in a timely manner. Thank you. MR. SALEMME: Thank you very much, Hillary. We appreciate the opportunity to be here. It is not often that you are on a panel and you actually probably agree with everyone, and I think as Bin just pointed out, the way in which the panel is being developed is also very helpful. I have learned something from Tom, which I always do, about the economy and about how business succeeds. Hank has to teach me how to use the pointer. I could never figure out how to use a pointer. So, after this, we are going to learn that, and I think Bin's presentation on what is the ongoing development of WiMAX was very helpful, and it would be consistent with the Clearwire presentation. I am really going to kind of build on I think what each party has said, talk a little bit about Clearwire, and who we are. Clearwire was founded in October of 2003 by Craig McCaw and three wireless veterans who had worked with him for a long time, and we really had a simple mission statement, to do to the Internet what cellular did to voice telephony, to basically unburden it, to make it something that people could take with them. It was a very simple model. It really is one of the things Craig and his team did with cellular, and it is kind of interesting now to hear Bin mention that study, the old AT&T study that talked about the fact that cellular would have 900,000 customers by the year 2000. That was a study that Craig unearthed and brought to the financial markets to get the initial funding for his McCaw Cellular Company, and to hear Hank talk about that fixed wireless mobile broadband precursor, Project Angel, that was a technology that Craig and these same three people had used while it was McCaw Cellular in the old days and sold to AT&T when McCaw Cellular was sold, and that was the old AT&T Wireless. So we have had a lot of experience in this and really a vision on how to make it happen, but what we recognize from those previous experiences is that you could not be successful in delivering mobile broadband services unless you could get the cost of delivered bit to be down because right now, if you see the struggle of voice calling over their narrowband cellular network or even the new 3G or 2.5G, whatever Hank would classify it on his charts, the cost per delivery bit is too prohibitive to really give you the kind of throughput you need to be the new kind of competitive broadband service offering, and that is really what we had to get to. That is really what had to change. There were three key elements, similar to Bin's three key elements. I think we are thinking of it in a similar fashion. We thought the first one was the spectrum. The spectrum is the life blood to mobility. It is really something you have to have, and we identified the 2.5 MHz spectrum as being the right place to be. At that point, it was ITFS and MMDS spectrum which was underutilized wireless cable spectrum that was being reclassified at the FCC. It gave us a great entry point without having prohibitive spectrum cost. The second thing that we looked at was the technology, was the promise of this broadband technology that was being kicked around and the WiMAX, you know, precursor IEEE to the WiMAX forum, and what was being moved around the CDMA and GSM technologies going to really take place. So we went around and tried to find and see if we could make that technology work. Just to make sure that we could nurture it in a very atypical fashion, we bought a small precursor in the WiMAX technological world, a company called Nextnet up in Minneapolis, to make sure we could nurture that market to find a technology road map that was going to have to help really push the company, the big players, the Motorolas, the Intels, the Nokias, and Samsungs, who are all moving, but to give a little prod, we actually went forward and started deploying using those technologies. The third was scale. One of the things we thought we were going to have to do is to create a market. When you have incumbents who have entrenched markets with already having legacy activities that are beginning in revenue, sometimes they don't want to cannibalize their own services. They don't want to move to that next service too prematurely. We can look at that in the DSL world where there has been a lot of years where DSL was available to the incumbent telephone companies, but it was slow to develop, and it really did take some of the initiatives of Northpoint and Covad and the cable modem development that really became I think probably the impetus behind moving that forward. In a similar fashion, we thought we had to help seed the market by delivering broadband wireless services in other markets. So we bought the spectrum in Europe. We bought spectrum in Mexico and Canada and deployed spectrum in broadband networks using that technology, to kind of build scale, because the third key was the scale which gets you to all of the activities, that environment, that infrastructure that Bin talked about. We also found strategic partners, Intel, Motorola, Bell Canada, Circuit City, Best Buy. They have all been critical in helping us both move that forward and make it happen. Then the last thing is this is an incredibly capital-intensive business. The one thing you have to recognize is the biggest barrier is that you need the capital, and it is that sunk cost that I think Simon talked about in the last panel that really is a very difficult activity in our getting revenue on most of that early return. So we were able to raise $4.3 billion, part of that with the seed money Craig brought and others, and we have I think been relatively successful. I have a chart here that just kind of gives some fun statistics on both wireless and how people are moving more to wireless, but also just how the whole growth of the industry and e-commerce is moving, but I think Tom and Bin and everyone already covered that. I am just going to talk about the Clearwire vision, though, because it is the triple play, but it is a mobile triple play. It is the ability that I think if you look at what Hank showed in the throughput that is permitted using these technologies and the fact that you can now deliver a bit at one-tenth the cost which I said was really the necessary pre-element of being a success, you are able to provide all three of these services in a mobile environment. Bin and all those charts that he showed and all of the pictures of what different devices are going to be brought, that is all part of it. It is having those services embedded. It changes the cost structure. One of the biggest elements is the cost-per-gross add that each of us pay in trying to sign up a customer. If we can have an open network, if we can have the ability to let people sign on, if we can have the chip already built in and don't have to subsidize a handset, don't have to have the cost of a modem subsidized, then you really can get the price down and be able to offer those services to other people. I just wanted to tell a little bit, very briefly, about what Clearwire is currently doing. We have a WiMAX class service. It is the Motorola Expedience. We actually have now deployed WiMAX 802.16 in Portland, have it operational, working right now with a full commercial launch by the first quarter of 2008, similar to Bin's activities with Motorola, the Motorola WiMAX that he has in Chicago. We have 14 million people that we cover. We have 420 cities and towns that are covered. These are the regions that are depicted on the map, just to give you a sense, so that you have the size, from Seattle, Jacksonville, some of the bigger cities, the NFL cities, down to some very small places like Duluth and St. Cloud, Minnesota. We also, as I mentioned, are in Europe. We had a joint venture in Canada which has deployed the service in Canada. We are also in Mexico in a joint venture with MVS in Mexico, and Mexico City is actually one of the largest deployments of the WiMAX free class activity, but we have service ongoing in Ireland, Belgium, Denmark, and Spain. Germany is being built. It will be launched in the first quarter, and Poland and Romania are on the chart to go forward. Just to give you a sense of the progress, it is real progress. There are customers. We have 350,000 customers signed up, 15 million POPs that are covered, and there is ongoing growth and ongoing market deployment right now. As I said, Portland is coming online. Nashville, Rochester, New York; Syracuse, New York, there are a number of markets, and we can all talk about what is happening and how it is moving forward. For penetration, our markets that we launched in 2004, we have broken 10 percent penetration or more in every one of our first 15 markets, and this is kind of trying to get to what I thought the topic was, and I am sorry it took me so long to get here, but I really think that if you really can have the ability to deliver a service at a cost point in a new fashion, you become disruptive to the market, the entrenched players in the way it is provided. But it is not as if you are disruptive to one element of the market. What we tried to show on these is that Clearwire or WiMAX technology, let it just serve, and it doesn't necessarily even have to be WiMAX per se. It could be LTE or any other 4G precursor that Hank had laid out on his chart, but you really are totally competitive against all of the other wireless 3G providers, and at the same time, because you are able to deliver the speeds in the same service offerings that are provided by the cable companies or the telephony companies on an at-home basis, you are also finding in my mind a disruptive convergence. So, to take the multidimensional convergence that we just heard from Tom and kind of put it in a perspective, we have the opportunity to be disruptive across different market elements, and as the wireless and wireline networks start to come together and actually start to compete more against each other, we think we really provide an opportunity to be competitive on both elements and to work on either. The Bluetooth and the WiFi, just on municipal networks, we really do see them as complements. We don't see them as actually providing a competitive alternative. So what do we need? I think regulatory stability and certainty. This is something that does take an awful lot of up-front capital. It has some very skittish markets out there. If you don't know for certain that there is going to be an environment where we know what our status is as a company and how we are going to be treated, you really can't expect to have anything that is going to work that is going to go forward and you are going to get the financing that is necessary. Second is spectrum policy. We would not have been able to get into business if it weren't for the 2.5 or the EBS/BRS spectrum. Really, it was underutilized. It was designated as broadband. The WiMAX Forum had made it the spectrum home for that service, but it really had been underutilized, and there was a great secondary market that allowed that to happen. The auctions really have been very difficult, and spectrum policy sometimes dictates what you can do. When you have an AWS auction that is basically set for FDD technology, it is very hard to bring WiMAX which is a TDD technology into that band. People have to be more sensitive to that. They have to be more sensitive to some of the power issues, some of the limits, and they have to give more flexibility, which is that operational flexibility line. You really have to recognize that these technologies are changing, and you can't try to pigeonhole them in the technology of a narrowband service and try to impose power limits and other different types of activities that have been very specific to a technology and service offering of the past and make that go forward with the latest technologies. The last one, we also provide VOIP service and other technologies. We have a PC card, and in many cases, what we are finding is that as you look at this convergence, people don't know how to classify us, are you IP, are you a carrier, are you a carrier when it comes to voice, how are you going to provide CALEA responsibilities, how are you going to provide E911. We said adapt those requirements, so that we recognize we have responsibilities. We recognize that there is a need to participate in those activities, and we are not trying to eschew those regulatory responsibilities. On the other hand, it isn't just something that we can take on the same status, since we don't have a circuit switch, for instance, with pure IP. There are different issues around that, and they just have to make sure we adapt them for that. Thank you very much. MR. WALLACE: Thank you, Gerry. I am Bill Wallace, DigitalBridge Communications. I think I am here to describe the situation we find today in WiMAX in that it is a market that lends itself well not just to national players, like Sprint and Clearwire, but also very appropriately to regional players. Tom talked about MetroPCS and the cellular industry. We are very much like that. We are taking a regional strategy, and we very much appreciate the seeding of the market that Sprint and Clearwire have done because without that, we probably wouldn't have been able to raise the $40 million we have raised. I think in terms of barriers to entry, we are a great example that in this market, the WiMAX industry, $40 million, and our first million dollars got us in the market, that you don't need to be raising $4 billion to compete on a regional basis, and the economics really work quite well. I will walk through a few of those points as I go through the presentation. Our goal has been to become the number-one private WiMAX operator serving underserved communities, and typically, the underserved communities are 10- to 20,000 and above, but probably not more than 100,000. We find that we serve very well consumers, small businesses, and visitors. Some of our communities are vacation spots, and WiMAX is suited very well for that. We find with this technology, you have not only a low cost, but a differentiation which I will describe in more detail, but also the opportunity to make money in small markets, and I think historically, that has not been the case. As Gerry and Hank and Bin described, mobility is going to be important. First, we are making good money on the fixed broadband, but we expect PC cards to be available soon, and then with embedded WiMAX chips, we will all make more money and serve customers even better. To date, we have gotten started. We have been in business really for about a year, since a year ago this time, been able to secure spectrum, about 150- to 175 million megahertz POPs. We have built a NOC. We have launched 4 communities, soon to be 15. We have a got a team. We have got a NOC, and we are up and running. We will have $10 million of revenue this year. This is pretty much a chart describing, summarizing what everyone has said, that today it is fixed, tomorrow it will be PC cards, and then embedded chips and then multiple devices. What is happening in this marketplace, when you are in the fixed world, you think about households covered. Here, we are moving to start off focusing on market share of fixed households, but very quickly, we move to people covered and mobile people, and that is when it becomes a much bigger market for all of us and move beyond the 50-percent availability that you have in the cell markets today. Why is WiMAX so economic in reaching smaller communities and other technologies? First, it is highly capital efficient, although it takes a lot of capital to reach many cities, within any one city. We spend $40 to $60 per household covered versus a DSL or cable company that is going to spend $800 or $1,200. It is a radically different set of economics. It is also very demand-driven. It is modular. I spent some part of my career in Verizon. We were part of a small division. We had deployed some early WiMAX, and that is when the light bulb went on for me because we had deployed to a small town down in Southwest Virginia, Grundy, Virginia, put up a tower with radio on it, and for various reasons I won't go into, we found that we had aimed the wrong way. We had aimed toward part of the town where there already was DSL. In the old days, that would have taken a long time to fix and a lot of money, but basically, we just tilted the radio and aimed for the part of the community that didn't have DSL or cable, and that is where we go first in these smaller communities. We aim the radios right where there is no broadband. We start there, and then we start targeting the cable companies and the DSL providers as well. As Clearwire has shown, there is a lot of business coming from cable and DSL to broadband wireless at this point. Third, it is an IP network. It optimizes both voice and data, and it is very easy to add profitable applications like voice over IP. It is truly differentiated, and we appreciate, again, what Clearwire is telling us. It is very easy to install and activate service. We had a case where basically we were selling against the cable companies in one of our universities, and we handed out modems. The student goes home, plugs it in, plugs it into the laptop, and it is good to go within two minutes. You can't do that with any other broadband technology, and it is also portable at this point, soon to be mobile. It truly redefines the customer experience to broadband in a box, and it makes it very easy to do that. Finally, we do believe that WiMAX is bringing the benefits of the Internet to your pocket, very much like wireless did in the case of the voice network. Three parts of our business. We started with the last mile. I think you have heard enough about how disruptive we think WiMAX will be. The middle mile is a special access that Bin talked about. That is very important to our business, and we only go to communities where we can get economic special access. We avoid the communities where it is not competitive because it ruins the economic model. Then today, in the first mile, we have been able to get into business in under 12 months, largely because we have used outsourced customer care. We use a company called Arise. We have used outsourced billing. We have used outsourced data centers, about 300 yards from our building at Equinex, and everything is variable. You don't need to build a huge fixed-cost business to get into the WiMAX industry. We have had great success, much like Gerry said, surpassing 10-percent penetration. I want to focus on that for a minute. In my mind, it took a PC four and a half years to reach 10-percent penetration nationwide. To have a product category like this reach 10 percent in 12 months or 15 months, actually the first 15 markets are already about 10 percent, what we are showing as our first market, this is just three markets, and one of them is six months old, so a representative sample, Rexburg, Idaho, 21,000 people. We are over 9 percent now, 8.3 percent here, but we are over 9 percent after six months. So we will well exceed 18 percent probably over the first year, and that is based on an investment of under $260,000. So it is a market you can get into economically and get in fast. We now have, as I said, four towns deployed, but most of them have just been deployed in the last couple of months. Let me just end by summarizing the issues that could affect us. We like to say we are living the business American dream here because we have been able to raise money. That was probably the hardest part. We have raised it through the venture capital, puts and takes, and the kind of things that worry us, spectrum, we support competitive bids to the wide space auction, as Bin said. It is going to be very important for picking towns we want to go into. Timely tower access. When we go into a town, getting access to towers, if the only towers available are cellular towers, it proves very, very difficult and very time consuming to get on those towers. We love brokers who have towers, Crown Castle and others. Those work much easier and much faster. Backhaul, the special access. Right now, we avoid towns where we can't get something that is under $100 a megabit. It is eventually going to slow our growth, so whatever Federal authorities can do to make sure there is a competitive marketplace for special access they should do. We go to towns where there are three or four providers, Syringa Net out in Idaho with 360 Networks, as well as Qwest, and we find prices are great. Looking down the road, we are very much looking forward to setting up roaming networks, very much like the cellular industry did, so that we can have roam across a DigitalBridge network, as well as Sprint and Clearwire networks and anyone else who happens to have WiMAX spectrum and WiMAX capabilities. We would also hope to establish industry relationships such that no towns are left behind. This technology is so economical that there is no reason for any town not to have broadband. We hope to establish industry partnerships to cover not just the towns we are covering now, but even smaller ones down the road. So thanks very much for your time. MS. BURCHUK: Now I will start the question portion. I guess I will kick it off, and I will talk to my panelists first on the question about content. The major wireless providers with the broadband networks offer a wide variety of content to their subscribers. I would like you to speak on how important the content is to your service and the success of it, and do you plan to offer content to your subscribers? Sprint, we will start with you. MR. SHEN: Clearly, just to mention, we are really for an open network and really for a lot of companies to ride onto that, and we are going to open up the network, too. So, to that extent, we want to make sure that content has a good experience on our network. Further than that, we believe that when people are in the environment, especially in the mobile environment, convenience and accessibility are very important. So we plan to also have our own portal and then select some content that people really just want to have with good accessibility and the ability to download right away, maybe top 20 videos or top 20 music. So those kind of relationships, we will strike. But most important of all, we want to make sure those kind of partnerships will really take advantage of the network capability, like the location, like the device intelligence, and really optimize the content experience, especially for certain things like fitting to a small screen of the devices. So we are going to do that and optimize these kind of content experiences on our portal. We also are going to open up the API to the developer community, so they can utilize those kinds of capabilities, too, as an economic return for us. MS. BURCHUK: Gerry? MR. SALEMME: Clearwire has very similar visions to Sprint's, and we also believe that it should be open. You are going to see a lot of different applications and content to come on and really want to change that experience for people and we agree that that is going to be very helpful. We also actually have pulled together something called Clear Media, and we have hired a team of content providers who have been providing content for different applications and services, mostly in the mobile environment, and we actually segregated them in L.A., thinking that is where they can get the best interaction and think of the most hip ideas, so we keep them away from Seattle and Washington, D.C. There is actually a team that is putting together the specific content that we would have for our service. MR. KAFKA: From the content standpoint, a key aspect very similar to what Bin said, when you try and access, most of the web content that is out there now, it is designed for interfacing with a PC, having a keyboard, having a mouse, being able to scroll across multiple screens. It doesn't work really well when the screen is this big and you've got a little tiny keyboard and you have got other types of interfaces. So a lot of the content activity is focused around what you need to do to develop content that is easy for customers to use and interact with in a mobile space and get an integrated content environment across a mobile space and PC interfaces and other types of devices. So you end up more device-focused, location specific-focused, to make sure that that becomes available and is easy to get to. MS. BURCHUK: Okay. A number of you have spoke about the cost efficiency of using a WiMAX network, and I would like to hear from you all a little bit about the prices you are planning on charging or are charging now with wireless competing to be that third pipe to the home. How do you set the price to your consumers? Do you consider other broadband options when you are setting your prices? MR. WALLACE: We, of course, look at the marketplace as a very -- [Technical difficulty with microphone.] MR. SALEMME: Pricing always gets everybody. MR. HAZLETT: Actually, what he said was that all the providers get together and work out these price schedules. [Laughter.] MR. HAZLETT: His microphone went off at that point. I think that was counsel. MR. SALEMME: Clearwire also prices by market. In many cases, we price a little above the price of the DSL service in the market for what is our fixed modem service and a little bit less than the cable because we believe the mobility service is actually providing you more. The portable service that we are selling provides more than the DSL, but we don't try to compete against the speeds that the cable companies at least advertise. So we are usually priced a little bit in between that. For our PC card, we price at just about the same price as the EVDO card, the Sprint, the different cards that are out there in the 2G environment, but we are giving a lot more speed. We are doing 1.5 megabits per second instead of the 250 or 300. MR. SHEN: We kind of set up a price here. Our commercial service will be next year. Also, we have some framework. Framework is actually pretty essential, as Gerry just indicated, for service to target a home kind of environment. We need to be competitive to cable and DSL. There is no question about it. For the services in the ongoing environment, like a PC card or laptop, it will be lower than our EVDO services because we will have a lower cost structure, and we try to acquire more mass market customers. So that is kind of a combination. Our differentiation is really in packaging those services because, from our point of view, cable and DSL don't have the capability to serve people on the go, and we want to really differentiate that. So we want to package those services together. MR. KAFKA: As an engineer, I don't get involved in the pricing decisions very often, but I will say that the mechanisms that we use for pricing are, in general, kind of the standard approaches and mechanisms that we use in pricing competitive market services. So it is typical competitive pricing approaches and strategies. MR. SALEMME: I just want to remind people that what Bin talked about earlier is when you have an embedded chip and you can actually sign up for shorter periods of time, on an ad hoc basis, it really does change the environment, and that is part of what I think everybody's model is when we get to really embedded devices. MR. WALLACE: I would just elaborate on what Bin said about PC cards. Part of the reason I sense that the existing cards from the cell companies are so high is that you don't want to crowd out the voice network. If those were priced at $30 instead of $50, you would really be crowding a lot of voice. So I think there is huge price reduction possibility in the PC cards in the next five years, and that is going to be a real opening up in the marketplace. MR. SHEN: I guess you are saying the same thing, what I tried to suggest. I think that the 3G cost is still very high to us. If you look at a PC card cost, it is very high. The WiMAX and PC card cost will be much lower in the year one. So the cost structure is different. Secondly, we are supporting 15 million customers on our network with the 15-megahertz. In that sense, they are competing for the resources, and voice is very important to us. So that is why the cost to provide the broadband service on 3G is challenging for us. MR. KAFKA: Spectrum is an important consideration, and the cost of the devices is an important consideration as well. We haven't had too many disagreements. I don't think there is a fundamental technical difference between where 3G and LTE technology are going and where WiMAX is going. They are using a lot of the same technologies, the same core processing, the same digital signal processors, and all of those technologies are bringing down the cost per bit. Now, where there is a difference is that if you look at the products that are out there today and what you can get access to today, if you have frequency division duplex spectrum, the FDD spectrum, the products that are out there that work with that today are typically the 3G-based kinds of products. WiMAX does not yet have a product out there for that spectrum, although frankly that is one of the things the WiMAX Forum is working on. That is one of the next developments that is going on in the WiMAX Forum. Similarly, there is I think only one company that has a product out in the 3G LTE kind of products base that will work in TDD. So, if you have got spectrum that is TDD, then it makes a lot of sense to use WiMAX. If you have got spectrum that is FDD, it makes a lot of sense to use the 3G technologies. MR. HAZLETT: I am a happy wireless broadband customer for more than three and a half years now that I have had the Verizon wireless card, and it has come down from $80 a month to $60 a month, and presumably, this is a very fluid situation. You folks are going to press Verizon's margins ruthlessly, and I am sure you have told that here to the Department of Justice. [Laughter.] MR. HAZLETT: We really don't know. The previous question was on content. These institutions are evolving in such an interesting fashion, and as we go forward, everybody wants to talk about open networks and so forth, and certainly, these cards, the PC cards are open network. It is just access to the Internet, and that is where you want the Internet. You are not particularly interested in the mobile Internet, but over time, as these mobile networks develop, there is no question that there is going to be some integration to stimulate investment in web applications that are mobile-specific. We are at a very early stage here in mobile applications. So location-based services and some of these things that are developing now are going to be integrated with the carriers. The carriers are going to price for that, and it will be interesting to see what comes out of that. Just to freak people out, in the age of Google where we see how pricing can be totally turned on its head in a very short order of time here, with the business model sort of coming out of nowhere, you now have a company called Putting Media, if I am not mistaken, that is working on a mobile network application where you get the phone, you get the voice for free. Their voice recognition software follows your conversation and hits you with the advertisements relative to your conversations. As I say, we live in the age of Google. Hey, why not? You are reading my e-mails. Why not listen in on the calls and capitalize that? So that seems like quite an unusual business model because we have been paying for minutes, but there is going to be a lot of innovation in this market. Remember it was only May of 1998 that AT&T Wireless did Digital One Rate, and that just completely turned the world upside-down, not just the wireless world, but that was a major event in the history of a fixed-line narrowband telecommunications system in the U.S. You recall those, don't you? Voice systems. So then there was a massive migration that really was triggered just by that marketing innovation, followed by all the other carriers very quickly, of course, and then long-distance minutes just flowed like water over the waterfall over to the wireless sector, and the rest is history. Anyway, there is going to be a lot of innovation in this market, and as we go forward, people are going to certainly chant open, but there is going to be a lot of integration and content, I believe, and for very efficient reasons, and there is going to be a lot of innovation on the pricing model. MS. BURCHUK: Does anyone in the audience have any questions? If you would introduce yourself and pose your question. ATTENDEE: You were talking a lot about residential markets. Does anyone anticipate a time when WiMAX would be available for enterprise customers who have been hopeful that it would provide a competitive alternative to traditional special access services, and if you do anticipate that happening, would you put a timeline on it? MR. SALEMME: I think that we are talking really about 802.16e, and maybe Hank should be included in this, but if you think of some of the 802.16d and tower, fiber, and some of those other companies, I think they are taking more of a line-of-sight, broader pipe, kind of a next-generation LMDS service that really is the type of thing that the credit card companies, Visas and others, could be using for their services, and I think that is really more of the enterprise solution than these, though if you could get the kind of throughput you are talking about, you really have a lot you can do. The key is -- I haven't emphasized enough the word "spectrum." To really get a mobile triple-play, to get that kind of video capabilities, you need a lot more than the 20, 30 megahertz of spectrum that has been talked about. So, even the 700 auction, having a 22-megahertz channel is not really going to get you enough spectrum to do the kind of throughput that we are talking about to be competitive in this market. MR. KAFKA: Even with the 700 kind of throughput, you can get very substantial broadband services, but there's always kind of an engineering tradeoff. The less spectrum you have, the more towers you need to get the same kind of throughput. So there is that balance that goes on if you have more spectrum and, again, the right kinds of spectrum and those kinds of things. You can be more effective. I think the access market is fairly competitive. There are new access technologies being developed. Wireless is something that we are looking at using for wireless backhaul capabilities. So it is developing. It is moving out the same. The same technologies that are allowing the 802.16 and 3G technologies to evolve also start to get applied to the point-to-point wireless as well, and so I think that, yeah, you are going to continue to see improvements in that area. MR. SHEN: Also, you look at the enterprise spectrum, it has several segments, which I think Gerry just implied here, the T1 line, the T3 line, and even higher bandwidth access. So the spectrum is the bottleneck. You might be able to replace that T1 line with an 802.16d line, and then the question is how many market shares you really can achieve through the spectrum allocation and through the tower kind of infrastructure there. MS. BURCHUK: Any more questions from the audience? ATTENDEE: Hi. I noticed the gentleman from Sprint and I believe the gentleman from DigitalBridge both talked about the deregulation of special access charges as a prohibition or something or slowing them down deploying the networks and WiMAX technologies, and I was wondering if that was true for the gentleman from Clearwire and also what the economist thought that the deregulation of special access charges had worked or needed some reform. MR. HAZLETT: I haven't looked at the special access market. So I can't help you on that one. I'm sorry. MR. SALEMME: We have been using wireless backhaul on all of our markets at the current time, though we do share the concern about special access, but we really have focused in a lot of what we consider our business model, to be wireless all the way along, also for reliability. So it is not just cost, but the reliability of our wireless network is actually better. Our only failure was in Jacksonville when our T1's went down on the wired network after the hurricane. MS. BURCHUK: Another one? ATTENDEE: My name is Jim Johnston. Going back to the content question, it is one thing to provide content and make it available. It is another thing to be open and to allow anyone else to provide content on the same terms that you are providing content. When you say you are open networks, do you mean you are going to be open to everyone? Will you allow everybody else's video service to compete with yours? MR. SHEN: Yes. It is an open Internet. So we expect people will provide the same kind of video service, which is actually driving us to really think hard, what kind of video service we want to offer. I will give you some examples. Some video service, if you can see from the YouTube example, it doesn't probably make sense for us to offer, but video chat, you can do an ad hoc video chat by any kind of off-the-shelf software, but if you really want to have a great experience with end-to-end quality control, you basically need to really watch out what type of devices, what kind of client software you use, managing the network quality, and you put a lot of resources behind that, too. Hopefully, you can charge some premium out of that, too. So those kinds of instances are really adding the value. I think this will be one of the millions of applications that we will probably choose to offer here. MS. BURCHUK: A number of people earlier today talked about voice over IP, and some analysts predicted that users could grow from virtually zero today and to 250 million in 2012. Does your company have a plan to offer voice services, and how important is this to the overall success of your business? MR. SALEMME: We now sell voice over IP in a facility-based voice over IP network that is in every one of our markets where we currently provide -- almost every one of our markets where we currently provide services. It is not an over-the-top service that is a resold service like Vonage, and we have gotten a very strong take rate with our customers who take our broadband service. We don't try to market it to people who are outside of our actual -- you know, we sell it for our customers over our broadband network, and we intend to do that, continue that as we move to the next voice application. MR. WALLACE: Yes. We would have a very similar approach, and we anticipate anywhere from 15 to 20 percent of our data customers to end up being voice customers. An interesting aspect about this market is that there are hosted VOIP services, and our service carrier is very much like Clearwire. There are hosted VOIP providers where you can go and get a turnkey solution. You don't need to necessarily become a voice provider. You can by end-to-end using your own network and resell it. MR. KAFKA: From a technology standpoint, I think one thing that is interesting to note is that if you look at WiMAX and LTE, the way they are defined, they do not define a circuit voice mode. If you are doing voice over WiMAX or voice over LTE, it is voice over IP. MR. SHEN: We think this is a great idea for the home and the office next year. MR. HAZLETT: This is a great example of where a bundled service which is not offered on a, quote/unquote, "open platform," as defined in some questions, which may have been your question, is extremely efficient. Clearwire has no market power in the U.S. voice market. I am going to assert that, and Clearwire hopes it is profitable and will acquire market share to be considered possibly having market power, but it is an entrant into this market. To fashion a customized solution for its customers that is not generally available to other providers, including those independent third parties that might want to say "Hey, we want to use the Clearwire infrastructure and spectrum to do exactly what Clearwire is doing" would not advance consumers' interest. In fact, quite the reverse, it would kill incentives through overregulation, essentially, of the entrants. I think this is a very nice example of it, and I have actually assigned it as a test question. [Laughter.] MS. BURCHUK: Any questions in the back? ATTENDEE: This is a question for Hank, mostly. You just bought a bunch of 700-megahertz spectrum from Aloha, and I assume you are going to want to augment that in the auction. I don't know if any of the other folks that are active in 2-dot fiber are looking at 700 megahertz, but that is really the last big auction. There's 20 megahertz of unpaired spectrum in 2 gigahertz left. There is some available, MMDS, ITFS, left over as well that you guys talked about. What do you do after that? Where does all the spectrum come from when these last couple auctions are over? MR. KAFKA: I am going to decline to answer that question because we are getting pretty close to the quiet period around the 700 auction, and I have been cautioned to stay away from any specific spectrum questions on those lines at this point in time. After the auction, we can talk. MR. SALEMME: Peter, just two items. One, I think that you have to really look at one of the things Tom had on his chart which was the 3.65 is unlicensed. Those rules could be changed, so that more spectrum could be made available, and that could be converted actually to licensed spectrum, and I think you may find that you would maximize its value and also provide better services to consumers and get more competition because the more spectrum you have, the more services you can bring, the better speeds you can provide, and therefore, more competition. So I would suggest that that may be another place, and you still have AWS3, the MMD spectrum that may come out in the future. Think about it. There was a time when we actually used 3.6 in Europe, and five years ago, no one would have thought that you could be providing service on 3.6. The technology -- and Hank will tell you this -- has really made spectrum a lot more valuable. I remember when we were in the duopoly system in cellular, in the old McCaw cellular days. Nobody thought that 1.9 PCS stuff was going to work. That's for sure. MR. KAFKA: What has been interesting, if you go back and think in current times, some of the higher frequency spectrum actually works better with MIMO technology than the lower frequency spectrum does. So technology can have a significant impact on what you can get and where you can get it and how it can work. MR. HAZLETT: Let me also say, just to be provocative, the spectrum is terribly underutilized. Your assertion is that it is all used up and it is crowded, and that is what we have said for a long time. I just wrote a paper quoting the National Journal in 1990 saying the last slice of available spectrum was being given out for air phone service. This is 1990, before PCS, AWS, 700 or anything else. The television band, post-digital TV transition, is 294 megahertz of almost entirely wasted spectrum. So I know it is Washington, D.C. You are not supposed to talk like this. We are not supposed to notice. We are not supposed to notice it is wasted spectrum, but if you issued overlay rights to a lot of this stuff, including the television band, you know, 50-megahertz nationwide AWS, grandfather all the existing users in and let new players come in and make deals to rearrange that spectrum, you could have all the over-the-air broadcasting you wanted, which may be more, but you could do it on a small fraction of the 294 megahertz. Of course, it might be terribly efficient just to go all cable and satellite, and you could arrange that for a very small number of billions. In fact, it is pretty close to what we are using to subsidize the 1941 technology when we talk about digital TV boxes being subsidized by U.S. taxpayers. Anyway, there is a lot out there. Under the current political constraints, it is very tough. That is why people on this panel are screaming about access to spectrum. There are entrants in the market. They need more bandwidth. I think everybody really ought to take a look at that. I would love to see the Department of Justice take a look at that. MS. BURCHUK: Do you have a question, Carl? MR. WILLNER: Since I was exploring wireless substitution with my panel this morning, I would like to follow up with a few of you, with DigitalBridge, Clearwire, and Sprint. This was touched on I know in one of the presentations, but I would like to ask each of you what your sense is about the extent to which your services are growing the market and to what extent they are taking business away from the telcos and cable companies that they would otherwise have gotten. MR. WALLACE: Our sample is pretty small right now, but I would say half of our customers are growing the market, meaning turning dial-up customers into broadband customers, and half of them are taking broadband customers from cable or DSL. MR. SALEMME: A little over 40 percent of our customers come from existing DSL or cable modem customers. MR. SHEN: Well, in our projection, we try to be conservative because we are not in the marketplace yet. We think it is very reasonable to take 15 percent of market share in the marketplace, but we really think it will be expanding the broadband opportunities that are really the key things in the early years. Then I think we have more and more vital kind of competitiveness in the whole broadband area. If you look at the wireless voice kind of adoption there, you can see wireless adoption expands first and now how many households really don't have a landline anymore. So we do think that that trend line will probably also apply. MS. BURCHUK: We are getting close to the end here, and I would like to ask each of the panelists, starting with Bill, DigitalBridge, about your number-one barrier to entry, and describe any solutions that could be implemented by the government agencies that might make your life easier. MR. WALLACE: I will just reiterate one point I made in my presentation, and that is related to the wide-space auction, just keep it competitive, keep it open for anybody that participates, and no barriers provided there, as well as kind of reiterating what Tom said. Just keep the spectrum coming, and make it efficient and available. MS. BURCHUK: Okay. MR. SALEMME: I think that has been my mantra here that spectrum really is the lifeblood, and you have to have enough of it. The wide-space auction is one. Finding other spectrum alternatives in 3.5 are allowing spectrum to be most efficiently used. In recognizing that the idea of a spectrum cap is really a misnomer, as we heard earlier in the panel, there was a time when a spectrum cap was very helpful in bringing new entrants when you had a narrowband perspective and you were using it for a very limited voice application in a narrowband world. I think now if you really want to make wireless become an alternative across that convergent multidimensional technology, whatever we heard Tom mention earlier, then you really do have to allow people to have the spectrum to provide those services. MR. SHEN: Well, spectrum clearly is number one. To talk from an operational point of view, Clearwire is exploring a lot of backhaul alternatives. We are doing that, too. But one part of the reason to explore that is it is very difficult to go through the incumbent kind of access market, and so I think that is probably priority one from an operational point of view. MR. KAFKA: I think from my standpoint, I am not an antitrust expert, as I said, but if I kind of look at what is happening in the marketplace, we have got multiple traditional carriers trying to bring wireless broadband extensively. We have got the national kind of new players coming in. We have got regionalized new players coming in. It doesn't look to me like there are any major barriers to entry right now. It is a very competitive, very dynamic growing marketplace. I will kind of talk from a regulatory standpoint, what kinds of things could help. I think the spectrum issue is a good point. Spectrum rules from a technology standpoint do need to get put into place. What power levels are there, what is upstream and downstream can have an impact because if I have got 5 megahertz of spectrum here and somebody else has 5 megahertz of spectrum here, in order for us to coexist, we both have to follow some sets of rules from a technology standpoint. That is just kind of laws of physics. It isn't going to work if you don't. So that kind of regulation and rule is important, but to say it has got to use this technology or this technology or has to follow this business model or can't follow this business model, those kinds of rules I think, if anything, would stifle innovation and stifle competition rather than help it. MR. HAZLETT: Just to join the mantra, but to refine it just slightly, the spectrum question is to get spectrum out there with very broad swaths. A lot of these border issues, which we think are endemic to spectrum, are not endemic to spectrum. It is only endemic to spectrum if you are doing it wrong. We have much too narrow a slice that we put out in the market, and then we wonder why people fight over interference issues all the time. We have broad swaths. We need liberal rules. We need overlay rights, so that the relocation or reallocation, reharvesting, so-called spectrum, can take place by private actors making efficient deals in the market. We have done it before in PCS. We have done it with AWS, moving the incumbents out through the grandfathered overlay rights and so forth. So we have done it. If you want a more ambitious scheme, look to the OFCOM policies right now going on in the U.K. that they are liberalizing quite dramatically and are moving very far ahead of the U.S. The other thing I just want to mention, it is below the radar screen in most cases, but it is the fact that the U.S. has a very major problem given our federal system with local government extractions and hold-ups on siting issues. When you see that the County of San Francisco will greet Google that wants to come in and do municipal WiFi, greet them, boasting that they haven't issued a permit for a new cellular tower in seven years -- and this is in the plus column -- by the way, at the same time they are litigating with relatively small upstarts like MetroPCS that can't get into that market because they can't get sited on a new tower and has to litigate against the County of San Francisco and so forth and so on. All over the country, there are problems here. Entrants face these barriers at that level that could be quite excruciating, quite costly to fight this land war in Asia, so to speak, where you have to go city to city, county to county, state to state, and in some cases, litigate just to get a tower put in place. So that is something that I think federal regulators ought to take much more aggressive interest in. MS. BURCHUK: I would like to thank all the panelists for their interesting and informative discussions. I know I learned a lot today, and I hope the audience did as well. Thank you for your attention. Now we are going to take about a 15-minute break and reconvene for the last panel. [Break taken from 3:58 p.m. through 4:15 p.m.] Panel IV Other Alternative Broadband Technologies Including Satellite and Broadband over Power Line MS. GOODMAN: I think we are ready to start the final panel of the day. Before we get started, I will, first of all, introduce myself. I am Nancy Goodman. I am the chief of the Telecommunications and Media Section, and before I introduce my panel, I would like to, first of all, start off by thanking a few people. I would like to, first of all, thank Laury Bobbish and John Henly who helped set up this panel. I would also like to thank all of the attorneys in the Telcom and Media Section who worked on today's symposium and Bob Majure from EAG who helped organize. We all managed to put in a lot of work on this, and also not ignore our enforcement responsibilities while we were doing it. I would also like to thank Deb Garza and Tom Barnett and Randy Clerihue for helping out in all the organization and supporting us in actually putting on and suggesting that we put on this symposium. The final panel of the afternoon is sort of a continuation of the previous panel. We are looking at some other alternative technologies that consumers might be able to use to get broadband connections instead of either a cable company or a landline telephone company. The particular technologies that we are going to be discussing are broadband over power line and satellite broadband services. We have a panel that is going to talk about various aspects of those two technologies. Plus, as I will explain in a minute, there is going to be a little bit of a spillover from some of the other panels. Obviously, the two issues that we are going to be looking at are, one, to what extent these technologies will, in fact, put competitive pressure on what are the more traditional dominant technologies, and in addition, there will be some discussion, I believe, from the panel about whether or not these are technologies that can help to solve some of the problems that are often discussed as to underserved or unserved areas of the country. I know that is somewhat of an issue with all of the discussion about whether or not the United States lags behind other countries in terms of broadband penetration and that there are a lot of different projects and potential legislation going on related to encouraging greater penetration. As everybody else has done, I will basically tell you that the statistics that the FCC puts out suggesting that these technologies, although they have been around for a while, have so far not racked up very large numbers of subscribers, although I don't know whether the panel will be able to tell us that the FCC numbers undercount subscribers, especially since the numbers that I have are back from 2006. In June of 2006, the FCC reported something like 500,000 high-speed lines being served by satellite and only 5,000 being served by broadband over power line. So, with that introduction, I am going to introduce the panel, and then they are going to speak in the order I introduce them, and at the end, we will be taking questions. There has been a slight change. So, if any of you actually saw an order of speakers, we are going to do them in a slightly different order, but our first speaker is going to be Evan Grayer from DirecTV, and people are probably wondering why, since we are talking about broadband over power line and satellite broadband services, we are starting with DirecTV, and the answer is that although DirecTV is very well known as a video provider, they have also spent a lot of time trying to provide their customers with broadband services. In fact, they have looked at and entered into joint ventures with not only the other members of our panel, but also some people on our previous panel. So Evan is going to have a unique perspective in being able to contrast and compare the various technologies. Just for background, Evan is the Vice President of Broadband of DirecTV. He is responsible for the formulation and execution of their broadband and bundling strategies. He previously worked in Time Warner Cable and America Online and is also a lawyer who was in private practice before that. Following Evan, your program says we are going to hear from Tom Casey. Unfortunately, Mr. Casey had another obligation this afternoon, and so he has sent us Brandon Herron who is Vice President of Corporate Development and Strategy for Current Communication. They are a broadband over power line company, and they have a number of large deployments. So I think we are going to hear about those from Mr. Herron. Just as way of background, he is probably going to get up like everybody else and say he is not a lawyer, which is not true for the rest of the panel. He has had a lot of experience, especially involving acquisitions and mergers and development, corporate development. The next speaker will be David Brown who is the Senior Vice President and General Counsel and Secretary of WildBlue Satellite Communications Company, obviously specializing in providing broadband services especially to residential and small business customers. Mr. Brown also was previously a lawyer in private practice specializing in corporate finance, securities, mergers, and acquisitions. The last speaker that we have is Blair Levin, who probably a lot of you have either read his newsletters or are already familiar with him. He is the Managing Director and the principal telecom media and tech regulatory and strategy analyst for Stifel Nicolaus, previously with Legg Mason. Mr. Levin also in his long career served as the chief of staff for Chairman Reed Hundt at the Federal Communications Commission. Having said that, I will let Mr. Grayer start. MR. GRAYER: Thank you, Nancy. It is a pleasure to be here. I just want to warn everybody, I have a two-month-old son at home. So, if I fall asleep, it is not you. It is me. It is true that this is kind of almost like a family gathering here because I have spent a lot of time with everybody on this panel. We have deals in place, both with Current and WildBlue, and I read your newsletter, Blair. Today, what I would like to talk about is what the situation is today for DirecTV with respect to broadband and voice. Everyone knows where we are with respect to the video. We have over 16 million subscribers, 16 million households, and we are the second-largest multichannel video provider in the United States. Then I want to talk about specifically what we are doing with satellite broadband in our relationship with WildBlue, what we are doing with broadband over power line and our existing relationship with Current, and also, though this was part of the previous panel, I would like to talk about what we are doing with Clearwire and also with wireless broadband in general. So the situation today, if you read the press, you would think that our company is falling apart because we don't have our own triple-play, but in fact, we have been doing phenomenally well. In the last quarter alone, we added over a million subscribers gross ads. Wire subscribers are coming to us. They are coming to us mainly because of our superior video product, but also, there are very complementary broadband and voice packages out there, both for our existing relationships that we have with the phone companies, they have the ability to sell a true bundle that includes DirecTV and their DSL and voice packages, and we have the ability to sell their existing products as well. In addition, consumers go out there, and they buy things a la carte. So, a lot of what we have been focusing on inside the company is figuring out how to convey information about broadband options that people have and about voice options that people have because it turns out that even if we are not able to offer a package, which we often are, it turns out that customers can do a lot better going with DirecTV than they can going with the Comcast triple-play bundle for $99 when you get a far inferior data product and a far inferior video product. So a lot of what we have been focusing on is the retail side in figuring out how to convey information to customers about what are the options out there. But we know -- and we know there is a strategic issue out there -- that, number one, there are areas that are just not covered by DSL, and number two, the phone companies are building out IPTV networks and they intend to compete with us in major markets. So we know that we need to have answers for consumers in those areas. One of the first things we have done is we have established several wholesale agreements. The field is littered with failed wholesale arrangements. I used to be at AOL. If you look back at AOL's arrangements with the phone companies trying to wholesale DSL, it didn't work very well. Why? And people can disagree on this. I think it didn't work very well because the phone companies perceived AOL as competing with them, and so they didn't really want to push or make it easy for AOL to take away their retail customers, and two, it is just really hard for two companies to interact, especially when you are dealing with customer service problems of a technical nature. So we have spent a lot of time figuring out how to break the code on wholesale, and the first place we have started is with WildBlue. There is a lot of IT work that goes into this and a lot of communication that goes into this, and you need a wholesale partner who is really interested in having you sell wholesale. Both WildBlue and Current fall into that category. I don't think the RBOCs, especially in the past, fell into that category with the Internet players. Satellite broadband, what is the market space? This was one of Nancy's primary questions. I don't think satellite broadband competes in areas where there is cable and DSL or other terrestrial wireless alternatives. It is really for that part of the country that doesn't have other broadband options, and that is 10 to 15 percent of the country. So you are talking about a pretty large market. These areas are places where even the wireless broadband alternatives that were discussed earlier are not going to reach because the household penetration is that dispersed. Satellite broadband has been around for a while. DirecTV itself had a direct PC service that we shut down. So why are we getting into this again? The reason is that dial up just doesn't cut it anymore the way it did 5, 10 years ago. If you want to be in the mainstream, if you want to be able to download iTunes, if you want to get on YouTube, you need a broadband service, and WildBlue provides that kind of service, and dial up does not provide that kind of service. One thing to be aware of when you are talking about satellite broadband is the difference between speed and latency. A 1.5-meg satellite service is not the same -- and, David, I think you would agree with me -- as a 1.5-meg DSL service, but the download speed is as good. So, if you are interested in downloading iTune songs as one example, it is going to be a much better experience than you would have on dial up. It might not be as good a web surfing experience, but what I am saying is there is much more of an emphasis these days on these kind of download services, and people just want to be part of the mainstream. So what are the issues that face satellite broadband? The biggest thing is that it has been too popular. In certain parts of the country, WildBlue has suspended sales, and is feverishly working to increase capacity, and anything the government can do to help us do that would be welcome because the way this technology works, there are spot beams that focus on certain geographies, and particularly in the Midwest, east of the Mississippi River, we have suspended sales because of limited capacity. So we hope to address those issues in the near term. Broadband over power line. This is another technology that has been around for a long time, and it hasn't really taken off. Nancy, to your point earlier, there are not that many subscribers, and there have been deployments for a long time, one very close to here in Manassas, Virginia. So why is DirecTV getting into broadband over power line? We think it actually has tremendous potential. We are launching a service with Current in Dallas. We are going to launch it next month. I think it is the first time we have said that. It is going to be up to an 8-megabit service, and it is going to be at a very competitive price. I am not yet going to say what that price is because we will launch it when we launch it, which will be in a few weeks. This is now going to cover hundreds of thousands of homes. So this is very different from the tests that have been done in rural areas and in small towns, and what we want to do is we want to use this as a showcase and take this to the other utilities and the other PUCs and show them what can be done with broadband over power line. What have been the issues facing broadband over power line historically? Number one, the technology really hasn't been there, and now we are at a place where we are going to be providing an 8-meg service at an affordable price that is going to really compete well with the cable and telco options out there, but another issue is that it is pretty expensive to deploy. Unless you are looking at multiple revenue streams coming in, not just the broadband revenue streams, but other revenue streams, it is really hard to justify the build of the network. One of the things that Current was able to accomplish in Dallas is to get -- it was TXU -- now Encore to pay for some of that deployment. How are they paying for it? They are paying for it by buying Smart Grid and automated metering services. Now, I think of this as a real opportunity to both improve electric utility service by making it cheaper for consumers because of the automated metering and making it more reliable for consumers because of the Smart Grid application, so utilities can know when the power goes out and anticipate it before the power goes out and not wait for consumers to call them and tell them that their electricity is out. Also, this Smart Grid application helps with energy conservation. So, if regulators encourage the build-outs of these BPL networks, it is really kind of a regulatory triple-play because you increase broadband competition, you improve electric utility service, and you increase energy efficiency. So you hit three important things, and we want to in Dallas, show success, show consumer interest, show high penetration, and then take that out to the rest of the country. Wireless broadband. We have a deal that we have put in place with Clearwire, again, where it is a wholesale business, and we are working out the details right now of how we are going to execute on that, but what is the advantage of wireless? Wireless service can be a one-stop shop for consumers. You are not going to need to have a wireless subscription and a fixed broadband subscription. Our belief is to the extent the speed is almost there, almost as good as the wireline alternative, consumers will be willing to make that tradeoff. They will be willing to sacrifice some speed to get the convenience and the cost benefits of having one service provider. So that is the trick. That is the challenge, is it going to be fast enough, and is it going to be inexpensive enough to compete in the home and also provide the benefits of mobility. We talked about these earlier, for those who were here for the earlier panel. We talked about the tradeoffs between, say, the WiMAX technologies and the 3G technologies. I think the benefits of 3G are that they are compatible with legacy networks. So, to the extent you are in AT&T and you are choosing a 4G network, why remake the wheel? But the problem with some of those 4G, like the LTE -- generally, this was discussed in the panel -- it is generally an FDD solution. So, to the extent you have an asymmetric usage model, which most broadband is asymmetric, even if you set it up as symmetric, you are going to see more use on the download than on the upload. You are kind of wasting spectrum, to some extent, when you are using FDD. So the benefit of WiMAX is that is it more of a TDD solution, but the disadvantage is that it is not at the same scale. We just saw that AT&T and Verizon are both going with LTE. So the trick will be getting WiMAX to the scale to take advantage of its inherent benefits of being TDD. Then like I said, we have an agreement with Clearwire where we are really doing the same thing that we are doing with WildBlue and with Current, where we are going to learn how to really execute and maintain a mutually beneficial business arrangement in a wholesale context, and I think that is a really hard thing to do. We are going to take it on. That is it. Thank you. MR. BROWN: Hi. Good afternoon. I am David Brown. I am the Senior Vice President and General Counsel of WildBlue Communications. First, who is WildBlue? We are a privately held corporation based in Denver, Colorado, and as Evan has discussed, we provide satellite broadband to rural America principally. That is our target market. We started offering our service in June of 2005, just over two years ago, and we now have more than 275,000 subscribers. So it has been a great and rapid ride, but as we will talk about a little longer, a little further into my presentation, the popularity of our service has been both the benefit and the bain of our existence. How do we work? We provide our service from 2 Ka band satellites in geosynchronous orbit. One is Anik F2 which was launched in 2004. It is owned and operated by Telesat Canada, and we licensed the entire Ka band payload that provides service into the U.S. Telesat actually provides precisely the same service through one of its partners in Canada. The second is WildBlue 1 which was launched almost exactly a year ago in December of last year, and that is a WildBlue-owned satellite, WildBlue 1. We operate 11 gateway stations around the country and one in Canada. In addition to that, we have our network operations center in Denver and the call center also in Denver. How does the system work? It is beautiful for rural America because you have a modem that sits on your desk, and a dish very much like a DirecTV dish that would sit on your roof that transmits to our satellite, then down to one of our 11 gateways, then onto the Internet cloud, and we watch it all through our network operations center in Denver. Once your signal has gone out and gotten the web page you want, it reverses the process from the Internet cloud to one of our 11 gateways, back up to the satellite and down to your house. We offer our service in a good, better, best way, three different packages, $50, $70, and $80 a month for varying speeds and for varying fair access policy and those kind of things, a number of e-mail addresses and whatnot, but very typical, good, better, best system. What is our target market? There are about 35 million homes in rural America, but only about 13 million of those are online at all. So we start there. We start at about 13 million, and we think the size of this market for the satellite space is about 8 million, give or take. What are the key drivers to driving demand in our business? One is you have a lot of people now who have second homes that are in rural areas. People in rural areas need to commute. So they need to telecommute. The price of the product is coming way down. When we started the company almost 10 years ago, no one thought you could get the customer premise equipment for under $1,000, and at that price, it was just not a consumer business. We have driven the price well below that principally because our modem and our system is based very much on DOCSIS standard cable modem standard. So we are riding those price curves. While there are only hundreds of thousands of satellite modems out there, there are tens of millions of cable modems out there, and the technology in the two devices is based on the same chip. So where are our customers? Our customers are in that picture. We are service to rural America. So do we worry, frankly, about the Clearwires of the world? Do we worry about the Sprint Nextels of the world? We think they are great. We hope they push the broadband envelope more and more and more because we don't think they are coming to this area. Seventy percent of our customers live in an area where there are 30 homes or less per square kilometer. We don't think the economics for the Clearwires, et cetera, make sense in those areas, but it is interesting. If you look at this map of the U.S., every green dot you see is the center of a zip code that has a WildBlue customer. Now, if you had shown me this picture 10 years ago when we started the company, I would have told you not a chance. The density that you see over, let's just say, in the Montana area and the Rocky Mountain West doesn't look very good, and that is where I thought all of our customers would be, and you wouldn't see so many people east of the Mississippi where the population densities are much greater, but you forget if you go too far out of even the Washington, D.C., area, you are quickly going to get to an area where the population density is very, very low. So this is actually a relatively recent snapshot of exactly where our customers are, and it demonstrates the problem that Evan discussed before. In some of those beams where you can barely see any of the United States, under our little green dots, you see the large green circles are a fairly accurate representation of our satellite spot beams, we are full. So we are suffering from our own success. It is very much a double-edged sword. So that was the macro level. Now let's look at it on a state level. We have done a map for every state in the country that looks something like this. The white areas are where there is no cable, there is no DSL, and there is no fixed wireless. That is where we play, and each of the dots you see is either cable modem or DSL or both. So that is Iowa, a lot of white space, but look at Texas. Now, there aren't a whole bunch of people in west Texas out by El Paso, but there's an awful lot of white space. Our takeup rates, interestingly, in the truly rural west is about double our takeup rate east of the Mississippi and along the West Coast. So we are penetrating there. We are doing a great job selling there, but there are just so few people that even a higher percentage is still not quite enough people. So our challenge going forward is how do we reach those markets and penetrate even more. What has been the driver of our success is our distribution partners. We sell both in a retail way through about 1,500 dealers around the country, and we have wholesale distribution agreements with AT&T, DirecTV, Dish Network, and the National Rural Telecommunications Cooperative. We also have a small enterprise business through approximately 50 value-added resellers, a relatively small part of the business. We really are focused to the consumer, to the home. How do we look at the broadband market by technology? This is as of the end of last year. You see the two relatively blue bars are cable and DSL -- virtually, everybody. Satellite is a little, as Nancy mentioned -- satellite is very small relatively to these numbers, and fixed wireless also. We tried very hard to make our piece of this graph show up, but it is pretty small. There are a lot of different ways to get broadband or Internet access into your home. The most obvious is dial-up, but not very interesting anymore. Cable and DSL are a great service. We are not out to compete with those guys. If we do, we are just going to have to start competing on price. We are going to have to start competing on speed. Really, if you live in the city and you have access to cable or DSL, if you want our service, that is great. We are happy to sell it to you, but it is not really where we are going. The fixed wireless guys and the Clearwires of the world, we think they are just great. They have got their place. If you have noticed, they started talking about rural America, but as they have begun to deploy, where are they deploying? They are deploying in the cities and what we refer to as "exurb," just outside the cities, and we think that is great. Keys to success. We have access to Internet architecture that is very cheap. It is affordable bandwidth on very efficient satellites. We build our network to keep the cost of our CPEs low. It is a small outdoor unit. Some of the old first-generation satellite broadband technologies had a very large dish, and there was some resistance to that. Ours is quite a bit smaller. We have great distribution relationships and excellent technology. What are we looking for in the future? We are working on designs for future satellites that are much more efficient. We are working on designs for the network that reduce the effects of latency that Evan correctly pointed out. There is a big difference between web-serving speed that deals with latency and file transfer speeds. Actually, we think our file transfer speeds are actually quite a bit better than DSL because we get a little more on the upstream. So we compare favorably on that. We are going to keep pushing down the cost to increase the size of the market, and the challenges, consumers are looking for more and more. A couple of years ago, nobody heard of YouTube. It didn't exist. I think our third-highest-hit website on our network is now YouTube. It didn't exist when we designed the network. Things are changing. Demands of the customers are definitely changing. Thanks very much. MR. HERRON: I am Brendan Herron from Current. Thank you for having me today. I wanted to start and talk a little bit about how broadband over power line works, and then I will talk about our service offerings and the competitive advantages of broadband over power line. Evan gave a very good commercial. So he hit on some of the highlights. Broadband over power line is a hybrid network. We use fiber or wireless out into the electric distribution grid, and then we ride on the medium-voltage and the low-voltage lines into the house. What that does is it allows us to take advantage of the existing utility infrastructure and the third wire into the home. The other advantage of the technology is that it allows us to monitor what is happening on the electric grid, what Evan referred to as the Smart Grid, and I will talk a little bit about the benefits of that as we go through. Our service that we offer, we offer both a retail and a wholesale service. Evan mentioned with DirecTV, also with Earthlink. If you look at the lower right-hand side of the slide, you see the little black modem. It looks very much like what you plug into the wall for a cell phone charger, and that is our CPE. You can plug your Ethernet cable into that modem. That also can be purchased in a wireless version or UBS version, and that is your Internet access. If you want to have Internet access in another room in the house, you can pick that modem up and move it to the other room. You can add a second modem. So we can eliminate the need for things like routers and allow easy sharing within the home and make access very easy. It is a very simple-to-use service. We also partner with Google on our home page. The advantages of our service are first, we can offer up to 10 megs. It is a near-symmetrical service. So our upload speeds are very similar to our download speeds, as compared to most cable and DSL services where they may give you an up-to-3 or an up-to-5 download speed, but they are capping the upload speed to 256 or 512. This becomes more important when we start to look at things like photo sharing or YouTube or BitTorrent or Slingbox, all the other kind of applications where people are sharing high video information. As I mentioned, it is a multipurpose network. So we have a revenue stream, and Evan touched on this, a revenue stream from the Smart Grid services and also a revenue stream from the communications services, and that helps to fund our network. There are additional services. Because we are located with Internet connectivity, at every pole, the electrical grid, we can provide other services in densely populated areas, things like homeland security, various centers, weather monitoring, wireless backhaul, other types of technologies such as metropolitan WiFi. Marketshare has been touched on. The marketshare is very small right now, but we think it is going to grow, and there's a couple reasons we think it is going to grow. It is primarily related around the benefits of a Smart Grid. To touch on Smart Grid, Smart Grid is the ability to manage the electrical grid. The Electric Power Research Institute estimates that Smart Grid distributed throughout the United States could save 5 to 10 percent of electric usage and cut carbon dioxide emissions caused by electricity by up to 25 percent. That is significant when you consider that electricity is the single highest emitter of carbon dioxide of the United States. It is the coal-fired powerplants that cause the emissions and account for approximately 40 percent of overall CO2 emissions. So we are talking about the ability to reduce emissions in the United States by up to 10 percent overall, and that is before we start to consider things like the ability to use plug-in hybrid vehicles which will allow us to move from using oil-required cars to electric cars and have the benefits of that. This slide shows you just some of the statistics of what the benefit would be from cutting electricity usage and demand, and the Smart Grid enables that by allowing the utility to know what happens on the grid below the substation. Today, they have no intelligence of what is happening below the substation, very similar to the telecommunications infrastructure 25 years ago, and our Internet overlay allows us to provide that background that they don't have today and that information. This is another slide that just touches on the benefits of Smart Grid, and as I talked about, why there is going to be a higher adoption level. The higher adoption level is because right now utilities are faced with an uncertainty about how and where they can build powerplants, with the issues surrounding greenhouse gases, and aging work force, and renewable portfolio standards that are driving utilities to change from a centrally- fed grid to a distributed grid which needs more intelligence than they have today. So the electric grid of the last 100 years won't work 15 or 20 years from now when we have distributed generation, distributed resources, solar. In Portugal, for example, they are talking about 40 percent of the households having solar panels on the roof. So that is a big change when the utility has gone from feeding those 40 percent of those households to having those households actually feeding back into the grid. It requires a totally different grid, totally different intelligence, and that is one of the benefits of broadband over power line in our infrastructure. Evan mentioned Texas. We are rolling out for Oncor, electric delivery, the former TXU electric delivery, a broadband and Smart Grid network. It is going to eventually cover 1.8 million homes. Today, it covers approximately 125,000. We have been building for about six months now, and we are continuing to roll out. It is focused around the Dallas-Fort Worth metropolitan area. We will be offering competitive broadband services, both in a retail and up through DirecTV. We also will be providing Smart Grid services for Oncor electric delivery, and that network is up and running today. We also have a second broadband over power line network here in the United States with Duke in Cincinnati. That is our first-generation technology. It has been up and running for several years now, and the interesting thing about that is it proved that we could be competitive on the broadband basis because we ended up with approximately 20 percent of the households buying our service -- a service that had speeds lower than the competitors, but people liked the ease of use, and they liked to be able to move around, and they liked the synchronous speeds. They were willing to buy the service, even though it didn't offer the triple-play or voice service or the other things that we hear so much about today. On a regulatory front and what is keeping broadband over power line from being adopted in the United States, to successfully roll out broadband over power line, we first have to get onto the electrical grid, first and foremost. Unfortunately, because electric utilities today are still traditionally rate-based utilities, they have no incentive for efficiency or, in most cases, even for reliability. They may have some penalties, but they are actually compensated on how much volume they sell, how much power goes through their grid. So, when they are efficient or invest in efficiency, they are actually taking away from the rate recovery. So we need to change that in the United States. We need to encourage people and encourage the utilities to invest in efficiency. The EPA, the other day, recently came out and called for the, quote/unquote, "de-coupling" so that we de-couple volumes of electric usage from the rate recovery, and if the utilities are incentivized to invest in efficiency versus incentivized to build new plants, then we will see more adoption of broadband over power line. The other area that we find regulation impacts our business is in things like pole attachments. We are building a fixed-line network, which means we have to go up on poles. We pull fiber on the poles before we connect into the BPL network. So that means we have to deal with obtaining pole attachments. Unfortunately, we are the last pole attacher in, and the way the practice works today, although not necessarily the law, is the last attacher in ends up having to fix everyone else's violations. That needs to be changed. It needs to be fair, that there is an opportunity for a last attacher to come in and know they will have a clear space, that everyone else has played by the rules, and thus, we can attach. As we have rolled out in our markets, in both cases, we have been faced by lawsuits, slowing down pole attachments by incumbent telephone carriers. So it is an area that we see that there is a role for regulatory intervention. There are people attempting to delay us rolling out. That is all I have. MR. LEVIN: Nancy, thank you very much for inviting me. It is a pleasure to be here. It has been a really interesting day. I have to say that I don't know if you recall the first speaker of the day, but he painted a picture of Verizon as this kind of pitiful new entrant into the video business that was struggling under the burden of all this regulation and very, very tough. Whereas, Sprint and Clearwire in the last panel and this panel talking about how it is just so great to be a new entrant, you have got all of these opportunities, and things are going fantastically well. Since I live in a world in which Verizon is probably the best-performing large cap telephone stock and Sprint and Clearwire are just crushing my clients who own them, you will forgive me for thinking that maybe everything I am about to tell you is completely wrong, and that instead of listening to me, you should listen to the panelists. But I was asked to provide a Wall Street perspective on the prospects for alternative broadband, and I have to say that I am basically pessimistic, or if you want to look at it through the filter of my clients who own a lot of AT&T, Verizon, and Comcast, optimistic about the prospects of alternative broadband technologies. I am not really talking about the niche services that WildBlue is talking about, which is important, particularly for the kind of universal service or digital divide issues that Nancy mentioned. There are a lot of different reasons why I am pessimistic or optimistic, but I am going to just highlight a few of them and then make a concluding comment and open it up to questions. First of all, technologies themselves are promising, but that is not the same as a promising business prospect. So I am not making any judgment about technology. There are lots of questions about the ability of some of the technologies people talk about to scale, but the key point is the history of technologies over the last 10 years. I am actually old enough to remember a technology called LMDS, but more recently, something like Vonage which was a very high technology, IPO - 17 bucks. I think the stock is about 2 today. Muni WiFi was a big hyped technology. People have talked about that. None of those things I think are going to have a big competitive impact on the marketplace because in order to do that, you have to have not just a good technology, but right timing, right business model. A number of factors have to come together. Secondly, new technologies will be entering a maturing broadband product market. When I was at the FCC, we held the first auctions, and at that time, there were I think maybe 10-, 15-, 20 million mobile phone subscribers. We are now at about 230 million, meaning that 90 percent of the market was essentially greenfield, that is the customers were not spoken for at the time of the first auction. When we hold the 700-megahertz auction in January, by the time the folks get the spectrum and can actually build it out, about 90 percent of the addressable broadband market will already be taken; that is to say, the customers are already signed up with someone. As anyone in marketing knows, it is much more difficult to take a customer away who is already signed up with someone who is offering that service, and it is great that Gerry mentioned that Clearwire is taking 30 to 40 percent from -- I think that is the number he used -- cable and DSL, but I think if you look at the statistics at least so far, the cable/telco broadband dominance has been very consistent over the last five years, and it is going to get tougher to take their customers away, not easier. And that is because of the third thing I would mention which is that new technologies are competing against competitors with significant advantages of brands, bundles, economies of scale. Look, they have spent billions of dollars advertising the brands, and I think it has a very significant advantage. It is not an accident that AT&T and Verizon are very much focused on saying things like "it is the network" because that encourages people to think that there is -- and there may well be -- a superior advantage to going with a name company. It makes it hard to leave it if something called Current, which you have never heard of, is offering this service. You are going to say to yourself, "Gee, do I really want to leave it?" So there are an awful lot of advantages. I could mention a lot, kind of looking at business models. I will mention one that I find fun, and there is nothing illegal about this, I don't think. It is just good business practice. You sell a product, as they do with wireless or they do with broadband, over a certain period of time. So you are saying, "We will give you this deal, broadband, for 40 bucks, but you are signing up for a year." That means there is only a small window when a customer is willing to churn or to move. Who knows where that window is? The incumbent, not the new entrant. So the new entrant has to waste lots of marketing dollars trying to get that customer to churn when, for many months, of course, they can't, or they will have disincentives to do so. Whereas, the incumbent, the month before the subscription is going to run out or the time period, can just come in and say, "For you, only this week, we have this special deal," but there are lots of different economies of scope and scale that this department knows extremely well that the incumbents will enjoy. The fourth is that the new technologies for the most part don't have any functional advantages in delivering broadband transmission service. In saying that, there is one obvious functional advantage that folks have talked about, which is mobility. I am going to put that aside for a second, but just say that in terms of everything else, it really is kind of a commodity product. It is all about throughput. Yes, there are distinctions, speed, latency, and all of that, but at the end of the day, what drives the adoption is not that. It is the ability to go to Google or to watch YouTube or anything else. So there is no functional advantage. There might be a price advantage, though I sincerely doubt that, particularly when you are selling against a bundle, but I want to talk about mobility for a second. If we go back and we think about mobile voice, it wasn't actually a competitor. Certainly, when I got my first mobile phone when I was a lawyer down in North Carolina -- and I was driving all over the state, my law firm got it for me, spending about 1,200 bucks a month, a huge thing in my car, but since I was billing by the hour, it was actually worth it. Certainly, no one would say that was competitive with the fixed line voice service. Even as late as in 2005, if I recall correctly, when the DOJ was looking at the AT&T SBC deal, they didn't regard wireless voice as competitive. That is probably changing, and with Femtocells, the new technology that will increase the quality of the voice, I do think that certainly over time, mobile voice and fixed line voice will be kind of in the same competitive markets. I have three kids, and looking at them, they will probably never have a fixed line voice service, but I am not sure that is right about broadband, and I want to take issue with what the person from AT&T was saying. He is saying there is wireless mobile broadband that is competitive today. Certainly, from a Wall Street perspective, that is not the case. No one would regard that, and I would be surprised if the DOJ would come to that conclusion, but I am not making really an antitrust argument here. What I am saying is there is a reason Verizon is building FiOS. There is a reason cable is going to have higher and higher speeds, and the reason is there is going to be higher and higher demand for certain kinds of services. What the incumbents are hoping and should be hoping for is that we are going to drive applications, particularly high-definition video, that at the end of the day, mobile will never really be able to do well. If that is the case, mobile will end up being a complementary product. But if we don't get those applications, then absolutely mobile will compete with fixed, and it is going to have a lot of advantages and everything that Craig McCaw and others have always said will be certainly true, and then those huge investments that some of the economists talked about that Verizon and Comcast are making are going to be as worthless as some subprime mortgage entity. At least as far as I can see today, the mobile broadband market and the fixed broadband market are probably going to be separate complementary markets, rather than the same. Finally, something that everyone has talked about, inputs, there are a number of different inputs that I just think the new technologies are going to struggle with. Spectrum has been talked about a lot. I am going to just quickly note that with the 700-megahertz auction, I think it is the last best opportunity for a new entrant. I have written that I don't think one is going to get there. Auctions are great. We ran the first auctions. I am a big believer in them, but there are problems with auctions producing new entrants, including the fact that the incumbents have an incentive to bid in a way that new entrants don't. They are both offensive and defensive. There is a value to them that the new entrant doesn't have, and secondly, with the elimination of spectrum caps, there is no limit to what the incumbents can do. The other one that hasn't been mentioned today that I do want to mention, because I have seen it, is intellectual property, and that doesn't necessarily affect the access providers, though it might, but because of the Vonage lawsuits, in the minds of capital markets, they are now asking for any big investment that is kind of in this space, if we sink a lot of money into this, what is the lawsuit that somebody could bring that there is no way of knowing about. The uncertainty about lawsuits -- and I got a lot of calls from the capital markets guys when all those Vonage lawsuits were taking place, and I am not criticizing Verizon, AT&T, Sprint, and others for bringing them. I am just saying as a practical matter, it is a drag on competition to have that kind of uncertainty about who owns the intellectual property for these things. So that is why I am skeptical, that other than in discrete geographic markets, there is going to be extensive competition. Let me just close by saying that I do want to kind of open this up to a slightly different question which is why do we care. Of course, we care about competition because this is the Department of Justice Antitrust Division, but when Tom Barnett gave a speech the other day talking about maximizing welfare through technological innovation, he was talking about leap frog dynamic efficiency which according to his speech -- and I think it is right -- about 87.5 percent of GNP growth in the U.S. was due to technology changes that really create all kinds of new efficiency by developing new ways of doing business. What the last 25 years have taught us is that that kind of innovation doesn't happen easily to incumbents. There is a great book on this, "The Innovator's Dilemma," but particularly when we look at this space, it is just very interesting to note that all the great innovations, e-mail, VOIP, instant messaging, P-to-P voice, search, video on the net, social networking, numerous others, they weren't really invented by or brought to the market by the incumbent network providers. So, to a certain extent, I think one of the things we want to consider is how we make sure those changes keep coming, and that takes us into a slightly different topic about the relationship between innovation and networks and the relationship between the application side, the device side, and networks. That is a topic that I think is going to be very heated. It already has been heated over the last couple of years. It will continue to be heated. Obviously, new networks. If Sprint is successful, if I am wrong, and Google buys 700-megahertz at the auction and they build out a new network, those new networks will help facilitate that kind of innovation, but I also think that the relationship between the applications, the devices, and the networks is going to be an area where there is going to have to be an awful lot of thought and interest in the years to come. Thank you very much. MS. GOODMAN: I am going to start with a question that I had left over from the last panel and that you actually touched on, which is to what extent is there concern that what happened to Vonage in terms of their IP suits will actually affect WiMAX, for example, or any of the technologies that your companies represent. MR. LEVIN: I will just quickly say that, first of all, the fundamental problem of Vonage, a company that I have a great deal of respect for, is not the IP suits. The reason the stock went from 70 to 2 was not because of that litigation. I think it is a fundamental business model that they were coming in with competing against cable, the incumbents, as well as hundreds of others. They just didn't have anything that was defensible. Having said that, however, there is an awful lot of interest in the intellectual property stuff, and indeed, Qualcomm, a major company, bought a company called Flarion, spent I think $600 million, really just for the sake of getting the intellectual property, and I think there are a lot of people waiting to see what is going to happen and anticipating various suits, much like you see the Qualcomm/BroadCom/Nokia suits, you are going to see Qualcomm/Intel suits. Particularly from a capital markets perspective, that kind of stuff is really hard to quantify and is not the kind of stuff that a bunch of Wharton Business School grads who are very good at spreadsheets and very bad at technology want to even think about. So I think it very much does affect the ability for new entrants to raise money. MS. GOODMAN: Anybody else want to comment? MR. BROWN: We have spent a lot of time and money making sure that we are clean in this area, but you don't know what you don't know, and certainly, one day somebody could pop up out of the woodwork and tell us that something we have deployed in our network is violating one of their patents, but it has not been a significant issue in raising money. It always comes up. The bankers always do their diligence, and we feel pretty good about it, but it is there, but it is not a big problem for us yet. MR. HERRON: We have invested quite a bit also in building our technology and our IP portfolio. We obviously have a different delivery mechanism. So we don't necessarily cross over into some of the existing delivery mechanisms, and it is an area that always comes up when you raise money, but it, again, has not been an issue for us. MS. GOODMAN: I would like to just talk about bundling. It is a topic that has sort of been covered by a lot of the other panels, and I have to say that there's always a lot of discussion about how important it is to be able to offer a triple-play, but yet, Evan came and told us that it is not something that seems to be affecting DirecTV all that much. The various statistics that people gave today ranged all over the place in terms of whether it is 30 percent of people who buy triple- play or 80 percent or another number, and so I would like you all to comment on sort of what your experience is in terms of how important being able to offer a triple-play is, and also, I am sort of interested in some of Evan's comments, because your companies are to a large extent offering triple-play through joint ventures. You are not able as a single company to offer the customer the option of having only one person to deal with. So exactly how do you make it the same for your customers as it is when they deal with somebody who can offer all three services? MR. GRAYER: First of all, our customers do come to us because of our video. They are not coming to us for a triple-play and we have "TV" in the name. Right? So far, we have been able, though, to offer a bundle together with the telcos to satisfy those people who are looking for a bundle. So how much of our success to date is due exclusively to our video product and how much is due to the fact that we do have the ability to quasi-bundle or really bundle today, it is hard to answer, but I can tell you that we are doing great right now. We are looking at the future as well when maybe some of these telco relations won't be the same as they are today. Your question about is it a real impediment to have two service providers as opposed to one, we are pursuing both models right now. So we have this retail model where we sell the service of the phone company, and then we are pursuing the wholesale model as well. So we are going to find out if it makes a big difference, but I will tell you that people do appreciate kind of getting the best of both worlds. They get the best phone service, the DSL service they rely upon, and they get the best TV service. I think what people are looking for is convenience in a bundle, and it is convenience in ordering more than anything. It is not necessarily having one bill. A lot of people pay their bill by credit card today. They are not really dealing with the paper bill, but the idea of calling one person and getting it all done -- look, a lot of people are buying these services when they are moving, and they just want to call up and get it over with. They can do that today by calling DirecTV or calling one of our partners, and if it ends up being on one bill versus two bills, I don't know that that is the big deal that some people think it is. MR. BROWN: I think that WildBlue has benefitted from this phenomenon. Clearly, we partner with DirecTV. We partner with Dish Network. We partner with AT&T. If you call AT&T for DSL and they can't provide it, they qualify you by zip code, if they can't provide it, they offer you our service. So the desire for each of the bigger providers to fill in the gaps in areas where they don't provide the service or it is DirecTV, it has been great for us. In terms of our offering some of these other services, people always ask us does your service support VOIP. It is a big question for us. Right now, the answer to that is no. It is something that we look at, we continue to look at, and hopefully, down the road, that will be something we can offer, too. MR. HERRON: I think that we see a number of circumstances. Obviously, we are partnering with Evan to offer our triple play on the video side, but there is a whole host of customers, especially the younger customers, who aren't interested in triple-play. They don't want a home phone. There were conversations earlier today, I believe, about people using the mobile phone as their only phone. A lot of those people also only watch YouTube, only watch iTunes, things like that. So there is a set of customers who aren't necessarily even interested in a triple-play and are looking for a reliable broadband service. The other thing we found is that in Cincinnati, 50 percent of our customers came from bell or the cable company, and people are looking for an alternative. They want to move because they are not happy with the service, they are not happy with the ease of use. They are frustrated with their wireless router. Something like 30 percent of wireless routers go back when they are purchased because people can't figure out how to install them. So they are looking for alternatives. So the triple-play is important to a certain customer base, and certainly, we are working with Evan on that, but there are other customer bases that the triple play is not that important to them. MR. LEVIN: Evan is absolutely right that DirecTV is doing great, but the reason they are doing great, when he says superior video TV, what he really means is high definition. DirecTV actually made a very interesting strategic decision maybe a couple of years ago at a time when, by the way, Rubert Murdoch was saying that they were going to make a big investment in broadband to instead invest actually a lot in high definition. So they are absolutely the leader today, and I think that is a real key to their success, and I think long term a very, very smart strategy and one not dependent on the bundle. But I will say that I don't think we have actually seen the work done on the impact of bundling yet. There are some advantages to the bundle, but at some point in time, somebody will figure out how to create a functional advantage of the bundle. I am going to give you one that is kind of -- when your phone rings, wouldn't it be cool if you were watching -- or for me, the UNC basketball game, that you had the caller ID actually on the TV screen, so you would know whether to actually get up off the couch and answer the phone or just let it ring. Well, that is the kind of technology. Actually, you don't need that in a bundle, but it is just an awful lot more convenient. When the bundle starts to produce things where there is actually some kind of integration of the various services, the bundle becomes a much more powerful product I think than simply 5 bucks off this month. MR. GRAYER: Just give me one little chance. MS. GOODMAN: Sure. MR. GRAYER: Two things. First of all, we have that on DirecTV today, number one, and number two -- MR. LEVIN: Until AT&T cuts you off. [Laughter.] MR. GRAYER: No. It is just the Caller ID coming into the box. But I agree with your point. There is a difference between a bundle that is just all about price, which is what it is today, and if there becomes an integration of services. That could be a different thing. Also, I just wanted to say our superior video product is not solely about HD. MR. LEVIN: That is what you guys are - MR. GRAYER: We have a lot of content that others don't have. MR. LEVIN: Do you mean like exclusive content? MR. GRAYER: Content. [Laughter.] MS. GOODMAN: I just wanted to give anybody in the audience an opportunity to ask a question because we are running out of time. Anybody have anything they wanted to ask? [No response.] MS. GOODMAN: I am going to just ask one more thing before we end, and that has to do with this underserved and unserved areas of the country. There are an awful lot of people talking about it, and some states I know have set up programs to identify these areas, and I was interested as to whether anybody had some positives or negatives about how people are going about that -- to identify areas that are underserved or unserved and to also encourage broadband deployment into those areas. MR. BROWN: Subject to our capacity constraints, if someone could teach me how to build a satellite in less than two or three years and for less than 200 million bucks, we would solve that problem overnight. Subject to that, we offer our service anywhere, and satellite has -- there are some challenges that we face, no question about it. Satellite is 22,000 miles away. You can't overcome physics, but at the same time, we have some tremendous competitive advantages in those areas, the truly underserved or unserved by other broadband alternatives. I think it is going to be a long time before anybody is competitive with satellite. MR. HERRON: We are dealing with broadband over power line mostly in the urban areas, urban/suburban-type areas, but if we provide automatic meter reading and other Smart Grid-type services to the electric utility, we are covering all the footprint within the area that we are covering. So we are touching communities, inner-city neighborhoods that maybe DSL or cable has not been rolled out to and are able to provide services into some of those markets also. MS. GOODMAN: All right. Well, thank you very much. It was very interesting, and I appreciate you all taking the time to come down and talk with us. Thank you. [Applause.] MS. GARZA: All right. I won't keep you very long, but on behalf of the Antitrust Division, I do want to sincerely thank all of our panelists today and other contributors for their participation, as well as the audience for their interest. Forums such as this can be a great way to help us to inform our enforcement activities as we are called upon to review transactions or to review the competitive effects of certain conduct. It also helps to inform our competitive advocacy efforts which we view as being a key part of our agency's mission. One of the panelists this morning said -- and I am paraphrasing him -- that it would be naive to regulate or deregulate without analysis of the effects on consumer welfare, and we don't want to be naive. We want to do what is right or as close to right as we can get, and by right, what I mean is we want to honor our objective of preserving and promoting consumer welfare which means lower prices, lots of choice, but also in a more dynamic sense, it means preserving incentives to innovate. As someone mentioned -- or many people have mentioned earlier, this area -- and I won't even call it an industry, but this voice/video/data area is chockfull of innovation, and what we want to make sure is that we are not going to pick the winners and choosers. We are not going to pick the winners and losers, but we certainly want to make sure that the market is free to do so, and that is something that helps to guide our policy. I think that what we have heard today and what have been submitted in the comments will help us to achieve that goal. It will be an important part to our understanding of the issues and the evolving facts in these industries. As Tom Barnett said this morning, we have actually decided to extend the period for comment until December 31. So we encourage anyone perhaps in reaction to things that were raised today to submit any further comments you think we should consider. The wonderful telecom staff that did such a great job of putting symposium together will synthesize those comments and issue some kind of paper report next year, but that won't be the end of our search for knowledge. In part, that will be a beginning and a continuation of a dialogue. So I hope that you took some satisfaction out of this forum in that you will continue to help us in the future with similar kinds of inputs. Thank you very much. [Applause.] [The symposium concluded at 5:23 p.m.] - - - |