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IV.

There Are No Sound Arguments Against Removal

What considerations for continuing the manufacturing prohibition have been discovered which are so powerful that they outweigh the benefits to be had from its removal? In my view,

there are none. Retention of the manufacturing restriction has been based on the uncritical, and I believe erroneous, acceptance of claims made by those who would face increased competition were

the restriction removed.

Even the MFJ Court, in its decision

approving the MFJ nearly seven years ago, found that the allegations of anticompetitive procurement by AT&T in the fullyintegrated Bell System were "not extremely strong."'*

And no

Regional Company would have anything remotely comparable to AT&T's former incentive or ability to act anticompetitively in procuring

communication equipment.

Yet the restriction persists.

I would like to conclude my remarks today with a brief discussion of the principal claims made by those favoring the restriction. First, it is said that the Regional Companies would

somehow control, or unduly influence, the communications standard

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United States v. Western Electric Co., 552 F. Supp. 131, 163 n.137 (D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983).

which would be immediately visible to all observers

there are

three substantial forces which make it impossible for any Regional

Company to control or unduly influence the standard setting process, on either a national or international basis. These three

forces are: (1) the international and accredited national standards

bodies, which operate by consensus of all industry members and in

which the Regional Companies, even as a group, have only a small

minority of the votes; (2) customer demand for services and

equipment which interconnect transparently with the services and

equipment of other suppliers; and (3) United States government requirements for interconnection and compatibility, such as the MFJ's equal access requirement, the FCC's open network architecture and comparably efficient interconnection requirements, and the

FCC's CPE registration program.

In light of these safeguards, it

would be impossible, as a practical matter, for the Regional Companies or indeed any other group to secure an anticompetitive advantage through the standards setting process.

A second, and contradictory, allegation is sometimes made: letting the Regional Companies manufacture would result in

"Balkanization" of the public network, as each Regional Company

developed and insisted on its own idiosyncratic standards. Again, there is no substance to this rather irrational claim.

"Balkanization" of the network would be in no one's business

interest, including the Regional Companies, and would not be

permitted by the regulatory authorities.

Moreover, it is clear that the communications equipment marketplace is competitive and that no Regional Company accounts for more than a small proportion of total purchases in any equipment market. Thus, no Regional Company has or could gain market power in telecommunications equipment even if it were

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I urge the Congress to weigh the very real benefits to be

gained from elimination of the MFJ's manufacturing restriction, and the very real harms which it is now causing, against the

ill-founded claims made in its support, and take action to

eliminate it.

Mr. EDWARDS. Thank you all for very helpful testimony.
This question is directed to all the members of the panel.

If the consent decree restrictions were lifted and replaced with statutory controls and safeguards, are you prepared to make public commitments today about protecting the taxpayers from exorbitant price increases?

Who wants to jump into that?
Mr. Ginn.

Mr. GINN. Well, I think it goes with the territory. There is a precondition that I think needs to be talked about and let me speak for Pacific Telesis.

If in fact the new product or service is regarded by the regulator as an extension of the local service business and seeks to cause it to be under regulation, then we think the cost of that service should be in the regulated entity.

If the regulator decides that this is a competitive business and should take place outside the regulatory framework, then we are prepared to put the shareholders' money at risk.

So, I think it depends through the regulatory process where the placement decision is made.

Did I get to the essence of your question?
Mr. EDWARDS. Yes.
Does anybody else want to respond to that question?
Well, let me ask you a further question about the same issue.

If Congress devised an orderly transition away from the MFJ to be replaced by legal safeguards and stiff criminal and civil penalties, would you agree to such a scheme?

Mr. GINN. Mr. Congressman, I think I said in my testimony that we understand these are tough issues. We understand that certain safeguards must be in place.

The essence of my testimony was—let's agree that we need to create a telecommunications information infrastructure for this country and let's let the debate be on the terms and conditions.

We're willing to debate those and we're willing to accept reasonable terms and conditions.

Mr. EDWARDS. Do all the witnesses agree with that response?
The answer is yes.

I'd like to ask all the witnesses to answer this question. Would you please tell the subcommittee what products and services the American public is currently being denied because of the MFJ?

Mr. CAMP. In my testimony, I have tried to identify a number of different information services that might be available. It's very difficult to say that they are alone being denied because of the MFJ. What I can say is that they are not materializing within our country and they are in other countries. In my testimony I specifically give an example of a service in France today, that has been put up by the Phillips Co., which is a manufacturer that essentially puts all of their information into an online data base so that technicians around the country are able to repair products by accessing it, it is essentially a training manual on how to do it.

That's an example of the sort of thing that you might look forward to in the future. Part of my own experience in this is when people want to put an information service in place, they often talk with us about what part we can do and what part they will do.

They want us to share some of the risks, they want to share some of the development, and the current MFJ doesn't provide that opportunity.

Mr. GINN. I think there is another issue, too, and that is that for the public or the consumer to be willing to use information services, we have to put in place a very robust infrastructure, and with the current limitations, my view is that infrastructure cannot go in place.

Mr. SKRZYPCZAK. Based on my experience in NYNEX laboratories, I think one of the areas where we have not offered to the American public because of the MFJ restrictions, I think what might prove to be one of the greatest boons for the small- to midsized business customer, as well as the residential customer, has to do with the entire area of ergonomics or how people interface with the technology. I think what you're seeing today are enormous strides being made in some of the underlying technology, but with that comes a great degree of complexity. That's fine if you're going to be offering that to a technophile or to someone who is going to spend 8 or 10 hours a day working with that particular service and, thus, can afford to learn this very unnatural and difficult interface.

But that doesn't really cut it for the small customer, for the residential consumer who is going to be an occasional user of the service. We have done a great deal of work in our laboratories focused on some of these ergonomic technologies, like speech recognition, natural language, machine vision, creating an environment where people will be able to take advantage of some of the underlying capabilities of the technology, but do it in a manner that's natural and friendly to humans.

I think one of the best examples of this is probably to look at the telephone service that you have in your office today. How many of you are able to name all of the features available on that service? Let alone name them, how many of you could actually use them without asking somebody for help or without going to a manual? I think one of the reasons for this is that there's been a serious neglect with respect to applying technology in ways to make that realizable and doable. And these technologies are on the threshold today of being commercialized. We put a great deal of effort into that activity in our laboratories and, frankly, have been impeded by our inability to perform some of the manufacturing functions in getting those capabilities rapidly out to the consumers.

Mr. HASSELWANDER. I mentioned in my direct testimony the problem of being dependent on a single manufacturer, and I would give some examples about that. Many of my customers in Rochester would like citywide Centrex, which would be a wonderful service if we could offer it. That is simply not available to us and we cannot make it available because of our dependence on a single manufacturer who will not bring that to market for several more years. I have a large customer who wants network ACD; that is to say he wants to be able to distribute his calls broadly across his network, but he can't do that because that product is not available because we're dependent on a single manufacturer.

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