1994-01-26 Irving Testimony on Telecommunications Legislation

[David Farber <farber () central cis upenn edu>]

                    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.