Ä Area: Whitehou ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ Msg#: 99 Date: 01-14-94 03:54 From: In*touch Read: Yes Replied: No To: All Mark: Subj: 1.0: Background on Teleco ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ THE WHITE HOUSE Office of the Vice President ________________________________________________________________________ For Immediate Release January 11, 1994 BACKGROUND ON THE ADMINISTRATION'S TELECOMMUNICATIONS POLICY REFORM INITIATIVE On September 15, 1993, the Administration issued "The National Information Infrastructure: Agenda for Action," which unveiled our National Information Infrastructure (NII) initiative. There is a national consensus that construction of an advanced NII will "help unleash an information revolution that will change forever the way people live, work, and interact with each other." The "Agenda for Action" recognized that realizing the full potential of the NII will require aggressive, far- sighted government action on a number of fronts. The legislative proposals that Vice President Al Gore has outlined today are the culmination of extensive Administration efforts in one critical area -- telecommunications regulatory reform. Similar work is being done in other important areas, including support for innovative applications that will use the NII, improving access to government information, and protecting individual privacy and intellectual property rights. In a December 21 speech at the National Press Club in Washington, DC, the Vice President announced the Administration's plans to present a package of legislative and administrative proposals concerning telecommunications and information policy. He stated that the Administration's policy would be based on the following fundamental principles: o Encouraging private investment in the NII; o Promoting and protecting competition; o Providing open access to the NII by consumers and service providers; o Preserving and advancing universal service to avoid creating a society of information "haves" and "have nots"; o Ensuring flexibility so that the newly-adopted regulatory framework can keep pace with the rapid technological and market changes that pervade the telecommunications and information industries. The major elements of the Administration's legislative initiative are identified below, along with a brief discussion of how each proposal advances the principles set forth above. In doing so, the Administration has studied carefully the legislative initiatives of Senators Hollings, Inouye, and Danforth and Representatives Brooks, Dingell, Markey, and Fields. Its proposals reflect the strengths of, and build on, those bills. The Administration is building upon the dramatic steps taken by the states, including substantial and innovative regulatory reforms. The Administration intends to work closely with the states, some of which are moving aggressively to encourage competition, infrastructure modernization, and NII applications in health care, education, and government services. In addition to the legislative package, it is a goal of this Administration that by the year 2000 all of the classrooms, libraries, hospitals, and clinics in the United States will be connected to the NII. ENCOURAGING PRIVATE INVESTMENT AND PROMOTING COMPETITION To fully realize the benefits of private investment and more competition in the information infrastructure, regulatory change is needed. For many years, government regulation assumed clear, stable boundaries between industries and markets. This assumption sometimes prompted regulators to view (and to regulate) firms in various industries differently, even when they offered similar services. It also caused regulators to address the threat of anticompetitive conduct on the part of some firms by barring them from certain industries and markets. The time has come for another approach. Even if the lines between industries and markets were clear in the past, technological and market changes are now blurring them beyond recognition, if not erasing them entirely. Regulatory policies predicated on such perceived distinctions can harm consumers by impeding competition and discouraging private investment in networks and services. The Administration is therefore committed to removing unnecessary and artificial barriers to participation by private firms in all communications markets, while making sure that consumers remain protected and interconnected. Cable-Telco Cross-ownership The Administration proposes to remove the current cross-ownership restriction of the 1984 Cable Act, and allow telephone companies to provide video services in their local exchange areas in order to promote investments that expand consumer choices and services. To ensure that telephone company entry does not harm consumers or competition, such entry will be subject to certain safeguards, most notably a requirement that the telephone company make channel capacity available to unaffiliated video program providers on a nondiscriminatory basis. This requirement should create market opportunities for competing providers of video services, thereby reducing prices and expanding the diversity of services available to television viewers. Further, to deter premature and potentially anticompetitive mergers between telephone companies and their most likely competitors -- existing cable companies -- the Administration proposes to prohibit telephone companies from acquiring cable systems located in the companies' local exchange areas. There would be an exception for those telephone companies operating in rural areas, which may be unable to support more than one carrier. However, to ensure that this measure does not outlive its usefulness, the Administration proposes to authorize the Federal Communications Commission (FCC) to begin proceedings that could allow such acquisitions five years after the date of legislative enactment, if certain conditions are met (e.g., the presence of sufficient competition in the telco's service area). Any telephone company/cable system acquisition would also be subject to the antitrust laws in the same manner as an acquisition in any other industry. Local Competition Competition has generated substantial benefits for consumers in a host of communications and information service markets, including customer premises equipment and long distance service. The varieties of customer premises equipment have expanded dramatically since deregulation. In addition, the price of interstate long distance telephone service for the average residential user has declined more than fifty percent in real dollars since 1984, due to competition and regulatory reform. Consumers will realize similar benefits by the expansion of competition in the local telephone service market. Competition in that market will reduce the ability of any telephone company to harm competition and consumers through monopoly control and will encourage investment and innovation in the "on and off ramps" of the NII. Accordingly, the Administration proposes to ensure that competing providers have the opportunity to interconnect their networks on reasonable, nondiscriminatory terms, with the facilities of all local telephone companies. Such companies should also be required to unbundle their service offerings so that alternative providers can offer similar services using a combination of, for example, telephone company-provided switching and their own transmission facilities. Finally, the Administration's plan will preempt state entry barriers, as well as rate regulation of carriers that the FCC finds or has found to lack market power. The Administration understands that the growth of competition for local telephone services may require repricing of some local services. Such repricing must not be allowed to cause "rate shock" for consumers. Therefore, in implementing network interconnection and unbundling, the FCC and state regulators will be directed to prevent undue rate increases for any class or group of ratepayers. Modified Final Judgement (MFJ) Restrictions The Administration is grateful for and appreciative of the excellent job done by the courts in connection with the MFJ. The break-up of AT&T has helped spur the competition and innovation that have kept America at the vanguard of the telecommunications industry. Now, the time has come to move beyond a decree remedying only specific violations of law administered by the courts and to enact a far-reaching and comprehensive plan reflecting a vision of the telecommunications world of the future. A key element of that plan must be to promote and protect competition, the engine of progress and jobs. Long Distance Service The Administration supports the Brooks- Dingell bill provision that requires Department of Justice (DOJ) and FCC approval before the Regional Bell Operating Companies (RBOCs) may provide interexchange services -- most notably long distance service. In determining whether to lift the restriction, the Department of Justice will apply the test contained in Section VIII(C) of the MFJ. The FCC will apply a public interest test like that set forth in the legislative proposal offered by Chairmen Brooks and Dingell. These entry tests are designed in part to ensure competition and to protect consumers and local telephone ratepayers against cross-subsidization and other potential abuses of monopoly power. In working with the Congress, the Administration will explore the creation of incentives for RBOCs to increase the transparency of their facility-based local services, because of concerns associated with cross-subsidization and abuses of monopoly power. The Administration's plan will also include an immediate and limited exception to the prohibition of the provision of long distance services incidental to RBOC provision of wireless, cable television, and certain other services. Information Services As current law provides, the RBOCs are permitted to offer information services. The Administration supports the approach taken in the Brooks-Dingell legislation that requires a separate affiliate for electronic publishing. Manufacturing In keeping with the principle of removing barriers to participation by all firms in all markets except where necessary, the Administration proposes to remove the current ban on RBOC research, development, and manufacturing subject to safeguards to prevent cross- subsidization and discriminatory practices. The safeguards to be applied before entry would include a notification-and-waiting-period procedure, as contained in the legislation proposed by Chairmen Brooks and Dingell, under which an RBOC would submit relevant information about its proposal to the Department of Justice, which could investigate and sue to enjoin the proposed entry. The Administration also supports substantive post-entry safeguards, as contained in legislation introduced by Chairman Hollings and passed by the Senate in the last Congress. Those safeguards include, among other things, requirements that manufacturing be kept separate from the monopoly portion of the telephone company's business, that the RBOC not discriminate in either procurement or sales, and that needed network information be timely disclosed to competing manufacturers. OPEN ACCESS/PROGRAMMING DIVERSITY There is a long-standing national policy, embodied in the First Amendment, of protecting diversity and competition in the flow of ideas. This fundamental interest is critical not only with respect to the provision of entertainment, but also with respect to educational material, health information, information necessary to an informed citizenry, and other programming matter. To further this goal, the Administration plans to require the FCC, one year after enactment, to impose nondiscriminatory access obligations on cable television systems, except when technology, costs, and market conditions make it inappropriate. ENSURING REGULATORY FLEXIBILITY AND FAIRNESS The new regulatory framework that the Administration seeks to create is designed to adjust to the technological and market changes that have undermined the regulatory regime created by the Communications Act. Legislation in this area must stand the test of time, by addressing tomorrow's challenges as well as today's. The Administration's lodestars in this efforts are flexibility, adaptability, and fairness. The regulatory instruments we choose must be supple enough to accommodate the continual change that will typify communications industries in the future. At the same time, those instruments must be equitable; similarly situated services should be subject to the same regulatory requirements. Beyond tackling the problems that have arisen as a result of current technological and market changes, the Administration recognizes that a new kind of communications service provider will emerge, one that offers switched, broadband digital transmission services to home and office. Such firms face the potential of being regulated under two different parts of the Communications Act -- Titles II (common carriers) and VI (cable communications). These firms will also be regulated at the state level for the intrastate component of their Title II services and at the local level for their Title VI services, creating a needlessly overlapping and complex regulatory environment. The nation needs a flexible, adaptable regulatory regime that encourages the competitive provision of the broadband, switched digital transmission services that can truly knit homes and businesses together. The Administration will propose a future-oriented regulatory regime, to be enacted as a new Title VII to the Communications Act, that will encourage firms to provide these services. The Administration's proposal would provide the FCC with broad forbearance authority while maintaining key public policy goals, including open access and interoperability requirements, along with obligations to support universal service. In addition, consistent with the approach taken in the 1992 Cable Act, the proposal will provide for rate regulation until competition is established in these service markets, with a presumption of forbearance for new entrants that are not dominant in related services. State and local regulation of services not subject to competition could take place subject to FCC guidelines. Under the Administration's plan, the FCC would adopt transition rules to move to this new regime. Firms would elect to be regulated under the new framework, provided that they meet threshold criteria established by the FCC. In addition, the Administration proposes to allow the FCC to reduce regulation for telecommunications carriers that lack market power. This provision will ensure that unnecessary government regulation -- however well- intentioned -- does not harm users of the infrastructure, or impede competitive entry, investment, and the introduction of new services. UNIVERSAL SERVICE The United States has long been dedicated to "universal service" -- widespread availability of basic telephone service at affordable rates. As stated in the "Agenda for Action," the Administration is committed to developing a new concept of universal service that will serve the information needs of the American people in the 21st century. Indeed, the full potential of the NII will not be realized unless all Americans who desire it have easy, affordable access to advanced communications and information services, regardless of income, disability, or location. It is a goal of this Administration that by the year 2000, all of the classrooms, libraries, hospitals, and clinics in the United States will be connected to the NII. The Administration recognizes, however, that crafting a new, meaningful, and practical definition of universal service will require flexibility, foresight, and the balancing of diverse interests. Given these circumstances, the proposed legislation will establish several overarching guidelines and charge the expert agencies -- the FCC and the state regulatory commissions -- with establishing the details. The Administration therefore proposes to: o Make the preservation and advancement of "universal service" an explicit objective of the Communications Act, in order to establish the goal that advanced services be available to rural and urban lower income users, to users in areas where the costs of service are high, and to social institutions, especially schools and health care facilities. o Charge the FCC and the states with continuing responsibility to review the definition of universal service to meet changing technological, economic, and societal circumstances. o Establish a Federal/State Joint Board to make recommendations concerning FCC and state action on the fundamental elements of universal service. In its deliberations, the Joint Board must gather input from non-governmental organizations. o Oblige those who provide telecommunications services to contribute to the preservation and advancement of universal service. However, the FCC, in consultation with the states, would be authorized to permit "sliding scale" contributions (e.g., to avoid burdening small providers and new entrants), or "in-kind" contributions in lieu of cash payments (e.g., to reduce the monetary payments owed by providers that offer to connect with schools, hospitals, etc.). THE WHITE HOUSE Office of the Vice President ________________________________________________________________________ For Immediate Release January 11, 1994 Contact: 202-456-7035 VICE PRESIDENT PROPOSES NATIONAL TELECOMMUNICATIONS REFORM Bring the Information Revolution to Every Classroom, Hospital, and Library in the Nation By the End of the Century Los Angeles, CA--Citing the need to bring the economic, health, and educational benefits of the information revolution to all Americans, Vice President Al Gore, in a speech to the Academy of Television Arts and Sciences, today outlined the Clinton Administration's proposals to reform the communications marketplace. Gore challenged his audience to provide free links from the information superhighways to every classroom, library, hospital, and clinic in the country. "You here today represent the companies that can do it," said the Vice President. Following The Vice President's pledge during the 30 minute speech, he stated the Administration's support for removing the legal and regulatory barriers that prevent telephone, cable and long distance companies from entering each others business. The Vice President recalled the dream of the interstate highway system of his youth. "Today," he explained, "we have a dream for a different kind of superhighway -- an information superhighway that can save lives, create jobs and give every American young and old, the chance for the best education available to anyone, anywhere." The Vice President said the Clinton Administration's position grew out of the following five principles, which he outlined in a December speech at the National Press Club in Washington, D.C.: o Encourage private investment o Provide and protect competition o Provide open access to the network o Avoid creating information "haves and have nots" o Encourage flexible and responsive government action In a much anticipated announcement, Gore presented a series of policy decisions that will "clear from the road the wreckage of outdated regulations and allow a free- flowing traffic of ideas and commerce for the benefit of all Americans." Specifically, Gore's proposal would allow telephone companies to get into the cable business, and let cable and other companies into the telephone business. To make such new ventures possible, the Administration will prevent states from imposing barriers to new companies entering the local phone business and will require local phone companies to make their facilities available to all comers without discrimination and to allow competitors to provide all kinds of telephone services the phone company provides now. On the issue of the court decree governing the breakup of AT&T, Gore said he supported the effort by key Congressional chairmen to take the courts out of the phone business and provide a pathway by which the local phone companies can enter other lines of business -- like long distance service -- but including also electronic publishing and manufacturing. Gore praised the work of Congressman John Dingell (D-MI) and Jack Brooks (D-TX) and pledged his support to work with them to enact a bill this year. Gore also recognized the work of his colleagues in the U.S. Senate; Senators Ernest Hollings (D-SC),Daniel Inouye(D-HI), and John Danforth (R-MO) and in the U.S. House of Representatives; Ed Markey (D-MA),and Jack Fields (D-TX). "In many ways our legislative goals complement (their) work, said Gore. "We expect to introduce our legislative package shortly, and to work with Congress to ensure its speedy passage." ### THE WHITE HOUSE Office of the Vice President ________________________________________________________________________ For Immediate Release January 11, 1994 TELECOMMUNICATIONS POLICY REFORM New technologies and market forces have led to a convergence of once separate communications industries, and this convergence requires a new framework to ensure that the United States remains a leader of the information age. This new framework is the Administration's legislative agenda on communications outlined by Vice President Gore. It is only one in a series of steps to encourage the development of the National Information Infrastructure (NII), a seamless web of communications networks, computers, databases, and consumer electronics that will put vast amounts of information at users' fingertips. The Administration's legislative agenda on telecommunications seeks to facilitate greater economic growth by removing regulatory barriers, and to create new jobs, new business opportunities and expanded diversity of choice for American consumers. An advanced information infrastructure will bring into millions of homes information that will enrich people's economic, social, and political lives. Ensuring that this technology is used to promote education, health care, and information access for the benefit of all Americans is a major goal of the legislative initiatives. Specifically, the initiatives aim to create a flexible, adaptable approach to the communications industry that will encourage the development of the information infrastructure -- a network that eventually will link homes and businesses together in multimedia community networks. The legislative initiatives promote what is known as a broadband interactive network, or a network that enables vast amounts of information to flow back and forth. In addition, the legislation will: o Increase competition and private investment in communications by removing unnecessary regulations and artificial barriers to participation by private firms in all communications markets. For example, the Administration proposes to permit cable companies and others to provide local telephone service; o Secure open access to the network for consumers and service providers. For example, the legislation requires all local telephone companies upon reasonable request to interconnect their networks with the facilities of competing providers on nondiscriminatory terms; o Preserve and advance universal service for all Americans across all sectors of society. Because full and productive participation in American society will increasingly depend on access to information, the Administration is committed to promoting the availability of information resources to all people at affordable prices; o Develop a new regulatory framework that is flexible and fair by allowing the FCC to reduce regulation for telecommunications carriers that lack market power. The Administration's legislative agenda outlines a comprehensive approach to communications. It is a broad vision of the future of the information infrastructure, with a commitment to using communications technology to improve and enhance the lives of all Americans. ## THE WHITE HOUSE Office of the Vice President ________________________________________________________________________ For Immediate Release January 11, 1994 REMARKS BY VICE PRESIDENT AL GORE (as prepared) Royce Hall, UCLA Los Angeles, California January 11, 1994 It's great to be here at the Television Academy today. I feel I have a lot in common with those of you who are members of the Academy. I was on Letterman. I wrote my own lines. I'm still waiting for residuals. At first, I thought this could lead to a whole new image. And maybe a new career. No more Leno jokes about being stiffer than the Secret Service. Maybe an opportunity to do other shows. I was elated when "Star Trek: The Next Generation" wanted me to do a guest shot -- until I learned they wanted me to replace Lieutenant Commander Data. The historian Daniel Boorstin once wrote that for Americans "nothing has happened unless it is on television." This of course leaves out a few major events in our history. But this meeting today is on television -- so apparently this event is actually occurring. I join you to outline not only this Administration's vision of the National Information Infrastructure but our proposals for creating it. Last month in Washington, I set forth some of the principles behind our vision. Today I'll talk about the legislative package necessary to ensure the creation of that national infrastructure in a manner which will connect and empower the citizens of this country through broadband, interactive communication. We've all become used to stumbling over cliches in our efforts to describe the enormity of change now underway and the incredible speed with which it is taking place. Often we call it a revolution -- the digital revolution. Speaking of cliches, I often use the analogy to autos, saying that if cars had advanced as rapidly as computer chips in recent years, a Rolls Royce would go a million miles an hour and cost twenty-five cents. The last time I used it was at a meeting of computer experts and one of them said, "Yeah -- but that Rolls Royce would be one millimeter long." What we've seen in the last decade is amazing. But it's nothing compared to what will happen in the decade ahead. The word revolution by no means overstates the case. But this revolution is based on traditions that go far back in our history. Since the transcontinental telegraph that transmitted Abraham Lincoln's election victory to California in real time, our ability to communicate electronically has informed and shaped America. It was only a year before that election that the Pony Express was the talk of the nation, able to send a message cross country in seven days. The next year, it was out of business. Today's technology has made possible a global community united by instantaneous information and analysis. Protesters at the Berlin Wall communicated with their followers through CNN news broadcasts. The fax machine connected us with demonstrators at Tiananmen Square. So it's worth remembering that while we talk about this digital revolution as if it's about to happen, in many places it's already underway. Even in the White House. The day after Inauguration, I was astonished to see how relatively primitive the White House communications system was. President Clinton and I took a tour and found operators actually having to pull cords for each call and plug them into jacks. It reminded me of the switchboard used by Ernestine, the Lily Tomlin character. And there were actually phones like these all over the White House. They're still there. But we made progress. They're only in the press room now. Those phones didn't meet our needs. So now, especially on trips, I use a cellular phone. Our new ways of communicating will entertain as well as inform. More importantly, they will educate, promote democracy, and save lives. And in the process they will also create a lot of new jobs. In fact, they're already doing it. The impact on America's businesses will not be limited just to those who are in the information business, either. Virtually every business will find it possible to use these new tools to become more competitive. And by taking the lead in quickly employing these new information technologies, America's businesses will gain enormous advantages in the worldwide marketplace. And that is important because if America is to prosper, we must be able to manufacture goods within our borders and sell them not just in Tennessee but Tokyo -- not just in Los Angeles but Latin America. Last month, when I was in Central Asia, the President of Kyrgyzstan told me his eight-year-old son came to him and said, "Father, I have to learn English." "But why?" President Akayev asked. "Because, father, the computer speaks English." By now, we are becoming familiar with the ability of the new communications technologies to transcend international boundaries and bring our world closer together. But many of you are now in the process of transcending other old boundaries -- the boundary lines which have long defined different sectors of the information industry. The speed with which these boundaries are eroding is quite dramatic. I'm reminded of an idea of Stephen Hawking, the British physicist. Hawking has Lou Gehrig's disease. But thanks to information technology he can still communicate not only to his students and colleagues but to millions around the world. Incidentally, I read the other day that his voice box has an American accent -- because it was developed here in California. Anyway, in that American accent, Hawking has speculated about a distant future when the universe stops expanding and begins to contract. Eventually, all matter comes colliding together in a "Big Crunch," which scientists say could then be followed by another "Big Bang" -- a universe expanding outward once again. Our current information industries -- cable, local telephone, long distance telephone, television, film, computers, and others -- seem headed for a Big Crunch/Big Bang of their own. The space between these diverse functions is rapidly shrinking -- between computers and televisions, for example, or inter-active communication and video. But after the next Big Bang, in the ensuing expansion of the information business, the new marketplace will no longer be divided along current sectoral lines. There may not be cable companies or phone companies or computer companies, as such. Everyone will be in the bit business. The functions provided will define the marketplace. There will be information conduits, information providers, information appliances and information consumers. That's the future. It's easy to see where we need to go. It's hard to see how to get there. When faced with the enormity and complexity of the transition some retreat to the view best enunciated by Yogi Berra when he said: "What we have here is an insurmountable opportunity." Not long ago this transition did indeed seem too formidable to contemplate, but no longer. Because a remarkable consensus has emerged throughout our country -- in business, in public interest groups and in government. This consensus begins with agreement on the right, specific questions we must answer together. How can government ensure that the information marketplace emerging on the other side of the Big Crunch will permit everyone to be able to compete with everyone else for the opportunity to provide any service to all willing customers? How can we ensure that this new marketplace reaches the entire nation? How can we ensure that it fulfills the enormous promise of education, economic growth and job creation? Today I will provide the Administration's answers to those questions. But before I do let me state my firm belief that legislative and regulatory action alone will not get us where we need to be. This Administration argued in our National Performance Review last year, that government often acts best when it sets clear goals, acts as a catalyst for the national teamwork required to achieve them, then lets the private and non- profit sector, move the ball downfield. It was in this spirit that then-Governor Clinton and I, campaigning for the White House in 1992, set as a vital national goal linking every classroom in every school in the United States to the National Information Infrastructure. It was in this same spirit that less than a month ago, I pointed out that when it comes to telecommunications services, schools are the most impoverished institutions in society. And so I was pleased to hear that some companies participating in the communications revolution are now talking about voluntarily linking every classroom in their service areas to the NII. Let me be clear. I challenge you, the people in this room, to connect all of our classrooms, all of our libraries, and all of our hospitals and clinics by the year 2000. We must do this to realize the full potential of information to educate, to save lives, provide access to health care and lower medical costs. Our nation can and must meet this challenge. The best way to do so is by working together. Just as communications industries are moving to the unified information marketplace of the future, so must we move from the traditional adversarial relationship between business and government to a more productive relationship based on consensus. We must build a new model of public-private cooperation that, if properly pursued, can obviate many governmental mandates. But make no mistake about it -- one way or another, we will meet this goal. As I announced last month, we will soon introduce a legislative package that aggressively confronts the most pressing telecommunications issues, and is based on five principles. This Administration will: -- Encourage Private Investment -- Provide and Protect Competition -- Provide Open Access to the Network -- Take Action To Avoid Creating a Society of Information "Haves" and "Have Nots" -- Encourage Flexible and Responsive Governmental Action Many of you have our White Paper today, outlining the bill in detail. If you didn't get your copy, it's available on the Internet, right now. Let me run through the highlights with you -- and talk about how they grow out of our five principles. We begin with two of our basic principles -- the need for private investment and fair competition. The nation needs private investment to complete the construction of the National Information Infrastructure. And competition is the single most critical means of encouraging that private investment. I referred earlier to the use of the telegraph in 1860, linking the nation together. Congress funded Samuel Morse's first demonstration of the telegraph in 1844. Morse then suggested that a national system be built with federal funding. But Congress said no, that private investment should build the information infrastructure. And that's what happened -- to the great and continuing competitive advantage of this country. Today, we must choose competition again and protect it against both suffocating regulation on the one hand and unfettered monopolies on the other. To understand why competition is so important, let's recall what has happened since the breakup of AT&T ten years ago this month. As recently as 1987, AT&T was still projecting that it would take until the year 2010 to convert 95% of its long distance network to digital technology. Then it became pressed by the competition. The result? AT&T made its network virtually 100% digital by the end of 1991. Meanwhile, over the last decade the price of interstate long distance service for the average residential customer declined over 50%. Now it is time to take the next step. We must open the local telephone exchanges, those wires and switches that link homes and offices to the local telephone companies. The pressure of competition will be great -- and it will drive continuing advancements in technology, quality and cost. One businessman told me recently that he was accelerating his investment in new technology to avoid ending up as "roadkill" on the information superhighway. To take one example of what competition means, cable companies, long distance companies, and electric utilities must be free to offer two-way communications and local telephone service. To accomplish this goal, our legislative package will establish a federal standard that permits entry to the local telephone markets. Moreover, the FCC will be authorized to reduce regulation for telecommunications carriers that lack market power. We expect open competition to bring lower prices and better services. But let me be clear: We insist upon safeguards to ensure that new corporate freedoms will not be translated into sudden and unjustified rate increases for telephone consumers. The advancement of competition will necessarily require more opportunity, as well, for the Regional Bell Operating Companies. Current restrictions on their operations are themselves the legacy of the break-up of AT&T and must be re-examined. This Administration endorses the basic principles of the Brooks-Dingell bill, which proposes a framework for allowing long-distance and local telephone companies to compete against each other. Regulation and review of this framework should be transferred from the courts to the Department of Justice and the Federal Communications Commission. This process of change must be carefully calibrated. We must make sure that the Regional Bells will not be able to use their present monopoly positions as unfair leverage into new lines of business. That is why the Administration supports the approach of the Brooks-Dingell provision that requires the approval of the Department of Justice and the Federal Communications Commission before the Regional Bells may provide interexchange services -- most notably long distance. In working with Congress, the Administration will explore the creation of incentives for the Regional Bells. We want to increase the transparency of those facility-based local services that raise concerns associated with cross-subsidization and abuses of monopoly power. Our view of the entry of local telephone companies into cable television also balances the advantages of competition against the possibility of competitive abuse. We will continue to bar the acquisition of existing cable companies by telephone companies within their local service areas. We need this limitation to ensure that no single giant entity controls access to homes and offices. But to increase diversity and benefit consumers, we will permit telephone companies to provide video programming over new, open access systems. Even these measures, however, may not eliminate all scarcity in the local loop -- those information byways that provide the last electronic connection with homes and offices. For some time, in many places, there are likely to be only one or two broadband, interactive wires, probably owned by cable or telephone companies. In the long run, the local loop may contain a wider set of competitors offering a broad range of interactive services, including wireless, microwave and direct broadcast satellite. But, for now, we cannot assume that competition in the local loop will end all of the accrued market power of past regulatory advantage and market domination. We cannot permit the creation of information bottlenecks that adversely affect information providers who use the highways as a means of supplying their customers. Nor can we can permit bottlenecks for information consumers who desire programming that may not be available through the wires that enter their homes or offices. Preserving the free flow of information requires open access, our third basic principle. How can you sell your ideas, your information, your programs, if an intermediary who is also your competitor has the means to unfairly block your access to customers? We can't subject the free flow of content to artificial constraints at the hands of either government regulators or would-be monopolists. We must also guard against unreasonable technical obstacles. We know how to do this; we've seen this problem in our past. For example, when railroad tracks were different sizes, a passenger could not travel easily from a town served by one railroad to a town served by another. But the use of standardized tracks permitted the creation of a national system of rail transport. Accordingly, our legislative package will contain provisions designed to ensure that each telephone carrier's networks will be readily accessible to other users. We will create an affirmative obligation to interconnect and to afford nondiscriminatory access to network facilities, services, functions and information. We must also explore the future of non-commercial broadcasting; there must be public access to the information superhighway. These measures will preserve the future within the context of our present regulatory structures. But that is not enough. We must move towards a regulatory approach that encourages investment, promotes competition and secures open access. And one that is not just a patch-work quilt of old approaches, but an approach necessary to promote fair competition in the future. We begin with a simple idea: Similar entities must be treated similarly. But let's be clear: our quest for equal treatment of competing entities will not blind us to the economic realities of the new information marketplace, where apparent similarities may mask important differences. This idea is best expressed in the story about the man who went into a restaurant and ordered the rabbit stew. It came, he took a few bites, then called the manager over. "This doesn't taste like rabbit stew!" he said. "It tastes ... well, it tastes like horsemeat!" The manager was embarrassed. "I actually ran out of rabbit this morning and I -- well, I put some horsemeat in." "How much horsemeat?" "Well -- it's equally divided." "What's that mean?" "One horse, one rabbit." The lesson is obvious. A start-up local telephone company isn't the same as a Baby Bell. What we favor is genuine regulatory symmetry. That means regulation must be based on the services that are offered and the ability to compete -- and not on corporate identity, regulatory history or technological process. For example, our legislative package will grant the Federal Communications Commission the future authority, under appropriate conditions, to impose non-discriminatory access requirements on cable companies. As cable and telephone service become harder and harder to distinguish, this provision will help to ensure that labels derived from past regulatory structures are not translated into inadvertent,unfair competitive advantages. As different services are grouped within a single corporate structure, we must ensure that these new, combined entities are not caught in a cross-fire of conflicting and duplicative regulatory burdens and standards. This Administration will not let existing regulatory structures impede or distort the evolution of the communications industry. In the information marketplace of the future, we will obtain our goals of investment, competition and open access only if regulation matches the marketplace. That requires a flexible, adaptable regulatory regime that encourages the widespread provision of broadband, interactive digital services. That is why the Administration proposes the creation of an alternative regulatory regime that is unified, as well as symmetrical. Our new regime would not be mandatory, but it would be available to providers of broadband, interactive services. Such companies could elect to be regulated under the current provisions of the Communications Act or under a new title, Title VII, that would harmonize those provisions in order to provide a single system of regulation. These "Title VII" companies would be able to avoid the danger of conflicting or duplicative regulatory burdens. But in return, they would provide their services and access to their facilities to others on a nondiscriminatory basis. The nation would thus be assured that these companies would provide open access to information providers and consumers and the benefits of competition, including lower prices and higher-quality services, to their customers. This new method itself illustrates one of our five principles -- that government itself must be flexible. Our proposals for symmetrical, and ultimately unified, regulation demonstrate how we will initiate governmental action that furthers our substantive principles but that adapts, and disappears, as the need for governmental intervention changes -- or ends. They demonstrate, as well, the new relationship of which I spoke earlier -- the private and public sectors working together to fulfill our common goals. The principles that I have described thus far will build an open and free information marketplace. They will lower prices, stimulate demand and expand access to the National Information Infrastructure. They will, in other words, help to attain our final basic principle -- avoiding a society of information "haves" separate from a society of information "have nots". There was a Washington Post headline last month: "Will the `Information Superhighway' Detour the Poor?" Not if I have anything to do about it. After all, governmental action to ensure universal service has been part of American history since the days of Ben Franklin's Post Office. We will have in our legislative package a strong mandate to ensure universal service in the future -- and I want to explain why. We have become an information-rich society. Almost 100% of households have radio and television, and about 94% have telephone service. Three-quarters of households contain a VCR, about 60% have cable, and roughly 30% of households have personal computers. As the information infrastructure expands in breadth and depth, so too will our understanding of the services that are deemed essential. This is not a matter of guaranteeing the right to play video-games. It is a matter of guaranteeing access to essential services. We cannot tolerate -- nor in the long run can this nation afford -- a society in which some children become fully educated and others do not; in which some adults have access to training and lifetime education, and others do not. Nor can we permit geographic location to determine whether the information highway passes by your door. I've often spoken about my vision of a schoolchild in my home town of Carthage, Tennessee being able to come home, turn on her computer and plug into the Library of Congress. Carthage is a small town. Its population is only about 2,000. So let me emphasize the point: We must work to ensure that no geographic region of the United States, rural or urban, is left without access to broadband, interactive service. Yes, we support opening the local telephone exchange to competition. But we will not permit the dismantling of our present national networks. All this won't be easy. It is critically important, therefore, that all carriers must be obliged to contribute, on an equitable and competitively neutral basis, to the preservation and advancement of universal service. The responsibility to design specific measures to achieve these aims will be delegated to the Federal Communications Commission. But they will be required to do so. Our basic goal is simple: There will be universal service; that definition will evolve as technology and the infrastructure advance; and the FCC will get the job done. Reforming our communications laws is only one element of the Administration's NII agenda. We'll be working hard to invest in critical NII technologies. We'll promote applications of the NII in areas such as scientific research, energy efficiency and advanced manufacturing. We'll work to deliver government services more efficiently. We'll also update our policies to make sure that privacy and copyright are protected in the networked world. We'll help law enforcement agencies thwart criminals and terrorists who might use advanced telecommunications to commit crimes. The Administration is working with industry to develop the new technologies needed for the National Information Infrastructure Initiative. I have been working with the First Lady's Health Care Task Force, former Surgeon General C. Everett Koop, and others to develop ways we can use networks to improve the quality of health care. Beginning this month, we are concentrating first on the legislative package I outlined earlier. We haven't invented all of the ideas it contains ourselves. Representatives Dingell and Brooks, Markey and Fields--and Senators Hollings, Inouye, and Danforth have all focused on these issues. In many ways our legislative goals reflect or complement that work. We expect to introduce our legislative package shortly, and to work with Congress to ensure speedy passage this year of a bill that will stand the test of time. Our efforts are not, of course, confined only to government. The people in this room, and the private sector in general, symbolize private enterprise. Our economic future will depend, in a real sense, on your ability to grasp opportunity and turn it into concrete achievement. As we move into the new era, we must never lose sight of our heritage of innovation and entrepreneurship. In some ways, we appreciate that heritage more when we see countries without it. Last month, in Russia, I had a chance to see close up a country that tried to hold back the information age -- a country that used to put armed guards in front of copiers. In a way we should be grateful it did; that helped strengthen the desire of the Russian people to end Communism. My hope is that now Central and Eastern Europe can use technology and the free market to build democracy -- not thwart it. And my hope is that America, born in revolution, can lead the way in this new, peaceful world revolution. Let's work on it together. A few months ago, Toni Morrison won the Nobel Prize for Literature. It was a proud -- and signal -- moment for this country: recognition of an African-American woman who has communicated her insight and narrative power to readers all over the world. In her acceptance speech, Tony Morrison used one version of an old story -- a parable, really -- to make an interesting point. It's of a blind, old woman renowned for her wisdom, and a boy who decides to play a trick on her. He captures a bird, brings it to her cupped in his hands, and says "Old woman, is this bird alive or dead?" If she says "Dead," he can set it free. If she says "Alive," the boy will crush the bird. She thinks, and says, "The answer is in your hands." Toni Morrison's point is that the future of language is in our hands. As we enter this new millennium, we are learning a new language. It will be the lingua franca of the new age. It is made up of ones and zeros and bits and bytes. But as we master it ... as we bring the digital revolution into our homes and schools ... we will be able to communicate ideas, and information -- in fact, entire Toni Morrison novels -- with an ease never before thought possible. We meet today on common ground, not to predict the future but to make firm the arrangements for its arrival. Let us master and develop this new language together. The future really is in our hands. Thank you. -!- ! Origin: In*Touch - Rochester NY, USA (1:2613/333) TESTIMONY OF LARRY IRVING ASSISTANT SECRETARY FOR COMMUNICATIONS AND INFORMATION U.S. DEPARTMENT OF COMMERCE ON TELECOMMUNICATIONS REFORM LEGISLATION BEFORE THE SUBCOMMITTEE ON ECONOMIC AND COMMERCIAL LAW COMMITTEE ON THE JUDICIARY HOUSE OF REPRESENTATIVES JANUARY 26, 1994 Mr. Chairman and Members of the Subcommittee: INTRODUCTION Good morning. Thank you for this opportunity to testify before you today on issues related to the development of a national telecommunications and information infrastructure -- and, specifically, on Administration legislative proposals to promote the advancement of this infrastructure in a procompetitive manner that benefits all Americans. I am pleased to join Assistant Attorney General Bingaman, who will focus on the Administration's reform proposals bearing on the AT&T Consent Decree. I will discuss more generally the changes in the competitive landscape that make the passage of telecommunications legislation this year a top Administration priority, and, in the context of that discussion, highlight elements of the Administration's proposals not covered by Assistant Attorney General Bingaman. Vice President Gore and Secretary Brown unveiled the Administration's National Information Infrastructure (NII) initiative in September of last year, setting forth an agenda for a public-private partnership to help bring about this revolution. This includes support for innovative applications that will use the NII, improving access to government information, protecting individual privacy and intellectual property rights, and the passage of telecommunications legislation -- the subject of today's hearing. Before proceeding further, let me underscore, Mr. Chairman, the profound debt of gratitude the Administration owes you and Chairman Dingell for seizing the initiative in developing H.R. 3626. Our proposals for reform of the AT&T Consent Decree substantially build upon your efforts. The Administration also wishes to salute the creative bipartisan legislative initiatives undertaken by Representatives Markey and Fields, and by Senators Hollings, Inouye, and Danforth, among others. We have closely studied their proposals. Aspects of our set of legislative proposals, which I will touch on today, also build in large part upon the foundation they have established. The Administration looks forward to working closely with Congress to arrive at a final telecommunications legislative product that will stand the test of time. THE NEED FOR LEGISLATION There is a national consensus that an advanced information infrastructure will transform life for every person in the United States in the near future. We have all heard of countless examples of how broadband, interactive communications will connect and empower all people in this country. Vice President Al Gore recently said that the word "revolution" by no means overstates the changes ahead. The newspapers bring us daily examples of the ways in which the development of the NII will revolutionize American life. The January 19 Washington Post reported how interactive dial-up computer network services allowed individuals to communicate with friends and relatives in the Los Angeles area immediately after last week's disastrous earthquake, and to spread vital news to other interested subscribers within a matter of minutes. On January 19 Secretary of Health and Human Resources Shalala announced a contract that will provide by the end of this decade for the electronic payment of nearly all of the $1 billion annual Medicare bills. The Mountain Doctor Television Project (MDTV) in West Virginia brings high quality care to rural residents by allowing rural physicians to link to medical specialists at the University of West Virginia. Likewise, the Texas Telemedicine Project offers interactive video consultation to primary care physicians in rural hospitals as a way of alleviating the shortage of specialists in rural areas. Also, the Texas Education Network serves over 25,000 educators and is making the resources of the Internet available to classrooms, so that students in small school districts can access NASA and leave messages for the astronauts, browse around in libraries larger than they will ever be able to visit, and discuss world ecology with students in countries around the world, among other things. These and countless other examples attest to the rapid rate at which the American public is entering the information age. It would be a mistake, however, simply to "let nature take its course" and allow change to proceed under the existing legal regime, whose underlying structure was established 60 years ago. This is true for three essential reasons. First, in an increasingly competitive world trade environment -- which will become even more open with the implementation of NAFTA and the GATT Uruguay Round -- we simply must ensure that our telecommunications capabilities remain the best in the world. Because information transmission increasingly is the life's blood of all our industries, archaic rules that inappropriately retard innovation by telecommunications firms have a negative impact on the international competitiveness of the private sector in general by inhibiting industrial productivity and job creation. Legislation that lifts these outdated structures will enhance competitiveness and spur the creation of good new jobs. Second, the existing regulatory structure has been altered on an ad hoc basis over six decades to meet perceived problems of the moment. This has created an uneven playing field that artificially favors some competitors over others, and that in some instances unnecessarily discourages investment and risk- taking. These effects, in turn, inappropriately skew the growth of industry sectors and retard the development of the NII itself. Accordingly, legislation is needed to eliminate these unwarranted regulatory disparities. Third, we need to be sure that our telecommunications policies are fully responsive to the needs of the American people as a whole, and, in particular, poorer and disadvantaged Americans. As Secretary Brown stated in a January 5 address, we cannot "become a nation in which the new information age acts as a barrier, rather than a pathway, between Americans" -- a nation divided between the information rich and the information poor. Yet, while the universal provision of "plain old telephone service" has long been a national goal, the existing regulatory structure may not be sufficient to ensure that all Americans benefit from the broader range of information services that will become available under the NII. Accordingly, legislative reform is urgently needed to address this shortcoming. As Secretary Brown stated on January 5, "the Administration will propose a renewal and re-invention of the concept of universal service." I will have more to say about the Administration's views on universal service below. THE ADMINISTRATION'S PROPOSAL The Administration, as promised last fall, has developed a comprehensive set of legislative proposals setting forth the principles under which we believe the advanced infrastructure should operate. As I have already indicated, the Administration's proposals further the visions set forth in House and Senate legislative initiatives. We build upon innovative regulatory reforms and other dramatic steps taken by various states, and we will work closely with the states in promoting an advanced telecommunications and information infrastructure. Together we can encourage competition, infrastructure modernization, and advanced NII applications in health care, education, and government services. Underlying the Administration's proposals are five fundamental principles that Vice President Gore and Secretary Brown have outlined. These principles are: * Encouraging private investment in the NII; * Promoting and protecting competition; * Providing open access to the NII by consumers and service providers; * Preserving and advancing universal service to avoid creating a society of information "haves" and "have nots"; * Ensuring flexibility so that the newly-adopted regulatory framework can keep pace with the rapid technological and market changes that pervade the telecommunications and information industries. ENCOURAGING PRIVATE INVESTMENT AND PROMOTING COMPETITION The Administration believes it is time to act decisively to lift the artificial regulatory boundaries that separate telecommunications and information industries and markets. Those clear, stable boundaries served us well in the past. They enabled regulators to establish separate regulatory regimes for firms in different industries. They also prompted regulators to address the threat of anticompetitive conduct on the part of some telecommunications firms by barring them from certain industries and markets. Technological and market changes are now blurring these boundaries beyond recognition, if not erasing them entirely. As Vice President Gore emphasized on January 11, we are moving away from a world where technologically valid regulatory distinctions may be made among local telephone, long distance telephone, cable, and other purveyors of information transmission. Digital technology enables virtually all types of information, including voice, video, and data, to be represented and transmitted as "bits" -- the ones and zeros of computer code. Thus, rules which artificially distinguish among different types of "bit transmitters" based on old historical understandings will no longer serve a socially useful purpose. Accordingly, regulatory change is necessary to fully realize the benefits of private investment and greater competition in the information infrastructure. Regulatory policies predicated on the old boundaries can harm consumers by impeding competition and discouraging private investment in networks and services. The Administration is therefore committed to removing unnecessary and artificial barriers to participation by private firms in all communications markets, while making sure that consumers remain protected and interconnected. These reforms are necessary in order for people in the United States to "win" the information revolution as soon as possible. To this end, the Administration supports the initiation by the Federal Communications Commission (FCC) of a review of current broadcast policies. Broadcasters remain the principal source of free, universally available electronic information in the United States, and it is important to ensure full participation by that industry in the NII. LOCAL TELECOMMUNICATIONS SERVICES The Administration supports removal of those barriers preventing competition in the provision of local telecommunications services. Competition already has generated substantial benefits for consumers in a host of communications and information service markets. For example, the varieties of customer premises equipment have expanded dramatically since deregulation. In addition, the price of interstate long distance telephone services for the average residential user has declined more than fifty percent in real dollars since 1984, due to competition and regulatory reform. At the same time, the infrastructure used to provide long distance service has been substantially upgraded. There are now four digital, fiber-based national networks serving this market, and many more interconnected regional networks. Consumers will realize similar benefits in service innovation, declining prices, and infrastructure enhancement from the expansion of competition in the local telephone market. Such competition will reduce the ability of any telephone company to harm competition and consumers through monopoly control and will encourage investment and innovation in the "on and off ramps" of the NII. Current policies regarding interconnection and service bundling, as well as specific barriers erected by individual states, inhibit competition -- and the low prices, service choices, and other benefits such competition brings to consumers. The Administration proposes to ensure that competing providers have the opportunity to interconnect their networks to local telephone company facilities on reasonable, nondiscriminatory terms. Local telephone companies will also be required to unbundle their service offerings so that alternative providers can offer similar services using a combination of, for example, telephone company-provided switching and their own transmission facilities. Finally, in order to ensure a consistent, procompetitive environment for telecommunications services, the Administration proposes to preempt state entry barriers and rate regulation of new entrants and other providers found by the FCC to lack market power. Competition in local telecommunications markets should generally lower prices and increase innovation in the services offered users. Nevertheless, we are aware of concerns that repricing of some local services may result in rate increases in some cases in an increasingly competitive environment. Accordingly, in order to guard against any possible "rate shock" for users, the FCC and state regulators will be directed, in implementing network interconnection and unbundling, to prevent undue rate increases for any class or group of ratepayers. MODIFIED FINAL JUDGMENT (MFJ) RESTRICTIONS The Modified Final Judgment (MFJ) in the AT&T Consent Decree helped unleash an era of competition and innovation that brought low prices and new service choices for consumers. In short, it has been a tremendous success. The Administration acknowledges the great public service the judiciary has performed in overseeing the breakup of that monopoly. But twelve years have passed since the basic framework of the MFJ was established, and it has been ten years since the breakup took place. Technologies and markets are changing rapidly. A judicial decree may at some point become a barrier to a more comprehensive, far-reaching approach to an advanced information infrastructure. Reform of the MFJ goes hand-in-glove with opening up local competition, which I described above. The development of full- fledged competition in the local provision of telecommunications services will alleviate the competitive concerns that prompted the strictures placed by the MFJ on the activities of the Regional Bell Operating Companies (RBOCs). Thus, comprehensive legislative procedures for loosening the MFJ restrictions as competition develops are appropriate. Implementation of these procedures in the wake of enhanced local competition will allow the RBOCs to compete in markets for goods and services now closed to them. This will further enhance innovation in the American economy and benefit consumers. Assistant Attorney General Bingaman will address the MFJ reform provisions. I wish to note, however, that while Assistant Attorney General Bingaman will describe the Administration's MFJ position, the Departments of Commerce and Justice have worked together closely in developing our position in this area. This position represents not only the joint efforts of our two Departments, but also the work of others in the Administration who have joined in this policy initiative. CABLE TELEVISION-TELEPHONE COMPANY CROSS-OWNERSHIP The Administration supports repeal of the current cable television-telephone company cross-ownership restriction in the 1984 Cable Act. We believe that telephone companies should be allowed to provide video services in their local exchange areas, subject to effective safeguards to protect consumers and competition. OPEN ACCESS AND PROGRAMMING DIVERSITY The public benefits of the information revolution would be severely diminished without a wide range of diverse programming. An advanced information infrastructure, to be truly useful, must offer a potpourri of educational material, health information, home and business services, entertainment, and other programming matter, both passive and interactive. Barriers to open access and widespread availability of programming serve only to harm users. The Administration's legislative proposals are designed to further the goals of promoting a diversity of programming and open access to distribution of this programming. ENSURING REGULATORY FLEXIBILITY AND FAIRNESS As barriers to an advanced information infrastructure fall, the regulatory regime must adapt to the changing environment. In the rapidly changing telecommunications and information industries, the only certainty is uncertainty. A new regulatory framework is required that will stand the test of time, without the need for continual upheaval in the nation's overall approach to telecommunications and information policy. At the same time, in the interest of fairness, similarly situated services should be subject to the same regulatory requirements. The Administration proposes to address these concerns by granting the FCC flexibility to reduce regulation for telecommunications carriers that lack market power. The Administration also proposes a new Title VII to the Communications Act, that will encourage firms to provide broadband, interactive, switched, digital transmission services. The Administration's Title VII proposal will provide the FCC with broad regulatory flexibility while maintaining key public policy goals, including open access, interconnection, and interoperability requirements, and obligations to support universal service. UNIVERSAL SERVICE The Administration is committed to developing a new concept of universal service that will serve the information needs of the American people in the 21st century. Indeed, the full potential of the NII will not be realized unless all Americans who desire it have easy, affordable access to advanced communications and information services, regardless of income, disability, or location. In his January 5 speech, Secretary Brown challenged the private sector "to expand universal service to the National Information Infrastructure." He pointed out that promotion of universal service advances American competitiveness, stating: "Just as progressive businesses have increasingly recognized that their fate is tied to education and good schools, so the businesses that will take advantage of the new information marketplace must realize that our national fortune is dependent on our national competitiveness -- on ensuring that no talent goes to waste." CONCLUSION In conclusion, enactment of telecommunications reform legislation will promote the development of the NII in a flexible, procompetitive fashion that creates incentives for desirable investment, economic growth, and the widescale availability to all Americans of new, highly valued information services. The Administration looks forward to close collaboration with Congress to enact a set of legislative proposals that achieves these desired ends. This concludes my testimony. I would be pleased to respond to any questions you may have. GOVERNMENT INFORMATION TECHNOLOGY SERVICES WORKING GROUP Minutes of December 16, 1993, Meeting TIME AND PLACE: 10:00 a.m. Treasury Department Office of Telecommunication Management Conference Room SUMMARY OF WORKING GROUP ACTIONS . Identify and prioritize National Performance Review Information Technology Recommendations that can be acted on in the near term. . Assign above action items to agencies for implementation. . At January meeting develop a Vision of Electronic Government. This vision would be used as input to agency information technology strategic plans. . Complete draft of Government Information Technology Services Working Group charter. IITF COMMITTEE CHARTERS The Applications and Technology Committee of the Information Infrastructure Task Force created the Government Information Technology Services (GITS) Working Group which is chaired by James Flyzik, Director of Telecommunication Management for the Department of the Treasury. The purpose of the GITS Working Group is to oversee the implementation of the National Performance Review recommendations on information technology. In addition it will work inconjunction with OMB and the General Service Administration to establish procurement and implementation policies designed to improve productivity and reduce costs. ISSUES DISCUSSED . GITS Structure and Relationships . Sources of Support/Outreach . Review of Recommendations/ Action Items ATTENDEES James Flyzik, Chair, Treasury Bruce McConnell, OMB Jasmeet Seehra, OMB Joe Thompson, GSA Ron Piasecki, GSA Janet Poley, Agriculture Robert Woods, VA John Grimes, DOD Dan Grulke, DOD David Nelson, Energy Helen Wood, Commerce Tom Thompson, HHS Brian Hall, HUD Roger Cooper, DOJ Greg Woods, NPR John Lane, SEC Alan Proctor, FTC Mike Corrigan, GSA Henry Lai, GSA David Lytel, OSTP Sam Ewell, Treasury Cita Furlani, NIST Mark Mandell, NIST Joe Bishop, Recorder, SETA -!- ! Origin: In*Touch - Rochester NY, USA (1:2613/333) Ä Area: Whitehou ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ Msg#: 281 Date: 02-03-94 03:27 From: In*touch Read: Yes Replied: No To: All Mark: Subj: 5.0: 1994-01-25 White Pap ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ ADMINISTRATION WHITE PAPER ON COMMUNICATIONS ACT REFORMS I. Introduction Vice President Al Gore and Secretary of Commerce Ron Brown announced the Administration's National Information Infrastructure (NII) initiative in September 1993, establishing an agenda for a public-private partnership to construct an advanced NII to benefit all Americans. In speeches and policy papers since then, the Administration has proposed legislative and administrative reform of telecommunications policy, based on the following fundamental principles: * Encouraging private investment in the NII; * Promoting and protecting competition; * Providing open access to the NII by consumers and service providers; * Preserving and advancing universal service to avoid creating a society of information "haves" and "have nots"; * Ensuring flexibility so that the newly-adopted regulatory framework can keep pace with the rapid technological and market changes that pervade the telecommunications and information industries. The Administration shares the belief of many in Congress that legislative reform of telecommunications policy is essential to meeting these goals, in order to bring the benefits of advanced communications and information services to the American people. For many years, government regulation assumed clear, unchanging boundaries between industries and markets. This assumption sometimes led regulators to view and regulate firms in various industries differently, even when they offered similar services, and to address the threat of anticompetitive conduct on the part of some firms by barring them from certain markets and industries. A new approach is needed. Even if the lines between industries and markets were clear in the past, technological and market changes are blurring and erasing them. Regulatory policies that are based on such perceived distinctions can harm consumers by impeding competition and discouraging private investment. In light of these realities, the Administration is committed to removing unnecessary and artificial barriers to participation by private firms in all communications markets, while making sure that consumers remain protected. In developing legislation to meet these challenges, the Administration is grateful to Chairman Markey, Congressman Fields, and their colleagues on the Telecommunications and Finance Subcommittee for their pathbreaking, bipartisan work on H.R. 3636, which addresses many of the Communications Act issues that are most important to the development of the NII. The Administration's legislative telecommunications reform proposals build on H.R. 3636, as well as S. 1086, developed by Chairman Inouye and Senator Danforth. The Administration also salutes H.R. 3626, the related legislative initiative to reform the AT&T consent decree undertaken by Chairmen Brooks and Dingell, and the leadership of Chairman Hollings on these matters. The specifics of the Administration's legislative proposals on telecommunications reform are discussed below. Because the Administration supports the general approach and many of the existing provisions of H.R. 3636, the provisions of that bill serve as a framework for describing the Administration's proposals. Those proposals also reflect the innovative regulatory reforms taken by many state telecommunications regulators. II. Local Competition and Interconnection Competition has generated lower prices, improved choices for consumers, and rapid technological innovation in many communications and information service markets, including customer premise equipment and long distance service. Similar benefits should be realized by the expansion of competition in the local telephone service market. Competition in that market also will reduce the ability of any telephone company to harm competition and consumers through monopoly control and will encourage investment and innovation in the "on and off ramps" of the NII. * The Administration supports the general requirement of H.R. 3636 that all carriers must interconnect with other providers of telecommunications and information services. Such a requirement helps ensure that the NII functions seamlessly. * The Administration also supports the approach of H.R. 3636 to impose more specific pro-competitive interconnection requirements on local exchange carriers (LECs), in light of these carriers' monopoly positions: an obligation to interconnect at any "technically feasible and economically reasonable point"; an obligation to afford nondiscriminatory access to network facilities, services, functions, and information, where technically feasible and economically reasonable; no restrictions on resale or sharing of network facilities and services. * H.R. 3636 would require the FCC to adopt regulations governing the price, terms, and conditions under which carriers may provide interconnections, access, facilities, and services. The Administration agrees with this general approach, but suggests that some of the details of this provision, such as the tariff filing requirement for LECs, are unnecessary based on current law and practice. The Administration also would emphasize that, in carrying out this requirement, the FCC and the States must prevent undue rate increases for any class or group of ratepayers. * The Administration supports the approach of H.R. 3636 of requiring carriers to provide facilities, services, and network functions on an unbundled basis, i.e., carriers would have allow customers to pick and choose the constituent parts of the services to be taken. Thus, for example, instead of offering only switched local telephone service, a carrier would also have to offer separately the switching and transport components of that service. * The Administration supports authorizing the FCC to modify all of the foregoing obligations for small LECs and LECs serving rural areas. This differs slightly from H.R. 3636, which would exempt carriers serving rural areas from the foregoing interconnection and unbundling obligations and authorize the FCC to modify those requirements for carriers with fewer than 500,000 access lines nationwide. III. Relations with the States Because of the crucial role of the states in protecting ratepayers and addressing economic and technical infrastructure issues in their areas, substantial state jurisdiction over telecommunications must be preserved. However, when national interests are at stake in realizing the benefits of an advanced, interconnected NII, particularly through local competition, national policies, with limited preemptive effect in a few key areas, are necessary. * H.R. 3636 would prohibit state entry regulation for telecommunications services or state action restricting a firm from exercising the interconnection rights granted by the bill. Similarly, in order to realize fully the benefits to consumers of increased competition in telecommunications, the Administration proposes to preempt state entry regulation for provision of telecommunications and information services. * H.R. 3636 does not address state and local rate regulation. However, rate regulation of new entrants and other firms that lack market power not only is unnecessary, but can act as a powerful deterrent to the development of a truly competitive marketplace. Accordingly, to further the procompetitive goals discussed above, the Administration proposes to preempt state and local regulation of the rates for any service charged by a telecommunications carrier that the FCC finds, or has found, after notice and comment, to lack market power. However, the Administration would permit states to petition the FCC to retain or regain authority to regulate such rates under certain conditions. This approach for rate regulation is substantially the same as that passed by Congress in the last session for commercial mobile services, as codified in Section 332(c) of the Communications Act. IV. Regulatory Flexibility An Administration priority is to make government work better for the American people by reducing red tape and eliminating regulatory overkill. This is particularly important with regard to the telecommunications and information industries, which are subject to continuing technological and market changes. Detailed regulatory requirements that may be well-suited for incumbent firms with monopoly or near-monopoly positions may be quite inappropriate, and even anticompetitive, when applied to firms that lack market power. Telecommunications reform legislation should provide the FCC with the flexibility to adapt its regulations to meet changing conditions, consistent with the public interest. * The Administration proposes to authorize the FCC (1) to exempt carriers lacking market power from any provision of Title II of the Communications Act (except provisions relating: to the duty to serve and interconnect; the duty to charge just, reasonable and nondiscriminatory rates; damages; and customer complaints) and (2) to tailor the regulations it does impose to reflect a carrier's market power. H.R. 3636 currently does not have comparable provisions. * The Administration supports the general approach of H.R. 3636 authorizing the FCC and the states to permit carriers pricing flexibility for their competitive services. H.R. 3636 is very detailed in requiring the FCC to develop standards and criteria to guide regulators in exercising that authority. The Administration believes that legislation should provide more general guidance to the FCC. V. Universal Service The United States has long been committed to "universal service" --widespread availability of basic telephone service at affordable rates. As we move rapidly into a world in which advanced telecommunications capabilities, well beyond traditional telephony, will soon be available to many Americans, it is critical that our universal service goals and policies advance as well. The Administration seeks to work with Congress and the states to develop an enhanced concept of universal service that will serve the information needs of the American people in the 21st century. * It is an Administration goal that, by the year 2000, all of the classrooms, libraries, hospitals, and clinics in the United States will be connected to the NII. To help attain that goal, the Administration proposes that the National Telecommunications and Information Administration of the U.S. Department of Commerce conduct an annual nation-wide survey of the availability of advanced telecommunications services to those locations and report on its findings. Moreover, the Administration proposes that the FCC be directed to commence an inquiry and, subsequently, a rulemaking proceeding to ensure, to the extent feasible, the availability of advanced telecommunications to public school classrooms, health care institutions, and libraries. The FCC would consider the tariffing of preferential rates for interstate services to such locations, and ensure that standards are in place to permit uniform interconnection to the NII. * The Administration supports the approach of H.R. 3636 in making the preservation and advancement of "universal service" an explicit objective of the Communications Act (as opposed to an implicit goal emanating from Section 1 of the Act). The Administration would provide more general guidance, and more flexibility to the FCC and the states in specifying the details of how that objective should be achieved. The Administration would state that advanced services should be available to rural and urban lower income users, to users in areas where the costs of service are high, and to social institutions, especially educational and health-care facilities. * The Administration supports charging the FCC and the states with continuing responsibility to review and revise objectives for expanding universal service to meet changing circumstances. * The Administration supports the requirement of H.R. 3636 that the FCC and the states address universal service issues through a Federal/State Joint Board. The Administration proposes giving the Joint Board more time to develop its recommendations to the FCC, and the FCC more time to act on them. * H.R. 3636 would require all providers of telecommunications service to make "an equitable and nondiscriminatory" contribution to the preservation of universal service. The Administration agrees that the FCC and the states should have broad authority to require all providers of telecommunications services to contribute to the preservation of universal service. In exercising that authority, the FCC and the states must ensure that no service provider is unfairly burdened relative to its rivals, and that contributions to universal service do not unduly distort consumer choices among alternative services. * The Administration also proposes authorizing the FCC, in consultation with the States, to permit "sliding scale" contributions (e.g., to avoid burdening small providers and new entrants), as well as "in-kind" contributions in lieu of cash payments. H.R. 3636 has no comparable provisions. VI. Cable-Telephone Crossownership Although the existing cable-telephone company crossownership restriction of the 1984 Cable Act may have been appropriate when enacted, today it is an unnecessary and artificial barrier to competition in the delivery of video programming to American consumers and to investment in advanced local infrastructure. The Administration's proposal to remove the current restriction, coupled with its proposals to promote competition in local telephone service, will allow telephone companies and cable operators to compete in providing a full range of video, voice, and data services to the public. Such competition can promote investment that expands consumer choices and services. To ensure that cable firms and telephone companies do not harm consumers or competition in providing these services, the Administration proposes several safeguards specified below, most notably requirements that most telephone companies and cable operators make transmission capacity available to unaffiliated video providers on a nondiscriminatory basis. In doing so, the Administration also seeks to protect diversity and competition in the flow of ideas, and to ensure that similarly situated firms are regulated similarly. The Administration supports the general approach of H.R. 3636 to allow LECs to provide video programming in their telephone service areas, subject to certain conditions and safeguards. The Administration would propose somewhat different conditions and safeguards, which, however, are also designed to protect consumers and competition and prevent undue control of information content and conduit by any one firm. Structural Separation: * The Administration supports the approach in H.R. 3636 of requiring LECs to provide video programming through a separate affiliate, in order to prevent improper cross- subsidization and discrimination by the LEC. * H.R. 3636 specifies many of the details of the separation requirements. The Administration proposes modifying this approach to charge the FCC with specifying the required degree of separation, subject to two basic requirements from H.R. 3636: A LEC's video programming affiliate must have separate books, records, and accounts; and Any contract or agreement between a LEC and its affiliate (1) must be pursuant to regulations adopted by the FCC, (2) must be on a fully compensatory and auditable basis, (3) must be without cost to the LEC's telephone service ratepayers, (4) must be filed with the FCC, and (5) must adhere with rules that will enable the FCC to assess the compliance of any transaction with its rules. * The Administration supports the approach of H.R. 3636 in permitting the FCC to modify separation requirements for small and rural LECs at any time. H.R. 3636 would allow the FCC to modify separation requirements for other LECs beginning 5 years after enactment. The Administration proposes reducing that waiting period to 2 years, to provide greater regulatory flexibility in the face of changing conditions. Nondiscriminatory Access Obligations: * In order to promote competition and diversity in the flow of ideas, H.R. 3636 would require a LEC that provides video programming to subscribers in its service area to establish a "video platform," based on the FCC's current "video dialtone" rules, and make it available to unaffiliated programmers on nondiscriminatory terms. The Administration supports this general approach, with some modifications. * H.R. 3636, by its terms, would require that the rates for the platform be nondiscriminatory. The Administration proposes specifying that LEC provision of the video platform will be subject to all requirements of Title II of the Communications Act. * H.R. 3636 appears to require a LEC to afford nondiscriminatory access to its video platforms only when it carries "affiliated" video programming (i.e., programming in which the LEC has an ownership interest). The Administration proposes requiring a LEC to afford unaffiliated programmers nondiscriminatory access to its video platform whenever the LEC carries video programming. * H.R. 3636 would require the FCC to limit the number of channels on a LEC's video platform that can be occupied by its video programming affiliate (that limit can be no lower than 25% of the platform's capacity). The Administration proposes to authorize the FCC to impose such a limit and give the FCC discretion in selecting what the limit should be. * The Administration proposes to permit the FCC to modify any of the foregoing requirements for small and rural LECs. H.R. 3636 contains no similar provision for small, non-"rural" LECs. * The Administration supports allowing the FCC to modify the definition of "video platform" beginning 1 year after enactment. H.R. 3636 contains no such provision. * The Administration proposes to direct the FCC to adopt regulations, within 1 year of enactment, that would require cable operators to offer nondiscriminatory access to channel capacity on their systems for unaffiliated programmers, except when technology, costs, and market conditions would make such offering inappropriate. H.R. 3636 requires that the FCC study whether to impose such obligations and report to Congress within 2 years after enactment. Anti-Buyout Provisions: * To protect competition in the provision of communications and information services and to further the flow of ideas, the Administration supports limiting a LEC's ability to enter the video services market via acquisition of cable systems operating in its telephone service area. The Administration proposes to limit cable companies' ability to acquire LECs providing local telephone service in the cable companies' franchise areas. * The Administration supports the provisions of H.R.3636 permitting in-region acquisitions occurring in rural areas and for joint LEC/cable operator use of the cable "drop wire." The Administration proposes eliminating the provision of H.R. 3636 that would permit a LEC/cable acquisition if the number of households served by the cable systems acquired constituted less than 10% of all households in the telephone service areas of the acquiring LEC and its affiliates. * H.R. 3636 would also authorize the FCC to waive the anti-buyout policy at any time under certain conditions. The Administration proposes authorizing the FCC to change the policy by rule, or to grant waivers on a case-by-case basis, beginning 5 years after enactment, if it determines that such action would be in the public interest. Such acquisitions would, however, remain subject to the antitrust laws. Franchise Obligations: * The Administration supports the general approach in H.R. 3636 of removing some requirements of the Cable Act for the LEC's video programming affiliate and any other user of the LEC's video platform, while maintaining others, such as must carry, retransmission consent, the provision of public, educational, and governmental channels, and others designed to protect consumers. * To promote symmetric regulation of similarly-situated firms, the Administration proposes to authorize the FCC to remove some Cable Act requirements (most notably, the requirement to have a cable franchise) for cable systems that offer nondiscriminatory access substantially similar to that required of LECs by the bill, while maintaining the overall Cable Act regulatory structure. H.R. 3636 has no comparable provision. Rural Exemption: * H.R. 3636 states that provisions concerning the video programming affiliate, the video platform, provision of affiliated programming, and the ban on acquisitions do not apply to LECs offering video programming in rural areas. The Administration proposes to authorize the FCC to modify those provisions for such LECs. VII. Regulation of Two-Way, Broadband Transmission Services (Title VII) The Administration proposes adding a new Title VII to the Communications Act to apply, on an elective basis, to providers of two-way, broadband, digital transmission services, offered on a switched basis to end users. The Administration would emphasize these services because, well into the 21st century, they will connect and empower the American public by providing them with a variety of voice, data, video services, and other information that will enhance our nation's economic competitiveness and the quality of life of our citizens. A new Title VII would provide a unified, symmetric treatment of providers of two-way broadband services, in contrast to the present disparate treatment of common carriers and cable operators under Titles II and VI of the Act. It also would provide important incentives to promote private sector development of this part of the NII and spur availability of advanced services on a widespread basis. The Administration recognizes that communications services are developing in a rapidly changing technical and marketplace environment. A new Title VII would create a regulatory regime that should stand the test of time by providing the FCC with the flexibility to adapt its regulatory approach in light of changes in market and technological conditions. Eligibility and Certification * Under the Administration's proposal, firms could elect Title VII regulation of the two-way broadband, interactive, switched, digital transmission services they provide to end users ("Title VII broadband services"), if they offer such services to at least twenty percent of their subscribers in a state. The FCC would be authorized to define Title VII broadband services in greater detail and to modify the subscriber threshold. * If a firm were to certify to the FCC that it meets the threshold in one or more states and the FCC does not disallow the election, the FCC would apply streamlined Title VII regulation to the firm's Title VII broadband services and the other services that share broadband facilities in those states. Regulatory Framework for Title VII * Title VII would impose the following broad requirements (to be implemented by the FCC) to apply to Title VII broadband services and the services that share broadband facilities with them: Open access obligations (including access for the disabled) to enable all persons to send information over the firms' broadband facilities; Universal service requirements consistent with those under other parts of the Communications Act; and Interconnection and interoperability requirements * Title VII would promote regulatory flexibility by providing that the FCC shall: Regulate rates only for Title VII services that are offered by firms the FCC finds have market power in the provision of such services; and Establish procedures to resolve any complaints expeditiously. * Title VII would also authorize the FCC adopt rules, as needed, to: Address public interest concerns, such as those currently addressed in Sections 223 through 228 of the Communications Act (dealing with: obscene and harassing communications; regulation of pole attachments; services for hearing and speech-impaired individuals; telephone operator services; use of telephone equipment; and carrier provision of pay-per-call services, respectively). Ensure that delivery of video programming directly to subscribers over broadband facilities is consistent with certain principles now applicable to cable services (e.g., Sections 325(b), 611, 614, 615, and 632 of the Act, dealing with: retransmission consent; public, educational, and governmental access; must carry; and protection of subscriber privacy). * If a Title VII firm also provides communications services that do not share broadband facilities with Title VII broadband services, those other services would remain subject to regulation under Title II or Title VI, as appropriate. Relations with State and Local Regulators * Consistent with the Administration's general approach to relations with state and local regulatory authorities, federal authority over the rates, terms, and conditions under which communications services are provided would predominate only when needed to ensure that national goals of promoting competition and liberal interconnection and access require it. * Title VII would preempt state and local authorities from regulating rates of Title VII services if the FCC determines that the providing firm lacks market power. * States would continue to regulate rates for the intrastate components of Title VII services provided by firms with market power: for Title VII broadband services, in accordance with models and guidelines adopted by the FCC in consultation with the states; for other services delivered over the facilities used to furnish Title VII broadband services, in the discretion of the states, subject only to a reserved right of Federal preemption that could be exercised to the extent necessary to avoid conflicts between state regulatory actions and the policies of Title VII. -!- ! Origin: In*Touch - Rochester NY, USA (1:2613/333)