COMPETITION POLICY: UNLOCKING THE NATIONAL INFORMATION INFRASTRUCTURE. -- Council on Competitiveness

[David Farber <>]

[minor editing and formating was done to make the material readable via
email. Errors are thus mine .. djf]


Professor Farber:


  Erich Bloch, whom I work with at the Council on Competitiveness, thought
your "Interesting People" bulletin board might be interested in the
Council's recently released report, COMPETITION POLICY: UNLOCKING THE
NATIONAL INFORMATION INFRASTRUCTURE.  We would greatly appreciate it if
you could make the following Press Release, Forward and Executive Summary
available to them.  Thank you in advance for your help!


                                Best regards,
                                Amy E. Petri








PRESS RELEASE


CONTACT: STEPHANIE SCHOUMACHER
(202) 785-3990






COMPETITION POLICY CONSENSUS FORGED BY COMPETITORS


The Council on Competitiveness has released a report on competition policy
that includes an unprecedented consensus among AT&T, regional bell
companies, and the full range of information infrastructure providers.  The
report, Competition Policy: Unlocking the National Information
Infrastructure, is the second in a series of policy reports of the
Council's 21st century information infrastructure project chaired by John
Young, former CEO of Hewlett- Packard and Charles Vest, president of the
Massachusetts Institute of Technology.  "This report marks the first time
that representatives from long distance and local telephone companies,
alternative access providers, cable companies, utilities, information
companies, users, academic institutions, labor unions and public interest
groups have agreed on the need for full competition in the communications
market and hammered out a transition framework to get us there," said Paul
Allaire the new chairman of the Council on Competitiveness and CEO of Xerox
Corporation.  "By stimulating competition at home, consumers will benefit
from greater choice, lower prices, and enhanced services.  Moreover,
U.S.-based firms will gain a competitive edge in world markets."


The essential framework contained in this report applies to all providers
and addresses four interlocking issues.  Recommendations reflect consensus
on the following:


1.  Agreement by all providers, including the local telephone companies, to
provide access to their essential services.  This "unbundling" of services
will speed the competitive interconnection and interoperability that are
essential to developing a national information infrastructure.


2.  Agreement to reduce the debate about entry into restricted lines of
business to two options.  Everyone agrees that essential facilities must
first be opened to competitors and regulatory safeguards must be in place
to prevent predatory pricing and cross-subsidies.  They differ only on
whether competitors must also gain a predetermined share of the incumbent
provider's market before restrictions to enter new lines of business are
lifted.


3.  Agreement to provide dominant providers more pricing freedom (with
certain cap and
floor limits during the transition).  This agreement will provide
incentives for dominant
providers to lower costs, a key to ensuring universal service.


4.  Agreement that support for universal service should be shared by
providers of essential services, and directed to users.  Also, that any
universal service program should include those services that are necessary
to maintaining U.S.  competitiveness.


"It is remarkable that we could agree that in the end, everyone should be
able to enter all lines of business," said John Young.  "In doing so, the
private sector has provided some fundamental guidelines for the
Administration and Congress as they develop national policy in this
critical area."


The Council on Competitiveness is a coalition of chief executives from
leading businesses, presidents of universities and presidents of labor
unions whose mission is to improve the competitiveness of U.S.  industry
and its workers in a global marketplace.  ####




The following statement by the Vice President was released by the White
House on December 16, 1993:


"If America is to develop a world class information superhighway, we must
promote healthy competition at home -- competition that enhances consumer
benefits, stimulates the development of new products and services,
unleashes new technologies, and gives U.S.  based firms an edge in world
markets.  The Council's report, Competition Policy: Unlocking the National
Information Infrastructure, outlines a policy framework designed to do just
that.  We will consider it carefully as we develop our legislative package
in this area."
####


The report can be ordered from the Council on Competitiveness at a cost of
US $25.00 plus shipping and handling (domestic) and $3.50 (overseas).


To order (please send order and check or money order) or for more
information please write:


Publications Office
Council on Competitiveness
900 17th Street, NW -- Suite 1050
Washington, DC 20006
(202)785-3990
(202)785-3998






COMPETITION POLICY:  UNLOCKING THE NATIONAL INFORMATION
INFRASTRUCTURE


FOREWORD


America s information infrastructure is evolving faster than anyone
thought possible.  Although the Clinton Administration came to office
promising to accelerate deployment of the information superhighway, the
private sector has been the real driving force behind progress.


The past few months have witnessed a string of proposed mergers and
acquisitions.  U.S.  West announced that it would acquire 25 percent of
Time Warner, the nation s second largest cable network.  AT&T announced
plans to acquire McCaw Cellular Communications, America s largest cellular
telephone company.  Bell Atlantic announced its decision to merge with
Tele-Communications, Inc.  (TCI), America s largest cable corporation.
Bell South decided to link with Prime Management s cable systems.
Southwestern Bell decided to purchase cable systems from Hauser
Communications.  NYNEX announced its intention to invest in Viacom.


These new alliances and others are fundamentally reshaping the information
and communications industry.  Until recently, cable, telephone,
broadcasting, computing, publishing, wireless communications and utilities
were viewed as separate businesses.  The steady push of market forces and
the rush of technology are rapidly breaking down the walls separating these
markets.


Despite this market convergence, much of America s regulatory framework
remains rooted in yesterday s notion of distinct and separate businesses.
Many government officials have greeted with skepticism the announcements
about major mergers and acquisitions.  While the government s concerns
about equal access and fair prices are serious ones that must be addressed
carefully, they must be balanced against efforts to speed the realization
of the new national information infrastructure.


Today s market shifts represent the beginnings of the new information
network that will be at the center of tomorrow s economy.  Just as no
manager or analyst can accurately predict the contours of this
infrastructure, neither can any government official.  If the government
insists on overly restrictive regulations, America s ability to create the
new information infrastructure will be in jeopardy.  What the urgency of
the marketplace and the unrelenting onrush of technology require are fewer
regulations, not more.


This interim policy report is the Council s attempt to understand the
competitive pressures driving the evolution of the U.S.-based
communications industry.  In it, we offer the best-thinking of a broad
cross-section of the private sector on this complex and at times highly
contentious set of issues.  Many diverse industry groups, as well as
academia and labor, helped forge the consensus represented in these pages.


We recognize that we do not have all of the answers and that we do not
address all the concerns surrounding the evolution of the information
infrastructure.  Given the complexity of the issue and the competing
interests involved, not everyone agrees on every detail of every point in
this report.  What we offer is a consensus framework -- one that lays the
foundation for the transition to a fully competitive U.S.  communications
market that will drive America s economic performance and standard of
living in the future.


We hope that this framework will help inform the public policy debate, and
we stand ready to do whatever we can to assist that process.


Paul Allaire
Council Chairman
Chairman and Chief Executive Officer
Xerox


George M. C. Fisher
Former Council Chairman
Chairman and Chief Executive Officer
Eastman Kodak Company


Charles M. Vest
Project Co-Chairman
President
Massachusetts Institute of Technology


John A. Young
Project Co-Chairman
Former President and
  Chief Executive Officer
Hewlett-Packard Company


Thomas E. Everhart
Council Vice Chairman
President
California Institute of Technology           .


Henry B. Schacht
Council Vice Chairman
Chairman and Chief Executive Officer
Cummins Engine Company, Inc


Jack Sheinkman
Council Vice Chairman
President
Amalgamted Clothing and Textile
  Workers Union, AFL-CIO, CLC


EXECUTIVE SUMMARY


In its report, Vision for a 21st Century Information Infrastructure, the
Council articulated a vision for a new national information infrastructure
(NII):


The information infrastructure will enable all Americans to access
information and communicate with each other easily, reliably, securely and
cost effectively in any medium -- voice, data, image or video -- anytime,
anywhere.  This capability will enhance the productivity of work and lead
to dramatic improvements in social services, education and entertainment.


This report expands on that vision, focusing on the need for a competitive
communications environment as a prerequisite for a versatile information
infrastructure.  By creating an environment in which U.S.-based firms are
permitted to compete and encouraged to take advantage of the information
infrastructure, we can sharpen America's performance in world markets and
advance national interests.  The efficiencies that result from competition
will induce cost reductions and lower prices, increase demand for services
and products, and expand output of new applications, all to the benefit of
the consumer.  The market is already responding.  The recent spate of
planned strategic alliances among the telephone, cable, wireless and
entertainment companies, coupled with the emergence of small local exchange
competitors, indicates that a dramatic and volatile restructuring of the
communications industry is beginning and will continue for some time.  No
one can foresee the outcome.  But the driving forces are becoming clear.


There is no question that the nation is in a profound economic transition.
 As often happens during periods of transition, however, the government is
struggling to keep pace with market developments.  Laws, regulations and
governing processes, created under different market conditions and social
environments, should be adapted to new circumstances.  Competition is
colliding with the regulated monopoly framework in the local cable and
telecommunications services markets.  The NII will only develop fully if
competition can flourish at all levels of network operations and service
provision.  It is imperative that industry and government focus on removing
obstacles to competition in the immediate future.


This report offers a framework for developing the transitional rules
required to ensure that a competitive communications environment emerges.
It applies to all U.S.-based providers -- long distance and local telephone
companies, cable companies, alternative access providers and power
companies.  It is particularly relevant to the local services market, where
the regulated monopoly framework is colliding with competition.  While the
issues this framework confronts are well known, they have been dealt with
in a piece-meal fashion.  This approach has contributed to today s
fragmented regulatory and policy structure.  The Council believes these
issues are inextricably linked and should be addressed concurrently to
assure a coherent transition to a fully competitive marketplace.






FINDINGS


1) TECHNOLOGY AND MARKETS ARE FUSING.


New technologies and the prospect of an explosion in "tele-information"
applications are forcing a restructuring of the communications industry.
Companies that have traditionally seen themselves in fully separate and
unrelated lines of business are finding themselves in direct competition
with each other.  At the same time, companies and industries are merging.
The term "telecommunications" has become too limiting to describe an
industry that is being redefined to include the creation, processing,
storage and delivery of voice, data, images and video.  The broader terms
"communications" and "information" are more accurate descriptors.  Along
with this redefinition, the long held tenet that the local communications
market is a natural monopoly is eroding.  The very definition of a "local
exchange" may be obsolete.  Technologies are offering the potential for
choice, and entrepreneurial firms are capitalizing on this potential in
niche markets.


2) REGULATIONS AND POLICIES ARE FRAGMENTED.


Current government policy views components of the communications sector as
businesses restricted to traditional markets, despite the fact that
technology is drawing them into new ones.  Regulatory oversight and policy
development are fragmented.  They are dispersed among local regulatory
bodies, fifty-two state public utility commissions, Congress, the Federal
Communications Commission (FCC), the Executive Branch (National
Telecommunications and Information Administration (NTIA), Office of Science
and Technology Policy (OSTP) and other Administration agencies), and the
courts.


3) IT IS IMPOSSIBLE TO PREDICT ACCURATELY THE FUTURE PATH OF THE MARKET OR
TECHNOLOGY.  The current market is fluid.  New companies and new
technologies are emerging at a breathtaking pace.  No one is certain which
technologies will succeed, which of the proposed mergers will work, or
which products and services the market will demand.


4) GIVEN THE DRAMATIC RESTRUCTURING UNDERWAY, THE KEY ISSUE IS NOT
WHETHER, BUT WHEN AND UNDER WHAT CONDITIONS, TO PERMIT FULL COMPETITION IN
ALL MARKETS.  Ultimately, any vendor should be able to offer any
communications service to anyone anywhere using any technology.  In the
present market environment, regulated monopolies dominate certain segments,
and state and federal regulations restrict companies from offering certain
services.  Given this fact, government officials should recognize the need
for less regulation, not more, so that the market can proceed.


RECOMMENDATIONS


As policy makers develop the regulations and policies required to make the
transition to a fully competitive market, they must ensure that the process
is evenhanded.  The policy context should be industry neutral and
technology neutral.  Policy makers should focus on ensuring that the
consumer has a choice of providers, products and services at reasonable
prices.  Users and providers should be able to respond to market
opportunities without undue regulatory burden.  Marketplace rules should
permit competition and encourage technology investment.  Essential
regulation that ensures fairness should be encouraged while excessive
regulation that stifles innovation should be eliminated.


The Council has four recommendations for policy makers and U.S.-based
companies that provide a core framework for developing the transition rules
required to move to a fully competitive market.  These recommendations
should be addressed concurrently since the issues they concern are
interlocking.


1) ENSURE INTERCONNECTION AND INTEROPERABILITY AMONG NETWORKS.  All
providers should be able to combine their facilities in a building-block
approach.  Elements of local distribution facilities, switch, transport and
ancillary services should be unbundled and priced separately.  Operational
features, such as switching elements, transport elements, signalling
systems and databases, that allow the network and its users to find each
other, to be found and to connect, are "essential facilities." Access to
these facilities is key to increased competition.


2) REMOVE BARRIERS TO MARKET ENTRY.  This recommendation applies both to
new U.S.-based entrants into an incumbent provider s market and to
incumbent providers into currently restricted lines of business.  This
includes telephone companies entering the cable market, cable companies
entering the telephone market, new providers (including power companies)
entering the local services market, local service providers entering the
long distance market, etc.  Federal and state policies should be aligned to
permit competition in all seg
ments of the communications market.


There is strong disagreement about which is the best policy path to pursue
with respect to incumbent entry into currently restricted lines of
business.  Out of the multitude of proposals, the Council has narrowed the
debate to two options.  They differ on whether competitors should gain a
predetermined share of the incumbent provider s market before the incumbent
provider is permitted to enter other lines of business.


Option One
Permit a dominant provider, whether cable, telephone, power or
some other company, to enter other lines of business (including long
distance, manufacturing and/or video programming) as soon as: 1) essential
facilities are open to all providers and 2) regulatory safeguards are in
place to prevent anti-competitive and monopolistic behavior during the
transition to a fully competitive market.


Option Two


Permit a dominant provider, whether cable, telephone, power or some other
company, to enter other lines of business (including long distance,
manufacturing and/or video programming) as soon as: 1) essential facilities
are open to all providers, 2) regulatory safeguards are in place to prevent
anti-competitive and monopolistic behavior during the transition to a fully
competitive market and 3) competitors have achieved a predetermined share
of the dominant provider s market.


3) LET PRICES REFLECT COMPETITIVE MARKET CONDITIONS.  Transitional
regulations must balance protection against monopoly pricing abuse and
cross-subsidies with the regulated incumbent provider s desire to respond
to competition.  Currently, incumbent providers have limited ability to
adjust their prices to respond to new competitors.  As competition
increases, they should be granted greater pricing flexibility.  During the
transition phase, there should be price ceilings to protect customers from
excessive rate increases and price floors to protect nascent competition.
As incumbent providers are permitted to enter other businesses, safeguards
should be adopted to prevent cross-subsidization.


4) PROTECT UNIVERSAL SERVICE AND SHARE ITS COSTS.  As competition emerges,
adjustments must be made to ensure universal service.  Where required,
assistance should be directed to end-users so that they can purchase
services from competitive providers.  Providers of essential services
should equitably share the responsibility of contributing this support.
Policies that encourage competition should result in providers reducing
their costs.  As lower costs are translated into lower prices, fewer
customers will require support mechanisms for essential services.  This
report does not attempt to redefine universal service nor does it discuss
whether all Americans should have access to some base level of educational
or cultural services distributed over the information infrastructure.  We
believe, however, that the definition of essential services should be
reviewed and periodically updated.  If new services have emerged that are
essential to U.S.  competitiveness, they should be considered for inclusion
in the universal service program.






ABOUT THE COUNCIL


Founded in 1986, the Council on Competititveness is a nonprofit,
nonpartisan organization of chief executives from business, higher
education and organized labor who have joined together to pursue a single
overriding goal: to improve the ability of American companies and workers
to compete more effectively in world markets, while maintaining a rising
standard of living at home.


To build consensus within the public- and private-sectors on the actions
needed to help Americans compete, the Council pursues a three-part agenda:
increase public awareness of the breadth and severity of America's economic
problems; mobilize the political will required to set the United States on
a positive economic course; and assist in the development of specific
public policies and private-sector initiatives.  To that end, the Council
focuses on issues in the areas of fiscal policy, science and technology,
international economics and trade, and human resources.


The Council is governed by an executive committee and draws on the
resources of its national affiliates -- over forty trade associations,
professional societies and research organizations -- to help analyze issues
and develop consensus.  The Council is privately supported through
contributions from its members, foundations and other granting
institutions.