USTA

telephone companies is often not great enough to permit a manufacturer to invest the large sums needed to develop products for limited markets. also has emphasized that the non-Bell local companies must have continued access to their established avenues of supply and to new or advanced network applications when the manufacturing and information servies barriers are finally removed.

USTA has looked at the issues in the framework of certain public policy objectives. These objectives include: (1) universal service, (2) the extension of advanced network capability throughout the nation, (3) the need for continued "seamlessness" in the nationwide network, (4) our industry's own commitment to quality service, and (5) public health, safety, defense and security concerns.

As recently as April, the USTA board of directors restated its commitment to these objectives, and found that these objectives could be achieved if the AT&T Consent Decree restrictions on manufacturing and information services are removed in favor of certain specific policy conditions.

As conditions for eliminating the information services restriction, our board emphasized the need for coordination and standards for local telephone networks to benefit all customers for nationwide services. It also emphasized the need for coordinated service and network development to meet individual market needs and to help all companies make information services broadly

available as they develop. In the manufacturing area, our board emphasized that all local telephone companies must have available to them the equipment and software that may be developed for the public telecommunications network, without discrimination or self-preference as to price, delivery, or terms and conditions.

Currently USTA is involved in a process to craft specific legislative language to capture the board's intent, which we will of course share with the Congress.

Let me turn now to my personal view of these issues, as CEO of a medium size non-Bell company.

Rochester Tel is an independent telecommunications company unaffiliated with any Regional Bell Holding Company. Thus it is not subject to or directly affected by the Modified Final Judgment. Rochester Tal operates fourteen telephone companies serving 365,000 access lines in New York, Pennsylvania, Michigan and Indiana, and is in the process of acquiring telephone companies in Illinois and Wisconsin which serve another 30,000 access lines. Our firm also owns and operates RCI Long Distance, a regional interexchange carrier, and Rotelcom Network Systems, which designs, installs and maintains integrated business communications systems.

From my Rochester Tal perspective I want to comment about the MFJ's manufacturing restriction as it affects central office switching. As Peter Huber pointed out in his 1987 report to the Department of Justice,

"Buyers are comparatively fragmented: no single one controls much more than 10 percent of the installed switching base, and in any year no single one is likely to account for much more than 20% of the lines purchased. The two largest sellers, by contrast, each account for close to 40% of the 1 digital lines, either installed or sold each year."

Once a decision to purchase a switch has been made, the local exchange carrier is essentially in a monopoly environment with respect to the purchase of additional hardware and software. Software upgrades are frequent occurrences over the life of a switch.

I make these observations in no way to imply any wrongdoing or impropriety on the part of any manufacturer. I make them to describe the market and the resulting outcome under the MFJ manufacturing restriction. A major outcome is one that is problematic to me as a telephone manager, because my company is dependent on manufacturers for the services offered to the telcos' customers. That's because those services are provided through the operating software inherent in the switch and over which the telephone company has no control. The manufacturers of the central office switches

1

Peter Huber, The Geodesic Network, (Washington: GDO, 1987), pp. 14.8-9

control the software and the introduction and timing of services. While in theory my company could fund development by a manufacturer of a service or services, in practice we are too small to carry such financial burdens alone. The manufacturers of course will direct their limited resources to those markets with the greatest returns. That will not always include our customers demands within the time limits demanded by our customers.

There is an alternative and that alternative is part of a desireable evolution which is referred to as Intelligent Network Architecture. In concept that architecture is easy to understand. In the Intelligent Network the switch no longer will contain all the logic necessary to provide services. Rather the local exchange carrier could utilize high level programming language to create new services through an adjunct processor separate from the switch. The process of creating and providing those services is best carried out by those who directly serve their customers, in this case the local exchange carriers acting alone or jointly with another producer. Because a company my size does not have the resources, financial or human, to create that software, we must look elsewhere. And when I look elsewhere I see the Regional Ball Companies who have the incentives and the resources to create those software products. My companies and their customers could be the beneficiaries of those products. But as long as there is an MFJ manufacturing restriction, that won't happen.

I thank you for this opportunity to appear before you and look forward to responding to your questions.

Mr. BROOKS. Mr. Lee Camp. We are glad to have you here, sir. STATEMENT OF LEE G. CAMP, VICE PRESIDENT AND GENERAL

MANAGER OF INFORMATION SERVICES, PACIFIC BELL

Mr. CAMP. Thank you, Mr. Chairman. I appreciate the opportunity to be here. I am Lee Camp. I am the vice president and general manager of Pacific Bell's Information Services Group which is a separate independent business unit that was set up to help us to develop and deliver information services to our customers in California.

I'd like to make four key points today. My first point is that information services have the potential to dramatically, to significantly change how we live in this country. My testimony contains a number of examples. Let me just cite one, a simple one.

An audio text application, where a person would call in to a number, identify themselves, select the bill paying company they would like to use and then with a few simple instructions, pay all of their ordinary bills that they pay every month that takes them 30 minutes. Simple things that affect the way we live.

There are many other examples that I could cite. My point is that information services are and will change the way that we live. More important, I think they have the opportunity to address some of the key critical problems that this country faces today, such as our competitiveness in the world economy, health and education. In California, we are looking at the potential of information services to offer translation services in the next decade to a myriad of different ethnic groups who need to function. I think this could basically become a universal Rosetta stone for our economy and society in California.

This leads me to my second point. That is that information services are not science fiction. They are happening right now and they are happening all over the world. For instance, earlier, one of the witnesses cited that we had 4,000 information applications in this country. France alone has 8,000. They have been at it a lot less time than we have. A weary traveler who comes into a train station in France is able to go to a terminal, access the hotels in the vicinity, find out the name, the price, whether there is a room available. They can schedule the room if they like right at that point in time and they can even print out a map. You won't find that happening, at least I have not, in this country.

There are many applications like that. Mr. Ginn mentioned, I believe, what has happened in Japan, what is being invested there. Mr. BROOKS. We have to recess until Mr. Edwards returns. I have 10 minutes to make a vote.

[Recess taken.]

Mr. EDWARDS [presiding]. We will come to order.

Mr. CAMP. I don't think it takes much to see that the United States is an anomaly in the world right now when it comes to information services. I think this should be disconcerting to you. It certainly is to me. We have a higher penetration of personal computers in this country than any place else. That was cited by the first panel.