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They cite long distance rates have declined 40 percent over 5 years, telephone equipment costs have fallen and while local rates went up, they have leveled off.
How do you respond to this position?
Mr. SKRZYPCZAK. I think our opponents who make those kinds of statements tend to generalize, Congressman. They talk about this multitude of new communications services that have been offered and then when they start getting specific they talk about what typically are repricing or isolated minor introduction of new capabilities.
I know of not a single major new telecommunications capability that has been ubiquitously introduced in this country since divestiture with the single exception of equal access, so when I hear these statements about the multitude of services, I think at a very superficial level they sound good. I think when you examine it closely, what we have seen are minor variations in terminal equipment. What we have seen is repricing of fundamental existing services that we had prior to that or we see isolated introductions of services that are available to only a small portion of the population and in general a lack of interconnectivity.
I think that statement is an extreme exaggeration of the reality of what we have today, sir.
Mr. FISH. Now doesn't Judge Greene's decision allowing the RBOC's to operate information gateways provide the regional Bell's with a new source of information services business without the bottleneck competition problem?
Mr. SKRZYPCZAK. I think Judge Greene's decision in that area certainly is a positive one and a helpful one and for example in NYNEX we took advantage of it.
In my laboratories we developed a videotex gateway service which we are now offering in Vermont and in New York State.
The problem with the ruling though is it doesn't go far enough with respect to allowing us to do all of the things that we need to do to achieve that critical mass or that catalytic effect that's necessary to truly make these services viable.
For example, on our gateway service we can list the services that are on there but we don't have the freedom to be able to describe in sufficient detail the potential uses of the service, what the service actually provides and what it is capable of.
Our market research activities suggest that consumers are looking for that sort of information but we can't go that far because the freedom given to us by Judge Greene limits the extent to which we can provide menus.
Mr. Fish. Thank you. Finally, Mr. Ginn, this has to do with local service competition. Do you agree with Judge Greene that no substantial competition exists at the present time in local exchange service?
Mr. GINN. Congressman, again we're dealing with broad generalizations that were talked about earlier today.
It is not universally true when one looks at the entire local exchange. One has to look at market segments. No legitimate competition exists for the residential exchange user but I would maintain that competition is hot and heavy in the large business sector. The large business segment of that market is fully competitive, where large customers have enormous alternatives in how they design their networks, how they engineer their networks and whose services they use.
I think the answer to the question is that it's a very uneven picture but clearly as we pass through time larger portions of the exchange network are becoming competitive.
Mr. Fish. Do you think that developments, technological developments, entrepreneurial developments, regulatory, whatever, might introduce significant new competition in your business?
In other words, do you feel that you are going to be substantially threatened by alternative technologies?
Mr. GINN. I feel threatened today.
Mr. GINN. In 1987 alone we lost 97 percent of the Centrex contracts we bid on. We won exactly 1 out of 41 bids that year. In the preceding 2 years we lost 60 percent of our top 20 Centrex customers.
There are local exchange carriers in our territory. Interexchange carriers can construct from their so-called POP to the customer location, bypassing completely our facilities, so it would-if you are under the impression that there is no competition in the exchange market today I'd invite you out and like to show you around because there is plenty happening and we understand it and we are trying to respond to it but the conditions we are talking about today in many ways impede our ability to do that.
Mr. FISH. Thank you. Thank you, Mr. Chairman. Mr. MAZZOLI (presiding). Gentlemen, thank you very much. There may be some followup on some of the points, in which case the chairman and ranking member would be in touch by letter, but for now you are excused and we thank you for your patience today.
We now call our third and last panel of the day: Mr. Gene Kimmelman, the legislative director for the Consumer Federation of America; Mr. Morton Bahr, president, the Communications Workers of America; and Ms. Patricia M. Worthy, chairman of the Public Service Commission of the District of Columbia and vice chairman of the committee on communications for the National Association of Regulatory Utility Commissioners. We certainly appreciate your taking the time to join us and to have abided with us through a very long day here. We thank you.
I guess we'll take them in the order in which they are presented. Mr. Kimmelman.
STATEMENT OF GENE KIMMELMAN, LEGISLATIVE DIRECTOR,
CONSUMER FEDERATION OF AMERICA Mr. KIMMELMAN. Mr. Chairman, members of the subcommittee, on behalf of the Consumer Federation of America we appreciate the opportunity to express our views today on the AT&T consent decree.
Our position is really very simple. I would like to summarize it briefly and then give you the rationale for how we have come to that position.
It's really only been a little over 5 years since one of the major upheavals the American people have felt in their telephone system-confusion, rate increases, complexity with the breakup of AT&T—but now a little more than 5 years later the dust is really starting to settle and we've got some good news.
We have a unique combination of our procompetition laws as enforced through a consent decree consistent with the Communications Act passed by Congress many years ago, and consistent with the public interest precepts passed in the Tunney Act by this Congress, enabling State regulators to bring rates down, reinstate an old long-held tradition in this country of declining prices, and to increase competition in all aspects of the telecommunications market.
Since that's a pretty good deal for the American people just 5 years after this upheaval, the Consumer Federation believes that Congress should just leave well enough alone for right now.
Now let me explain why. We have a real unique history with our telephone system. Not many people are aware of a declining cost tradition we have had in this country-with declining costs and declining prices for the American consumer, this industry has been one of the lead industries in our country in technological development, in competitiveness and in innovation.
In the 50 years before the breakup of AT&T, the real price of local phone service, factoring out inflation, declined 60 percent. Overall phone bills declined almost 65 percent in this time period.
Then some unfortunate things happened around the time of the breakup of AT&T 5 years ago, not because of the breakup but really a reaction to it. This is what the American consumer felt. The Bell companies around this time asked for almost $20 billion of new revenue related to the breakup of AT&T. The Bell companies working with the Federal Communications Commission devised a scheme to shift about $11 billion from our long distance bills into local rate increases. Now the witnesses in the panel before mentioned accurately that each of the Bell companies has been investing about $2 billion a year in their network—they are upgrading it, they are making it a modern innovative infrastructure and we applaud that, but other things have been going on as well.
The Bell companies have been diversifying into everything from real estate to foreign enterprises. The earnings of these companies shot up dramatically after the breakup, out-earning almost everyone in the marketplace compared to a tradition in the AT&T unified system of earning a little less than most of the competitive firms in the marketplace due to less risk in the phone business.
Now fortunately with all these events occurring we had a political reaction. After fairly unprecedented rate increases at the time of the breakup, Congress put pressure on the FCC to pull back on some of these repricing proposals and the terms of the modified final judgment, the consent decree, began working for the public interest.
We had a separation of the local monopoly functions in the Bell companies, separated from competitive activities in other segments of the communications industry which have enabled State regulators to scrutinize the Bell companies better than would otherwise be possible if they were unified,
and to start reducing rates like we used to before the breakup of AT&T.
We had the specific intervention of the judge in this case, Judge Greene, who gave the highly profitable Yellow Pages business to the Bell companies, to keep local rates down. State regulators have estimated that Yellow Page profits knocked $2 to $4 off of every consumer's local phone bill per month.
We have also had competition growing in leaps and bounds in the information business, in the manufacturing business, offering consumers many new services using new technologies and most importantly, increasing pressure to improve efficiency in the industry and bring new technologies into the public network.
The Bell witnesses who mentioned that consumers wanted new services before I think are right and they are getting them. They just may not be getting them all from the Bell companies.
Now from a consumer perspective the question before Congress in considering legislation to restructure our telephone industry again is, is it possible to restrain anticompetitive natural predilections of a monopoly local phone company to overprice its local phone service where it has no competition, to gain advantage in adjacent competitive markets and thereby reduce competition?
While we have nothing against the Bell companies expanding into new businesses in theory, we know of no regulatory scheme, no regulatory rules that currently exist to prevent this type of anticompetitive practice. We know of no safeguards that would adequately protect against significant local rate increases and anticompetitive practices if the restrictions of the modified final judgment are lifted, so we therefore caution you against restructuring our telephone industry for the second time in this decade unless and until consumer protections and competitive protections, really the flip side of the same coin, can be devised to make the public better off under a different industry structure.
At this point in time we believe the consent decree adeptly applied in a manner consistent with traditional communications policy and the public interest standards of the Tunney Act by the Federal district court have best served consumers' interests in affordable phone service and maximum choice of telecommunications services.
We, therefore, see no need for legislation to restructure the phone system at this time.
TODAY'S TELECOMMUNICATIONS INFRASTRUCTURE
It is hard to imagine that the architects of today's
telecommunications law (the 1934 Communications Act) would be
anything but pleased with the performance of the telephone
industry and modernization of our nation's communications
infrastructure over the last 55 years.
The Communications Act's
generalized concepts of fairness have been implemented to create a technologically advanced, increasingly competitive
telecommunications network that has spread the benefits of new
technologies, increased efficiency and declining costs to ratepayers, investors and the entire society.
from copper wire to microwave and satellite transmission, long
distance communication has become a "hundred-yard-dash" toward competing optical fiber transmission systems. Major arteries of
interactive service capabilities to the network (e.g., data