dicate that, in fact, we still have a system that is heavily dominated by the provision of multi-video programming through cable and that alternative systems for competition are still developing for

consumers.

This first hearing today focuses indeed on the various alternative systems for delivery of multi-video programming. It is not at all to imply that any of us love cable less or that we love another system more. It simply implies that the 1996 act was meant to encourage competition in these various systems and we want to examine today just how fast that competition is developing when it comes to the deployment of these technologies.

I want to call your attention to the fact that the subsequent hearings we plan will focus on what, perhaps, will be the more the most important part of this inquiry and that will be the availability of programming to these various systems, who owns it, who controls it, who distributes it, whether or not in fact the ownership and control of programming and the lack of its availability or access by alternative providers may continue to be a problem for a competitive marketplace.

This hearing will focus, again, on the delivery systems. Why is it that telephone companies have not leaped into the provision of open video systems? Why is it that satellite services are still experiencing difficulties reaching marketplaces? Why is it that over-theair, wireless cable is not being deployed any more rapidly?

What other systems might be available? How are the utilities looking at the provision of video services for Americans? What is the future, in fact, of the Internet and its capacity to join in the competition of video services for Americans?

We have assembled an extraordinary panel this morning representing the various elements of these alternative systems. This should be a very informative hearing. I want to remind you when we started this year, I asked you to focus on several things as we conduct these hearings. No. 1, what is it we can learn? And in the process of learning about these problems or these opportunities for America, what is it we can, through these hearings, teach one another about these possibilities?

Third, what are the problems we face in achieving the opportunities of full competition and, finally, how we might recommend solutions to some of those problems in the future by the recommendation for good communications policy.

This ought to be a great hearing. I want to thank the witnesses who have taken the time and the trouble to be with us, particularly those of you who I know have had to break other commitments to be with us today and I appreciate that, Decker.

I want to welcome all the committee members to what I think will be a very informative and interesting hearing.

The Chair yields back the balance of his time and welcomes the gentleman from Massachusetts, the ranking minority member, for an opening statement.

[The prepared statement of Hon. W.J. "Billy" Tauzin follows:]

PREPARED STATEMENT OF HON. W.J. "BILLY" TAUZIN, CHAIRMAN, SUBCOMMITTEE ON TELECOMMUNICATIONS, TRADE, AND CONSUMER PROTECTION

Good morning. I thank the witnesses here before us in advance and I look forward to their testimony.

This morning, the Subcommittee begins the process of exploring the state of competition in markets for multichannel video programming.

As many of you may remember, this subject has been very important to me for a long time. In 1992, I argued strongly for rules giving competitors access to the programming they needed to compete with franchised cable systems. One of those competitors, the DBS industry, has attributed its very existence to those "program access" rules.

In the Telecommunications Act of 1996, we took further steps designed to promote competition among video programming distributors. Among these were several provisions aimed at permitting local telephone companies to offer video services.

Its been a year-and-a-half since the 1996 Act, and now is an opportune time to begin examining whether our video-related efforts have begun to bear fruit. We often hear the 1996 Act has failed to deliver on its promise of competition. For example, we have been hearing about increasing cable rates.

The solution to this problem is not a return to rate regulation rather, it is more competition. I say, "Be patient-give the Act a chance to work." You can't expect a one-year old child to walk. First the child must crawl. Then, over time, the child will learn to walk. The point is: competition takes time to develop.

Still, this Subcommittee took significant steps to promote competition in the 1996 Act, and now is the time to revisit the issue. It is my intention as Chairman of this Subcommittee to examine competition in the video marketplace in two hearings.

Today, we will explore a variety of technologies being used to distribute video programming to customers. In particular, we hope to learn about the status of competition among providers using these different technologies.

In the second hearing, we will turn our attention to the issue of access to programming and the extent to which this may continue to affect competition despite the provisions of the 1992 Cable Act.

Among the witnesses we will hear from today are two local exchange carriersAmeritech and BellSouth. In the 1996 Act, we specifically repealed the cable-telco cross-ownership ban, and now is the time to hear from the LECs themselves on their plans to enter the video programming market.

Do they view "open video systems," or "O-V-S," as a viable platform for entering the market? Or is building a separate cable network a more viable approach? What is the status of LECs' plans to deploy wireless cable? Can access to programming (or lack thereof) be the only explanation for LECs' limited entry at this point in time?

In the 1996 Act, we also placed substantial limitations on states and localities in the regulation of antenna devices, But is it possible that competing providers still face resistance at the local level? If so, how? What can Congress do to promote competitive deployment while at the same time recognizing states' and localities' interests?

Finally, will the development of high bandwidth LMDS spectrum result in the creation of a viable competitor in video distribution markets?

All of these are questions we can and will begin exploring now. Again, I don't intend to sell American consumers a bill of goods by representing that the 1996 Act has failed to deliver. I am fully confident that, with patience, we will some day measure the 1996 Act as a success in bringing competition to all telecom markets. But today the measuring begins.

I look forward to the testimony of today's witnesses.

Mr. MARKEY. Thank you, Mr. Chairman, for calling this hearing today. I think it's an excellent opportunity to ascertain the nature and extent of competition in the video marketplace.

We are looking into the status of cable competition 12 years after passage of the Telecommunications Act of 1996, but we are also looking into the nature of cable alternatives almost 5 years after the Cable Act of 1992. As one of the principal authors of the 1992 Act and as a cable consumer, I have long had more than a passing interest in the subject.

As we all know, cable rates were deregulated for small cable operators in the recent Telecommunications Act. Rates for most of the industry are scheduled to be deregulated in March 1999. Rather than tying cable deregulation to a competition test as it was in the 1992 Cable Act, our telecommunications policy now ties cable deregulation to a calendar test. When the magic date arrives the

cable industry gets deregulated, irrespective of whether or not consumers have an affordable alternative to their incumbent cable operator.

Arrayed before us we have representative of companies utilizing a variety of technologies to provide consumers with multichannel video service. The direct broadcast satellite industry, which was given its competitive lifeblood in the program access provisions that Chairman Tauzin championed as part of the 1992 Cable Act— they have made great strides in gaining customers.

In addition, wireless alternatives, cable overbuilds and open video systems provide or may soon provide consumers in select areas with alternative video choices.

This choice is vitally important. It must entail service competition such as service quality, data services and internet access. It ought to include program content competition, such as additional channels, more movies, and supplemental sports programming, but for our policy to be deemed a success, consumer choice must also be driven by price competition.

In recent months millions of cable consumers have seen price hikes at double and three times the inflation rate. It is obvious that many cable systems are in the midst of upgrading and adding value to their service offerings.

What happens after March 1999, if there is no competitive check on cable operators' ability to implement further rate increases?

Today's hearing will help to give the subcommittee some glimpse into that future. I am particularly pleased to have one of our witnesses today is a representative from Boston Edison. This electric utility is in a joint venture in Eastern Massachusetts with RCN Telecomm Services and has developed a strategy to win residential customers with a package of bundled local and long distance phone services with video services.

Consumers are greatly anticipating the buildout of this service in the 48 towns that Boston Edison has targeted in Greater Boston. Again, I want to thank Chairman Tauzin for calling this hearing today and I also want to commend him for planning a subsequent hearing that will address cable programming issues.

I think this is an issue that must be looked at closely as competition develops and media marketplaces change. I welcome all of our witnesses and I look forward to their testimony and I yield back the balance of my time.

Mr. TAUZIN. The Chair thanks his friend from Massachusetts and now welcomes the vice chairman of the committee, Mr. Oxley from Ohio for an opening statement.

Mr. OXLEY. Thank you, Mr. Chairman, for holding this timely hearing. The delivery of video service is one of the areas where competition has been a little slower to develop than many of us, as authors of the 1996 Act, would have envisioned and hoped.

Certainly there is growing pressure from noncable competitors such as direct broadcast satellite and wireless cable, but these are not viable alternatives for many consumers today.

The cable-teleco provisions of the 1996 Act were based on legislation I introduced in 1991 with the gentleman from Virginia, Rich Boucher, envisioning the convergence of telephone and video technologies. And while I am sure the day is coming when individual

entities will offer packages of local, long distance, wireless and video services, it hasn't arrived yet.

Similarly the video dialtone concept, which evolved into the open video system or OVS platform, has yet to take hold in the marketplace, largely for technical reasons. Only time will tell whether this proves to be a practical alternative as infrastructure is upgraded and business plans develop.

Nonetheless, the repeal of the statutory ban on in-region telephone company provision of video programming is already having an impact on video competition with local exchange carrier entries into wired and wireless cable, which is why I am pleased that Ameritech, which is overbuilding to deploy cable in Ohio, is represented here today.

By the same token, we are seeing cable operators diversifying into new services, such as PCS, local telephony and Internet services, and I give the cable industry credit for leading the way in the use of fiberoptic and digital compression technology.

The fact remains that the limited regulatory relief for cable systems contained in the 1996 Act came with the promise of increased competition. And although these things clearly take time and a great deal of capital, we are all a little impatient to see our efforts bear fruit.

I believe that the intense competition we sought is on the way. I know that the cable industry is feeling the pressure from DBS and other sources. I look forward to hearing more about what the future holds for American viewers.

I yield back the balance of my time.
Mr. TAUZIN. I thank the gentleman.

The Chair now recognizes the gentleman from New York, Mr. Manton, for an opening statement.

Mr. MANTON. Mr. Chairman, thank you for holding this hearing on the state of competition in the multichannel video marketplace and giving us the opportunity to look at whether the 1992 Cable Act and the 1996 Telecommunications Act are working to promote competition among video programming providers.

Ten years ago most consumers had no choice as to who would provide their video service. Today consumers can choose between at least one or two different providers. While cable systems are still the primary video programming distributors in this country, the 1992 Act has helped DBS and wireless cable systems to grow and compete with cable companies in virtually every market.

Over 4 million Americans subscribe to direct broadcast satellite service today and projections are that by the end of the year this will have almost doubled.

The 1996 Act allows for the first time local telephone companies to offer video services. With only 12 years since its passage, telephone companies have obtained cable franchises in many regions of the country with subscribership likely to exceed a million within a year.

Such competition has forced cable companies to respond by devising innovative discount policies, modernizing into telecomm services and adding new channels in order to hold on to current subscribers.

Mr. Chairman, clearly increased competition in the marketplace benefits consumers by providing more options and better prices. Thank you again for holding this hearing and I look forward to the witnesses' testimony. I yield back

Mr. TAUZIN. I thank my friend and the Chair would now recognize the gentleman from Colorado, Mr. Schaefer, for an opening statement.

Mr. SCHAEFER. I thank the gentleman very much and I want to commend him for also holding this hearing on video competition. The Telecommunications Act of 1996 is really less than 2 years old but we have already begun to see the effects of competition in the multichannel video programming market. Growth of noncable multichannel video service providers has really surpassed cable's growth rate recently and since the passage of the 1992 Cable Act cable subscriptions have grown at an annual rate of about 3.7 percent, and over the same period of time direct broadcast satellite, DBS, providers have experienced unprecedented growth as well.

In fact, DBS subscribership has grown at an annual rate of about 54 percent. In the last year alone, DBS added 2.7 million new customers. In contrast, the local telephone market is still essentially characterized by local monopolies. To be sure, many competitive local exchange carriers as well as long distance carriers have filed complaints with the FCC charging that the Regional Bell Operating Companies, the RBOCs as we all know them, are engaging in tactics to stifle competition in the local marketplace.

One of the major concerns being raised with regard to competition in the video marketing industry itself is the issue of program access. As complaints about difficulty in accessing multichannel video programming mount from some quarters of the telecommunications industry, a quick glance at the programs being offered by some entities leaves doubt in my mind as to why noncable video programming distributors are having problems competing with incumbent cable operators.

For instance, Americast, the enhanced cable television service provided by Ameritech, a Regional Bell Operating Company, provides its customers with popular television stations such as WTBS, WGN, CNN, the Discovery Channel, ESPN, HBO and Encore to just name a few. Under the 1992 Act vertically integrated programmers were, No. 1, prohibited from denying access to noncable video programmers; No. 2, required to provide program access on a nondiscriminatory basis; and No. 3, prohibited from entering into exclusive program contracts with cable operators.

Now over the past several years incumbent cable operators have spent tens of millions of dollars creating local programming, but to what extent, I must ask, have alternative multiple channel video providers taken similar steps to create original local programming that would better enable them to compete head to head with cable? And as reported to the FCC, many noncable, multichannel video program distributors have become important components of the distribution strategy of vertically integrated programmers that is, i.e., HBO and Discovery Channel.

In fact, many of these vertically integrated programmers are seeing substantial subscribership growth from noncable video programming distributors, so I would say, Mr. Chairman, from an eco