Good morning and thank you for this opportunity.

Over the past several months so much of your focus has been on UNE-P pricing, and on broadband unbundling and line sharing requirements for ILEC’s, so this morning I’d like to give you a break and talk with you about the nation’s other leading broadband provider, cable. Specifically, I would like to bring you up to date on cable modem deployment and discuss our industry’s commitment to open access with respect both to Internet content and connectivity.

It’s really hard to believe that cable modem service is just over six years old. And like many great innovations, it started as something else.

In the mid-1990’s, cable operators began to offer Local Area Networks for commercial customers. This technology allowed offices nearby each other to share large data files that could be transported over cable’s broader pipe. While they were at it, operators thought: why not add Internet connectivity so that data could also be brought from afar?

I remember well one of the earliest public demonstrations of this new technology that my then employer, Continental Cablevision, conducted at the Museum of Science in Boston. Frankly, few at the time believed that cable’s hybrid fiber coax networks were suitable for data transport. After all, cable was “low-tech.” But the demo made instant converts.

And I remember our internal debate about using the term “broadband,” which no other company had yet used, to market cable modem service. “This is Broadband. This is the Way,” was the tag line chosen for a service that few, if any, had heard of. Well, to the credit of an innovative industry that was willing to take the financial risk, broadband has come a long way in a relatively short period of time.

Due in large measure to the entrepreneurial risk taken by the cable industry, broadband is now available to more than 80% of US households. And broadband subscribership is growing by more than 100,000 new customers a week.

More than 11 million subscribe to cable’s service, and more than 5 million to DSL. Over 15% of cable households today are cable modem customers. And among cable households that own PC’s, over 25% are cable modem customers.

The rapid deployment of cable broadband has resulted from our industry’s $70 billion-- or $1,000 dollar per subscriber – capital investment since 1996. This massive undertaking has involved upgrading over a million miles of plant with fiber optics and the latest digital technology. And we’re not done yet!

But for broadband to gain even wider consumer acceptance, we need more applications that add value to having high speed Internet connections. And for the first time, we’re nearly there. With more than 16 million homes (cable and DSL) plus millions of college dorm rooms with high-speed connections, we’re rapidly approaching critical mass. We’re seeing it with movies, sports and video games.

• For instance, take Disney’s Toontown, an online game in which hundreds of players work together with Disney characters to defeat a common foe. Originally set to roll out over a year ago, it was nearly nixed because dial-up connections took 40 minutes just to download software to play the game. But last fall, Toontown launched because competitive broadband penetration has approached critical mass.
• And last year ABC took all free video clips off ABCNews.com and instead launched a subscription service, ABC News on Demand, for $4.95/month – again because a critical mass of high speed connections was in sight to make a business.
• This year, Major League Baseball and RealNetworks will offer high quality video Webcasts of major league games for $6-$10 a month.
• Last November five major Hollywood studios launched movielink.com, an on-line video on demand service. With cable modem or DSL services, customers can now download popular movies to their PC’s legally for a fee.
• And recently, announced agreements with the four largest cable companies to offer its XBox Live online service to video game enthusiasts.

Broadband is gaining a strong foothold. The examples cited may not be killer apps. But they’re sure, steady indicators that we’re on the right track in developing broadband applications.

With the DOCSIS 1.1 modems now being deployed by cable operators, I’m optimistic that we’ll see even more apps, killer or otherwise, come to market.

We’re still near the beginning in learning about broadband utilization. Studies in the U.S. and Canada show that a very small percentage of users – about one and a half percent – use 50 gigabytes of data per month. For those of you not familiar with how much data that is, 60 percent of cable modem subscribers use less than one gigabyte per month. In other words, the top two percent of users consume 50 times – that’s 50 times – the capacity used by the majority of users.

These data suggest that offering variable rates for different bandwidth users makes sense and that one size doesn’t fit all – or treat all – fairly. DOCSIS 1.1 modems allow for broadband tiering.

The fact that within the space of six years, we have gone from no cable Internet service, to a patchwork of fledging networks with incompatible standards, to the DOCSIS 1.1 standard and service to over 11 million customers, reminds us of just how early we still are in the evolution of broadband. The dotcom bubble and bust were the exhilarating and painful opening acts of the broadband era. The steady building out of the broadband platform by cable, telcos, and wireless, both licensed and unlicensed, continues.

Government regulation also has strong affects on how rapidly broadband rolls out. It already has. In 1999, at the urging of dial-up ISP's and our telephone competitors, the FCC intensively studied whether it should mandate access for competitive ISP’s on the cable platform on government-set terms and conditions. In other words, common carriage.

Some insisted that unless the FCC acted to mandate carriage of multiple ISPs before cable’s networks were even built, the end-to-end openness of the Internet would be lost. Our industry argued – indeed we committed – that we would build out our broadband networks aggressively if we were not burdened by this type of unnecessary regulatory restraint. Forcing common carriage on cable would only delay deployment, we said. There was time enough for regulation if a real problem ever developed.

The FCC’s decision not to head down the road of regulation allowed us to keep our promise. Widespread broadband deployment by the cable industry speaks for itself. And the Internet remains open today, end-to-end.

Meanwhile there have been market-negotiated arrangements to promote ISP choice. The Internet continues to grow in utility and content diversity!

Later this spring the FCC will rule further on its classification of cable modem service as an information service. In doing so, we urge the Commission to maintain its policy of “vigilant restraint” which has enabled cable broadband to grow and develop. And we urge the Commission to maintain the deregulatory course it set last week to promote universal availability of broadband services.

Meanwhile, the search for viable economic models is still continuing for all aspects of the Internet.

• Tiering of cable broadband is one such model. How to distinguish by price and capacity allocation between bandwidth hogs, the two percent of users who consume 50 times the capacity used by the majority of users, and lighter users.
• Sustainable stand-alone ISP service is another: long gone are the free ISP providers, and even leading ISP’s like AOL, MSN and Earthlink have shrinking numbers of dial-up subscribers. How do they distinguish themselves by creating unique content in an era when their value as a mere bridge to the Internet has disappeared?
• E-commerce is still sorting out the Amazon.coms from the Pets.com.
• And portals, once the crown jewels of Internet stock portfolios, have had to retool their business models or face extinction.

These changes suggest how early we still are in sorting out Internet economics – those businesses and relationships that are practicable and sustainable from those that aren’t. And government, again, has to determine whether to allow this evolution to continue or to substitute regulation and impose its own guesses.

Last time the cry was open access. The new slogan is “network neutrality.” Recently a coalition of companies and interest groups, led by Microsoft, Disney and Amazon.com, have urged the FCC to regulate broadband networks in the agency’s pending cable modem and DSL proceedings.

Like the forced access proponents, they’ve paid visits to Capitol Hill, the FCC and members of NARUC. Can “Harry and Louise” ads on DC TV stations be far behind?

Network neutrality truly is a solution in search of a problem. Its advocates say they worry that cable and telephone broadband networks will somehow deny Internet users access to a website or disable applications. They invoke broad and ambiguous, but emotionally charged words like “discrimination,” and want regulators to forbid it. They cite no concrete examples of harmful behavior. No matter; let’s regulate anyway, they say.

Whether dressed up as network neutrality or another aphorism, what Microsoft and others really want is to use the government to leverage negotiations with network providers and others to get better business deals. This is nothing new. You’ve seen it before and we’ve seen it over and over again in our industry. And while it may serve the interests of the proponents, it never serves the interests of consumers. Government should resist the bait. Microsoft, Disney and Amazon.com do not need government assistance.

Speaking for our industry, cable operators are committed to allowing customers to go anywhere they want on the Internet – the “anywhere, anytime” principle. As I described earlier, it was cable’s rollout of broadband that gave birth to new opportunities for large data file applications to be exchanged between home computers. And it was cable’s rollout of modem service that spurred the incumbent phone companies and others to offer competitive DSL.

Before long, as the expanded capabilities of DOCSIS 1.1 modems penetrate the market, cable will develop tiered pricing and billing software to allow smaller bit users to pay less than heavy users. Cable companies may well charge commercial users working out of a home office a different rate than residential users. These are by no means radical ideas in Internet space. For instance, the Microsoft Network user agreement states: “You agree to use MSN only to send and receive personal messages. Any unauthorized commercial use of MSN…is expressly prohibited.” The MSN agreement also informs customers that if they use more hours than they’ve contracted for, they will be charged extra.

As I mentioned, the standardization of the DOCSIS or “data over cable” standards has been a great leap forward for broadband service. Cable’s insistence on customers using CableLabs certified cable modems has led to over 350 models from over 65 different manufacturers of these products, many sold at retail, at ever-declining prices. And using a DOCSIS modem any computing device can attach – from a PC to a Mac to a PlayStation.

That’s why demands to apply the 1968 Carterfone case to cable don’t make sense either. Carterfone, for those who may be unfamiliar, was a device that allowed a party speaking on a landline phone to speak directly to someone via radio communications by placing the handset in a cradling device. AT&T, then the incumbent Bell, claimed that the cradle would cause harm to the network and would divide responsibility in case something went wrong. The FCC rejected AT&T’s claim, ushering in the regulatory view that different equipment vendors could supply the network without causing harm.

But there is no need for the government to impose the principles of Carterfone on cable broadband – cable is already there. Today’s network accommodates hundreds of different modem models and thousands of different computing devices that are attached to it. And let’s remember what the principles of Carterfone are.

In Carterfone, the FCC found “that a customer desiring to use an interconnecting device to improve the utility to him of both the telephone system and a private radio system should be able to do so, so long as the interconnection does not adversely affect the telephone company’s operations or the telephone system’s utility for others.”

The proponents of so-called “network neutrality” conveniently forget the second prong of Carterfone --whether the network attachment could “adversely affect…the telephone system’s utility for others.”

As you know, cable broadband is a shared network, where one user’s behavior can impact others. For this reason, bandwidth management and a degree of oversight of customer applications is required to preserve the quality of service for all. But as far as the right to attach goes, cable operators live by the principles of Carterfone every day!

This reality, like the “anywhere anytime” cable model, doesn’t seem to be enough for Microsoft and Disney, who say: if cable isn’t engaging in any inappropriate conduct, and doesn’t plan to, then why should cable object if government chisels these commitments in stone?

There are several good reasons to object: Let’s start with the fundamental principle that government shouldn’t regulate in the absence of market failure. And there is no evidence of any market problem here, much less a market failure.

Secondly, the Internet is dynamic. The economic models that will make this a successful long-term business are still evolving. Imposing regulations that prevent sustainable business relationships in a free economy is simply wrong.

Worse, regulation would draw government into what are likely to be essentially business matters. Take the word “discrimination,” often invoked in this debate. Technically, any home page “discriminates” when it features one web-based business over another. If a cable operator’s home page features, say, amazon.com over barnesandnoble.com, that would be discrimination. But such arrangements are basic to the economics of the Internet. Disney-owned ESPN.com enjoys preferred placement on MSN.

Another example: four cable companies have entered into promotional arrangements with Microsoft’s XBox Live. The same relationship doesn’t exist today with Nintendo, PlayStation, or other online game businesses. You don’t hear Microsoft complaining about this.

Non-neutrality pervades cyberspace, just as it does the physical world, as parties strive to find commercial and noncommercial relationships that work. Microsoft’s suite of PC products doesn’t treat all word processing or spreadsheet programs equally but favors Word and Excel. Some streaming media websites only work with Windows Media Player, others with Real Player, still others with QuickTime.

Whether we are talking about ISPs, portals, online vendors, or broadband network providers, the rules of business are the same. But what’s crucial to understand about broadband Internet is that customers using cable modems can get to any website they want – the “anywhere, anytime” principle. That is and has always been the case with cable modem service. And given competition from DSL and others, cable has no interest in even thinking about going in a different direction.

Cable companies may want to develop business relationships with providers – on web pages, with applications and devices like XBoxes, or with providers yet to be created. Those should be permitted – for cable and for other broadband providers -- as we all search for sustainable Internet economic models.

Intervention before any market failure has been demonstrated can only impede broadband’s rollout. It will draw government into the Internet in ways that can only slow down innovation and adoption by consumers. There’s ample time for Washington to act if a problem ever develops.

But more importantly, there’s a much more effective check on any broadband provider that may act in ways that don’t serve the interests of Internet consumers – it’s called competition. And competition between cable and DSL is already fierce while utility companies and wireless providers roll out yet other modes of broadband.

If there is a role for government involvement in broadband networks, it is to break down barriers to investment and innovation. The same Microsoft that wants to regulate cable broadband is also asking the government to free up hundreds of megahertz of bandwidth for new unlicensed broadband networks. We don’t object to that or seek to weight Wi-Fi down with regulation. Indeed, just the opposite is true.

Through CableLab’s Cable Home project, the cable industry has strongly embraced wireless broadband solutions. The only user prohibitions on Wi-Fi devices relate to sharing the service outside the user’s residence with non-subscribers. This is no different than Microsoft prohibiting me from sharing Windows software that I’ve purchased with other residents of my apartment building. So before considering any resolution language that Microsoft or others may put in front of you, I’d urge you to take a close look at the facts underlying their claims.

In closing, I’m reminded of the wisdom of Thomas Jefferson, himself one of America’s greatest innovators, who said: “That government is best which governs the least, because its people discipline themselves.” A modern-day corollary for the Internet might be: That government is best which governs the least, because market forces provide discipline.

Our industry recognizes its important obligations as we’ve moved from being a one-way provider of local broadcast stations and public access channels to providing diversity and choice in video programming to becoming a provider of advanced two-way digital video, voice and data services. We take our responsibilities to our customers, our host communities and our country’s communications needs very seriously.

We’ve invested over $70 billion of private risk capital just since 1996 to make our networks fiber-rich and we pay local governments over $2 billion annually for the privilege of using public rights of way. We’ve put our money where our mouth is, and will continue to do so, if government allows.

If I can leave you with one thought it is this: Forcing vague regulatory requirements on broadband providers runs counter to the Internet’s very spirit. It would serve only to divert resources and inhibit growth opportunities. And frankly, it will diminish incentives for others to invest in broadband because regulation skews incentives away from investment. So I urge you to resist the pleadings of those who would have the government dictate business relationships, and allow this emerging broadband Internet business the freedom it needs to achieve its full potential.

Thank you very much.

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