The following is Senator DeWine’s statement before the Senate Judiciary Subcommittee on Antitrust, Business Rights and Competition hearing on "The Telecom Act Five Years Later: Is it promotion competition?".

Good morning and welcome to the Antitrust Subcommittee hearing on the state of local telephone competition five years after the implementation of the 1996 Telecommunications Act. Our subcommittee has examined the competitive status of this industry on numerous occasions since 1996. Over that time, we’ve seen some improvement in the competitive environment as a result of the Telecommunications Act. However, we still have a long way to go.

Candidly, after five years, growth in competition among local carriers has been disappointing. Though no one expected immediate miracles upon the Act’s implementation, competition is far from where it could and should be.

On the positive side, the most recent FCC data available shows that between the end of 1999 and June 2000, the competitive local exchange carriers increased their market share from 4.4 percent of local telephone lines to 6.7 percent. This competition is particularly strong in the local business sector, where the competitive local exchange carriers have gained 17.5 percent of the market.

We also have seen some progress under Section 271 of the Telecom Act. The Bell companies now have satisfied FCC and Justice Department conditions for opening their local markets in five states, including three since the beginning of this year.

Another positive trend is the movement among some cable companies to begin providing residential phone service over their cable systems. As many of you know, one of the guiding principles behind the Telecom Act was that cable would serve as a so-called "second wire" into the home, providing facilities-based competition to the local phone companies. It is encouraging to see promising developments in this area.

At the same time, however, there are many reasons for concern. Incumbent telephone providers still have over 93 percent of the overall local market, and the competitive picture in the local residential market is even worse –– the competitive local exchange carriers have only 3.2 percent of the residential market. With competitive providers serving just over 3 percent of these residential customers, it seems fair to say that most residential phone customers continue to have really only one choice for local service.

We must be careful, however, to not consider market share as the exclusive indication of whether or not competition exists. The Telecom Act does not set market-share benchmarks, because it recognizes that sometimes even markets that are open will be dominated by one company. Nevertheless, after five years, it is hard to argue that a 3 percent market share by competitive carriers in local residential markets is an acceptable result.

Even worse, many of the companies that have tried to provide competitive service have suffered financial setbacks. We already have seen some go out of business as the capital markets begin to re-evaluate the financial prospects of the market for competitive telecommunications services. If this trend continues, competition and consumers will suffer.

Some within the industry argue that the struggles competitive providers have suffered recently are part of a natural market evolution. Others argue that many of the problems have resulted because the 1996 Telecom Act has not been properly enforced. These are issues we need to discuss with our witnesses today.

Further, while we see many competitive providers struggling, there are some that believe the Act should be re-opened to allow the Bell companies to begin immediately providing long distance data services. It is not my intention to focus on this specific legislative proposal during our hearing today.

However, that specific issue is related to the broader question of whether we need to revisit the Telecom Act to provide a different balance between the incumbent and competitive providers of local telephone service. For example, some have suggested we should consider additional legislation to improve the access of local providers to residential buildings. This is one of the important policy issues that we will discuss here today.

I look forward to our examination of these complicated issues, and I remain committed to ensuring a competitive environment in this very important industry.

Before we turn to Ranking Member Herb Kohl, I would like to note for the record that as a rule, the Antitrust Subcommittee usually receives testimony from industry witnesses who are responsible for the business operations of their respective companies. We have found that those who are responsible for the day-to-day operations and the big-picture strategic thinking have been able to give us the most insight into the competitive issues we focus on in this Subcommittee.

In this instance, however, Mr. Ed Whitacre, the CEO of SBC Communications, was unable to be here today because of scheduling conflicts, so Mr. Jim Ellis, the General Counsel of SBC, is here in his place. We appreciate Mr. Ellis being here today, and we anticipate that his testimony will focus on the business environment and challenges facing SBC, rather than on any legal battles that may be on-going. We anticipate that our other witnesses on the second panel will have a similar focus.

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