In Re: ) ) FCC BANDWIDTH FORUM ) Volume: 1 Pages: 1 through 208 Place: Washington, D.C. Date: January 23, 1997 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In Re: ) ) FCC BANDWIDTH FORUM ) Room 856 FCC Building 1919 M Street, N.W. Washington, D.C. Thursday, January 23, 1997 The parties met, pursuant to Notice, at approximately 9:00 a.m. BEFORE: REED HUNDT Chairman, FCC APPEARANCES: On behalf of the FCC: MR. REED HUNDT, Chairman, FCC COMMISSIONER NESS MR. ELLIOT MAXWELL, FCC MR. STAGG NEWMAN, Bellcore MR. ROBERT PEPPER, FCC MR. KEVIN WERBACH, FCC APPEARANCES (Continued): Additional Appearances: PANEL I: MR. JOHN CURRAN, BBN MR. DOUGLAS MORGAN, Winstar MR. DAVID REED, Cable Labs MR. LES VADASZ, Intel MR. PAT WHITE, Bell Atlantic PANEL II: MR. LEE BAUMAN, Pacific Telesis MR. KEITH FOX, Cisco MR. MATTHEW KORN, America Online MR. JAMES LOVE, Consumer Project on Technology MR. MIKE TREST, ATM Net PANEL III: MS. GLEE HARRAH CADY, NetCom MR. PETER HARTER, Netscape MR. DANIEL WEITZNER, Center for Democracy and Technology APPEARANCES (Continued): Additional Speakers: MR. DAN BERNENGER, Vocal Tech MR. ALAN CIAMPORCERO MR. ROY DAHNKE, SETA Corporation MR. KEN DEUTSCH, Issue Dynamics MR. RUSSELL DOYAN, Saylor MR. IHOR GOWDA, Newbridge Networks MR. GORDON JACOBSON, IRAP Network MR. DAVID LaPIER, Cisco MR. JOHN MAZER, General Datacom MR. BROCK MEEKS, MSNBC MR. STEVE NEVAS, Cyberbridge Associates MR. CHARLES ROSS, President, Canthos Corporation, BNET MR. BOB SCHMIDT, National Digital Network MR. ANDREW SHAPIRO, Twentieth Century Fund STEVE STEWART, IBM MR. JEFF WALDHUTER, Executive Director, Nynex Science and Technology MS. GWENDOLYN WOODARD, President, Worldwide Education Consultants I N D E X VOIR WITNESSES: DIRECT CROSS REDIRECT RECROSS DIRE None. E X H I B I T S IDENTIFIED RECEIVED REJECTED None. Hearing Began: 9:00 a.m. Hearing Ended: 3:40 p.m. Recess Began: 1:15 p.m. Recess Ended: 2:19 p.m. P R O C E E D I N G S MR. PEPPER: Good morning and welcome to the -- okay. Now I can say good morning. We are, by the way, putting this broad band forum online with both video as well as audio on the Net. There will be demonstrations of this beginning at noon down in room 845 that you can see. I'd just like to welcome everybody to the FCC's broad band forum and very quickly turn it over to our Chairman, Reed Hundt. COMMISSIONER HUNDT: Thank you all very, very much. I'm very pleased to see you and I'm especially impressed by the very distinguished panelists that we're going to have over the course of the day. You never know when you say that something is a first, you never know if that isn't a tremendous criticism of the fact that you didn't do whatever it was a lot earlier. Or if instead it's just a self-complement about the fact that you've had some kind of epiphany and you finally recognized that that thing that is a first is very important. I don't know whether this is an epiphanic moment or an appropriate moment for self-doubt and criticism for the FCC. Maybe it's a little bit of both. We have never had a forum like this. It's David Reed's fault really. He told us to have it a couple of years ago, but he wasn't persuasive enough when I first got here. I'm just kidding, David. It's great to see you. We've never had a forum just like this, but we have for the last couple of years been increasingly concerned at the FCC about what we call the problem of access and band width. We're not 100 percent sure exactly how to state the problem. We're not exactly sure what are the dimensions of the issues here. We have some grasp that public policy is becoming increasingly important to the emerging industry of band width delivery if I can call it that. But part of the purpose of this forum is to define what are the interactions between conventional telcom public policy and the band width issues that increasingly are preoccupying so many of the industries of the world, but particularly now as never before are an important part of the function of our traditional telcom industry. So I think what you're helping us do today is define the questions. Now, because we're dealing with communications, actually you can already look the answers up in George Gilder's article, for example. In many ways, we're just trying to take George's answers and those of you who like me have enjoyed reading George's answers for many years, you will understand that the problem with George's answers is just making sure that you do have the question matched up correctly with those answers. George has pointed out, for example, that we should not have the options of the spectrum because the spectrum as a band width possibility is now infinite and that spread spectrum technology means that we have no band width issue with respect to spectrum. $24 billion has been paid by people who don't seem to agree with George and who desire to have exclusive licenses. Possibly today you all will tell us that those people are all wrong. If you do say that, try to be just a little low key about it would you please? Because we have a number of other options coming up and Congress in fact believes that the balanced budget depends on George being wrong, at least in the next couple of years. I've also read Economist's answers to the questions that I hope you all will frame today. The Economist announced that time and distance have no meaning in telecommunications. This came as a very welcome relief to those of us working on interstate access reform and we suggested last night to a number of people in the industry that meant time and distance have no meaning and intrastate and interstate therefore is a concept that is of no relevance. This is a little bit of a problem to the world as we know it. $23 billion in charges to the telcom industry based on the definition of state lines, something that's actually part of our constitution. The Economist being published in Never-Neverland was kind of indifferent to the taxation system that in fact is built on the notion that time and distance have if not meaning a presumption of meaning. What are we supposed to do in short about the real world in which it may be true that in many technological ways time and distance have less significance than they ever had before in terms of communication, but it is not at all the case that they have no meaning in terms of the reform of the systems that currently exist so as in fact to provide a climate in which we can create the maximum incentives for the proliferation of band width and for the proliferation of access. I also read I guess it was last July that Bill Gates and Andy Grove had a fascinating dialogue in which Andy -- and Les is here to explain this today I hope. Andy said, if I remember correctly, the following. And I'm remembering this by reading the quote. "As exciting as the Internet is though, there's one big problem. Telecommunications bad width. And Gates responded, band width bottlenecks. No question. That's the biggest obstacle to where we'd like to take the PC." We actually found this particular colloquy to be immensely interesting and we are curious to know whether it is a synonym for a colloquy that we are having here in public in a variety of proceedings. In our colloquy, we talk about the exclusive facility bottleneck problem in communications. We talk about whether or not the last mile of the local loop, the spread of wire from the consumer to some centralized aggregation point. We talk about whether or not that is a bottleneck. We talk about that in antitrust terms. We talk about it in competition terms. We also talk about whether the current local exchange market is a bottleneck. That is the key issue in access reform. When we're having that conversation, what we'd like to find out today is are we also having a conversation on the same topic that Andy and Bill were talking about. Do they mean the same thing that we mean? If we don't mean the same thing, let's find out the difference. But if we do mean the same thing, then it should be the case that this obstacle to where we'd like to take the PC in fact is the topic that we are spending hundreds, indeed thousands of hours on right here at the FCC. And so now we've discovered that maybe our traditional public policy pursuits are directly related to the future of our information economy in an even bigger way than we may previously have thought was the case. The FCC for many years has had a group called the Network Reliability Council. It's primarily been run by the incumbent telephone companies. Although it's been open to participation from all the other industries that have ever wanted to be involved and many have wanted to be involved. The Network Reliability Council concerns itself with, among other things, failure rates for our communications system. The Network Reliability Council is the principle way in which the telcom industry creates the protocols that allow it to use redundancy in the network so as to make communications continue to work in the event of, and this has all happened while Rochelle and Susan and I have been here, earthquakes in California, hurricanes in South Carolina, numerous other calamities. We don't like to spend a lot of time dwelling on this, but the fact is there are dozens and dozens and dozens of incidents of this kind every year of various levels of magnitude. And when we say that we have the greatest communication system in the world, what we mean in this country, among other things is that our system does not fail in the event of these crises. Now, one thing that we're very curious about is why does my 11 year old get a busy signal when he tries to get on America-On-Line? And is that part of what ought to be the mission of the Network Reliability Council? Or in fact, should it be the case where we say, no, it isn't important that the Internet be reliable in the same way as the circuit switch network? Is that really what you all want to tell us, that isn't important? Remember that the Network Reliability Council is not guided by regulations. It is an intra-industry group that we bless and participate with. But fundamentally, it is a means for cooperation that allows everyone to take advantage of the redundancy that is built into the circuit's network. So one of the things we'd like to find out is whether or not reliability, certainty, the ability to utilize redundancy is in fact an appropriate policy issue with respect to the packet switch network? Or would you say to us, no, that's not of any particular importance and if I happen to rely on packet switch technology to get my sports or news or make stockmarket trades? Well, that's not terribly important if that doesn't work for several hours or days. Hmm. Don't misunderstand us. We do not in any way intend in this forum to be empowering government to do that which it does not need to do. Please understand the opposite to be the case because the opposite is true. What we would like is to have help from all the relevant industries, users, consumer groups, participants in our information economy. We'd like their help in figuring out the traditional telecommunications policy problems to the degree that they have any bearing on what I read in all of these articles is the fundamental issue of building the information highway by providing more bandwidth, cheaper access and greater availability. So I'm terribly, terribly excited about this forum because I think that it will in fact lead to that kind of help and it will permit us to get to what we're ultimately looking forward to and that is a profoundly deregulatory era in the communications system. Right now in this country, there are 10,000 people employed in regulating the telecommunications industry. There's about 200 here and 9,800 in the states. There are approximately 25,000 pages of orders and decisions that regulate the communications industry. There's about four dozen pages here and all the rest are issued at the state level. None of us, not our friends at the state level and none of us here at the FCC, desire to have this level of micromanagement be a necessity or even be desirable as the communications era unfolds. But none of us should fool ourselves. All of that requires a lot of change to do away with or to alter or to modify. So when I say we need help in effecting this change, I know you'll have to believe me and it's your help that we're counting on getting today. Thank you all very much. [applause] MR. PEPPER: I believe Commissioner Ness has a few words. COMMISSIONER NESS: Thank you, very much. That was a terrific introduction to the problems that we are looking at globally as well as domestically. And I'm delighted to have the opportunity to join everyone here today to explore some of these issues. We've reached a new stage in the long standing debate between the telephone companies and the Internet community. For too long, the argument has been one of whether enhanced service providers should pay access charges. The telcos say that the ESP exemption should be ended. The ESPs say they aren't carriers and shouldn't be required to pay carrier charges that aren't assessed on other users of the telephone network. A recent MPRN on access charges and the forum today represent a new stage in that debate. The discussion shouldn't only be about money, however, but it should really be focused on technology. The needs and expectations of computer users are different from those of consumers using the telephone network only for voice calls. We need to understand better how networks might more efficiently carry voice and data traffic, how new or different equipment and technologies could enable telephone companies and other service providers to better serve computer communications. And what costs are associated with existing and new ways of transmitting computer traffic. Our inquiries should go beyond the traditional wired voice network and consider non-traditional providers such as licensed and unlicensed wireless operators and equipment. We must also explore how increased competition in the provision of transmission services can alleviate the concerns we've heard, both from the telephone companies as well as from the computer industry. The more that we can rely on market forces to determine both the technologies that will be employed and the means by which costs will be recovered, the better will be served Congress's goals of competition and deregulation as the Chairman so beautifully stated. I want to congratulate the staff who put together a stellar program and as a computer user myself with a dedicated ISTN business line at home, two children fighting for time on our family's information service provider and my husband being online with his office interfering with my trying to send faxes, I'll be personally interested in seeing how the solutions are formulated today. Moreover, I look forward some day soon to following the proceedings in my office on my computer as many people will be doing today thanks to the FCC's online capabilities. So thank you very much and I hope it's a productive day for us all. Thank you. [applause] MR. PEPPER: I'd also like to recognize Commissioner Chong who's here. So you can see that there's a great deal of interest among our commissioners on these questions. I was reminded by our transcriber, I forgot to introduce myself. I'm Robert Pepper, Chief of the Office of Plans and Policy. I'll be joined today by Kevin Werbach who really, from our office, who really deserves kudos for putting this program together and Elliot Maxwell, our Deputy Chief of the Office, as well as other staff here from the Common Carrier Bureau, Wireless Bureau and other Bureaus. As I mentioned earlier, the forum is going out live on the Internet in both audio and video. Beginning at noon until 5:00 o'clock we have demonstrations in Room 845 of a variety of new band width technologies including ADSL. We have a demonstration of the direct PC, MMDS access and some other examples. And also the transcript of the proceeding today will be put into the record in the access charge proceeding that Commissioner Ness referred to. So this will become part of the formal record in that proceeding as well as the NOI, the Notice Of Inquiry, that specifically relates in the proceeding, that docket, to the ISP and Enhanced Service Provider questions. We'd like to make today informative and also interactive. We will start with a presentation of the various bandwidth technologies. We'll then move into panels that are going to be discussion oriented. We'll be asking questions. There will be opportunities for those of you in the audience to ask questions. And we hope that the panelists also ask one another questions since this is an area in which there are no fast and hard answer, but lots of questions which we all need to learn about. Our first presenter this morning is Stagg Newman. I'm missing page one of his bio. So I'll do it from memory. Stagg, as he told me earlier this morning, received a totally useless Ph.D. in mathematics. But since then, since the mid-1970s has been first I guess at Bell Labs. Stagg is responsible for work on fiber optics now with Bellcore. Fiber optics, wireless communications, battery technology, other band width technologies. Battery technology is really fascinating. Last night he came in and he showed me their new battery for his cell phone. He gave me the battery and it didn't weigh anything. And he showed me some plastic and it's twistable. It's very light. And from my perspective it's a radical breakthrough in battery technology. So Stagg is in the applied areas at Bellcore working on all kinds of new technologies that are going to help all of us in the communications industries. But this morning he's going to walk us through really a technology talk about these various bandwidth technologies and try to help us get a better understanding of what the test of the day is going to be all about. Stagg. MR. NEWMAN: Thanks, Bob and Elliot. I'd like to thank you for inviting me here and basically -- I don't have my glasses on. So I can't see which side says on and off. Thank you for inviting me. What I'd like to talk about today is the bandwidth bonanza and basically there's no question in my mind that there will be a tremendous band width bonanza for corporate America. We will see the same type price performance improvements we're already seeing, that we've seen in the computer world. That is a doubling every -- you can argue how many months, 18 months, 12 months, 24 months, of the price performance characteristic for obtaining bandwidth. But what happens to the mass market? The mass market is the key issue I think and that's a real challenge for all of us, both from a technology side, from a regulatory side and from an operations side. Said another way, Bill Gates was quoted recently over the Internet, of course, or misquoted, as saying in the year 2000, 90 percent of all the users of the Internet will still access it over dial up modems over the telephone network at 28.8 kilobytes per second or in reality usually less for those of you who have been on certain networks recently. Unfortunately, our analysis is he's probably right. Where are we today? Today it's estimated worldwide there are about 30 million users of the Internet. So we have this large wave overtaking the communications industry in ways that we can't understand. What I want to do is put a context setting in what I think the evolution of the Internet means. Basically replacing the universal service we've had today, dial tone, with a new universal service called IP dial tone. And I think for, you know, say in the early 1990s there was lots of debate over what the NII should be, okay. And what it should look like and what technology should it be? I think the Internet has answered that for us. NII will be IP, that is the middle protocol in the Internet stack, the Internet IP protocol, over networks. And the key to really unleash the potential is having a broad band Internet, having broad band access on and off the Internet. Why is this so key? Basically, we're in an environment where we've got a tremendous flux in services. What are going to be the real services people will pay for and drive this? And I think the answer is nobody knows and they're being invented faster than we think. You know, is it going to be just doing E-mail? Clearly not. Is it going to be down loading video? Possibly. Is the network going to be used in ways that we don't predict? Absolutely. One of the early cable modems trials got into trouble because they assumed a high asymmetry downstream which is the way I've been thinking. Most of the data will come out of content providers, downstream. So in this particular trial, there was an MIT professor who had a young kid at home. And at work he wanted to be able to see his kid. So he put his videocamera in his home, started pumping video upstream. Totally blew the network out of the water. So we'll invent all sorts of ways to do new services and it's a very unpredictable environment. When I started in the telephone network, we worried over whether the voice network traffic was going to be 3.7 or 4.1 percent. It made a tremendous difference to the engineering economics of the Bell system. Now network providers out there are doubling their network every six months. A little bit different ballgame. At the same time, technology's in flux. We used to worry about how far do you have to -- can you drive copper pairs before you had to put in repeaters? Nowadays, do you go with ADSL, XDSL, VHDSL, hybrid fiber coax, fiber to the home, which is clearly a long term answer, but how soon? Switch digital video? So there are a multitude of technology choices out there. How do you couple this technology with the services without bogging everything down? And that's where the role of IP comes into the network. In effect, in this environment there's obviously tremendous amount of risk. Risk if you're the network provider in putting the wrong capital in and seeing that stranded very quickly. Risk in the service provider if you assume certain network services are going to be available. Certain capabilities and performance, if it's not there, then you've developed your services and nobody can get decent access. So let me real quick high level toil on network architectures. What we did in the past and in effect learning from some of our mistakes in the past. Voice network. We had a vertically integrated network. Services were inclined with all the technology in the network. We wanted to introduce a new service. We went into large switching machines and developed new code for voice services. Pat White, who's one of our speakers, was instrumental in developing some of that in the SS's. Tremendous software development, long development time to get new services out there. But a lot of them are doing, you know, are tremendous service winners today such as call waiting, call forwarding, et cetera. But the network, the services, everything is tightly entwined. Furthermore, it was analog. You know, traditional voices analog, it was okay to have an analog network. The next step we went to was ISDN. ISDN was digital and is faster. So that's an improvement. But ISDN still had service specific technology. You had circuit switching. You had packet switching. And you design circuit switches around the underlying technology. And that worked if the framework was a monopoly environment where the services would be provided by the monopoly carrier. And ISDN came out of the standards environment, driven largely by the view circa 1980 and the European. Next we moved to ATM. We got closer to getting it right, but still not -- and let me make it clear. ISDN I think has a real role, particularly over the next five to ten years. Because as you'll see later, getting a broad band mass network out there quickly is a tremendous challenge. And today almost all Internet services are much better over -- well, they're all better over ISDN than over POTS modem. And actually at ISDN speeds of 150 kilobits per second. That will be adequate for most of the services people envision over the next five years. Apparently that's the view when we talk to people like Microsoft and others. so I think ISDN does have a very important interim role. ATM, which also came out of the telephone network world, now has a single underlying transport packets and cells and all that allow you to do a variety of services over top of ATM. But it still requires, before you can realize it, changing all the network out to ATM. Tremendous capital impediment to doing that and it ties still the service evolution through something called bearer services through the underlying technology. Meanwhile, the computer world developed the notion of IP and a separation of the service layer through IP in the middle from the underlying network layer. And that's been one of the beauties of Internet is this simple protocol set in the middle. People had developed all of these services on top of that protocol and they can work over any underlying technology. The only question is performance as we'll see a little bit later. But we've separated the service evolution, the competitive service market, from the underlying technology and that's why I think IP and internets and intranets will be the broad band network. So then the real question is how do we provide the best possible access to that competitive world of IP through the competitive alternatives of access technology? The result, adding new networks and services is low cost and straight forward. At least adding new services is relatively low cost. One can argue about the low cost networks. For corporate America, for high speed lines, it was fairly straight forward. For the mass market where you have literally 100 million access lines out there, you still have a challenge. But you decouple that evolution. Another important corollary which will drive the services, if you have services tied to a particular network provider, those services will never reach the same market mass that Internet. Internet will always reach more customers worldwide than any other network because you just have this narrow, well-defined protocol in the middle. So if you're a service provide, you want to get your services on the Internet to get market reach. That, of course, means it will attract more service providers, leading to more rapid service evolution and therefore more pull for more and more network demand. And what's going to happen on the Internet? In addition to all the services we're used to using today, from E-mail to any time I need to know about a corporation I go into their web page, see what the corporate information's all about, to images, all of these new services, games, et cetera, are coming. But I think there are going to be two important additional services that says Internet IP really will become sort of the universal service of the future. One is voice and video. By 1998, I think you will start to see substantive voice and video on the Internet. It's not saying, I'm definitely not saying it's going to replace the telephone network. But you'll start seeing these services in a very real way. Let me give you an example of one of the things we and other companies are doing today. Voice mail and fax. They're not real time two-way services. You're not trying to talk and tell time when you're doing voice mail. You're just listening, sending your message back. Fax is obviously not a two-way communication. Although sometimes they fly back and forth fast enough you think they are. Okay. What's happening today? People take a local server, dial up a local call through the local network where basically there are no charges to minimal charges, to a server. That server then takes the fax or takes the voice mail, okay. Packetizes it. Puts it over the Internet, POTS it out on a server say in Hong Kong or Taiwan if you started in New York City. Then goes back through, dials up at the other end through a modem and to the fax machine that set the destination. And now service is available to take care of all the intelligence. So that to the user it looks like a normal fax call. You just dial the fax number and send it. But what have you done? You've avoided all triple -- all long distance charges and all IDDD, all overseas charges. A tremendous savings, you know. Well over the order of magnitude savings. And to give you an idea of the impact of this, over half the traffic today that goes overseas on the telephone network is actually fax. That traffic is all set to leave the current phone network and go on the Internet. The same thing for voice mail. And I do know people who are even doing voice over the Internet today to overseas locations. They're willing to put up with the lower quality simply because of the lower cost. And particularly over corporate Internets where you can have high speed back bones and you control the performance. So what's our network of the future will look like. Basically, I'm proposing a network that says you need a broad band access network from the home. That's supposed to be a fancy looking home with I guess they even have the coffee pot into the network into the home. I think that's a little fanciful. But we've got people at Bellcore who could get into that. Your TV, your fax machine, et cetera. We've got somebody at Bellcore who sits in bed at night with his PC typing. So who knows? Techies. Over the broad band network which then gives you access either to today's voice network, which will still have a very vibrant roll for a long time to come, or out over the Internet. And this will become the universal Internet. Now, what are the obstacles to getting there? At the risk of offending many very good engineers who are trying to solve difficult technical problems, I think the critical problem is the mass market access. The Ciscos, the three coms, et cetera, of the world will make their routers and switchers get faster and faster. In fact, a Cisco router circa 1997 will have ten times the band width of the largest voice switches in the networks today. So the backbone switching technology will get faster. The backbone fiber optic technology we and others are working on will give us a 20 to 100-fold increase in that very shortly through wavelength multiplexing. We'll solve the traffic congestion problems. They are challenging problems, but those are being solved. The competitive marketplace will solve those. The real problem is how do you solve the mass market access? And that's what we'll spend the rest of the time looking at. What are the options today? Today you've got the Internet backbone network, Internet access points and ISPs. How do you get on and off the highway? Well, if you're a corporate user or if you don't mind paying $200 a month, you can get a private line from your home or your office into the network. And the private lines are getting faster, the price performance is improving all the time. So again, no problem here as long as you're willing to pay a fair amount of money. But if you're not, what are the alternatives? POTS? You know, 28.8 bit per second, limited to 64 kilobit, but in many applications those won't really be anywhere close to that. ISDN which can get you up to 128 kilobits per second. They both have the advantage that they work over today's copper network just by putting something into the copper loop. Then there's a whole family of what are called digital subscriber lines, so-called XDSL, ADSL, VH or Very High speed digital subscriber lines, et cetera. And I'll talk more about those. The other alternative's going through the cable network. So those are the there alternatives and then one I will talk about but don't show on that viewgraph is wireless. Now, to give you an idea what's that like and why would this be better, I'm going to show a very short tape. Elliot asked for demonstrations. Well, demonstrating access technology is sort of like demonstrating a microprocessor. Nobody cares what happens inside the microprocessor. The applications are where the action is. So this is just going to show a very simple application downloading over four different technologies so that you can see the speed advantages and why it becomes attractive. If you could role the first tape. The first one, and I'll explain what the -- the others are going to go pretty quickly. This is downloading an image over the POTS network today. So if you want to download a busy image today, this is what you'd see. And what you'll see is, yeah, you might be willing to do it, but it's not the world's most interesting thing to sit there and watch this slowly download. Now, in order to kill time, I could tell bad jokes but Elliot told me he'd break my kneecaps. So what you're going to see next is the same image downloaded over ISDN and you'll see that that's quite acceptable. Then you'll see it downloaded over a ADSL link and finally over a cable modem. And what you're seeing at the bottom is the number of seconds it takes to do the download. AUDIENCE QUESTION: Do you know the file size on that? MR. NEWMAN: See me afterwards, I'm blanking in real time on this image. But it would be a typical fairly busy photograph. I could figure it out, but I'll do it offline because I didn't memorize that data. AUDIENCE QUESTION: Modem speed? MR. NEWMAN: It's a 28.8. The question was the file size. I said I'd have to address that offline. And he asked the modem speed. That was a 28.8 modem functioning at 28.8. And this should be the ISDN. And you'll see that's not bad. I sit there and wait for that on the PC. In fact, I'm a horse person. Actually, there are horse people now putting up pictures of their horses that we download. Now what you'll see is this becomes real acceptable. In fact, it takes longer to put up local graphics than to download the image. Boom, okay? Seven-tenths of a second. That's not bad. And you'll see in this particular example cable modem will actually beat that. So don't wink or you'll miss it. Boom, okay. That's why we won't broad band access. It will open up a whole new field of applications. Hopefully, we killed the tape at this point. Yeah, good. Okay. Let's examine these alternatives. First, let me state the customer requirements. Well, we think the customer requirements are -- and we get a lot of debate on this first one, but ideally we think users want a flat rate because you don't want to really worry about a meter ticking while you're doing applications. Now, that has some problems from the service provider side, but if you ask users, flat rates awfully nice. User friendly. It should be customer installable. I'm going to say a little bit more about that because we have a real issue. Competitive corporate America has to tackle how do we get these signals around the home? I think it should be as easy to use as the telephone network. I recently had to convert at work from a Mackintosh to a Microsoft environment and everything is not yet user friendly. I think it should be as easy to use as the telephone network. It should be non-disruptive. Right now, last night I was visiting with Elliot and I went to use the telephone downstairs not realizing his wife was on the modem upstairs and guess what? Her connection was blown away. So it should be non-disruptive to the TV and telephone users in the home. And finally, ideally what we want is an online throughput. I believe 128 kilobits today would be a tremendous step forward and that's what ISDN gives us. But ultimately we'd need megabits per second. Said another way, basically the cable industry's figured out the right price structure. The telephone industry's figured out the quality of service and the computer industry's figured out the performance. How do we put them together and still make money? Let me start with a customer environment. This is not a slam dunk, getting digital signals around the home. Analog access has some real advantages. It's much more forgiving than digital. We have done a lot of studies, cable line did some studies and say getting digital signals around a coaxial network in somebody's home is hard. It's bad news. We did some more detailed studies at Bellcore and found out they were far too optimistic. Some of the problems you get into is when people put in these coaxial networks in the home, they frequently staple right through the coax. It doesn't bother analog TV. It does wonders for digital signals. They leave things unterminated like ports here. One of the early cable modem trials, the network kept going down about 7:30 a.m. every morning. I mean, everybody had noise and unacceptable performance. It was very regular. What happened? There's a woman who's very regular in her habits and every morning about 7:30 she used her hair dryer right next to one of these things. And her hair dryer spewed electromagnetic noise all over the network. So there are lots of issues in the home. And in effect you need a home network. Now, for the average Bellcore engineer, no problem. They go in and put a ten base T network in their home. I don't think my parents are going to do that. So we really need to solve the home networking problem because otherwise we're going to be stuck with using that telephone wiring and 28.8 modem. I think this is a real opportunity out here for corporate America also, but it's a tricky environment. Just dropping this inside the current coaxial network environment of trying to go to high speed, not that easy. And for those who are interested, Bellcore and others have fairly detailed studies of that environment. Okay. So what do we do? Well, there are three solutions out there. First is to use the twisted pair that's out there today. Now, that has an advantage that architecturally it's modeled after in the data communications network what's known as twisted pair allocations routing out of the wiring closet. That's been a nice architecture because it's gotten rid of a lot of the suggestions of shared bus architectures. So it looks good and once it's in deployment, it works quite well. The problem is all the deployment problems. You're no longer just inside a building. You're going out over the telephone network. What happens when the customer is more than say, well, we're talking kilofeet which is a weird measure, but ten kilofeet from the central office. You may not be able to get the signal out to that customer without a lot of additional expense. Some of the early ISDNs have gotten into trouble because they filed the universal tariff assuming a certain distribution of people because it turns out once you get out about 10,000 feet from the central office it costs three times as much to provide INSD as you are close in. They assumed most of the people would be distributed in the same population as the telephone network users today. It turned out no. The people who really wanted ISDN lived far away from the central office and want to telecommute are the people who can live up in the canyons in California, et cetera. So their users were all far away from the telephone office. Capital expense far greater than anticipated. So that's one thing. The other thing is we put this high speed digital technology out there. It starts interfering with other technologies in the loop. So there are a lot of performance problems to be solved to get this out there economically and that's a lecture in itself. It does get the performance out there and if the economics can justify it, it's one way to the future. When I first used this viewgraph, probably a lot of the cable industry would have disagreed. But Don Malone I think has even now been quoted publicly as saying in effect these were cable modems. I think the hype got out in front of the reality. And you'll see that in a demo a little bit later. Again, there is constant problems here. In the ideal environment, this technology works great. But now you're putting in a shared bus environment in a public network and there are lots of performance problems to be solved. Furthermore, this only works when you have a very high quality cable network out there. And it has to be two-way capable. Less than ten percent of the cable networks in the U.S. today fall into that category. In this category, you get fiber out to the coax and then you use your coax as your last distribution. The problem again is you get a lot of noise in this type of shared environment. So you have to have a very tightly designed network without a lot of noise. You don't know how much upstream traffic you'll have so engineering network is tricky. And so again it's one of these that follows the rule of thumb. Engineers are always too optimistic about what will happen in the next two years and that definitely happened here and I'd be happy to talk offline with a lot of the difficulties that need to be solved for this to be a reality. On the other hand, I think it's one of these technologies where engineers always underestimate the impact of their technology within a decade. So it's getting there, but lots of problems to be solved. Now, how about wireless? Well, I think we're going to see some very interesting wireless solutions evolve in the marketplace, particularly with all the spectrum being granted. There are going to be some entrepreneurial people who I believe will figure out how to use that spectrum for very effective international access. Maybe at 128 kilobits, not at the three megabits or something we want in the near future. There are three megabyte solutions, but they have a lot of limitations and economic -- are much more expensive. But let's look at some of the practicalities. And what I've shown here is an MMDS type environment. Although some of the same lessons apply to a satellite environment. In this case, the digital signal goes out over the air, into the home. It has to be received in the home, processed, sent to the PC and come back out over the telephone network. One advantage of this -- one of the problems of this is you're still tying up the telephone network. So you haven't solved the problem of congestion on a telephone network that was designed for five minute holding times and people like myself go home in the evening, put it on and leave it on for three hours, you know, I got down, eat dinner, do everything else. But why disconnect and reconnect the phone line? It's a free local call. Sorry for my friends in Bell Atlantic, but we all do it, right? But let me talk about some of the radio problems that are subtle here. This is a digital signal. Digital signals are fragile. What we found, the FCC in the same lessons that they learned when they looked at advance TV, ATV, apply in this environment. The person on one side of the street gets a beautiful digital signal. The person on the other side of the street, no signal. So what percent coverage can you get? It makes a big difference if you're a service provider trying to provide this service to know whether you can cover 50 percent of the homes, 80 percent of the homes or 100 percent. And can you predict ahead of time? And do you have to send somebody out and do measurements before you can serve them? It makes a big difference in the economics. This one's even trickier than that though. This is a digital signal and you get interference. Therefore, you may have to build a certain amount of what's called adaptive equalization into this. But suppose the customer's sitting there getting a beautiful signal. Now, clearly since this is the line of sight, somebody builds a tower across the street from them, they lose their signal. It's more subtle than that. Somebody builds a tower offline, not in their line of sight, but offline so that they get reflections. Now their service goes away. Okay. How do you predict those type of things? So here you have a happy customer. A year later somebody constructs something. They're not even aware of it. And they lose their signal. Then you have to go out and reposition their dish or whatever. So again, while this is not an easy environment to work in, I do think there will be some good solutions and we and others are working on that. I think it's really the wild cared that may open up Internet access. Let me just show you this in more real terms. We have at Bellcore a test bed in which we can take the same applications, streaming video, live media, et cetera, put them through an Internet with routers, catchers and all that and use POTS, ADSL cable modems. You know, this is a working network with all these different technologies employed. So we can deploy the same application over different technologies, put network load on it and see how it performs. What we'll now show you is ADSL downloading a video clip. So now you download the five minute videoclip of your child or grandchild or whatever to the grandparents. We'll do that over ADSL and cable modems. We're going to do it twice. One is in a downloaded network and the other is a loaded network. Could we roll the last tape? Okay. So what you're seeing is a video clip being downloaded and the cable modem's already done in eight seconds and ADSL's going to take about twice that long. Both those are pretty good. Waiting 17 seconds to then watch a video clip on your PC's pretty good. Now let's do the same thing. And now we've put a fair amount of load, but we think a realistic load, on the network. And this shows why the network engineering is going to be tricky. If we could fast forward this up to just before the ADSL and I'll tell you when to go back to -- okay, what you're seeing now is under a reasonable network load, that's now gone to over a minute. Okay. Slow it down for a bit. Okay. I think it's just -- is it just under two minutes? Yeah. What you've seen now is in this particular load because of the shared nature of the cable modem in this example, the cable one is only halfway there. So what went from under ten seconds is now over two minutes. Why don't you go ahead and speed it up to the end? I think it ends up around four minutes. Okay. Real quick. Where will the prices come out on this technology? This is the price per customer for capital costs assuming the cable network and the ADSL network are already in place and you already have an MMDS network in place to provide video service. So this is the incremental capital cost. Is this accurate? I don't know. If I had to make a pick today, this is my best guess in reasonable volume deployment. And one of the implications here is all of these are greater than $500 per customer. So if we're trying to solve, you know, serve the mass market, a non-trivial capital deployment problem, we multiply that by 100 million customers. And as I said, these prices are best picked. They'll change over time. But that is I think is reasonably optimistic when you're down the growth curve. Everybody's taking that down. I'll deny I ever said that later if you take it down. Okay. I promised Elliot and Bob to keep it down to about a half hour. So let me just for those who want I'll talk with you offline. But basically, I put up the user requirements earlier. And what we see is none of these really meet the ideal user requirements. So we've got to face up to what are the compromises? What are the price performance? In fact, the ultimate answer is going to be fiber to the home. And I believe within five years that will be the economic choice. But it's not here yet technically and now you're talking about totally rewiring America with fiber which Corning and companies like that would love. But that's again a large capital expense. On the other hand, I think what you can't do is sit on the sidelines. It's clear to me that because of what's happening in the Internet, it will increase the capital outlay if you're in the network business. It will increase your expense to serve these customers if you're a network provider. And if you do it -- and it will change customer perceptions, for better or for worse. If customers can't make telephone calls because of Internet congestion, that's going to change the customer's perception. The same thing's true in the cable industry. Ultimately, if you do it right, I think it will be a significant increase in carrier revenue. What should we do about it? Develop service independent loop technology so the services don't obsolete the network, drive the industry towards IP dial tone. Start deploying these new services towards getting experience because any new service introduction takes at least a decade. But now's the time to start getting experience. And finally, I think what we're going to see is the surfing the net worldwide we'll probably see 120 million users. It's a terrific market to reach. And what you see is that's now become a tidal wave. Thank you, very much. [applause] MR. PEPPER: Thank you, Stagg. What we're going to do is we're not going to take a break other than to have somebody come move the podium. And we're going to invite our panelists up. A couple of things of a housekeeping nature. One, since we don't really have time for direction questions of Stagg, we're going to ask Stagg to sit up here with us. I imagine a number of the panelists including David Reed from Cable Labs might have some comments on some of the things that Stagg said and we can involve Stagg in the discussion. Second, please because we're transcribing this, please use microphones for asking your questions so that we can actually get that over the net as well as transcribe it. And then also we would be putting up on our web site, the FCC's web site, the transcript of today's proceeding. Plus, if Stagg promises to get us the graphics electronically, we'll put all of the viewgraphs up on the web site as well. So if I could invite our panelists up and see whether we're going to have somebody -- I don't think we have any other viewgraphs. If we could get rid of the viewgraph machine. Our first panel, Jeff is the mike on? I think it is. Our first panel we've asked to focus on competing models for higher band width. We're very, very lucky to have the group that we have with us. Les Vadasz is Senior Vice President at Intel. For those of you who follow Intel on the computer industry know how important Les is to the entire computer industry because of his importance at Intel. He's one of the real deep thinkers there. It's always a pleasure to see you. Pat White is Vice President for Research and Development at Bell Atlantic and prior to his current assignment he was VP in the Strategic Planning Organization where he had responsibility for telcom strategy. Pat is an engineer, has his Ph.D. in engineering from Northwestern. Pat has been in our early discussions and inquiries into this issue has been extremely helpful to us in understanding the local exchange network architectures and how they are having to adapt to data services. John Curran is the Chief Technology Officer at BBN. Of course, BBN is one of the parents of the Internet. Doug Morgan is Vice President of Marketing for Winstar Communications. And Doug we asked to come specifically to talk about some of the wireless issues that Stagg raised. and Winstar, of course, is really developing a brand new, a business for providing wireless access to networks. And, of course, we see this as being I think maybe Stagg we wouldn't call it a wild card. We see this as really one of the exciting alternatives to solve some of these band width problems or questions. And then finally, David Reed who was here for a number of years as a highly valued colleague. And we were extremely sad to see Cable Labs lure him away. But I think it was more the environment of Boulder, Colorado that lured him away. And this was actually a very wise choice. Anybody who is faced with the decision of living in Washington, D.C. and living in Boulder, Colorado and didn't choose Boulder, Colorado, we'd have to question his sanity. But David I think is very sane. And by the way, David was critical in many of our decisions in the PCS proceedings here developing what was really the only technical model of demand on band width and on market projections and he turned out to be very, very accurate. So we always rely very heavily on David's advice on issues. There's no particular order here. We've asked each of the panelists to start off with two or three minutes so that we can get this discussion going. So why don't we just start with Les and move right down the table. Les. MR. VADASZ: I guess this is on, is it? Okay. I'd like to thank you for the opportunity to participate in this broad band forum. I think this is a very timely event and I'm glad that I have a chance to address this issue with you. Intel is a major supplier of microprocessor components and systems and particularly to the personal computer industry. And we are very familiar with the needs of this user community and this will be the basis for my remarks this morning. Let me begin with the obvious. A consumer wants to use their PCs to communicate. I think that the enormous growth that we have seen in the Internet access and the fact that electronic mail has now become an integral part of our everyday life is a very good indicator of this trend. And if you look at how consumers buy personal computers, virtually all of the personal computers that go to the home come equipped with a modem these days. We are living in the information age and the consumers participate in that by using their PCs. Millions and millions of homes are online already. Unfortunately, despite the government's call to build a national information infrastructure and despite the Telecommunication Act of 1996, the personal computer user is more of an after thought in all that happens when it comes to deploying network capabilities. This is a rare opportunity to address some of those issues. What is our problem in effect is there is no meaningful PC communications service available. And that's kind of obvious. The consumer can purchase many services. He can purchase electricity services, gas, telephone, TV, and in fact the FCC has addressed many of these consumer demands over time. But we cannot buy a reasonable PC communication service. We merely piggyback on the telephone service and get a very inadequate connection. I think that we have heard earlier that there are many technologies available to solve some of that problem and certainly an Internet connection through a telephone line and a modem is not one of the adequate solutions for the future. This is happening in spite of the fact that nearly 40 percent of the U.S. homes -- that's nearly 40 million homes -- have personal computers. So any numbers that you add up in this arena is going to be big financial impact to all considered. So what are these basic communication services? I think it's important that we characterize this and band width is only one of the elements. I think Dr. Newman did an excellent analysis of what are the various characteristics and I believe I will be redundant in some of my discussions of those, but he characterized them well of what the consumer needs. First of all, high band width. There are many technology choices. Virtually every service provider has an opportunity to upgrade their networks with new technologies to provide more meaningful PC communication services. Second, instant access. It is unacceptable to wait two minutes to connect to a network. You wouldn't accept that from your TV. You wouldn't accept that from your local area network at work. There is absolutely no reason that you should accept that in your home environment. Third, plug and play service. It ought to be easy to just take your computer and provision a service. We are not there. Most of you, many of you who have tried to connect through services like ISDN I'm sure know the problems that you go through in trying to provision a service for your PC. Fourth, multimedia capability. Voice, video and data communication ought to be seamlessly integrated into the service. Fifth, store forward capabilities. Voice mail, electronic mail, fax and other store forward capabilities ought to be service offerings. Sixth, security. Security options ought to be available because both electronic commerce and workplace connection requires protection from intrusion. Seventh, affordable pricing. What's affordable pricing? Well, telephone service is affordable. We know that. TV service is affordable. We know that. I believe that a PC communication service has to be in the same order of magnitude as those services available. Now, with these characteristics in mind, a meaningful communication service need to offer the following. First Internet access. As Dr. Newman said, this is baseline. This is the digital dial tone. Second, multicast broadcast services. News and other information services ought to reach the user when they happen. There are many technologies occurring, happening, that allow you to deliver these kind of capabilities. And third, our connection to our workplace through a modem is inadequate. We need these capabilities and we need telecommunication services offered through this infrastructure. Now, volumes have been written about the economic impact of the Internet and all of these in my opinion depend on deploying a meaningful baseline PC communication service. And the economic potential of this service in my opinion is enormous. If you look at the 40 percent of our homes, 40 million homes with personal computers, a baseline service should represent in excess of $10 billion revenue. On top of that, if you think about the investment that both the consumer will make and the equipment suppliers, the service providers will make, there is a significant equipment business associated with this as well. And we know that the consumer will pay for value. The current investment rate, current demand for PCs for the home and rapid increase, rapid demand for satellite TV services is indication that the consumer will pay for quality capabilities. Now, I do not intend this to be a call for a new set of regulatory regimes. And in fact, I don't even intend this to be a call for some technical specifications to deploy the services. I believe that it is the industry's job to do that. However, I would hope that the Commission when it faces the issues that it struggles with looks at these capabilities, looks at this PC communication service needs and makes those decisions with those issues in mind. How will our decision impact the development of these PC communication services? What will the service providers do as a result of our actions? How will a competitive market be developed where different service providers using different technology means are going to compete for the dollars of the consumers. Those are critical decisions that I believe are going to impact how the future national information infrastructure will develop and how the economic benefit from all this technology will develop for all of us. Thank you, very much. [applause] MR. PEPPER: Thank you. If we could also try to keep these statements to two to three minutes. Otherwise, we're going to run out of time for any discussion. Thanks. John. MR. CURRAN: Good morning. I'm John Curran. I'll keep my comments brief. This will be facilitated by the fact that I'm from Boston and I speak rather quickly. If you need to catch up, there will be transcripts I'm sure somewhere. Basically, my job would be to live between 12 and 24 months out in where the Internet is today. I used to try to live three years out, five years out, seven years out. Now if I can keep 12 months in advance, planning and where we're going I consider myself lucky. The fact of the matter is that the Internet is one of the most remarkable changes that's come across telecommunications to date. And I want to highlight how the Internet works for this forum to describe some of the interesting cultural differences that are happening and things that we need to keep in mind when we try to look at the issues of access reform and how we're going to bring about broad band infrastructure for everyone to use. In the U.S. alone, we have over 3,000 Internet service providers. You know of probably, oh, the top ten of them, the people who run some of the national backbones. But you're probably not aware of the other 2,900 that are out there. Some of them are in every community. One of your next door neighbors almost certainly is an Internet service provider. The fact of the matter is that the Internet service industry has grown at such a dramatic rate and had such remarkable success not because of the degree of its coordination at the end, the amount of architecture that we've put in place, but in fact the exact opposite. The Internet is an example of success in decentralization. The fact of the matter is that in the Internet we work in a very simple basis where we standardize and we work on cooperation on the bare minimum facilities necessary to keep things communicating and leave the rest to an open market model. Just to give you an example of this, over the last three years, the Internet has gone through three different backbone models. We went through a model that we had one single nationwide backbone. We went through a phase in time where we had several nationwide backbones of large IP routed networks that were interconnected through a few key locations and most recently we've actually gone to a model where the major backbone providers, providers such as some of the inter exchange providers BBN and others have built a model where our backbones are interconnected in multiple locations. Those are three dramatic changes that happened in 36 months. I can't emphasize more strongly the fact that the Internet has to be able to evolve rapidly and in fact what we're really looking for going forward for the ability to continue to evolve the Internet is to create the same market conditions in areas such as local access that have existed in the abilities to purchase wide span high speed broad band communications. If we have that open market, the Internet service community, and I mean thousands of entrepreneurial businesses, will explore every backbone model possible, will explore every access architecture. We will see a rich tapestry of these coming forth. The fact of the matter is that the Internet service provider industry is using the infrastructure as any other business. Today there are corporations out there that have hundreds of dial up lines and there are bulleting board servers and others who make use of local access circuits and local switching infrastructure. The Internet service providers have done the same thing. They are looking at the rates that have been provided and they're trying to do what makes sense. I don't think there's an ISP out there that doesn't want to pay their fair share of the cost involved in servicing that infrastructure. It is not a case that there's an industry looking per se for a free ride. What you have is you have a case of certain pricing in place and people trying to do the best business decisions to deploy it. Now, clearly there are some hard issues here. We have a situation where all of these pricing, all the pricing for local access has been setup with certain assumptions such as loading rates and busy rates that no longer apply because of the popularity of the Internet. To this end the fact of the matter is we need to fix some of those basic underlying economics. We need to make it such that the price of a local access loop and the price, for example, of going through the switching infrastructure is clear to the industry. So that they can make intelligent decisions about some of the technologies we saw presented earlier today. I can't think of a better way to decimate an industry than to establish an artificial form of cost recovery for these functions. The fact of the matter is that the FCC in its wisdom has already undertaken open interconnection activities which will over time provide a way for this robust industry to look at the complete components that it's using and make sure it's paying the adequate cost. And if indeed there are areas where the current models don't make sense in a different architecture for surfers, whether it's different service architecture or different technology is necessary, these will be made naturally by a robust marketplace. I asked that this forum and the Commission in general take these comments into effect when going forward. Because what we have here is a remarkable success which under the appropriate forms can be turned into a remarkable opportunity to deploy new technologies and to harness the incredible dynamics of the information in advancing technology and communications to the mass market. If we should make a mistake of trying to architect a particular reform or a particular solution on behalf of the entire industry, I think we can safely predict that the robust entrepreneurial vision of the Internet won't be able to be harnessed and in fact we'll lose that energy going forward. That concludes my remarks. Thank you. [applause] MR. PEPPER: Thank you. MR. WHITE: Okay. I guess it's my turn. I'm Pat White from Bell Atlantic. Is the microphone on? Thank you. I know that from the previous comments from Stagg Newman and others on this program so far that the rest of the comments have tended to focus on the access to the network being the focus for most of the problems. Well, I'm in Bell Atlantic. I have access to a ten megabyte LAN within the company premises. And this LAN is connected to the outside world over a T1 or T3 connection. And I can say when I'm downloading the files I've never ever seen my PC record anything approaching even a megabyte per second. It's usually a few kilobits per second at most that you get. So clearly, no matter what we do with access, we're still going to have a significant problem accessing the Internet. And in fact, if you start to carve things up a bit you'll find that a lot of problems exist in the firewalls in the premises. A lot of problems also occur within the PC. Because as my friend at Intel keeps increasing the processor speed, Bill Gates keeps using it up with more and more bloat ware. So the amount available to actually handle all of this processing is very, very small. We also have congestion on the Internet because with the kind of structure that the Internet has, with everyone engineering their facilities according to their own rules, there's no end to end performance or end to end view of the Internet. We find that there are a lot of times when you could experience packet loss going in excess of 10 to 20 percent on some occasions in the Internet. And finally, there are the servers on the Internet. They're also heavily congested too. So what I'd like to offer here is that instead of focusing excessively on just one aspect of the Net we begin to think about it more expansively, more globally. There are a lot of things that have to come together before we can see the performance capabilities that Stagg Newman talked about. I couldn't agree more with my colleague at Intel on the needs for the PC. I agree completely with him. We need Internet access. We need multicast and broadcast capability. We need some kind of direct connection. And furthermore, I'd want more. I think you also need to have continuous connection available at all times. The only problem I think right now, in fact we know how to solve a lot of these problems, both the cable industry, the phone industry, wireless companies and others, is the real question in my mind is who's going to pay for it. Clearly, there are forces who believe that the vast majority of telephone customers who don't use or need these capabilities at least at the present time should all pay more than their fair share. And I think that we really have to examine that carefully. It seems to me that as a minimum the cost for providing these services should be more focused on the people who are actually using, accessing the Web. We might have 40 million people with PCs in this country, but if you look at Internet access or online access you find it's less than 15 percent of households in the U.S. today who ever access the Web. So should the rest of us who don't need or use these capabilities have to finance the 15 percent who need to access it? That's the end of my remarks. MR. MORGAN: Good morning. I agree with Pat too. You have to take a look at this thing from a total network perspective. And on Stagg's comment about the wireless being the wild card, very frankly, I'm just glad that the industry has moved. You know, a year and a half ago if I was sitting here in this chair, you wouldn't have heard the word wireless. And now with a company like Winstar that can serve 150 cities around the U.S., possibility of a million circuits of DS1s, people are looking at us and saying, these are a real part of the network. So I'm glad to be mentioned. You can kind of tell me whatever I want. Just keep mentioning us a whole lot more. We're really happy about that. Let me say a little bit about what Winstar does and we are the company that really has the largest experience base as far as providing broad band access using wireless technology. Our businesses that we provide services and technologies that really complement the local carriers by providing them local access communications using a bit of different technology. that being broad band radio communications. We also take maybe a bit of a different view than some of the carriers. and I've had experience on both sides of the house. Mr. Hundt in his comments this morning talked about the last mile. A lot of people talk about the last mile. My view is if the consumers are really going to come to the fore and get what they need to move their businesses and their homes forward, we need to think about this as the first mile. Take a different view of the network. How do you get that first mile connection into this wealth of information that's out in the backbone? Let's take a little bit different view of this thing. As I said, we use a bit of a different technology here. We're using 38 gigahertz spectrum with digital broad band radios to get the connectivity. And from the standpoint of where we are today, Winstar is operational today providing service really to a variety of people in the industry from caps like ACSI and ELI and Brooks Fiber and the range of competitive access providers as well as long distance carriers like MCI, Arbucks. I think that we have Pacific Bell on the panel in the next session is a client of ours also. So we provide a number of services to the carrier marketplace today. We do know how this stuff works. We know how to go in and we do know how to make it reliable and I'm sure that we'll get some questions on that. I had mentioned capacity. There is a tremendous amount of capacity available within this 38 gig spectrum that we have. We've done calculations within our major markets that we can provide well over a million DS1s of capacity over the next couple of years within our major markets alone. So there's a huge amount of capacity available. I also agree that you have to take a look at this at a whole network view. The intrigue of wireless is really quite simple. It's an incredibly fast time to market. the capital gets optimized because I'm not digging up streets and houses and everything else. So you don't have any of the construction costs. I never have stranded plant. If bodies and people and buildings and businesses move around, I don't have stranded plant to worry about. So all of those benefits are a tremendously appealing case for wireless. You still have to take an entire view of how you role a product out to the constituency to make sure that you can keep the five nines of reliability that we built in this network that runs this country. It means you have to understand network engineering, how you provision your services, how you have your logistics in place to spare all of these and everything else. So what I'll say for all of our folks that are in the technology world, and I've had the benefit of working with Intel and actually quite a bit with Cable Labs in a prior life. The technology here, we have the greatest technologists in the world that sit in this country and many people sitting in this room today. The technology isn't the issue. The issue is how do you deploy this and keep a network that runs end to end? How do you provision it? How do you maintain it? And how do you manage it? So what I'll say to everybody that's sitting here in the room is you can get very excited about the technology and about the promise of the technology. The hard work becomes how do you deploy it in an end-to-end, cost-effective solution to bring services to the people? We think we have an incredibly important part of the solution, but we all need to work together to bring it to the people like you that need these kind of services. Thank you. [applause] MR. REED: Well, Bob, with two or three minutes, one of the results of moving to Boulder is that I do speak a little slower I think in contrast to my earlier colleague. I wanted to comment a little bit on the presentation earlier by Stagg Newman that set the paradigm as being IP dial tone. And perhaps I'm still hungover from my video dial tone days, but I don't like the term dial tone. The paradigm about the cable industry I believe will likely be a winner here has got nothing to do with dial tone or any connotations that might be associated with that term. And what I'd like to do is to address some of the technological characteristics of the high speed data service delivered over cable systems. And specifically I want to make two points. One is that the shared access network architecture delivers several key benefits to subscribers. So from the other presentation I'm going to spin that entirely on its head. I do believe, like I said, I think the cable industry is a winner with the shared access architecture. And as a result of the benefits you get with that approach, the performance of cable based high speed data service will far exceed most Internet access service available over telephone lines. And to that we all agree from the earlier presentation. The second point is that the cable based service for high speed data is being offered today in several areas and the overall deployment that is accelerating. Those who do have it commercially available are somewhat looked upon as the privileged few now I understand. But it is being, the roll out is being accelerated by many of our member companies. The next result to date of that roll out is that the subscribers are very enthusiastic about the service. The modems work well. The system works well. And it's a positive experience. And so I think you'll continue to see that roll out. So those are two important points. Now, turning to the benefits of the shared access medium, what are they. Very briefly, what I mean by the shared access to begin with is in contrast with the dedicated switched network paradigm that you had over the telephone network today that's a single high band width pipe that's shared among users. In the context of the cable industry, you're talking anywhere from 10 megabits to 30 megabits that will be shared by multiple users. And because it is shared and there is a need to set rules to share that band width in a fair and efficient manner. And that set of rules is often referred to as a Mac layer, the Mac protocol. And the Mac stands for Medium Access Control. That's the true performance enabler here and that's what really causes the performance to be substantially better with this service. So the benefits of the shared access, one, is it's well suited for the bursting nature of today's Internet traffic. If you look at how the traffic varies if somebody's surfing the Web, they need a very high transfer rate for very short period of durations. The picture we saw earlier had burst. And to the extent to which you have the band width available to accommodate that, it can be served up very quickly. And in fact with 10 to 30 megahertz per second, the band width you have over a cable service is faster than your PCs can handle today. Now, with Gates laws we discussed earlier, that will probably change. As there's availability, it will be gobbled up. But to be sure right now it's quite a bit faster than what PCs can do today. And at Cable Labs we've modeled a 60 second surf and in fact I don't have it available with me now, but if anybody's interested give me your card or contact Cable Labs and we have a little primer on cable modem performance. I'd be happy to share that with anybody that goes through exactly how the performance of a cable modem will operate. But the traffic itself because the bursting lends itself, the good news is that it lends itself well to what's called statistical multiplexing. And so that means many more users can use and share this access pipe than just dividing the band width up on a dedicated basis to each user. So that's the first benefit. Second is that the cable's large band width permits excellent performance. In its primer, for example, up to 200 simultaneous users can jointly do this simulated surf with no degradation in performance. Now, this architecture I'm talking about is the target architecture that the next generation modems will be operating under. But that's where the cable industry is going. And under the loading scenario, if you double that to 400 simultaneous users, that takes twice as long to complete. So if this is a 60 second surf, it takes one minute with up to 200. If you move it up to 400 simultaneous users, it takes two minutes. And that's still faster than 128 kilobits per second ISDN. So clearly the performance here is quite acceptable. The third benefit is the cable network architecture delivers a scalable approach. We're not talking about two simultaneous users over Washington, D.C. We're talking about 200 simultaneous users over one fiber node. And the hybrid fiber coax architecture of the cable system. And those nodes are being designed typically now anywhere from 500 to 2,000 homes. So you can go through the numbers there. You can see that you need quite a heavy loading for you to start experiencing any degradation in performance. Fourth benefit is that subscribers can stay on line and not consume network resources. So for E-mail perspective, hopping on to get information quickly, it's no problem with the shared media approach. Another benefit is that our users are connected to the same information pipe and therefore broadcast applications can be efficiently offered. So the streaming audio and video, for example, from this conference to the extent someone wants to view that or more than one user wants to view that on a particular node, with the multicast capabilities that are being built into the Internet, you're going to be able to efficiently provide that. So that's in a small way doing some future proofing in terms of the new services. The final benefit here is that designing the architecture to the extent it's possible and no one's a perfect predictor of the future to accommodate the new services. The Mac software will be downloadable. With the HFC architecture, you have ways to scale capacity to meet the need. So the upshot here is the cable industry thinks this looks like a real market winner. Because the real benefits are tangibly better than what you can do today. Second key point quickly is that the service is rolling out today. The customers are very happy with the performance. By Cable Labs count, there's over two dozen vendors who are building, in an advanced state of building cable modems. Future direction. Cable Labs has been participating in a specification process that will help put out a standard cable modem so that we'll be in the paradigm where you'll be able to take the modem from across cable systems throughout the country and that's very far along. Vendors are commenting on that. It's already been proposed to the vendors and they're coming back to the cable industry. So that is nearly complete. Several of our member companies have the commercial services available and they're really too numerous to list at this point in time. To be sure, different business models are still under consideration and we're still developing system-wide considerations and solutions to address the band width that the last mile you do have to address the other parts of the Internet. So in summary, the two key points. There are very substantial benefits and we think this is going to be a very dominant paradigm in the future for how folks will use the Internet. And it is happening and does take time to roll out. There are a substantial number of folks who use the service today. MR. PEPPER: Jeff, if you could just leave the mike's on the tables now that would help. When we get to the questions, there will be somebody I assume with a microphone who will walk around and people can ask questions into the mike. Is that person in the room yet? Great, thanks. Maybe I'll start off with the first question. I think it was John who said, maybe it wasn't. It was somebody -- I think it was John. Technology's not the issue. Or maybe it was Pat. It was Pat. Technology is here. David said it's a matter of time. If it's a matter of time, how soon? I mean, realistically. And if it's not a technology question, is it a market question? Is it a competitive question? Are there regulatory issues? Are there things that are now in the regulatory process that are impediments to the deployment of these technologies? Because I think these are the kinds of questions that people are asking. We're certainly asking ourselves. Does anybody want -- Pat, do you want to start off with that? MR. WHITE: Okay. I'll start off with that, Bob. Within the Bell Atlantic region currently, some 98 percent of our central offices are capable of providing ISDN services. And we are indeed marketing ISDN services pretty aggressively. We also have done trials of ADSL1 which is the version of ADSL that Stagg Newman talked about earlier which is the 1 1/2 megabyte version. We are also planning to deploy ADSL2 which is a six megabyte version of ADSL. You know, those considerations are underway right now because the technology is available to support up to six megabits downstream to the customer. One of the, and I guess I should also point out that we have an SDV, Switched Digital Video trial going on as we speak in Dover township in New Jersey and there is a more up to date system being planned for Philadelphia. With our switched digital video system, we will be capable of delivering up to 52 megabits over a twisted pair, very short twisted pair distances directly into the home. So some of those things are beginning to happen. However, there is an element of risk I should point out. Because investments in the network like any other investment, maybe unlike most investments, tend to have a pretty long lead time. You know, there's a lot of money, a lot of construction to be spent. And generally, you find that consumers are more interested in a new capability when a lot of people have the same service. Communication services generally have that property. They're useless for one person. But millions of people they're more interesting. So we need to see or at least we need to have regulatory policies that are consistent with the fact that you have to basically lay out a lot of money over a long period of time before you begin to see a return on that investment. And the extent that the regulatory framework in fact we're still trying to struggle with the implementation of the Telecommunications Act to the extent that that increases the risk for new investments, then I think that could have an impact on the willingness of operators to basically aggressively deploy SDV or ADSL technology. MR. PEPPER: Les, you're shaking your head. MR. VADASZ: I have a more pessimistic view of it obviously. I think if you look at our telecommunication carriers today, they spend more significantly, orders of magnitude more effort in trying to get into each other's business rather than trying to develop new business based for PC users. And this issue of who pays, well, in real businesses, in real competitive markets, you have a right to compete and you have to earn a return. You have to put capital at risk. And what we would like to see is the communication carriers recognize the PC user as a real viable economic opportunity. I guess that's what I -- MR. WHITE: Bob, can I respond to that? MR. PEPPER: Pat. Yes, please. MR. WHITE: Bell Atlantic currently spends in the neighborhood of $2 billion a year every year on new construction and maintaining the network equipment within our territory. I would hardly say that that is compatible with not investing in the network and looking elsewhere for returns. Indeed, we spend most for capital right here within the states that we currently serve. MR. PEPPER: Doug, I was just actually going to ask Doug, wireless, you pointed out that long lead times were maybe not the same in wireless. You can have more of an incremental approach. You don't have to worry as much about stranded investment. How does wireless and your business plan? MR. MORGAN: Our paradigm is much, much different. And today we're serving business communities and multi-dwelling units. We're not at the residential level. But I certainly assume when this technology comes down we'll be able to spread that. But where the technologies play out if you look at the cost of any access provider to go into the building, today it's somewhere between $40,000 and $100,000 depending on what city you're in and how much construction you're in and everything else go into that building. And I can understand -- Bell Atlantic saying I don't want to spend $100,000 to go under a building. Our approach is much different. We put a 12 inch dish on the roof, a couple of small radios inside and I have access to the building. So we're actually a unique competitive advantage for the carriers that we work with that they can use us to go into buildings to get entry to provide high capacity services and quite frankly if the carriers find that after they're in a building that there's enough capacity that warrants putting fiber in. We're a big believer in fiber. We use fiber ourselves to connect the nodes together. We think it's a tremendous technology, just not financially feasible if you have to build it on a building and hope that it will become kind of a model. So we give people a unique advantage. They can go into a building when there's enough capacity that they want to go ahead and build fiber behind us, they can go ahead and do that and we can take our plant and move it somewhere else. So we see ourselves as a real enabler to move some of this new technology forward with a much different financial plan than anybody else has in the industry. MR. PEPPER: Now, there's a question Stagg raised about wireless and its ability and interference characteristics and potential problems which leads to the question of the network liability issues that the Chairman raised. MR. MORGAN: Sure. I'd be glad to address that. As the largest provider of these kind of services, I won't tell you that we haven't had a learning curve as we've gone through this. If you take a look at vendor literature that talks about a 38 gig range, four and five mile distances and things of that sort, it will certainly work on those kind of distances. It won't work to the level that any of you will be happy with. So we have found that the nice point about the technology in our range is it's very much a point and shoot technology. This is not difficult. If you have line of sight, we can do a distance. The real thing we've had to find out is you have to make sure that you keep your distances short which means that depending on the region of the country that you're in, somewhere between a mile and a quarter to a mile and a half to a little bit longer as you go past, if you want to keep the five nine path reliability. Physics are physics. They haven't changed in 100 years. And the real thing you have to do is make sure that you have to keep the paths right. So once we have gone through the proper types of network engineering, you'll lay out your connection points in such a manner that you keep all of your paths short. And that also reduces the reflection and other people getting in the way of it. Once you do all that, you can build an incredibly reliable robust network, but you have to understand the engineering pieces and don't believe all the things you read from the vendors. MR. PEPPER: John. MR. CURRAN: Let me pickup on the Internet reliability issue. Certainly there's a real issue here. We're in a situation because again of the wide number of providers going forward and the very diverse technologies being used to deploy this, where we have different standards of reliability. In fact, there are some pieces within the work that I'm sort of pleased have different standards. The Internet has made it into countries where 386 PCs are state of the art, where the modems are older than many of my staff. And the fact of the matter is that the Internet is unique in its ability to connect all of these communities. There are rural networks out there, for example, for educational purposes that wouldn't meet the requirements of my business customers. I have 3,000 business customers connected to the network. They have very high requirements. That doesn't mean I don't want to connect to those other networks. You have to recognize when we talk about ability that we want a core network that is very robust, but the Internet accommodates almost anything from multi gigabit per second links all the way down to 1,100 baud VLF communications. That's all on the Internet somewhere. So I think it's important -- two things to keep in mind. First that when we talk about Internet reliability, I don't think we want to talk about ubiquitous in that reliability until we're sure we're willing to pay the cost for every corner of the Internet, where the Internet today is still going to corners that are fairly rough. The second item was just the fact that the Internet technology's changing very rapidly. I routinely run into people who are waiving around 15 year depreciation schedules and 30 year depreciation schedules. And I think about the fact that we're doing doubling every year. We're doing upgrades on a 12 to 18 month basis of all our key technology. I think that there's going to be a period of time when the Internet settles down and those periods lengthen out, but it isn't today. And I think that it would be wise for the Internet to have one-tenth the number of years that the telecommunications industry has had before it has to go tackle the reliability issue right now. MR. PEPPER: But how does this resolve Les's question of the real issue is mass market? Les. MR. VADASZ: I think that reliability is very important depending on the application. For example, today electronic mail has become a mission critical application in many of our corporations. However, I think that we have time to evolve. I think something like our telephone network is probably the most reliable, most impressive reliability that I've ever experienced in my whole company. MR. WHITE: Accepted. MR. VADASZ: We will get there. We need to get there. But I don't think we have to be there today. I think we have time to evolve as we deploy more and more applications on the network. I think that where we have to get very rapidly is broad band connection to the home. And, yes, indeed there are many other issues to be solved, but again, they will be solved incrementally. But I don't want to lump that issue of broad band connectivity to the home into just one of the issues that we have to solve along the way, among the 100 issues. That is critical now, urgent, and it's not happening. MR. PEPPER: Stagg. MR. NEWMAN: I just want to echo that. I believe the competitive marketplace will solve a lot of the problems. There are certainly major engineering problems in the backbone connectivity performance, et cetera. And there are going to be, there are lots of technologies available. There will be even more. I think what's key is, one, we're allowed to use all of those. We'll need wireless to get to some homes. We'll need cable to get to some. We'll need ADSL. So you need to let all those deployment technologies, all those technologies roll. LMDS, Local MDS is one. It's 28 megahertz, wireless technology. My guys weren't very enthusiastic about it. HP and TI are pretty enthusiastic about it. Finally, we observed, my guys are in New Jersey, fairly foliage rich, rain intensive area. You know, TI's out in Texas and HP's in San Jose. And the short form is your enthusiasm for LMDS is inversely proportional to the number of leaves you see when you look out the window. So we need to allow all those technologies to be deployed. But I agree with Les. The critical issue is the mass market. That's where the tremendous cap X will have to be spent. That's where you either have to dig up streets or have access to spectrum. And frequently, it's not the technology costs. It's the digging up the streets that drives construction. And so I think that is the critical issue that we need regulatory, economic, all of our best thinking to solve. MR. BERNENGER: Dan Bernenger from Vocal Tech. I just wanted to add one other point to the reliability issue in that this time around reliability is also an application issue, that there's nothing I can do to my telephone to make the telephone network more reliable. If you give me unlimited band width and you tell me, well, I'll give you ten meg, but I lose ten percent of my packets, I can do things on the application level by sending multiple packets out of the same quality or the same content and deal with it at the other side. So reliability is now also an application issue, but it's kind of a tradeoff. If I'm paying a lot for each of my packets, then I'm not going to put redundancy in there and I'm not going to do various interpolation things or whatever. So consider that as well. The applications has contributions to the reliability. MR. PEPPER: Thank you. Are there other questions? If you could stand up and identify yourself. And if you could raise your hand in the back so the microphones can get to the next people. MS. WOODARD: My name is Gwendolyn Woodard. I'm President of Worldwide Education Consultants. The questions are for Mr. Reed and Mr. Morgan. Mr. Reed, if I am a subscriber and I subscribe to the cable network services that you have to offer, if my lights go out, will I still have access to your network? MR. REED: The issue of whether you have emergency powering typically the way the cable industry is approaching that right now is for cable television services, there are a number of our member companies -- there's no uniform strategy, but a number of uniform companies do put in backup power to handle that situation. Unfortunately, if your lights go out, the television's out. So you can't really -- there's no reason. The same thing's true with the personal computer. So there's not a lot of value in backing that power up typically. GWENDOLYN WOODARD: Okay. Mr. Morgan, you talk about wireless technology. From my understanding, if you're going to go from Point A to Point B and I send information over the wireless technology, it's still going to have to hit somebody's network before it gets to its destination, whether it's wired or wireless. MR. MORGAN: The technology that we deploy is for your access to the backbone networks. So you're correct. If you're going from one educational institution to another that's five miles away, you'll use me as the access to get onto the network and then you'll hop off at the other side. Within a campus type environment or within a private network environment, many people will use our technology right within their campus. If you don't want to tear up a campus or something of that sort, they'll use it as a private network within their school. But anything that goes off the network, they'll use us to get off the network to a public network somewhere. GWENDOLYN WOODARD: Okay. And also from my understanding, no matter what we do, we're going to still have to use the wires or wireless capabilities of the LECs and IXCs in order for you to get anywhere as far as the Internet is concerned. You're still going to have to use them. MR. MORGAN: I guess it all depends on where you take your definition there. We do have places where we'll go from a school directly to an Internet service provider. Obviously, the service provider is connected to the LECs and to the PSTN somewhere. MR. PEPPER: In the back. MR. SCHMIDT: My name's Bob Schmidt. I'm with National Digital Network and we have a PSTN test here today that we would invite all of you to see. But my question is really to Mr. Pepper and the people here on the panel from the FCC. Today we have to come to the Commission and play mother may I to do what we are capable of doing from a technology standpoint right now. And the people in the room who are users and the gentleman, Mr. Morgan has a system up and operating and I commend him. Because I think wireless has flexibility to do some things. But we've got to get the regulatory scheme caught up with the reality of the marketplace. And I think what Mr. Newman said about MMDS is true. It is another wild card. But we want to be in the game. And in order to be in the game, we need to have the regulatory environment allow people like ourselves to bring forth the capacity to deliver these services. So my question is how soon will we have that, Mr. Pepper? MR. PEPPER: Well, actually we can put this record in that proceeding as well for the MMDS flexibility. STEVE STEWART: Steve Stewart with IBM. Two questions for Pat White. And I would like David Reed to also answer the second question. And then if Stagg Newman has any comments on that, that would be useful too. First of all, Mr. White, you mentioned that Bell Atlantic is investing about $2 billion a year in networks. Can you tell us roughly what percentage of that is going to ADSL investment or other broad band networks? The second question is if you look at your ADSL and other broad band technology deployment over the next five years, can you give us a rough percentage of the number of homes that would have to be available at the end of '97, at the end of '98, et cetera. And then for David Reed, if you could offer the same percentage deployment over the next five years for cable modems. Thanks. MR. WHITE: I don't have that data off the top of my head, but I'll be glad to get back to you with it. STEVE STEWART: Okay. MR. PEPPER: Kevin Werbach wants to ask a question. Kevin. MR. WERBACH: Well, a little more than a year ago, some of us remember the 1996 Telecom Act passed. And back then everyone was talking about, gee, you are going to have these big band width networks. Cable is going to provide broad band to the home. Phone companies are going to provide broad band to the home. It's all going to be glorious. And here we are a year later and none of that seems to be a reality for the mass market we're talking about. What has held up that sort of development? Is that just international exuberance? Or are we really going to see those kind of developments taking place? Who wants to take a stab at that? MR. MORGAN: Wait until after the market closes. MR. WERBACH: Pat, do you want to take a stab at that first? MR. WHITE: I guess I get all the tough ones, huh? Well, I'd like to start commenting on that by going back to a point I made before that there are a number of uncertainties right now in the industry. We talked about the fact of the technical uncertainty that exists. We do know that a lot of the technologies we're planning to deploy work well in lab environments. When you take those equipments out into the field, you find a different thing, a different situation altogether. So we have to make adjustments for that. On top of the technical uncertainties, there's the new uncertainty with how the Telecommunications Act will be implemented. The extent to which we have to price our new technology below cost and make it available to people who are not taking an investment risk that we're taking, you know, leads to some caution that I think any prudent manager would have to take into effect before making a bet. But in spite of all of these things, Bell Atlantic has been as I said before moving aggressively with upgrading the local access. 98 percent of our central offices are ISDN capable. And in addition to that, we ran trials I think as far back as two or three years ago in ADSL at 1 1/2 megabits. And we are considering deploying the ADSL2 version which is the 6 megabyte version. And, of course, our SDV trial in Dover is still going along. So we are indeed proceeding with constructing broad band capable networks that will do high speed data as well as high speed video signals. MR. WERBACH: Let me ask the same question of David. A couple of years ago I think it was John Malone from TCI was on the cover of Wired saying I think end of '95 cable will be providing broad band to homes. That obviously hasn't really happened either, has it? MR. REED: I'm not going to speak for John Malone, but our -- it is happening. To be sure, there is a hype factor, perhaps an over hype. But to the extent something's new, that's a natural human reaction to things. You do have commercial high speed data services, but Time Warner in Akron, TCI in California, Cost in Phoenix and Comcast in Baltimore. And these are real. These are actual subscribers that are receiving this service. And we're learning from those commercial deployments. They're not technology trials. They are commercial deployments. MR. MAXWELL: Can we help to scale this? When we talk about 100 million access lines, it would be interesting to say by the end of '97, what would you guess to be the table modem penetration? By the end of '97, Pat, what would you expect to be the ISDN penetration in Bell Atlantic territory? MR. REED: I'd like to -- to be honest, we don't track that kind of information in terms of market forecast. It's just simply not something we do. And so I can't answer that. I mean, I can say that our member companies may have very aggressive roll outs. To Bob's question earlier about are there any regulatory implications to that roll out, we think that the two-way cable high speed data services is a nice service that roils out independent of the regulatory environment since it's just a network Internet access service. Some of our member companies are looking at what we call a telco return model which is because it takes time to activate all your cable network, you would have high speed access, high band width, in the downstream direction and the telephone line in the return. In that case, the extent to which anything that might impact how folks can access that telephone line in return could potentially be a barrier and that's a bridging strategy for the cable industry until they can do that. So that could slow down roll out if something like that were to occur. But I don't think referring to TCI, they hit the brakes on capital. I think it's a natural reevaluation process. It's not that they're not going to do any of these things. They're just reevaluating and figuring out how to do it more efficiently. And they'll be going forward and they are going forward. They have built a lot of state of the art 750 megahertz plan. And so you will see these services rolling out. But, for example, with high speed data service, it's associated -- it's not just the local access. You know, they have at home which working on trying to work on some of the other bottlenecks in the service. MR. PEPPER: Do you have any idea what percentage of the cable network today in terms of homes passed actually have been upgraded to the 750 megahertz so that they would at least be capable? Stagg's point we first have to do the hybrid fiber coaxial upgrade before you're then ready to go to the next step. Do you have any idea -- MR. REED: I mean, that percentage varies. I don't have an industry number. I know for member companies, it varies anywhere from 20 to 50, 60 percent. MR. PEPPER: And Pat, a comparable question. What percentage of lines or households could be provisioned with an ADSL or XDSL without having to significantly upgrade the networks other than just putting on the box in the home and a box in the central office. MR. WHITE: Yeah. I hate to answer questions like that off the top of my head, but I think you're probably talking 20 to 30 percent could probably be satisfied that way. And the rest would require some fiber -- MR. PEPPER: So in some ways it's very comparable to the cable industry situation which is basically that someplace between 50 and 70 or 80 percent of households would have to have their basic networks upgraded before you could deploy the latest of the consumer technologies. MR. WHITE: Right. MR. PEPPER: The higher band widths. MR. REED: Well, not necessarily. I'm saying with the telco return model, for example, if that were to roll out, that would be one example of having band width in the downstream direction. But that's just, that's a bridging strategy and the industry's learning right now about the two way and how long it will take to roll it out and how rapidly they can do it. MR. PEPPER: Les and then Stagg. MR. VADASZ: If I may, I'd like to rephrase that question. I think it's a very good area to try to put some meat on the bone. We all know the various technologies that are applicable to this area. I'd like to understand our collective judgment of when is the second million broad band connection going to be installed in the home? I don't care which way. I don't care if it's cable, wireless or ADS or whatever. When are we going to have two million homes broad band? My judgment is not in this decade. MR. PEPPER: Stagg? Nobody's volunteering to answer that. There's somebody in the audience volunteering. Let's let Stagg ask first. MR. WALDHUTER: I'd like to answer that. I'd like to try to answer that question. I am Jeff Waldhuter, Pat White's twin brother. I am Executive Director of Nynex Science and Technology. We have done similar trials as Pat has done at Bell Atlantic, both in ADSL and SDV technology. What I want to say is that we've done a lot of similar efforts and I think the other regions as well in '96. And what we learned is basically the broad band capability, the technology for the access piece is there. So I'm in support of what Les said is that the challenge to our industry as a whole is to move towards broad band Internet and that's the whole challenge that we have to embrace together. What we found with the trials is the missing part is now in moving to broad band Internet you're dealing with much higher, higher speeds of traffic. And I guess one point Les mentioned when will we have the first two million lines? Well, I think we have the technology. We have it both in cable. We have it in ADSL. We have it in SDV. But the challenge we're trying to work out at Nynex Science and Technology in '97 with our trials is to come up with a scalable network solution that's cost effective to the mass market. The public switch network today as we know it was never designed to carry broad band speeds, okay? So we have to upgrade that, provide that overlay network to carry this pack of traffic. And I don't think no one telecommunication vendor, service provider, can come up with the solution. We have to work together as a team to build that. There are a lot of piece parts and no one has all the answers to that. Thank you. MR. PEPPER: So I think what I'm hearing is your answer to Les's question is actually agreeing with Les that you don't see as a practical matter the mass market, the second million broad band home for at least, now we're talking three, four years which is the end of the century. JEFF WALDHUTER: I believe nothing has to be invented in access technology to achieve that. I don't believe anything has to be invented on the network side, but what we have to do is come up with scalable solutions that are easy to provision, easy to operate, easy to maintain. And that truly doesn't exist today, either for the cable industry or for the telco. The technologies are there. It will take time to do that. I take all of the piece parts are there. The CPE is there for the computer to support the traffic and the applications of multimedia. The access is there, whether it's ADSL for the telco or it's cable modems or -- MR. PEPPER: Yes, I think we all understand that, but the timing question I guess one of the questions is the extent to which there are processes within the industry that actually work those things out to move that out more rapidly. MR. WHITE: Let me take another angle at that. I believe I might have said this before is that -- and the point is you have to take a really total network solution. Because even in my office today, and I'm sure this is probably true here at the FCC, assuming you have a high speed LAN connection in here. You don't see more than a couple, I mean, two or three kilobits a second is what you normally get when you download files from the Internet today. So you're looking at us to say, okay. We're going to spend money to basically go out and fully upgrade, you know, put two million customers on the Net by the end of the decade. That sounds like sending a man to the moon somehow. And yet, there's almost nothing that we could do, at least within the immediate future, to make use of that band width. I mean, the PCs are not there. The services are not there. MR. PEPPER: And I guess, Pat, that leads to the question for everybody here and maybe John wants to start with this, which is what are the industry mechanisms to come up with the kinds of systems that were described as necessary that did not yet exist. How are all of these various piece parts or components -- if we're talking about the total network solution or the total network view, there are lots of different pieces of this network, lots of different industries competing. Sometimes your vendors and suppliers, your competitors, what are the mechanisms to do this? John. MR. CURRAN: I'm going to pick up on that question, but I'm first going to start by answering the two million user question. I agree. I don't think we actually have a technology here. BBN's participated in Internet over cable activities in places where there's HRC plant is already installed. This rolls out very quickly. I have people in Boston telecommuting over this and it's a very high band width solution. We've sat down as have other backbone providers in the Internet to look at what happens when you have, oh, fifty or sixty thousand users coming in at T1 speeds. And certainly there are some issues there, but they're not necessarily technology issues. The main thing I see is that there are real costs associated here. Don't under estimate the costs that are incurred in a broad band solution to the home and dismiss it as something that technology will necessarily just wash away. That isn't the case. The main issue I see limiting deployment of two million users is two million broad band buyers. Once they appear, I don't see any other problems. MR. PEPPER: Okay. We have a request from the Reporter that people who speak from the floor if you could just provide her with your business cards so we can spell your name correctly. If you do not have a business card, spell your name when you speak. Because again, this is going into the official record. We have somebody over here with a mike. MR. MAZER: John Mazer, General Datacom. Open question for the board. It sounds like what we're all searching for is a driver to break the broad band bottleneck that we keep speaking of. Is it possible to tie in the levy of ISP telephone access charges to the availability of a broad band local loop capability by any service provider? MR. PEPPER: Anybody? I think they may -- is it correct to interpret your question as a charge associated with broad band to pay for broad band? Is that what you're suggesting? JOHN MAZER: Sorry, it's the charging of an ISP as a carrier to access the telephone network which has been proposed by the local exchange companies. MR. MAXWELL: Subject to there being a broad band deployment by the local exchange company. JOHN MAZER: Or any of the service providers in our newly deregulated environment. MR. JACOBSON: May I respond? My name is Gordon Jacobson. My company is IRAP Network. We have a broad band Internet access network running up and down the East Coast and our sister company in California who has a representative here who would be on one of the panels this afternoon. We'll be talking about the subject of broad band network. The question really is broad band access. It's not about the existence of a broad band network. That technology is already here and it's scalable. The question of the access fee should be separate and distinct from anything else. That should be unrelated. I have a question that I'd like to address to John Curran if I may. John, when we see telcos talk about the Internet and when Pat talks about the Internet, one presumes that from what they're saying one can infer that they think the network is all about dial up access. I'd like to hear your comments about the percentage of users who do not use dial up access. MR. CURRAN: It's a good question actually. The fact of the matter is that we think of the Internet and people think of the most common pieces that they interface with, the large online service providers, the dial up service you use to get into your school or work. A vast majority of the Internet traffic is coming directly from those local area networks in businesses. It's coming between very large servers. People who are at work using it for work, people who are busy engaging in as I said transacting business over the network. We're seeing many activities that used to be done entirely on paper now being done online. You see not just retail catalogs on line, but wholesale catalogs on line. You see people removing their software distribution infrastructure because the Internet is there. Why not use it for software distribution? Companies are reducing their call centers because they're handling the support online with interactive media. So, for example, BBN's focus is entirely business. We serve approximately 3,000 business customers which include the high technology who's who and many of the people who are online service providers. There is two distinct markets here. The fact of the matter is that when we talk about the network, sure, there are technology hurdles, but the Internet providers have increasingly been working to make sure that we can scale the Internet traffic, the backbone to handle the traffic needs. The access network and the issue of how access charges are reformed over time, whether or not that's going to encourage broad band access, et cetera, is very much a distinct question. And I just need to point out that the question of how people get access to the network given the wide range of technologies that we've seen, the most important thing is just to make sure that all of them are available on a basis that recovers their costs and shows a profit and that there is no artificial restraints or pricing involved that will skew the market decision of 3,000 ISP buyers out there. MR. PEPPER: Les. MR. VADASZ: I'd just like to add something to this. I think that we see a very healthy competitive market competing for the dollars of corporations for Internet access, Internet service. I think where we see a lack of competitive environment is the residential broad band area where there are no real technology deployment of any large scale level. MR. PEPPER: Thank you. Oh, we have time for one more question. Alan. MR. CIAMPORCERO: Alan Ciamporcero. It's an easy name to spell. You shouldn't have trouble with that. Kevin, I've just got to say something about your question. I'll go absolutely crazy if I hear another person from the Commission say why aren't you in the video business? We spent, as a lot of people here know, two years trying to get video dial tone applications passed and get through that process. By the time I got through with it, the business unit had literally fallen apart. Now, if that were only of historical interest, I wouldn't bother bringing it up. But we may be facing the same thing with ADSL. Lee Bauman's going to talk about that later. The Commission needs to have policies that encourage investment, not that discourage investment. And we believe that the interconnection policies are doing what the video dial tone policies did a couple of years ago, making it take so long for us to get into a new business that we can't rationally plan from beginning to end. Thanks. MR. PEPPER: Thanks for the statement. Is there one last question? MR. ROSS: Thank you very kindly, Mr. Pepper. MR. PEPPER: Yeah, just talk. MR. ROSS: My name's Charles Ross. I'm President of the Canthos Corporation, BNET. One technology that was not discussed here this morning which we're using in expensive Internet satellite provision by taking capacity overseas to international telcos in developing countries and ISPs is streaming data compression. This is a new technology. It does work. And it allows us to bring bulk capacity from the North America and European grids directly into ISPs who are obviously looking to lower their cost of service provision so they can create what I like to call locally affordable services. If the local people can't afford it, they're not going to use it. My question to the panel is being that this technology is new but exists today and I say with respect it is largely based on Intel chip technology, we would like to see the opportunity in the domestic U.S. market to see this deployed. It is a board level technology which can allow users to avoid the choke points of difficult local access. And while this does seem like a new technology, it exists today. It is stable and we are deploying international satellite circuits across Intelsat and other systems to use this. Thank you. MR. PEPPER: Does anybody on the panel want to respond to that? Thank you. I want to just come back -- we're going to take a quick break between panels, but I want to first just comment on something that Stagg started off with and that is that business and large business customers have access. They're getting broad band access. We've heard that this morning. The question really in our minds is precisely the one that Les asked which is the mass market, the residential consumer, the small business consumer. And this is really at the heart of why we are having the forum. And I think unfortunately this is not going to be the last forum. In fact, I suspect we'll have many more before we hit the first million residential broad band consumers. I want to thank the panel very, very much. This has been a great discussion this morning. We will reconvene by that clock at exactly 11:30. And so we have a ten minute break. And if the new second panel can come up in the interim, I'd appreciate it. (Whereupon, a break was taken.) MR. PEPPER: We promised we would start again at 11:30. We are close to that by that clock. Kevin Werbach, our counsel for new technologies in the Office of Plans and Policy, is going to introduce the panelists for the next panel and take over some of the moderating responsibilities for this panel. Kevin. MR. WERBACH: Well, we've had one session looking at some of the different ways of delivering band width. In the second panel, we wanted to focus more specifically on one underlying network which is the public switch telephone network as a starting point and then to move out from there. It's clear that today the public switch telephone network is the primary way most people get to the Internet. But at the same time if you open up the papers or magazines over the last several months, there have been front page articles about congestion in terms of the growth in Internet use and the implications that that might have for the network and also issues about congestion on the Internet itself as the Chairman remarked, people getting busy signals, trying to get onto America Online. So we brought together some people on this panel to look at some of those issues, both in terms of overcoming the limitations of congestion and getting on the Internet and also going forward how the public switch network, telephone network can be optimized for delivering data. We also have a new addition to our moderators' table, Jane Jackson from the Common Carrier Bureau at the FCC. Jane's been very involved in managing the access reform proceeding that people had mentioned earlier and looking at some of these issues from our perspective. So we're glad to have Jane here to join us. On the panel we have first Lee Bauman who's Vice President of local competition for Pacific Bell. Pacific Bell probably has the most busiest part of the Internet right in its backyard. So if there's anyone who is familiar with the challenges of accommodating the Internet and public switch network, it should be Lee. So we're interested in what he has to say. Next we have Mike Trest from ATMnet which is Internet network provider that's pushing the envelope of performance through networks and obviously that raises the question as someone mentioned on the previous panel all the bandwidth in the world that you can have in the Internet getting to it through the phone network. Third, we have David LaPier from Cisco. David is a solutions consultant from Cisco who's been looking at some of these issues in terms of congestion on the phone network. Cisco being the provider of much of the router technology that's used throughout the Internet, obviously has dealt with these kinds of challenges of filling up the Internet as the Internet. So the next challenge I think is to figure out how to optimize the telephone network in the same kind of way. Jamie Love from Consumer Project On Technology. Jamie has been very active in looking at the issue that everyone was talking about the last time which is how do we get out to those 100 million households with these technologies and what are some of the issues with services like ISDN in particular that are there now? And finally, we have Matt Korn from America On Line and Matt is the Vice President of Network Operations. If there's anyone who's more familiar with the challenge of overcoming congestion limitations and delivering band width, Matt's probably the one. So we've got a good group of people here. So we'll start once again with a two or three minute opening statement and I'm sure we'll have a lively debate like we had the first time. So Lee, I'd ask you to go first. MR. BAUMAN: Thank you, very much, Kevin. Pacific Bell is both a large local exchange carrier and a large Internet access provider. And both businesses are very important for our future. Today as I talk about regulation and pricing, I would ask you to keep the following scenario in mind. If you were given a choice of continuing to keep a service which you're using essentially for free as compared to a service which is better, faster and more efficient, but for which you need to pay more, which would you choose? This is the dilemma that we face given the current ESP access charge exemption. The problem is made worse by the below cost pricing of our basic exchange access services in California. Our customers in California, both end users and ESPs, don't pay per minute of use for Internet access. And even the California Public Utilities Commission has agreed that line prices are set at about one half their cost. While some of have thought that the ESP exemption was an appropriate policy approach to encourage the growth of an infant industry, it has now become a critical roadblock to the development of new, more efficient products for the growing Internet market. ESPs, including Internet access providers, have responded to these false pricing signals created by the ESP exemption by using the switch access network in an efficient manner. And to no one's surprise, the end users have responded in the same manner. Now, per minute of use access charges are not the only alternative. But prices that cover cost must be a part of any reasonable solution. Our technologists and product development folks are working hard to come up with alternative arrangements that are acceptable to customers in terms of speed, flexibility and price. We have ISDN available and very aggressively priced. We have announced the roll out of ADSL. We have designed alternative network configurations that can eliminate the current problems ESPs have with modem poles and network node configuration and give customers better service. Technology is not the limiting factor. You can imagine the tough time we're having given the scenario I asked you to keep in mind a moment ago. While we have faster and better alternatives, from a pricing standpoint we can't compete with something that customers and competitors are using and having almost for free. If we extend the current regulation into the new environment, we will discourage investment and innovation because there will be no competition on a facilities basis. Let me explain why. First, competitors will not invest where they cannot make a reasonable return. New entrants will not enter markets on a facilities basis if prices of the incumbent's services are below cost. Second, regulation will keep some prices artificially low while competition will drive certain other prices down. The company caught in this imbalance is in jeopardy and certainly has reduced incentives to invest in this network. And third, regulation requires the incumbent to unbundle their networks beyond what we think is essential and to price unbundled network elements at cost. Given these conditions, there is no incentive for competitors to invest in their own facilities because every customer is financially crafted to serve with minimal or no investment required. So the important question is what can we do to encourage investment and innovation by all competitors? First, we should let the market decide whether the new environment is to be a one, two, three or more wire or a wireless world. Today regulation seems to assume that the information highway depends on a one wire world and the full force of regulation is being brought to bear on that single wire. Second, we should resolve existing price cost distortions in ways that encourage investment by all competitors. And finally, we should allow the market to determine the winners and the losers. Let us build a world on the assumption of competition, rather than a one wire world that assumes no competition. Thank you. MR. PEPPER: Thanks, Lee. Mike. MR. TREST: ATM Net is a relatively new in the market. But in the year and a half of our existence, we have already established a new quality of standard by taking advantage of those new synchronous transfer mode technologies. We provide direct access to our business, large and small business customers, at a 155 megabyte. That's about 100 times larger than the access provided by most Internet suppliers at 1 1/2 megabits. And for those of you at home, it's still 7,000 times faster than you can get on any modem technology. And it's about 40 times faster than the cable modem plants that are in place today. So it's this rather niche market that I'm in. However, we need to narrow our focus on this panel to look a bit at today's technology and the reported PSTN congestion. The ISPs, their dial up customers, our business customers, have spent billions of dollars in investments. We are making the likes of our esteemed colleagues at Cisco and others billion dollar companies in revenues every year by our purchases. So unlike our telcos who are extremely large and noticeable in their investment, we also have made no similar investments. Our concerns about the LECs movement into the Internet service provider business, especially in California where I am located is real. We need to address that concern because years of regulatory protection have provided these LECs with economic powers which could be inappropriately used to restrain non-telco related ISPs. I have examples that we'll probably hear later about why we worry about congestion and yet Pacific Bell in my market can send a mailing to every telephone subscriber in the state and offer them six months of free Internet dial up access. Well, let's move to some specifics. There are today's technology that can indeed eliminate some of the problems. Number one, we can rebalance our exchange hot spots. Now, this is rather technical. So I'm going to get rather precise on it. Our switch congestion in exchanges, especially where there are concentrations of ISPs can be remedied today by some minor encouragements from both the Commission and the business practices of the LECs. In such simple things as market area dial up plans, area wide prefix coverage or reduced charges for remote exchange back haul can be resolved today by actions of the Commission's in general, the PUCs and the LECs. However, these kinds of discussions with the local LEC usually fall apart over tariff costs, alleged regulatory constraints or simple inertia on the part of the LECs. Two, we should all look towards using alternative dial tone and switch server providers. The historic LECs now have competition. MFS and TCG, for example, in our markets provide additional switching capacity in many of the major markets. If the historic LEC is not able to keep path with switch congestion, then the ISPs generally should move to these alternative vendors and eliminate much of the alleged congestion. Three, we should encourage movement away from switch facilities to even today's limited PS1, 1 1/1 megabyte facilities and thereby move hundreds of thousands of businesses, large and small, who are today using ISDN dial services. The cost differential for the consumer for the premises equipment of 128 kilobit ISDN and 1 1/2 megabyte DS1 lease line service is only $1,000 one time expenditure. It is my contention that business communities, large and small, would gladly pay that differential to remove themselves from the switch congestion environment. Now, if the LECs were encouraged by regulation and market pressure to work with the ISPs a little better on the DS1 price adjustments. We should be able to do this and it would be economically interesting to both the LECs and the ISP community generally. Fourth and final. We should improve the ISP's regional and local cooperation with the local LECs in the technology issues. ISPs and LECs should be working together to better utilize the existing infrastructure, not just the switch path infrastructure, but also all other infrastructure types. If, for example, ISPs had the unbundled access to all aspects of current loop environments which we would be willing to pay for it, whatever the cost, we believe that the ISPs will lead the LECs in the deployment of these new technologies because we are not encumbered with the 20 and 30 year bond debt cycles and the IRS regulations that forces them to amortize copper over many years. In the absence of greater cooperation between the ISP and the LECs, it should not surprise anyone in this room today that the ISPs and the public equity markets will shift their investments to non-telco related infrastructure projects. Thank you. [applause] MR. PEPPER: Thanks, Mike. David. MR. LaPIER: At Cisco, John Chambers, our Chairman, is always reminding us that our industry is moving at Internet time and a chronological year of one year is seven years of Internet time and the various implications of this, and I think some of the remarks we just heard relate to that. I keep wondering whether I'm going to die younger or live younger. And maybe as a corollary we should ask if the public switch telephone network is going to do the same? Is there pressure on the local exchange and the public switch network caused by dial access? Clearly, there is and the modem is not going to go away. It's here. We heard from the last panel that that's definitely the case. So we've got this public switch network infrastructure to deal with and there's a need, I mean, it's optimized fundamentally for a different application. It's optimized for voice where with systems that are 8 to 10 percent occupied as opposed to now reaching 70 percent occupancy in some places. So there is a problem and there are technical solutions clearly. And the local exchange companies and their competitors, CAPs, et cetera, other telephone companies that are seeking to compete with the local exchange, utilities, are going to seek out alternatives, together with the LECs and how they're going to be making those investments. They can make technological investments in the embedded switch infrastructure. There are new ideas coming out from vendors every month about putting new kinds of switch capabilities into the network that can encourage new services. One interesting capability which would in a sense create an overlay network in the local environment is a dial up virtual private network services where access servers, modems and ISDNs are effectively provided on an out source basis. You move the modems closer to the subscriber. The dial component of the call ends and hence the switch, the inefficient use of the switching systems end earlier and traffic moves onto the packet switch networks sooner. Beyond the modem, the packet switch network can carry that traffic to enterprises and Internet service providers in a much more efficient manner with 10 to 1 or 20 to 1 improvement in band width. So this is one example of a more efficient solution that companies that are interested in competing with a local exchange are looking closely at. But there's another dimension to a more efficient solution and that is the nature of interconnect arrangements. Even separate from price issues related to terms and conditions. Planning and engineering information being shared in a more effective manner. Measurements of networks being shared on both sides in the more effective manner. Order processing and customer care being provided in a better way. And in the current telephony world of large interchange carriers and large local exchange carriers were able to work out these agreements. Now we have this tremendous challenge because, number one, we have many, many, many more stakeholders, especially the small and regional Internet service providers who are bringing tremendous value to this business and bringing services to customers. So it will be more difficult. And, of course, also because the rate of growth places a challenge on the establishment of interconnection agreements. So the last point I'd like to make is in respect to the future. Computing power is not going to slow down just because the telecommunications industry wants it to slow down. Those remarks that were quoted earlier by Andy Grove and from Microsoft, that's definitely a fact that's going to be here very soon. Plus, we're going to have Internet appliances that will widen the framework as well. Several years ago we heard in rooms like this discussions of come onto the Internet and build your log cabin in the Internet marketplace. Well, clearly now we have main street on the information marketplace. So we have to meet those challenges. Thank you. [applause] MR. PEPPER: Thanks. James. MR. LOVE: Thank you. I assume this thing about the three minutes for opening statements is really kind of an urban myth. MR. WERBACH: We can ask. Virtual three minutes. MR. LOVE: I brought an ad with me that was referred to earlier about Pac Bell saying order a second telephone line for $11.25 a month and we'll give you, this one says five months of free Internet access with Pacific Bell Internet. Now, aside from asking the FCC to request the Justice Department to investigate predatory practices by Pac Bell which I think is overdue in this particular case [applause] MR. WERBACH: Can we ask the audience not to applaud during the question? I know people have strong views about all of this, but we want to give everyone a chance to speak and be respected. MR. LOVE: You have the obvious hypocrisy of Pac Bell complaining about Internet use bringing the network down and then saying if you order a second telephone line for eleven bucks then you can have free Internet access for five months. So they're giving away a competitive service for free if you order regulated service for eleven bucks. They claim it's priced at half of what it actually costs them to deliver the service. So one has to be a little suspicious of what a monopoly can get away with in this world. Now, I'd like to talk a little bit about this thing about congestion which I think is a product of a very big multimillion dollar propaganda campaign by local exchange companies about the way the Internet's used by dial in users. We've done surveys of Internet service providers and almost none of them have fewer than ten customers per incoming line to provide service. And a lot of them have about 20 customers per incoming line. America On Line had a lot more than 20 customers per incoming line. They had about, they had incoming lines for maybe three percent, maybe three percent of their customers. And now they're going to try and ramp it up with a big $350 million investment so that they'll have five percent of their, they'll be able to serve five percent of their customers at one time. Now, if you dial in America On Line and you're not getting an answer, that's because they haven't really got up to sort of the industry standards. But the fact of the matter is ISPs, Internet Service Providers, typically provide access for 5 to 10 percent of their customers at any one given time and that is a hard and fast constraint. That's not a fuzzy, squiggly constraint. That's not a constraint you can ignore at 3:00 o'clock in the afternoon because you sort of changed your mind. There are only so many incoming lines. So if only five or ten percent of the people that call up, dial in users, can get connected at any one time, how can it cause this big congestion on the public switch network? Bell Atlantic says the residential network is provision for one in seven customers can connect at any one time. That means if you're one in 20, you're way below one in seven. That means that if you're one of the best Internet service providers and you're one in ten, you're still way below. Well, people that dial in as residential users, they mathematically -- it's impossible they are not causing any extra to be added on the system than people that use it for normal voice processes. What is happening? Well, the telephone is busy frequently at the Internet service provider. Their number is sort of tied up a lot and that is because the ISPs do what any smart business would do is they order the right number of lines to service their customers with any given level of service. Just like Bell Atlantic doesn't provision one to one for the residential market. They provision one to seven because they think that's enough lines or enough circuits or enough interoffice trunkage to serve the people that use the telephone. ISPs do that. I work in an office. We have a PBX. We don't have as many incoming lines as we have people in the office and we ordered the number of incoming lines to roughly correspond with what we think we're going to need at 3:00 o'clock in the afternoon. So I would start out with the fact that all this crap about congestion has really been unexamined by people and I would really urge people to try and pull out the old calculator and do a little bit of arithmetic in terms of the way the Internet's currently being used and look at some of the data. The issue about length of calls is really ridiculous. The fact whether you make a call for five minutes or an hour at a time doesn't really make any difference. What makes a really important difference are the number of minutes you call in the market, the number of setup charges and things like that. People do not make as many calls to ISPs as they make voice calls. They make longer calls to ISPs. They make more frequent calls to voice things. There's been something left out of the arithmetic if you only look at the length of the call. You have to look at the total number of calls. You have to look at the length of the peak or the Internet service providers are lengthening the peak from what the peak was before and stuff like that. So I think that the congestion thing for people dialing in ISPs is really way overblown. However, ultimately you do want to move away from a circuit network. You want to move to some kind of a packet type network in the long run because ultimately the goal should be everyone should be connected all the time. I mean, that's really what I think the ultimate goal is. So you've got the short term reality and then you've got the long term thing where you want to go. Now, we've heard this morning in the previous panel that virtually none of the big high tech pie in the sky things are going to happen right away. When we talk to companies like Bell Atlantic, they tell us it will be seven years before they anticipate any kind of meaningful penetration of ADSL as a consumer service into the home. And I think that people in the cable business are beginning to kind of come to grips with reality over there in terms of the wiring of the cable network. So what are we really stuck with in the short term? Well, you probably can do ISDNing of the home. Is ISDN bad? What can you do on ISDN? You can do video. You can do high quality audio. You can bond together ISDN lines. You can do really a lot with ISDN. So why is ISDN never talked about in forums or anything else? It's because the LECs control it. They're pricing it through the roof and they're sending a signal to consumers, don't buy ISDN configurations. Don't wire your house for ISDN. There's no future. We will not let you buy it no matter what you do. If you order it, we won't deliver it. We won't promote it. We'll charge all kinds of bizarre fees on things like extra numbers for devices and spuds and all that kind of stuff. So their heart isn't in it. And so people read the writing on the wall and they say, okay. Let's sit around and hope technology can rescue us from this low band width technology sort of nightmare that we're in right now. Now, there are states where commissions have done and they've come in and they've whacked the rates quite a bit from what the companies ask, but it's uneven. Because not all commissions are sophisticated. They're not motivated. They don't really know what to do. I will tell you that by and large the LECs coming in, and you saw it in the recent proposed rulemaking. They're saying that they're not traffic sensitive cost for ISDN are roughly about five bucks over what they are for POTS service. That's kind of the numbers they submitted, you know, that was presented in one of these tables for notice of performing rulemaking, unbundling and stuff. And then they say their direct cost of usage are roughly in the neighborhood of ten cents per hour, not per minute, but per hour. That's roughly the numbers they come in with. But they ask for fees, really high fees. So the pricing's way out of whack on ISDN. There are some exceptions. Ameritech's done some good things because maybe they didn't want to, but they did it and a few other places. But one of my favorite examples is in Arkansas where Steve Sanders, who's a Ph.D. in physics and an MIT degree in engineering, runs a phone company down there. They have non-blocking switches. Everybody in the whole area can connect at the same time. They provide ISDN for $17.90 a month and it's flat rated. Plus, they throw in free Internet access just to sort of move the ISDN service into the market. He says that ISDN for the vast majority of people in rural America and people outside of areas, the only thing they're going to have for a really, really long time. So I think regulars can focus on the tiny minuscule number of people they're going to have the sort of space age technologies in the short run or the 95 percent of Americans that could have 128K in the short run in digital connection. And you can decide where to put your priorities. MR. WERBACH: We're going to need to -- MR. LOVE: Wrap it up? MR. WERBACH: Move on. MR. LOVE: Sorry. Now, in terms of, last page of our prepared comments, we pointed to some strategies that we think regulators can do. Several things. One thing we need, I think you need to do is to sort of provide market based economic incentives for companies to point any kind of a digital technology. We don't really care what it is. And what we recommend is you look at the penetration rate at Bell Atlantic and Nynex and all these guys and have them compete against each other. And you say the ones that have the highest penetration rate relative to the other guys, in other words it's a sort of invidious comparison, they pay a different rate of the universal service fund. So there's an economic cost of not deploying. There's an economic benefit of deploying. And then all of a sudden, we think attitudes will change. So that's our principal we think motivator that the Commission should follow. And we also think they should provide incentives and things to sort of move people off of the circuit thing into some of the new -- picking things up at the switch. We know in Japan they ask people that want flat rate service to register phone numbers if they call numbers. That may be a a useful thing in taking data off the switch before it gets into the circuit. We've talked to some of the guys about it. I know my time's up. Thank you, very much. [applause] MR. WERBACH: Matt. MR. KORN: Thanks. In deference to my colleagues from the local exchange carrier, I'll try to keep my comments to three minutes. I understand three minute hold times are kind of preferential in this area. I'm Matt Korn from America On Line. And, of course, we're in the headlines almost every day because of just how rapidly this industry is growing. I joined America On Line four years ago back when we had only a couple of hundred thousand subscribers and 2,000 folks could get onto the network at one time. So it was a modem ratio Jim was talking about. It was actually 1 to 100 back four years ago. We had an excess of modems at the time. Really what's happened is we've seen an explosion in interest in the Internet. Just as the American On Lines ads on TV say, the future is here now. It's a good reason why the music is set to the Jetsons because the future really is here and it's arriving as we sit here and speak. The change in member to modem ratios is really phenomenal. It was a year ago it was a 1 to 50 ratio and it was a 1 to 30 at the beginning of the summer, I guess the end of the summer. There was a huge interest in the Internet over the summer. Probably almost everyone in the room here listened to ads on the TV during the Olympics and just every single one of them was followed up with a web URL. And so we have this explosion of interest and so the modem ratio is now approaching 1 to 25 and we're on our way to 1 to 20 over the next six months. So the Internet is indeed we'll all look back to 1996 and say this is really the time when it came to the public in America in a massive way, in a way that it hadn't in the past. I should also for those of you who are subscribers and members, we're working really hard with our colleagues, local exchange carriers, who in general are working very closely with us to deploy additional modems in the field. We rely heavily on their technology and circuits in the various communities around the country to get our modems deployed. So we're working hard and we'll have the extra $350 million worth of modems and server technology installed between now and June. That is my priority. And if you hear a pager go off in the room, it's actually probably someone else's because I think mine doesn't actually beep. It's one that goes -- There is a lot of confusion about the different kinds of congestion on the Internet and I've heard some of it in the discussion today. The busy signals that American On Line customers have been talking about really are busy signals for the most part of we're out of modems in the various cities. We've got 200,000 modems in our own network today and during peak hours. The vast, vast majority of those modems are all busied out. My colleague from BBN, John Curran, is here and they're a very strong partner of American On Line along with Sprint and the Advanced Network Service Company, ANS, in deploying these modems. And they know exactly where the busy signals are and they're out there provisioning circuits and installing modems. It's not busy signals for the most part that relate to members. If you're not trying to dial American On Line, it's not a problem and concern. So we're not looking here at an impending melt down of the public switch telephone network as a result of American On Line users. What we're looking at here is an awful lot of congestion, not dissimilar to the cue we all experienced in the men's room trying to all go to the bathroom at the same time during the break. So, and just as in that case the solution would be to install more, that's exactly what we're out there doing. I know this isn't the most glamorous metaphor, but it actually, it is sort of what's going on if you look at cuing theory. We should point out that congestion in the Internet is also a major concern for American On Line and we work closely with our colleagues in the Internet backbone business in a number of different areas, particularly we've been working real hard over the last few months to try to bring in more circuits from more different Internet backbones directly into American On Line's facilities so that we can cause the transfer of data between one backbone and the other to occur on our premises as opposed to being out at the Internet maps. So we think that's one step we can take in order to both improve performance for our members and improve the overall backbone of the Internet. We've invested several hundred million dollars in technology to make local copies of very popular web pages at AOL. So that in general most of the time when you go out to the web if somebody else has been there before, then it's cached locally. I don't know that WWW.FCC. -- I don't know your full logo, I don't know if that is on the most popular list. But you had mentioned earlier that you'd be putting some of the presentation materials out there on the -- out there. And indeed, some of the overhead viewgraphs earlier. And you'll notice that when those are transmitted down to you, not only will it go in faster like my colleague was showing you a demonstration of mission at 28.8. If you go and access it from our technology, we spent a lot on compression technology as well. So that the images are compressed, then transmitted down to the members and then decompressed. So that in fact it makes the experience of using the Internet at lower speeds. And I should mention that still the majority of American On Line members today are accessing the Internet at speeds of 14.4 or below. We spent a lot of time talking in this room earlier today about high speed technologies. But consumers in America area really still on lower technology speeds. They're at 28.8. The corollary to this is the importance of noting that consumers will upgrade to higher technologies and higher speed services when the incentive is there and the price is right. So we've seen our members upgrade to 24 baud modems and 14.4 into 28.8 and we'll be upgrading our backbone and modem technology in the majority of our own networks to support the new X2 technologies. So consumers will be able to provided that the quality of the telephone switches in between their homes and our modems is high enough. They'll be able to get connected speeds up to 56K. And I should mention that that's just an example of American On Line making an investment in our technologies prospectively in order to capture more consumers. And I think it's a model that maybe all of us around the table here ought to be thinking about in terms of how we ought to invest in our business in order to grow it. Finally, I did want to point out that though by and large we are working real closely with the Bell Operating companies and expanding the network, there are some limited cases and some of these have made the press in recent days of places where there are some engineering. I would really call it inadvertent engineering mistakes in the public switch telephone network which do prevent AOL members from getting onto our service. And generally, this is a misprovisioning between some central offices and it's generally very easy to fix. It's really a low level engineering problem. It's not one which is very expensive to fix. But we work closely with the operating companies to predict trafficking patterns. We're willing to work even closer. But it is important for the Commission to realize that we are highly dependent on these guys to bring high quality access to our consumers. Because ultimately if there are problems, it's really the consumers that are going to suffer here. And so we ask that you help us in that area. And I think I'll end my comments right there for now. [applause] MR. WERBACH: First, I'd like to give Lee a chance to respond to Jamie. Is there really a congestion problem because of Internet usage and if so how does that happen? MR. BAUMAN: Before I even respond to that, let me just say I opened my remarks by noting that Pacific Bell is a large LEC and a large Internet access provider and that both businesses are important to our future. And we know that Internet access is a competitive business and we're committed to that. In order to be successful in a competitive business, we need to utilize all of the methodology that competitive businesses use. The fact that we proceed to move into that business aggressively therefore in fact contribute to the issues in our core network the same as AOL does, does not mean that therefore they are not issues and that any hypocrisy is involved. It was interesting that James even noted that after he criticized Pacific's early entry plan, one of the ads when we were first getting into the business, he noted that another company I think in Florida was giving away Internet access for free and he praised that as a good competitive tool. So it's important to note that when competitors criticize an organization for certain approaches, it may be competitive issue rather than something else. And Pacific Bell will continue to be a strong competitor in the Internet access business. Now, on the network congestion issue, I was frankly surprised to learn here that traffic on the network doesn't have anything to do with congestion. Maybe I misheard that, but that seems to be what it said. In our measurements, well, there's about a million active Internet users in California. So it truly is the focus of Internet activity for the country right now, leading the country. So there's a million. And for those million active residents, customers primarily I'm talking about, their average use per day of originating calls for Internet is 62 minutes a day. So 62 minutes originating traffic to the Internet, not counting their other traffic. Now, our average residence customer originate about 22 minutes a day of traffic. So that's the average, 22 minutes for all the calls of the average residence customer. So we're seeing that an average active Internet customer uses three times the number of minutes as does the average residence customer. We last year had 23 billion minutes of use going to Internet access providers in California. So 23 billion minutes. It's clear that that much traffic has to do something in using up ports and trunks in our network. Any analysis will show that to be true. We estimate that in 1997 we will spend $130 million in adding additional ports and trunks Internet work to handle the increased Internet access traffic. In the next three years if the pricing rules of the regulation do not change and we continue with the current infrastructure, the current pricing structures, we will estimate that we will spend $600 million in investment in these capabilities. Now, we believe that a good portion of that money could be much better spent for the benefit of the country in building the new forms of data networks that you heard talked about this morning. We think that rather than spending that $600 million and augmenting the current circuit switch network and perhaps later being surplus capacity when we in fact do get the fundamental pricing structure changed and people then start using overlay networks. Rather than spend that $600 and we've heard AOL is spending huge amounts of money, I think nationwide they're saying $350 million spent in the near future, which wouldn't be needed if we invested in the appropriate overlay data networks that the focus here needs to be on improving incentives to make the investment targeted towards what's efficient and effective for customers rather than the current structure that everyone agrees is not best. So, yes, there certainly is a capacity issue. But we're not saying our network is falling apart. We're spending the money, a lot of money, to continue to provide high quality service. MR. WERBACH: Well, Matt, could you follow up on that? We talked about all the modems that AOL is putting in and putting in more to respond to congestion. But isn't that sort of locking you into this circuit technology that everyone here has said is inefficient? MR. KORN: Well, we can divide that $350 million that we've been talking about into a couple of categories. I would tell you that approximately half, maybe slightly less than that, is actually in the modem technology base and the other half of that is in server technology at the host end. The server technology at the host end is -- and the AOL system today is really agnostic when it comes to the technology that it rides over. In other words, we have AOL members today who are accessing us to cable networks. We have them that come in through ISDN. We have numbers that come in through ADSL. So the server technology is really we'll work over any of the new technologies. So the modem technologies are -- that's about half of the investment there. I should just sort of mention we heard earlier on the panel that the time to write off technology investments is actually kind of like relatively quick in this industry. And we've already mentioned here that we've gone from 2,400 baud to 14.4 to 28.8. The time that it's going to take for the American public to switch these technologies, the investments that we're making in the access point technologies will themselves be written off. I think it's important to think about the tradeoff that businesses such as American On Line make every day. In order to get more customers, we often look at cutting our margins and we've done this historically in order to grow our company, in order to grow the industry. And I find it interesting to note that when the phone company, when the ABOCs do the same thing in order to sell additional second lines, they're looking for regulatory relief here. So I would point out that the tradeoffs that we in business make every day in an unregulated environment are ones which are I'd like to see kind of expanded through the monopolistic telephone industry. MR. WERBACH: David, let me ask you, you had mentioned some things that telephone companies, Internet companies could do to work together in terms of sharing information. It seems like though listening to people talk though, that we've got two polar opposites here, people who have very different views about how networks work. What kinds of things can actually happen for the different industries to get together in a way that leads to something more productive? MR. LaPIER: Well, I think in terms of examples of interconnect agreements working, Matt gave real examples that in their deployment activity, they're working closely with crafts people and operations people in the phone company. It's in some respects separable from some competitive issues. Other examples of how, well, for one thing, I think that some clearer understanding of these network problems and the way in which the network can be grown and then proactively understanding how smaller Internet providers can connect to the network and then working out incentives to make those incentives more attractive. MR. WERBACH: Okay. Do we have any questions from the audience at this point? Could we get someone who hasn't actually asked a question before? Over in the corner there. MR. BAUMAN: While we're getting the mike over, I'd say one indication of eagerness to work together is how much we spend to make that work and the $130 million I emphasized we're spending this year certainly seems to be a strong statement of commitment to work with all of the ESPs. MR. DEUTSCH: My name is Ken Deutsch. I'm with Issue Dynamics. I just want to follow up quickly on Jamie's math lesson and then ask a question. The ratios in Jamie's math lesson, Jamie if I understood you correctly, have to do with consumers connecting not the ISPs and what's happening in business on their side. And my understanding from the reports I've read from the different local phone carriers is that the problems, the congestion problems seem to be most acute at the COs that are near where the ESP's actually connected to the Internet. And if I understood him correctly, what Matt was saying at AOL is that most of the 200,000 modems are busy most of the time and if the network is configured for one to seven ratio I think most is a little higher just in terms of the math on that end. And just another question in terms of the issue of congestion whether or not there is congestion. And this is directed both to Matt and to Lee and the question is what's considered acceptable in your industries for actual connection. Both what is it now, for instance, if I'm dialing into AOL, what is my percentage chance of actually connecting? And then what is the ideal that you strive for? And the same thing on the phone network. What is my chance of actually making a call and getting room for what I'm paying for, either the busy signal or connection? And what is the percentage you aim for in terms of what's considered acceptable? MR. WERBACH: Jamie, why don't you go first? MR. LOVE: I think that this issue about the difference between the residential consumers and the business consumers is important. By the way, the 7 to 1 ratio I mentioned for Bell Atlantic is not for business. It's for how they built out the residential networks. So I was referring to that in the context of what residential consumers do. I think that in terms of your comments about the average use, Bell Atlantic could do a service to the Commission by providing them with both the ratio of the build out for the residential network for the regular public switch price network and tell them what the ratio is on Pac Bell's ISPN and find out if Pac Bell has more incoming lines for the consumer than the normal build out for the residential network. And I believe that if you check that out, you'll find that in their own ISPN that they currently built out less than they are for the regular voice network. Now, as far as the business consumers are -- the business lines are concerned, that's actually a separate tariff. It's a separate service. I'm sure that businesses, you know, half of them are above average and half of them are below average. The company gets revenues based on what that average is. And if ISPs are above average, they may or they may not be. I wouldn't be surprised if the AOL business tariffs, if their usage probably is above average given the low number of lines that they have. That's sort of an interesting issue. It doesn't mean that the residential callers are burning the network. It means that the people that are calling don't have many incoming lines and it's frequently busy. So I think that's really -- and it's almost a coastal problem because Bell Atlantic I think has focused more on that issue where Pac Bell has focused more on what the residential users are doing. So that's kind of the distinction you have to make there. I think what Bell Atlantic wants to do is to move my grade people before it gets into the circuit switch into some kind of a packet network which they have the technology to do. It's really a question of pricing. And you have to find out how serious the phone companies are to pricing the service to the point that the ISPNs actually have an economic way to do that. MR. WERBACH: Lee. MR. BAUMAN: Yes, you are correct that the congestion issues are located at the offices to which the Internet access providers connect. Pacific Bell has about 680 central offices and about 60 of those offices cover about 90 percent of the Internet access concentration points where the Internet access providers connect. And so, yes, it's at those offices where the connections occur that are the ones where we're spending most of the money in adding ports and trunks in and out of them. So it's very easy to isolate just what we're spending for the Internet access traffic volume issue as compared to the rest of the growth of the residents market itself. You asked just what we see as high quality for termination of calls and I don't have the exact number, but it's approximately 1 in 100 is the number that may not get through the first time. And so that's certainly an order of magnitude different ratio than what is seen on a call to an Internet access provider. MR. KORN: I think the last question that was directed to me was kind of what was the connectivity success rate currently today? Prior to the introduction of our unlimited, the success rate was in the 90 percentile range. And today it's less than that. I'm not going to give you an exact number, but it's the result of tremendous interest. So clearly our goal is to return ourselves to that state. Yes, you're right that the congestion does get worse in the PSTN as you get closer to where the modems are. We work real closely, we've been working really closely with U.S. West in one of their regions that the precise exact problem of call blocking. And just by bringing some circuits and other COs and by relocating some modems to other COs can in fact relieve the congestion issues there in the PSTN. And to the extent there's any actions that are possible at a regulatory level that help make the kind of like moving calls from one CO to the other like really cheap, really inexpensive, then that will help in using some of the congestion issues in the PSTN. MR. BAUMAN: I totally agree with the statement that the Internet access providers are working well with the local exchange companies to find how to work through this current challenging time. So I just want to make sure that none of my comments are in any way heard as in any way critical of the current intense activity that the Internet access providers have to handle this rapid growth in volume. Frankly, I think people are working in the field in an excellent manner today to continue to handle the customer needs on both sides. MR. PEPPER: On the question generated by the floor, and that is we've had a number of technology companies come in to us to talk about their particular flavors of solving the circuit packet question. Taking the data traffic off the circuit network at some point in the network to relieve some of these pressures. I assume they're all coming to you trying to sell their technologies to Pac Bell to try and resolve that. Can you talk a little bit about the various solutions or potential solutions that you're seeing? What are some of the advantages of some of these and how soon do you expect Pac Bell and some of the other local carriers to begin deploying these technologies? MR. BAUMAN: Certainly. The concept which looks to be most workable is one in which the call originating with the customer is sensed at that end office, the first point of switching, to determine whether this is a data call or a voice call. So therefore, whether it should stay on the circuit switch network or go onto a data network. And at that point if this is a data call, say Internet access call, the switch would route the traffic to a trunk group which would then carry that traffic into a dedicated overlay data network. And that data network would then carry the traffic to the point of termination to the Internet access provider which doesn't need to be close by. Right now it needs to be close by in order that local calling pricing would be utilized. Therefore, the large number of modem poles are spread all around the landscape is totally a function of the pricing configuration we have, not the desirable technology arrangement. And so we would provide or some other competitor would provide this overlay data network and the call, the traffic would then be carried to some convenient place for the Internet access provider which as we heard earlier distance is meaning less and less with technology. And so that might be some distant point where a very large volume of traffic to that Internet access provider could be concentrated and handled in the very most efficient way with the most efficient traffic means. This would actually permit more competitors to be in the market because it would be lower cost for people to get into this business. There are a number of equipment suppliers and software suppliers providing these configurations and I think it is here now. We have lab deployments. We have analyzed the configurations and they'll work. The key issue when you say, well, when will it really come into place is it's when we can strike an agreement with a first Internet access provider on a price for use of such a configuration which will cover the cost of that configuration. And the key reason why that's difficult right now is that in California, the price for access lines is about $15 a month including the subscriber line charge and there's no per minute of use charge. And so when the Internet access provider pays $15 plus their modem cost, it's tough to get that up to the equivalent cost of this data network which today looks to get about $45. MR. PEPPER: Per month? MR. BAUMAN: Per month. Per port. MR. PEPPER: Per port. MR. BAUMAN: Yes. So that's a very rough comparison, but you can keep that in mind. You take $15 plus whatever the cost is of the modem pool is, the modem pools plus their node configuration, their maintenance of that and ask what that might be. But let's say that's another $15 perhaps. You might be at $30. And we need to make that additional jump in California another $15. Now, in some states the basic access line charges for business access lines are somewhat higher than $15. In some states it may be as high as $30 just for the line. In those states, I think they might be at the break even point now. MR. PEPPER: To what extent are therefore you really talking about state tariffing issues? MR. BAUMAN: Good point. You know, the FCC could say, wait. This is a state issue because access prices, the access line prices, do not include usage component and they do not cover the cost. And so therefore, it's a state issue. And so we go to the state and say, hey, state. Please fix this. We need to change these tariffs. They say no way. It's an FCC issue because the FCC has the ESP exemption on switch access charges. And if only they would change that, then that would solve the problem. So we're kind of in the middle between this. MR. PEPPER: Matt, do you want to -- MR. BAUMAN: The key point is, yes, there's a regulatory issue here and we're glad to work with whoever we can work with to get it solved. MR. TREST: That, by the way, is what I referred to as the alleged regulatory constraints that are preventing them from closer cooperation with the ISPs. MR. MAXWELL: Both Mike and Matt, you now heard someone say this is the direction we would like to move. You're the people they're trying to sell that to. Would you like to comment on what they just said, what Lee just said? MR. KORN: I was going to comment first. MR. LaPIER: The data he was saying, we've heard in some states the difference may be within ten bucks in terms of what sort of triggered the device. And it seems that sort of a lot left on the table. Or maybe kind of a win/win opportunity there. Part of what you try and do is a lot of the astronomical digital rates that you see for things like ISDN service are based on really excessive usage charges which should really not be an issue if you're into the packet switch networks. So what you might try and do is say what about as an incentive say as you're connecting people with ISDN, you're connecting closer to what a POTS line is and with no usage charges because once it enters the package switch network, you really don't have the same kinds of costs imposed on the network. And then you start to look at that ten dollars in a bit different light because it sort of brings something back to the consumer on the other side. In other words, this is what I say win/win. I mean, maybe the phone company's looking to get more money. An incentive to move people to the service, maybe one incentive you could move to the service rather than putting usage fees on POTS line is to provide a cheaper digital line if you go through the packet network. In other words, to say the digital line may be more expensive if you don't do the digital thing, but cheaper if you do do the digital thing. That way what you do is for the higher band width stuff which is where everyone wants to migrate if the price is right. They all start migrating to the packet switch network. You don't mess around with the legacy POT situation and you really move it in the right direction. MR. PEPPER: Matt, have you been working with any of these technologies that you talked about? MR. KORN: We have certainly done trials with ADSL and with cable, but not necessarily all of these technologies. But my comment would really be introduce new technology which has clear benefits to consumers. Price it attractively, consumers will migrate. Consumers will use it. Businesses will develop applications to use it. Investment will not go without a return. We see this over and over and over again. I'm not going to tie it to any particular technology. MR. PEPPER: No, except what I'm hearing Lee describe is something that would be transparent to the residential consumer. They're still at their end using a modem, dialing in. But there's a service that you as AOL would be buying from either Pac Bell or one of the competitors to get the traffic off the public network into a data overlay and not have to have modems at your end in terms of modem banks. So it's really a question of -- MR. KORN: Price it attractively. Price it attractively in a way that has a clear benefit to consumers as well as to the business and you'll see migration to the technologies. MR. BAUMAN: I agree with that and the key issue is attractive compared to what? MR. WERBACH: We have a couple of questions from the audience. JOHN CURRAN: I have a question for Lee Bauman. Given that the 60 COs that have that density of Internet service providers are also some of the most high tech regions in the country in the Bay area where there are many corporations with very large dialogue pools that are used for telecommuting due to the number of telecommuting initiatives that we hold out across the country. Given that the busy time on the voice network has generally been during the daytime hours and telecommuting ones during those same hours as opposed to Internet usage which is predominately an evening activity on the off hours of the network, have you looked at alleviating congestion by using some of these technologies to work with corporate users for their dial up pools which may actually exceed the entire ISP dial up base? MR. BAUMAN: We can certainly break this down for you in detail. Yes, my answer is yes we've looked at these various combinations and we'd be glad to show you how the tradeoffs are made and how it works. And the residents usage is creating additional investment in those offices. MR. WERBACH: We have a question over here. DANNY WEITZNER: Technology. I have a question which I think is for Mr. Bauman, but others may want to jump in. This is really taking Bob Pepper's question forward. I want to understand how this sort of shunting and overlaying method works in an ISDN environment. Jamie talked about what I think was a -- he was talking about a packet switched ISDN service. My understanding is most ISDN services are actually still circuit switch services. You're talking about spending large amounts of money, one way or the other on this sort of shunting option to deal with your congestion issues. How does this sort of play forward as there's more digital access in your network? MR. BAUMAN: Very good question. The call would originate from the customer as it does now. The switch would determine whether it's a call that should remain on the circuit switch network or go onto the overlay network. The switch would also know whether that call that's coming in is an ISDN call, an ADSL call, or whatever flavor it is. And it would then route it to a trunk group which would have the appropriate conditioning circuitry on it to present it to the packet network. So if it's an ISDN call, that trunk would not need to have the equivalent of a modem in it to go from analog to digital. It would be a less expensive trunk interfacing to the packet data network. DANNY WEITZNER: I just want to make sure I understand. Is whatever the shunting technology you have to put into place, does that same technology work whether you're talking about an analog call or an ISDN line? MR. BAUMAN: Yes, the most commonly proposed approach is frankly fairly straight forward for decide where the call should go. It's just what's the telephone number that was dialed? MR. LOVE: I mean, ISDN as it's currently delivered is a circuit switch service. What I was referring to is what a lot of people think would be sort of the more efficient way to have the service delivered in the circuit switch thing is just, I mean, if it's ISDN from your home to the sort of central office, I mean, that's fine. Because that's the local loop. You're not -- it's not a shared facility. You're basically a dedicated line. When you get to the central office, that's when the issue of congestion sort of becomes interesting. The technology that Pac Bell was talking about and other LACs are talking about is a here and now thing. And that is the question they want to be able to dump it before it enters the circuit switch network into the packet switch thing. And then the question is what they want to do is they want to start holding the gun to the ISPs and saying you're going to be paying 100 bucks per month or whatever per line or some huge number of money per line for incoming calls if you don't move to this packet switch network. And other people that sort of don't like that approach are saying, well, how about we do it a little bit differently? How about we say that the digital services which are now charging an arm and a leg for 70 bucks in some states, or these huge numbers they have, why don't you charge those things closer to their cost if it was routed through the packet switch network as opposed to the circuit network? Just sort of reversing. I mean, we sort of start out with the idea that the phone companies are making a lot of money. Profits are up, stocks are perky like some people referred to. It's not as if they're actually losing money. And so when you start talking about kind of, you know, in the current environment what needs to be done, our first instinct isn't the same as the phone company's which is to pack, you know, throw these really big huge fees on the ISPs to sort of get them to do what they want, but to rather ask the phone company to look what they can do to contribute to the answer. And part of it is to sort of let digital services like ISDN or whatever the alternatives are going to develop, start being deployed at a cheaper rate without usage fees if they go through the packet network. MR. WERBACH: Okay. We'll let Matt respond to that, then Mike and then we'll take another question. MR. KORN: One quick comment on it. Kind of in the proposal from Lee, you're basically proposing, if I understand it correctly, that Pac Bell does the analog to digital conversion. And when you think about how America On Line is constructed today, we use a variety of vendors and suppliers, EBN, Sprint, ANS. Competition in analog digital conversion is like a really good thing for consumers because it generally heightens the quality of each one of the suppliers because they're all in competition with each other. It's ultimately good for consumers. So I would sort of shy away from any kind of proposal where we end up with one organization which does all the AD conversion because ultimately I'm not sure if that will benefit the consumers. MR. WERBACH: Mike, why don't you get -- MR. TREST: That was exactly the kind of situation I requested when I say we want to encourage this cooperation which was your question. Is this cooperation occurring in the marketplace today? And in California, the very roll out of any ISDN services were rolled out exactly this way by placing one switch in a central area and remoting those numbers through this technique to other exchanges in that same area. And I say if the Pacific Bell and the ISPs and their market could cooperate in advance of that by sharing information about that plan, we would not have had all the fits and starts we had in the deployment of ISDN technology. So I'm saying let's keep the band width of communications a little more open than coming to Washington and hearing each other across the table. MR. BAUMAN: When I described the configuration, you'll remember that I said route it to either our overlay data network or someone else's overlay data network and that would be the choice of the Internet service providers to how they want it to go I assume or the regulators might want the customers or whatever. But I did say that. And so it is incorrect to say that I'm saying that it has to be us doing the A to B conversion. A switch could route it to a trunk group that would be connected to somebody else's data network and the A to D conversion would be done by that other party. MR. WERBACH: It this an issue that you've discussed with ISPs or is everything just the price that's been a limit on putting the service in? MR. BAUMAN: Right now it's pretty much focused at just finding a formula that even will work. Another point I want to mention is California is a good place for case studies on this because of the large volume and so forth. It's also a good place because the ISDN concern that's being stated here on pricing doesn't exist in California and Pacific Bell territory either. We have the lowest prices on ISDN in the country. MR. PEPPER: What is that price? MR. LOVE: It's $24.50 metered from 8:00 to 5:00, unmetered afterwards. It's got a new ruling now they're going to raise within a year by $5.00 a month and put a 200 hour cap on the off peak use that's not metered. MR. BAUMAN: We don't know what rates, we don't know what adjustment might be. The California Commission is actually meeting on that today. MR. PEPPER: And how many ISDN customers do you have now, residential, business? Do you know that? MR. BAUMAN: Jay, can you help me with that? MR. PEPPER: We can get that. I appreciate that. MR. WERBACH: Okay. We have a question over here. MR. NEVAS: I'm Steve Nevas from Cyberbridge Associates. There is one technology that hasn't been discussed today and that's broadcast digital television. And I'm wondering if the panel or anyone here would like to address the potential for it delivering the Internet via this technology, whether over the air or by cable. And I chatted briefly with David Reed and I know he has some thoughts about it also. MR. BAUMAN: I could comment on that. As you know, Pacific Bell is actively involved in that business also, broadcast digital television, MMDS. We have plans to officially enter that this year in Southern California and we've explored various technologies for providing Internet access over that also. And we don't have, that's not announced service at this time, but, yes, we've certainly been exploring that. MR. TREST: We have been participating in some industry intentions to do that primarily from communications entertainment companies. And the demonstrations look that it is deliverable over the high speed component of the network, the sonnet based infrastructure which characterizes our backbone. But again, the subscriber portion is the difficult piece. MR. WERBACH: We've got just a couple of minutes left. One question for everyone on the panel, anyone who would answer. What kind of data would be useful for us or for you and your companies in terms of better understanding where the congestion roadblocks are, where the pricing limitations are, and how to move forward and address those problems in the network. MR. TREST: Well, I could give one and get off of my favorite rocking horse here. I'd like to have data on the true unbundled costs for local loop services that are hesitantly being avoided for ISP's direct access. We can't get it and if we do the unbundled cost is not known too well to us and it's true cost versus its charge which is alleged to be much higher, I'd like to see what that data really is. MR. BAUMAN: Our cost of exactly the type you've mentioned is filed with the California Utilities Commission. MR. TREST: Then it's my research lack. I'll correct that. MR. WERBACH: Anyone else? We seem to be having disagreements here about information and numbers. What kind of numbers? MR. LaPIER: Some common sense of a model serving area and the nature of congestion in that serving area that could be pushed one way or the other depending on call volumes and so on. You know, mapped to the data that you're providing. That would eliminate some of the thud related to whether the switches are being congested. MR. WERBACH: Okay. MR. LOVE.I think good data on usage, you know, what the sort of length of the peak is now, the sort of shape of it, how it's changed over the last five years as people begin to use the Internet, how do Internet users compare to voice users in terms of their actual minutes? I mean, a lot of the sort of just basic statistical data. And also, I think you really do need to look at in terms of when people call Internet service providers, see how Internet service providers are setup. I mean, if they can only put five or ten percent of the customers online at one time, that sends a, that's a bit of information which you can use which is to say that that's a hard constrain on how much they can be connected at one time. And so I think that the Commission needs to, the ISPs some of them are a little reluctant to share that information. They consider it kind of proprietary, but I'm sure that they give it to the government in some kind of a form where you put it out. MR. MAXWELL: What do you mean by hard constrain? MR. LOVE: Well, okay. Let's say there's 100 of us and we all have an ISP and he has ten modems. Well, only ten of us can be connected to the ISP at one time because there are only ten modems. MR. MAXWELL: Why is that a hard constrain as opposed to a soft constrain on the part of the provider? MR. LaPIER: They can add more modems. MR. LOVE: Well, maybe you call it a soft constrain. What I mean is maybe it's a -- I don't want to -- MR. LaPIER: There's a ceiling on the load that can be on the switch is what you're trying to say. MR. LOVE: Yeah, it tells you that of the 100 people, no more than ten of them at any one time are going to be connected because they don't have, you know, there's only ten modems they can call. I mean, that's just common sense. MR. MAXWELL: But not a hard constrain in the sense that it's not possible to do as Matt is suggesting moving from 1 to 100 to 1 to 25. MR. LOVE: Oh, yes. It's true that they could go from 1 to 10 to 1 to 5 or something like that. That's not where they are. I mean, you have to deal with where they are and you have to look at where they're headed, of course. I think that things are moving in that direction, but I mean a lot of times the people are kind of uninformed about how much the Internet's actually used. They think they use it more than they do. They think everyone else uses it three hours a night because maybe they do. And maybe they're not as ordinary and average as they really think they are. Maybe they're kind of an exceptional person. So the real hard data comes from the ISPs. They have real hard numbers which they find it very -- they know exactly how many customers and they know exactly how many modems. And you take those two and you divide one by the other and you have an interesting number. MR. MAXWELL: I guess then that sort of the obvious question would be for the purposes of understanding this from the standpoint of the ISPs, is this data they would be willing to share? MR. LOVE: Well, they shared it with me. I think they, but I mean, they don't want it published, you know, by the company. But I'm sure that you could -- if you sent out a survey or interviewed some of them, they'll tell you. What they don't want you to do is to give it to their competitors basically. MR. WERBACH: Yes, I should mention also that outside we had some copies of a survey that an independent group called Voters Telecommunication Watch was doing of small ISPs, asking questions of them on some of these issues. MR. BAUMAN: I would suggest that congestion is not the key issue. Incentives to invest is the key issue. What we heard here is just a matter of being able to justify buying another modem. So it's not the congestion that's the issue. It's incentives to invest and how do those incentives cause the competitors to invest in an efficient way for the future? That's what we all must focus upon because there's where the core problems exist in this whole issue. MR. PEPPER: Well, with that we thank everybody. We're a few minutes over time. This has been another great panel. We will be reconvening at 2:15. Before people leave, the demonstrations are down the hall in room 845. They're now operating. So during lunch, you should take the opportunity to go in and take a look at what they have down there. Thank you. We'll see you back here promptly at 2:15. Thank you. (Whereupon a lunch break was taken.) // // // // // // // // // // // // // // // // // // // // // A F T E R N O O N S E S S I O N (2:19 p.m.) MR. PEPPER: I think everybody, well, not everybody, but everybody had an opportunity to see the demonstration that's going to continue in Room 845 until 5:00 o'clock. We're going to be finishing up before that time. So it will be possible for people who have not had an opportunity to see the demos down the hall to do so. They're really great. I had a question about whether the proceedings will be available on videotape and the answer is yes. We have -- there's information outside on how to obtain a videotape of today's forum. This afternoon's panel will be introduced by Elliot Maxwell. Elliot. MR. MAXWELL: I'd like to welcome you all back and to welcome our panel members. The focus this afternoon really is on affordable access. We talked a little bit in the morning about sort of access technologies, later in the morning about possible network congestion, ISP congestion, the problems, if in fact people do have access. Now we get to I think one of the very important public policy issues for the Commission is to ensure that places that traditionally have been undeserved and institutions that traditionally have been undeserved have access. And this is an area that has gotten lots of attention as you all know through the universal service proceeding. There's been a focus in the Telecommunications Act of 1996 on access for schools and libraries and world health care providers. And we've asked some of the people who know the most about these issues to come join us to talk about this, this afternoon. Let me briefly introduce the panelists because I think most of you know them and they have been participants in the past with us in trying to better understand these issues. The panel will start with Glee Harrah Cady who's at Netcom and who is the Manager for Public Policy of Netcom. She also was like Madam Defarge in the earlier panel sitting there knitting. And we wondered whose head was going to roll. Aside from that, she also has a long history of involvement with the Internet running back to the time when people thought of it as the NSF net and was involved in trying with Netcom to figure out what markets they should enter. And so this notion of how the access providers, Internet service providers will migrate is of interest to us and something in which he's deeply experienced. Also joining the panel is Peter Harter who represents Netscape. At a year and a half of Netscape, he's probably one of the founding fathers, or persons if that's more correct, and goes through the same kinds of issues of dramatic growth that the folks from AOL were sort of facing at the earlier panel. And obviously, the question of how it's going to be used, what's going to be available to them is important to them as a business and important to us as a matter of public policy. Finally, Danny Weitzner, of the Center for Democracy and Technology is here. Again, an Internet veteran. Here sort of the starting date is about 1991 before many people had thought about the Internet or heard of it or it certainly had become a mass market phenomenon as of '96 we're told today. And he worries about issues of public policy for the Center which focuses on the sort of representing the public interest in regard to a number of questions including questions of censorship, first amendment rights and public access as well. So we're delighted to have them here with us, delighted to invite the audience to be participating as they did in the earlier panels. Why don't we just start it off with Glee? MS. HARRAH CADY: Thank you, Elliot. Elliot spoke about the area of expertise that I have that might be of interest to you all and I'd like to talk to you a little bit about how we selected certain kinds of access points, why we put them there and why we didn't put them other places. Netcom as you all know is a publicly traded backbone Internet provider. And we have a responsibility to our customers, our employees and our stockholders to try and provide good service. That's what the S in Internet service provider stands for. And so this is in light of illustration, not an advertisement. This is the Netcom backbone and this shows the 230 access points in the United States. You can see that there are some very large lines that indicate speeds in between the two points and as all things printed in the Internet environment, of course, it was out of date the minute we printed it. For any of you who'd like to come up later and look at the out of date version of the Netcom Internet, I do also have a smaller one and will be happy to send you an out of date one if you call us up. You'll nonce that there are few access points in places where there are few people. One of the reasons that that's true is that there are also fewer computers there and the computers that are there don't also necessarily have modems. So we had market research information from people who sell computers, from people who sell modems, from people who sell retail software. We actually distribute our software through a large retail network of people like CompUSA and that sort of service. So that we knew where there were people who were interested in buying our product. We do know that there are people who are in Cheyenne, Wyoming who are interested in buying our product, but we didn't believe that there were enough of them in order for us to actually go in there. And let me tell you why. Without regard to how the backbone is constructed, to start a local access point on network, we need -- this is the startup cost that I'm going to talk about first. $5,000 to locate the site including travel and talking to rental agents. We may need about $5,000 in new power and wiring and new construction costs in order to make sure that the floors are heavy enough to withstand the racks that are going to be put in there. If the building isn't air conditioned, we absolutely need ten tons of air conditioning for the minimal amount of set. So that's another $15,000. And we have a recurring rental cost across the country averaged at about $600 a month. Our telecommunications costs, for each access point we put in, we require three T1s. Two are minimum for each dial up location. Those are going to be handling the modems. There are 24 modems on each T1 line. It costs us $1,500 to install each T1. There's another T1 line that is the back haul from that location to our local network hub or the nearest local hub which is another $1,500. So there we are a $4,500. Our monthly recurring costs for the modem baseline are $45 per line per month on the channelized T1s. The link to the hub, once again this is mileage sensitive, it runs around $2,000 a month. It depends on exactly what where we're trying to link to. For example, Austin to our Dallas hub may be more expensive than Palo Alto to our San Jose hub because it's distance sensitive. But across the backbone of the network, it's running about $2,000 a month. We also in places where we can operate ISDN callback so that when something goes wrong in the links between each access point and the network hub that we can use those lines to call back to the hub. Idle ISDN services cost $150 a month and if we have to put them in service, that costs us $2.00 a minute. It also costs us I think around $150 a line to install and we need four lines for lines for ISDN callback. I'm sorry, I don't have that one written down. So that figure may not be accurate. We also put in two measured business lines in each access points so that we can call up our routers and terminal servers off the network band in case we can't get to our routers via our own network. So that we use that for maintenance purposes and also for power cycle up and down. Probably a lot of you are familiar with equipment that will allow you to turn on and off the power of something remotely and so you need a phone line in to do that. So that's where we are on that. And hardware costs. A modem rack with 48 modems and 12 modem cards runs around $40,000. Then you have to have a frame for a modem rack. You have to have routers, terminal services, CS use, DS use, the two small modems which are not too expensive, a telephone, the power cycling equipment and an uninterruptable power supply and that's another $20,000. We also pay about $1,000 a month in monthly maintenance fees to have people go out and switch out dead modems, fixed cards that have gone dead, redo routers and all of those kinds of things. And while these happen to be our costs, I don't believe that they're out of line with any of the other large service providers. Smaller service providers who are not operating as large network and who aren't operating the smallest set at 48 modems may have different kinds of costs, but they won't be dissimilar. I mean, they will be about the same is what I'm saying, particularly in telecommunications costs because T1 lines are T1 lines. And it doesn't make any difference if you're a small company or a big company when you're buying them. So that was I wanted to say that I don't have any magic answers for that. So you see why it would be difficult even though culturally desirable to put access in the upper peninsula of Michigan or the far western part of South Dakota or Cheyenne, Wyoming which actually is one of my favorite towns in the country. Why we wouldn't necessarily choose to do that if the payback is not there. So the choice that we made was to operate an 800 network which we rebill per minute and it comes out to about 8.3 cents a minute in the lower 48. For Alaska and Hawaii, our costs are a bit higher. So it's $6.95 an hour which is divide by 60 and you can figure it out. We do bill by the minute and a lot of people do use that service. Those are not the same people, obviously, who would be using the service if there were a local provider for them. The Internet, however, is a very grass roots organization and I was speaking yesterday with John Curran of BBN and he was telling me about a spot in Western Massachusetts where there was seven small Internet service providers fighting over a house, a fence and three barns. Another sort of amusing remark saying this is not a heavily populated area, but it's being very well served. Even though if you compared my local access point map with John's or someone else's access point map. It would look like there's a gap. Finally, I want to say that another grassroots effort was done by Senator Domenici and the Benton Foundation and their report is due out very soon from the Benton organization. For those of you who are not familiar with them, they are at WWW.denton.org. And they did a workshop that was to try and focus the attention of New Mexicans on new opportunities for economic development provided by services like the Internet and they gathered together a bunch of small Internet service providers in New Mexico among which we are not, all right? So I was not at this meeting. And they talked about the barriers and the suggestions that they could think of that would help them free access. And I commend to you their study. Thank you. [applause] MR. HARTER: First, let me thank the FCC for inviting me to speak this afternoon and also for those of you who came in this morning late or just go in for this afternoon's session. There are copies of my remarks out on the table in the hallway. The three basic points Netscape has on universal service. We've been commenting throughout the whole process last year and through all that our thinking has to evolved. And to summarize, our three basic points that touch upon affordable access and they're as follows: universal service, universal design and universal access. And I have brief definitions for each one of those three. Roughly we call those the three pillars of universality. Universal service can be defined as affordable Internet access and it requires a competitive, efficiently priced basic service. And I used basic service as opposed to POTS, telephone service, because I don't want to prejudge what the basic service is. So allow me to indulge in a little ambiguity there. The second pillar is universal design and that could be defined as Internet services and applications that should be accessible to persons with disabilities and disabilities being very broadly defined as a conference occurring out in the Silicon Valley in April. It's the sixth annual world wide web conference mounted by Stanford, W3C which is the world web consortium from MIT and a few other institutions. And that conference theme is accessibility. And I might want to note that that issue of disability access has been part of another rulemaking or comment period here at the FCC after the Telecom Act and the W3C has taken upon itself at its most recent meeting in London last week to focus on societal issues. And the big thrust of that will be trying to move how you take the GUI, the Graphical User Interface, which is world web and make it accessible to all kinds of persons with disabilities. And hopefully through an open standard proceeding as opposed to putting the onus upon particular companies and their particular products, proprietary or open, no matter what technology it is, through an open public discussion we can really get the best solutions to market quickest. Sorry for that digression. The third pillar in this family is universal access and that can be defined as global Internet access requiring open, operable and competitive international telecommunications regulatory policies. And again, those three bullet points as well as the gist of what I'm going to say and my summary remarks are available outside. Some key points in universal service could be that schools, libraries and health care facilities should receive technology neutral subsidies, meaning don't lock them into rapidly obsolete network or access technologies. Whatever happens with the universal service proposals that are going on these days, the money and how it's going to be spent, I think to overlook the fact that people out there in schools and libraries and rural areas are very hands on self-reliant types of persons, very creative and they have been getting on the Internet for a long time. Prior to being at Netscape, I did a little non- profit work by getting access to schools and libraries in rural areas, free nets, community assistance systems, specific nets. They had a variety of names. And it wasn't just one movement. It was a collection of many different movements, not just in this country, but Canada, Finland and about seven other countries, about half a million users of these systems loosely combined. And the fascinating thing was you see modem banks in the basements. They use Macs. They use Unix. They use PCs and just freeware and donated equipment, even use old boat anchor mainframes occasionally. Universities allowed space on their computer service to piggyback on their Internet connections. And having seen that, starting all the way back at Case Western Reserve University in 1986 and seen AT&T, Ameritech, Apple Computer and many other companies and institutions get involved, it was just using what resources were around your neighborhood to make it work. And I think so just dumping a lot of money on one particular solution or the Cadillac plan. And if we go slowly, we won't invest in technologies that will be out of date tomorrow. And as we all know, this medium is moving so quickly that we invest a lot of public funds into something that can be not the best technology for America's school kids or the libraries or the health care facilities. I think moving slowly forward, progress, examination, trying to get creativity from the grassroots is probably a reasonable course of action in the area of universal service. Another point in the pillar of universal service I want to mention is Netscape believes that there needs to be a proposal for the disaggregation of Internet access from Internet services under Section 254(h) of the Telecommunications Act. And what I mean by this, you separate access from services. Many companies are not just providing a wire and say here. Here you go. Here's your account. No, they're bundling value added services which consumers want and many companies are being very creative, very entrepreneurial. (Continued on next page.) // // // // // // // // // // // // // // // // MR. HARTER (Continued): They build customer loyalty, brand name identity and they can make their money that way, not just on having a plain wire of adding content, having hosting services for personal home pages. There's a whole host of new value to services that are being bundled in with the plain old axis, the plain wire. But from what GUI said, or you just look out there, schools just need some way to get to the Internet. They need TCPIP. We can talk about drilling wires through the schools. You can run into asbestos problems. You can talk about wild slants. You talk about paying for all kinds of content into the classroom, additional access. I just think it needs to be a consideration of do we really need to have everything at once, or do we just get TCPIP to the school building and let the -- What's that? MS. CADY: Actually, we call that Internet dial tone. MR. HARTER: Oh, Internet dial tone; I like that. But then again, I've been called a TCPIP bigot before so I'll have to live with that bias. And the social concern about if we don't have this proposal considered at least for desegregation, we really risk a problem we've seen in other media before -- a concentration of media -- and I think if universal service is a way -- a back channel or back door -- for services that are bundled to be subsidized and put into schools, I think it prejudices the idea of having -- not on bundling, but just getting the bare minimum basic wire out there. And if those providers who bundle services want to just discount the hell out of what they added onto the wire, and they want to get in there, great; that's fine, too. But somewhere in the thinking here there needs to be a separation of access from services. Since I had a segu‚ in my opening remarks about universal design, I'll skip over that for now and move into some final points about universal access. Looking at the international scheme on this point, we've been encouraging the FCC in our comments to promote competition internationally and trying to get people to use our products overseas. Being in Switzerland at any point in time -- I was there for three weeks in December for this copyright conference to the IPO. The best I could get was 12,000 BPS. You can't surf at that rate. There were some terminals in the conference center put in there by the International Telecommunications Union, and that content was pretty good, but that was a special facility. So the state-owned PTT in Switzerland just has an infrastructure problem, and many people complained about that during the three weeks of the conference. I think if we're going to lead the information age and build a bridge to the 21st century, whatever rhetorical phrase one would choose in this town, trying to get people to get quality through-put in these markets is a number one priority. And I think I'll leave one controversial comment -- and then I'll pass the mike to Danny here -- there's an intersection, interestingly enough, between bandwidth and copyright. Some of the people who fought on the issue of replication reproduction in Geneva, on copyright reproduction -- the Internet transmits information, transports data by copying it along the way; through the routers, even on your machine, on your desktop. You have client-side cash and there's temporary stored information. You have service out there in-between, called proxy service, and there's cash inter-temporary copying or reproduction there. So all this temporary copying goes on, and without it the Internet wouldn't work. It would suddenly bog down. Engineers put cashing in there for one reason, performance, to optimize and make most efficient use of the network facilities available. And some institutions that fought really hard to get this issue taken out of the copyright treaty because the line within the treaty would have made such reproductions infringing, and thus would have changed how we can use reproduction on the Internet. The schools and libraries really fought hard on giving this controversial aspect of the treaty taken out, and while there are legitimate copyright concerns to be had with this broad reproduction, I think if we're really talking about bandwidth and access, and we're talking about schools and libraries, reproduction in the copyright arena has a nice intersection here that is worth us thinking about. Danny? MR. WEITZNER: Well, that's an interesting note. Good afternoon, everyone. I've just realized that the last four or five presentations I've done, I've been the last person on the last panel. So, I don't know what that means, but I do notice some eyes kind of closing and people, you know, probably wanting to get on the rest of their afternoon. I will be very brief. I don't impute any intentionality. I think it's my fault. I really want to thank Bob and Elliott and Kevin for putting this together, and the whole Commission. I think it's really particularly appropriate that we're getting together here to talk about these bandwidth issues, because it was really just about five years ago that the networks of the future for -- I don't remember if that was a forum or what exactly, what sort of thing it was, but it was a discussion of the beginnings of a lot of these issues. It was the first time, I think, a lot of people around here focused very much on these issues, and you know, that was just five years ago, a little less than five years ago; I think it was May of '94 -- '91 rather. And an enormous amount has happened, really, every year since then. Just about this time in 1992, four years ago, the NSF net was finally commercialized after a fair amount of pushing and pulling and tugging and shoving. 1993 was not as good a year. It was the year of the clipper chip, and that was probably just an example of what not to do. But then 1993 and 1994 really were the years when the Worldwide Web sort of rocketed into everyone's consciousness, and they were also the years during which, all of a sudden, when I would talk about the work that I was doing that my friends and my family would actually begin to understand because they had heard of this thing called the Internet. 1995 was also not a very good year. It was the year of the Communications Decency Act, but, hopefully, we'll have a better year in 1997. And, I guess that what is really striking to me -- and I know that this is a panel about access and affordable access, and I think affordable access is critical. I think it's a very hard problem to figure out how to really continue the move towards more affordability and higher bandwidth. I guess that I am going to close this on a somewhat contrary note and say that there are other issues to consider besides just bandwidth and affordability. Those are critical issues, clearly, and without affordable access and without sufficient bandwidth, we get nowhere. But what's interesting about the last five years, starting with the Networks of the Future forum, is that the Internet has developed in absolutely extraordinary ways with absolutely inadequate bandwidth, at the ends at least. Clearly, there has been a lot of bandwidth available on the backbones. Many speakers have talked about the fact that backbones have grown in a relatively open market environment. Backbones have been able to expand because of inter-exchange and other sort of special access facilities. But at the ends of the network, especially with regard to residential users, the bandwidth has been terrible. It has been affordable, but it has been really lousy. And I think you could draw a graph with curves going in two opposite directions, where you would have at the one end people in telecommunications policy circles fretting about how to increase bandwidth with nothing happening, and at the other end the Internet market just kind of more-or- less ignoring those discussions, developing at an incredibly rapid rate. So, what I want to suggest is that as important as affordability is, and as important as high quality, high bandwidth services are, the Internet, I think, has actually succeeded in having brought incredible benefits to this country and has the promise of bringing even more incredible benefits because of reasons that have nothing to do with bandwidth and not much to do with affordability. I should correct that; it has a fair amount to do with affordability, but it certainly has very little to do with bandwidth. I want to just highlight, very quickly, four architectural aspects of the Internet that I think have really made it a very important forum for democracy in this country, an important new means of democratic communications. I think that most of you who are here, and certainly people who are listening on the Web, already know this so I'm not going to belabor it, but the Internet has really turned upside down people's relationship with communications media. And my organization, the Center for Democracy and Technology, is here focusing on this issue in some part because we want to make sure that the Internet remains affordable, but really in many ways more because we are tremendously excited about the First Amendment potential that the Internet has. The Internet enables people to communicate in a Democratic society such as ours in ways that we have simply been unable to communicate in the past; since, you know, the proverbial town square when we could all go out and talk to each other. We can't do that very much anymore, but we do have the Internet, and I think that that's an extraordinarily important development for our democracy. I also think it's extraordinarily important for what I've always regarded as one of the Commission's core missions, which is to promote a diversity of information sources and promote access to a diversity of information sources. The Commission has also tried -- there was reference to video dial tone proceeding and other such proceedings to advance this goal. It's been very difficult in the broadcast arena. The Fairness Doctrine has been very controversial, and I'm not even going to speculate about whether it was ever effective or not because it was before my time. But I think that the Internet presents itself as an extraordinary model for promoting democratic discourse, and my simple suggestion to the Commission is to keep in mind the characteristics of the Internet that make it such a rich, diverse environment. And whatever the Commission does in trying to promote bandwidth and keep things affordable, to keep these architectural characteristics in mind, and I'm going to go through them very quickly. First of all the Internet, as others have said, beginning with, I think, John Carr, the Internet is a decentralized infrastructure. There are no gatekeepers on the Internet. There is no centralized point of control on the Internet, and very simply what that means is that anyone who wants to put up a Web page on the Internet can do that without getting permission from anyone else. And that is a unique development, in at least in the history of American communications media, and I think it's just very important. The second aspect of the decentralized nature of the Internet is that really, unlike mass media, it is an abundance of communications opportunities. If you want to put a program out on radio or television, you've got to go find the radio station or find the TV station or find the cable operator, negotiate for channel space. It's complicated, it's expensive, and what makes it expensive and complicated is that there are only a limited number of channels on the radio spectrum, and only a limited number of channels on your television, and only a limited number of slots on any given cable network. That makes them expensive and it makes it hard to get at. We don't have that problem on the Internet. So, this decentralized and gatekeeper-free environment is tremendously important. Secondly, the Internet is bi-directional and interactive. This is obvious; everyone who uses the Internet knows this. But if you think about the Internet in this regard in contrast to television or radio, when you're listening to a political debate on television, you can't talk back to the candidate. It's that simple. And you certainly can't talk with the other people who happen to be listening to that same program. The few politicians who have been brave enough to go out onto the Internet and engage in chat sessions and things like that, have discovered that the Internet is quite a different environment. People can talk to each other. People can associate freely. This is a critical value that the First Amendment of the Constitution has always tried to protect: people's ability to associate. Well, it's very hard for me to associate with someone in Wyoming, especially since GUI doesn't have a "POT" there. I'm sorry; I know. But the fact is, and what is wonderful about the Internet, is that we all can associate with people in Wyoming over the Internet even though, you know, the leading Internet service providers may not have POTS there, because as GUI pointed out, other smaller service providers do have that POT. So, the bi-directional nature of Internet communications is tremendously important and has to be preserved, I think, especially as we look at some of the discussions in the cable industry about how to enter the Internet market. Some of the early discussions of the at- home network I think raised a lot of questions about whether that was really going to be an open network the way the Internet has traditionally been open, and I think this is an important point to watch. Again, picking up on GUI's point, there are since, at least -- well, really there have always been multiple access points on the Internet. In the early days of the Internet, there were requirements that you were affiliated with a university, or the government, or a research institution in order to get on. But from the very beginning, there were always multiple paths to get to the Internet, to get to the backbone, and that, I think, has been very important. It means coming back to Cheyenne, Wyoming. Even if a large service provider decides not to provide service in a given area, smaller ones can come in. This is very important. And I think that it's that diversity of service, the fact that you have large service providers, small service providers, service providers which focus on large business customers, others which focus on maybe large residential customers in urban areas or highly-populated areas, and then others that focus on rural areas. There are a number of Internet service providers who really have made a specialty of rural, hard-to-serve areas, and I think it would be useful for the Commission to talk with those folks and see what's happening. I'm glad -- I didn't know about this Benton project; I'm looking forward to seeing that. But it is that diversity of service that I think will help assure that there is really a diversity of voices on the Internet, that you won't be shut out of the Internet simply because of where you live. Finally, and you all know this, the Internet is an environment that is characterized at its core by open standards; John Curran mentioned this. But we only have the Worldwide Web. We only have advanced IP routing protocols because the Internet's an open standard environment. The Internet has gone through, in just the five years that we've been talking about, extraordinary developments, extraordinary changes, and they've been able to happen because it's an open environment. So, my closing thought is that affordability is critical, and figuring out the very real issues about making sure that schools and libraries and other community institutions have access is critical. I honestly do not present myself as an expert on those issues and hope not to minimize them at all. What I do think is equally as important and an absolutely necessary aspect of any policy that is trying to promote broader access to the evolving national information infrastructure, is to keep these unique characteristics of the Internet alive. I think that we've all been just handed this extraordinary new medium by a relatively small number of people in this country who have worked very hard to produce it, and it's grown, I think, more than anyone would ever have expected. And I think that our task now is to preserve what's unique about it and make sure that more people have access to it. Thanks very much. [Applause.] MR. MAXWELL: In the earlier panel we talked a little bit about when the second million broadband access subscribers would be met. That panel could leave people either sort of more depressed than they were during the conversation of the Telecom Act or with a belief that there was some reality that had set in. People could interpret it very differently. I'm curious as to your perspectives as to whether you would be optimistic about a vision in which we expect that there is broad access in traditionally underserved areas, or pessimistic about the kind of coverage in the next three to five years; whether it's a problem that will go away because of a natural evolution in the marketplace, or because of wise decisions on universal service or other things; or whether it's something where we are going to have to simply say, "This will take time. It may take a lot of time and there's not much we can do about it." MS. CADY: I guess that was probably more directed to me, being affiliated with a network provider. I think there's a difference between broad access and broad band access. In the broad access, meaning access is available today, to everyone who can have, you know, anything from -- I suppose even 286's in Minuet would work -- and a 1200 baud modem. Now that's not ideal. You know, you would not want to try and submit X-rays across that kind of a connection. MR. MAXWELL: Not if you wanted survival. MS. CADY: No. [Laughter.] MR. MAXWELL: It depends how serious the break is. MS. CADY: Yes; that's not a mission critical. You don't want to run mission critical on a 286 across the net today. So, I think that I would like to make that first point. You know, anybody can get on the net today, assuming that we manage to get the appropriate equipment somehow. I think what is going to be harder to predict is, when does that underlying access -- just the availability of it and the intersection of the need for the broader band meet in a way that is going to be reasonable. When can I get an X-ray from an outlying agency on the Rosewood Sioux reservation to, I don't know -- the Mayo Clinic or something? And I wish I knew. Those kinds of things probably should be handled via some of the newer satellite things, where you're trying to transmit really wide band width things, and maybe we could do something there. I wish I had a magic answer, because you know how much I'd like to have that magic answer, but I don't. MR. WEITZNER: I would just add that I think that this holy grail of broad-band service to the home has been around for such a long time, and it's hard to see very much progress in that direction. I, frankly, don't count most of the trials that are going on as progress in that direction. Back -- I can't remember when -- Leland Johnson did a terrific study that basically showed -- you know, you want real broad band for video, and that the number of applications which require truly interactive broadcast quality, or now even higher quality video, is essentially nil is the residential market. MS. CADY: Games. MR. WEITZNER: Sorry? MS. CADY: Gaming technology. Gaming technology is likely to pay for it, actually. MR. WEITZNER: Well, but whether you need broad- band capacity to do that, I don't know. I think that it's very hard to know that far out into the future. My belief is it is pretty far out into the future. I think that just in the efforts to make the first step to digital access to simple basic rate ISDN, there has been some amount of progress. I mean, I think it's worth noting that you open up a MAC warehouse or a PC warehouse catalogue today and you find ISDN terminal adapters for pretty close to the price of state-of-the-art analogue modems. That, I think, is a sign that we're making sort of slow, incremental progress towards digital access. Whatever anyone says, that is, I think, the best indication of where the market is going. But very few people use those products. I think over time more people will use them, but getting to multi- megabyte, bi-directional, broad-band service just seems to me like an awfully long way away, and I think it's probably -- if that we're adopted as a policy goal, I think that could well lead us in the wrong directions. I think we should be focusing on nearer-term, more achievable goals. MR. MAXWELL: Pretty good bandwidth. MR. WEITZNER: Pretty good. Pretty good is great. And I really do think the experience of the Internet is that it's gotten by with pretty good bandwidth, and it's done amazing things. And there are lots of ways to compensate for lack of bandwidth. It's not, as GUI is saying, it's not ideal; it's never ideal; you would always like more, but you can get by and do an awful lot, and the net has. MR. MAXWELL: One of the interesting numbers that comes out of this panel and on the earlier panel, if Lee Bauman's number was right and you had people, subscribers, spending an hour a day essentially calling an Internet service provider, and you then said for those people for whom it is not a local access service, we're talking about $5.00 a day, you know, running from $5.00 to $10.00 a day on distance charges to a provider, that may not be a sufficient situation for us to be satisfied with for access. MS. CADY: I think, Elliott, it depends a lot on why people are on. Since -- NetCom used to have a billing mechanism that allowed people to remember that they were in a shared environment; that is, we charged a certain amount for so many hours of prime time and then when it wasn't prime time you could do whatever you wanted. And, at that time, the per session usage was, you know, lower than it is now, and since we, for competitive reasons, went to a flat rate without limit pricing, we've seen monthly on our local call part of the network -- in other words, when you aggregate all of our access points across the United States, the per session time is going up in small increments. But, it's like, you know, the day is getting longer as we get closer to the summer solstice. And so, you know, two or three minutes a month per customer over 600,000 customers is a lot of minutes. This is a similar point to the one I think Mr. Bauman was making, and I would agree with that. The number is creeping up in our 800 service in that we're getting more customers and we're getting a little bit more, but people on the 800-side of the service are very aware that they're paying per-minute charges and so they tend to be on and off much quicker, all right? And so you don't see -- I don't know whether you call them bandwidth hogs or what -- modem campers. You know, you don't see modem campers on the 800 lines, whereas you might see them in these more congested areas where people are afraid that they won't get lines. MR. MAXWELL: Any questions from the audience? In the back there. MR. DAHNKE: I'm Roy Dahnke from the SETA Corporation. I don't want to repeat a lot of the things that have already been discussed, but one of the things that I've not heard any discussion on so far is the possibility of paradigm shifts which I think are already just beginning to start, where people are using computers to -- we used to call "work at home" -- but I think it's really where you have business access to do your work, you know, consultant types of work all over the world. It's not just a case of being able to be 30 or 60 miles away from home with the ability to do work internationally via the terminal. And I think that's one of the things you want to consider as you move forward. Thank you. MS. CADY: If I could just respond to that, I think most of the Internet service providers do consider that, and many of us are part of consortiums or part of larger organizations that allow global roaming access to our networks and so we're very conscious of what our business customers want. MR. SHAPIRO: My name is Andrew Shapiro. I'm from the Twentieth Century Fund. I have a question for Danny and the other panelists. I agree about the architectural points that you mentioned that are characteristic of a democratic Internet, so to speak, and I wonder to the degree to which we think there should be policy or regulatory incentives eventually. I mean this is a question actually relevant to the first panel, to the extent the guy from Cable Labs was here and also from the second panel, the AOL representative was talking about local cashing. And one of the questions about local cashing is whether that in some way goes against one of the policies you were talking about, about no gatekeepers, and the kind of content neutrality between your average, individual teenager who has their own Web site and let's say Time-Warner or CNN who has their own site and they're supposed to be sort of one is as easy to access as the other. And with local cashing and private networks and things like that, there's a question as to whether that's really going to be so and whether there should be policy prescriptives in place to deal with that, which is the question. MR. WEITZNER: Well, I never thought cashing would be such an interesting subject. I guess that I think that not withstanding the democratic nature of the net, all content on the net is not equal and it is not equal for a lot of reasons. One interesting reason is what you pointed out, that it may not be as easy to get to, and that could be because it's not cashed anywhere else or it could be because the Web site or the host for the content is sitting at the end of a dial-up line as opposed to at the end of a T-3. So those are all issues that I think differentiate between, you know, the New York Times on the Web and a handbill on the Web. It's not obvious to me what sort of policy steps one would take. I guess just my own my own experience in being a Web surfer is that the valuable content, I think, still does win out over glitzy or easy-to-access content in the end, and I guess that I would have First Amendment problems at the other end getting the public policy process too heavily involved in favoring one kind of content over the other or trying to balance out content. I think the Web does a -- the Web, especially with search engines -- does a reasonably good job of giving all content a fighting chance, at least. It's not risen to the level of disparity or inequity that I think we need to do something in the policy arena. AUDIENCE PARTICIPANT: Can I just ask if anyone from the Commission wants to address that? MR. WERBACH: We're just here to listen. We don't do anything; we just listen. [Laughter.] MR. HARTER: Actually, I have a comment on that, the gatekeeper point the gentleman in the back of the room made in his question, that there is a technology already out there that prevents gatekeepers from occurring with this local cashing issue. If you author a Web page, you can put a command in the header field called a progma, and it basically tells proxys out there -- and a local cash is only created by some kind of proxy server environment, or not only, but that's the likely way it got created -- and the progma just basically says, "Don't cash me, don't cash this page." But frequently, from what I've understood about cash and as I've gotten deeper into it from the copyright point of view, is that progmas are frequently ignored by transport providers. I'm not going to point any fingers or get into that kind of discussion, but you're going to have virtual private networks; you're going to have proprietary services where you have to subscribe to get in, and you're going to have to optimize performance for those paying subscribers because they want quality of service. (Continued on next page.) // // // // // // // // // // // // // MR HARTER (Continued): And if you need to use hierarchal cashing, local cashing, I think there is going to come a day on the copyright infringement side of this and not on the performance bandwidth access side here in this form, where we are going to see all the content in there that may be yanked off, and then it will have to be licensed in advance. In the cable TV model, for example, everything you see coming through a set top box is prelicensed. They don't really care how many viewers are actually out there. They don't care how many copies in a sense are out there in that virtual private network. But in terms of the public Internet, there are tools out there like programs, and people invent tools to stop things from happening that they don't like happening. People on the net tend to do these kinds of things for the hell of it. So it's a very important question you've asked. What the resolution is, I don't thing the resolution will lie here. It will happen in Congress this year on the copyright and in the international arena when we go back to address that right of reproduction. Glee? MS. CADY: Well, I think that while the points you made were really interesting, Peter, I think the question was coming from the opposite point of view, which was my personal page, which is on a very small server on the other end of a 14/4 modem, quite frankly, is less likely to be accessed as quickly as the Netscape pages, not only because of the class of server that it is on, or the type of connection that it is, but because it's accessed so infrequently that it is unlikely to be in anyone's cash. And so, therefore, my page is at a disadvantage, vis-a-vis, your page; and, is that fair? Well, possibly not, but it is certainly life, isn't it? (Laughter.) MR. PEPPER: Glee, actually, I would like to go back to something you were talking about earlier, and that was pricing structures. Now, Netcom is changing its pricing structure. And I guess one of the questions -- MS. CADY: I was afraid you were going to ask me about that. MR. PEPPER: One of the questions is, what is the future of flat rate pricing by ISPs? And if, in fact, flat rate pricing, as it has been described by some people as a way, within a competitive environment, to get market share and get started and get up and running, but then it may not be sustainable in the long run; what about institutions like schools and libraries that have budget constraints and fixed budgets? So there is really two parts to the question. MS. CADY: Well, I think there are probably about 47 parts to that question. The first thing that I want to say is that if I were an adequate prognosticator, I would have had lots of Netscape stock, and I probably wouldn't have been here today. I would have been being wealthy in the Bahamas, right? So Netcom has definitely announced that it is moving away from the flat rate unlimited fee for subscribers. The way we are choosing to describe that today is that we will be developing new services which we hope will be of value to our customers. We're particularly interested in the small business/home office kind of market. And we hope to be able to develop a portfolio of services that are desirable for that market. That doesn't mean we are walking on our current customers, of course, and they'll be grandfathered in. I don't actually know what the services will be, nor have the new prices been announced. I don't think that Netcom's move was -- let's see, do I want to say it wasn't shocking, but it was astonishing at that time or something, you know. Don't be surprised or be shocked that it was there. We're in a very competitive, heavy infrastructure based environment. And we are having to invest more and more in infrastructure all the time in order to provide what a number of our users say is totally inadequate service. Just ask them. And I must say that while that was sort of a smart ass remark, we tried very, very hard to provide very good service, and we can't always. And that means that we need to invest yet more in infrastructure, and that money needs to come from somewhere. So we need to develop a better match of what we can offer to what the customer is willing to pay. And we are hoping to hit that soon. Our announcements are expected sometime in mid-February, you know, and then we'll see. I don't think that it's an unusual move. We were just the first one to make it in this industry. MR. PEPPER: So you see this as a beginning of a trend? MS. CADY: Yes, I think so. Now, to answer the next part of the question, what does that mean for schools and libraries, it may not mean anything at all. Because what we were talking about there was the dial access in what's essentially the individual market. That's not the same as direct, continuous connections. It's not the same as necessarily dial ISCN services. In other words, there is a full panoply of services that can be offered. And we offer direct connections into schools and libraries now at a considerably discounted rate off what we would charge a corporation. And I would expect similar kinds of things to go forward, with that in mind. We are interested in the school and library market, because that's where you grow interest and new users. And this is a model well developed by Apple Computer Corporation, and we have all learned from it. MR. PEPPER: Do you see a lot of model camping now? The way you described it earlier, now with -- I know a number of the ISPs time people out, with some of the broadcast services, or you can have your computer sort of, every once in a while, ask for something. So then at home, you can get -- MS. CADY: Right. MR. PEPPER: -- essentially the same connection I get at the office on a LAN, where it's always on. MS. CADY: We suspect that it is there. In our Canadian subsidiary, we run something called a fair use program, which will time you out after so long. And I did actually ask what the length was, but I didn't catch the right person in Canada to know what the length is. And we do anticipate putting that in, in the United States, so that we don't have people taking modem space, when they aren't actually using the service. MR. WHITE: Could I ask a question? MR. PEPPER: Sure. MR. WHITE: Is what's pushing you to shift pricing -- is it specifically the modem camping problem; in other words, sort of the other end of the problem that some of the ABOCs talk about; or is it a broader question of the usage of your network, once you get to the other side of the modem? I'm interested, I guess, because I think -- especially when thinking about schools and libraries and small institutions, some of them certainly will have to live in the dial-up world, at least for the foreseeable future. But I know that many libraries in many schools that have access have some sort of dedicated access facility, even if it's just, you know, a switch 56 kind of connection. And I wonder whether you have the same sort of pricing considerations in those sort of low capacity but dedicated access facilities as the dial-up. MS. CADY: Well, I think I think low capacity but dedicated access, in other words modem to modem, is most Internet service providers' least favorite mode of service, all right. It's exactly as expensive to provide that as it is to provide it for the one to twenty or one to fifteen or whatever your modem ratio is; which I must say, I don't know for Netcom. So I can't answer that question. So we price it to make people not want to buy it, unless it's the only thing that will meet their need. Because, quite frankly, it's a pain to provide it. And so we are less likely to want to do that. Now there is a difference coming up. I don't know if you all know about the net little boom box routers that people like -- have you heard of Whistle? Whistle is a neat little product. I will now do a commercial for Whistle. (Laughter.) MS. CADY: They are making a little router that is intended to run on a 28/8 modem that comes configured with everything that you want. And you drop it in and you can plug five PCs into the back of it and, presto-chango, you've got a network. And it costs -- it retails for around $2,000. And a number of us ISPs are really interested in this, because this is going to help us migrate technology out to what we think of is the most under-served market, actually, which is the three to five person office. It's really not the home. People at the home who want our service can get it. But that three to five person office who really can't afford a system administrator, who really can't afford somebody who knows a whole lot about network configuration. And so this is really -- it's a great little product. Do you know that Mike has been standing back there for a long time, wanting to ask a question? MR. MAXWELL: I know that. I also know that John Curran is fingering his bag, which I assume means that he wants to go. So why don't I call on John, and then Mike next. MR. CURRAN: I have a quick question for Peter Harter. In your tenants of universality, you advocate a separation from Internet access and Internet service. And I'm sure there are good reasons for that. I don't really understand them. On the surface, it would be like me advocating that web browsers shouldn't have E-mail clients built into them. And so I'm sort of wondering what separation is desirable, what basis? MR. HARTER: Well, in the new release, which is invaded on our home page, you can be downloaded for a free trial basis -- a little commercial. MR. CURRAN: This is commercial-free public broadcasting. MR. HARTER: We've broken the navigator in the new product called Communicator E-mail, and separated it out from the browser. So consistent with that thinking, roughly, to better explain the need for considering the desegregation, whether desegregation is actually in the public interest, ultimately, I don't know. But so far from what we've seen in the overall discussion of initial service, and from my experiences in the grassroots area prior to being at Netscape, I saw a lot of money thrown at situations. Give us a connection for our school, and then whiz-bang-LAN, no one uses it. So you if you throw money at something, it doesn't mean you are going to get the goal met. And the goal is to get advanced communication schools to schools, libraries and rural hospitals. I think tapping into the mind share out there and using a little creativity and that grassroots practicality, giving them a huge Cadillac access service with the pipe, the internal wiring, the content and whatever else you want to throw in there -- the kitchen sink -- could be a mistake, and a tremendous waste of money. And if you went to technologies, it will be outstripped by someone else's next release. MR. CURRAN: Thank you. MR. PEPPER: Mike? MR. TREST: Mike Trest, ATM Net. I would like to focus on the basic statement of broadening the coverage, particularly to remote areas. I've been quite active in the Asian Pacific Region, where you haven't discovered what remoteness means. It makes Cheyenne or anything else look like a very positive and high population area. Inasmuch as I do believe that economic forces or the little suppliers or the seven who are fighting over the cow and the fence post will come in and fill up the gaps. It is not so in other worlds as one of our speakers have identified. And in discussions that I've had with the incumbent equivalents in the Asian Pacific Region, they are stating as public policy that economic development for their region, their participation in the information technology revolution as a people is so critical and so vital that they as governments and regulators are saying, we do not see the commercial market springing up on its own the way it has here in the West. So I suggest that in the remote area concern, there may indeed be some encouragement from the regulators here in the states to match the encouragement by regulators around the world to say that it is in our country's interest to take an active role to encourage it. Now, I don't want to go all the way back to the good old days when everything was subsidized and part of the defense or other department of our government to make it broadened access to these remote areas. But I think still some form of grant specific or other encouragements that state and federal regulators can encourage may be appropriate to broaden that coverage and get that universality. Because we all have been touched to our being souls about the advances, the growth in understanding, the political advancements and the democratic process that has been advanced by those of us who become Internet users. So I encourage, yes, we can expect the commercial organizations to do so much. But in this area, to extremely remote areas, I still think there is a role. MR. PEPPER: Peter? MR. HARTER: If I could comment on that, just the other day I was speaking to a colleague of mine, Skip Brandt, who used to be the Director of the ASPIN program at the University of Arizona in Tempe. ASPIN stands for Arizona State Public Information Network. And over the past three or four years, through a variety of state, corporate, and NSF grants, they put over 500 notes throughout the state of Arizona. The first phase, their product was to get to schools, K through 12 schools, public and private, then community colleges, then all the universities. And included in that program were all the Indian reservations, rural areas, urban areas, and that was local ingenuity, spearheaded by a university program, some federal funding, some corporate funding. It included training, user training. It included the community programs, the libraries. So I think what the gentleman in the back of the room just said is definitely true. We've seen it work before. But those grant programs can be with problems at times. But I think there are many good examples of grant programs, such as ASPIN, that work out pretty well. We're getting a lot of nodes out there where the marketplace may not necessarily justify the capital expenditure by a for- profit enterprise by investing in that kind of physical plant. MR. WERBACH: Can we go into that a little bit more? Mike made this point, too, that if we agree that we want to support universal access or access to under-served areas, we have a motto, which universal service in the telephone contacts, which on one level has been a great success, that we have 94 percent or something of people in households that have telephone service, but we also have had this very cumbersome, inefficient subsidy mechanism that has restrained competition. How do we target actions that governments take in such a way that they can achieve the benefit while still preserving the kinds of diversity and local control that all of you have talked about? MR. HARTER: The one difference about a grant program versus the subsidiary regime is that grants are like a one year, or a three year, or a five year thing. You get the money you want, you spend it, there's a budget. And then the system either has to live on its own, or it was a temporary project, to prove a particular point or gather some data. So after the contributions to the grant program end, someone else has to pick up the tab. So it's a bit different. And that's just to get the infrastructure out there, the grant money. What pays for the maintenance, the upkeep, the insurance, replacing dead modems that Glee ran through as a business person, the realities of a network, you have to keep feeding it, and expanding it and growing it. And that burden may be shifted to the users. And if there is still a need for continued federal funding, that's a separate issue, I think. There are two different funding phases here, if you will. One of the things that we worked with when I was at the NSF net was the NSF's connections program. And I would commend it to you. It's particular intent at that point was for connecting -- well, at the time I worked with it, it was the second and third tier of higher education in the country, meaning most of the Carnegie class ones were connected then. And so we were after the smaller institutions. And that was very, very successful in getting people started and having enough impetus to go forward, knowing that there was a drop dead date, and that they had to have a plan from that point forward in order to fund the mechanism, which meant that people wouldn't apply for things without a good reason. People wouldn't get a connection, just to have one. They would need to have a reason for wanting it, which is a point that we need to come back to. I mean, I'm not kind of the feeling that if you build it, they will come, all right. That made a great movie, but it's not necessarily -- there needs to be a balance between trying to figure out, once again, where the need is going to be and can we meet it at the right time. And so having the people who really want it and can articulate their need articulated to some organization that is well qualified to figure out, you know, should they have some seen money to start with, I think is a good way to do things. MR. PEPPER: In the back? BROCK MEEKS: Brock Meeks with MSNBC. We keep hearing the term, "Yes, we need affordable access." But can any of you put a dollar figure on what the hell affordable access is. It doesn't mean squat to say affordable access if you really mean that affordable access is $59 a month or $6 an hour, and does affordable access mean we have different tiers of affordable access, like Netcom wants to do. That's the first question. The second question, Peter, if you were going separate access from services, then don't you run the risk of turning those with just affordable access into high tech ghettos. They are cut out of the services. They've basically got TCPIP, and that's it, and they are left behind. MR. HARTER: I guess I'll jump in first. If you do separate access from services and desegregate, I don't know if it will be a high tech ghetto, that certain kind of hyperbole certainly eliminates the problem, if you do separate it too far. But if you just have TCPIP, as opposed to going through a modem and getting a busy signal, as many people have a problem, today, you can surf all the beautiful pages that are out there on the web in the public Internet. If you carve out services in some way, my intention in pointing out that desegregation as you separate out the content that is bundled, typically, with a wire as part of a proprietary subscriber basis. So if not giving away some on-line services proprietary content for free in some kind of affordable access bundle, paid for by the U.S. taxpayer, some people may question, do I want that kind of content in my neighborhood anyway? Is that all Mars candy, and not just good bread and meat and potatoes. And again I'm going to hyperbole, too. Again, I'll stress, it's something to consider in the process, what ultimately is in the public interest, after we go through a discourse, we'll hopefully figure out what is in the public interest. MR. WHITE: Brock, I would settle for reasonably priced service. (Laughter.) MR. WHITE: No, I'm serious. Reasonably prices means that it has some relation to the cost, and it is provided in a competitive environment. AUDIENCE PARTICIPANT: That means nothing. MR. WHITE: No, it means quite a bit. I think that a lot of people who have looked at what it costs to provide ISDN service, what it costs to provide some of the other technologies that are being discussed here, look at the underlying technologies and know that they can be provided in an affordable and reasonable way to users. Affordable, obviously, to one person, is different than affordable to another person. There are some things I don't consider affordable for myself, because I don't think they are worth anything. And I expect everyone is going to make that judgement. But I think that the technology -- and this is not a principle; this is just a sort of empirical observation -- these access technologies that we are talking about have been designed by smart engineers to be fundamentally available to people who want to use them. And earlier today, there was a benchmark given of sort of somewhere between what phone service cost and what cable service cost. There is a band in there of what people are willing to pay. I don't think that we need to stand on that principle. I think the principle we need to stand on is that we need reasonably priced service, going back to a sort of old, you know, in some places, unpopular notion of just and reasonable prices, which are based on cost. But also prices that are developed in a competitive environment, where I have some confidence that if Glee tries to charge me $50 a month for the same service that I can get for $20 a month somewhere else, that she is not going to be around very long. And I think that's where we need to get with this. This is not a statement that says in all cases, the market solves all problems. But I actually think in this case the technology was developed with enough smarts in mind that it can be affordable for people if it is priced reasonably. MR. HARTER: Brock, here's a tricky question for you. Say I'm a university student and I get 7 by 24 access to the Internet on my university account, and it's a real good question. I've got a real powerful work station or terminal in my dorm room. And I said, "Hell, well, I don't want to dial into AOL. I'll just go to their optional plan." I think you just access their content through a TCPIP connection for $995 or whatever it is. And there is some Internet provider saying, "You can access the Internet through us, through dial-up for $8 a month." And then you pay the $10 AOL and you get in cheaper than the $19.95, which they are currently offering. Well, say, I get in and it's a public institution. It's a state university. And it's state tax dollars paying for my lower tuition rate and my interconnection there. Am I somehow abusing that by getting that advantage, by not having to pay the underlying cost of the transport, the connection, getting to this proprietary subscriber base environment? These are questions people ask sometimes about how you use a free resource, like a university account for a for-profit activity. I don't know, is AOL benefitting because many young users who want to come into the chat rooms or sports areas of their service come into university because the connectivity is frankly a lot better, and that relieves the burden on AOL to capitalize a bigger infrastructure to meet the demand for its services? MS. CADY: But causes congestion. MR. MAXWELL: Questions? That's all we can get. First here, then over here. MR. GOWDA: Hi, I'm Ihor Gowda with Newbridge Networks, and it's a question for either the panel or the commission. It's philosophically related to Mike Trest's question, I suppose, but it is more about broad band access than broad access, and particularly for schools. An application that is very useful in schools that requires more broad band access than Internet access is interactive distance learning, which generally requires, say, up to a T-3s worth of access to do it properly. Are there any policy initiatives of mechanisms that have been thought about for -- and Brock Meeks will sympathize with this -- for making T-3 access "affordable" to schools in order to enable interactive distance learning. MR. MAXWELL: Just as a factual comment, in the universal service proceeding, one of the questions was, what services would be available under the provisions under the Telecom Act for schools and libraries? The Joint Board recommended that it be all commercially available services, that there would be discounts applied to those. But there have been comments and reply comments filed on that. The Commission has to make a decision on that question by May 8th. But there was nothing in the recommended decision by Joint Board or in the notice that went out that said, "Well, it has to be this level of bandwidth or that level of bandwidth." It was, in fact, all commercially available services, subject to discounts. Let me sort of turn over here. MR. DOYAN: Hi, my name is Russell Doyan. I manage the network layer for Saylor. Saylor is the State of Maryland Library and Department of Education network project. We tie schools, library, and government agency networks together. We also provide the public access to modem pools in all calling areas of the state. FCC Chairman Reed Hundt visited us a couple months ago. And I believe Mr. Hundt to be a champion of schools and libraries. I think we need more champions to step forward. Libraries have always been providers of information. Librarians are the greatest indexers and distributors of information. Teachers have always been providers of information, and they shepherd our future. Schools and libraries need legislative help in building their networks. When BIN is installed in public right-of-ways, it would be helpful if perhaps 30 percent of the capacity is allocated to schools and libraries. They need access to raw capacities, not just bundled services, VISPs. This resource sharing that the FCC has started is a seed that I believe will show fruit in the decades to come for our children and ourselves. I would also encourage the FCC to allocate some usable frequency band with the schools and libraries, with a permanent frequency allocation, and allow them first crack at unused or government frequencies that are being migrated to the public sector, or to the private sector, before they go up on the auction block. This would allow -- this would follow a precedent that has already been set by schools and libraries being able to preview government surplus property at auctions, and pick that up before it's sold. Thank you. MR. MAXWELL: This is a fact maybe to leave the panel with. The telephone companies that are eligible for raw utility service grants represent probably about half the land mass that is considered rural. And that's about 80 percent of American territory. About 66 percent of RUS eligible telephone companies are also Internet service providers. And there is an interesting requirement that by law was imposed on RUS grantees to increase the infrastructure capability of the RUS grantees to provide better infrastructure to rural areas. It would be interesting to see what the role of these companies will be in the future in reaching schools and libraries in previously under-served areas. And it's conceivable, I would guess, that the same kind of mandate might be applied to Internet service provision, as was applied to infrastructure development. That obviously raises different questions about the relationship between the local exchange companies and Internet service providers. But there is, again, for purposes of reaching out, perhaps another mechanism that will supplement the actions that Peter was describing, which getting by with your help from your friends, to make these services available to people. I would like to thank everyone on the panel for coming. I thank you all for a long day's attendance and for good questions, and in the future, for helping us try to work through these issues. MR. PEPPER: Just one last thing I want to say is, again, from our reporter, anybody who has spoken, please provide your business card so that we can put that in the record. I also want to thank everybody on all of the panels and our audience who has been here all day. We have found this very, very productive. This is the beginning of a process, not the end of a process. We hope that people participate in the various proceedings here. There have been some very important questions raised about incentives, innovation, investment, bandwidth, access and democracy. And so we see this as part of an interactive process in the tradition of the Internet. // So thank you all very, very much for participating. (Whereupon, at 3:40 p.m., the meeting was concluded.) // // // // // // // // // // // // // // // // // // // // // REPORTER'S CERTIFICATE FCC DOCKET NO.: N/A CASE TITLE: FCC BANDWIDTH fORUM HEARING DATE: January 23, 1997 LOCATION: Washington, D.C. I hereby certify that the proceedings and evidence are contained fully and accurately on the tapes and notes reported by me at the hearing in the above case before the Federal Communications Commission. Date: _01/23/97_ _____________________________ Official Reporter Heritage Reporting Corporation 1220 "L" Street, N.W. Washington, D.C. 20005 Shari R. Bowman TRANSCRIBER'S CERTIFICATE I hereby certify that the proceedings and evidence were fully and accurately transcribed from the tapes and notes provided by the above named reporter in the above case before the Federal Communications Commission. Date: _01/24/97_ ______________________________ Official Transcriber Heritage Reporting Corporation Pamela Stevens PROOFREADER'S CERTIFICATE I hereby certify that the transcript of the proceedings and evidence in the above referenced case that was held before the Federal Communications Commission was proofread on the date specified below. Date: _01/24/97_ ______________________________ Official Proofreader Heritage Reporting Corporation Don R. Jennnings