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Mr. MAZZOLI. Chairman Brooks had a couple of questions here which I would like to ask for the record. Mr. Kimmelman, your testimony indicates a belief that consumers and competition would best be served by leaving the terms of the AT&T settlement in tact.

Are you concerned that lifting the MFJ restrictions would result in higher rates for local telephone customers?

Mr. KIMMELMAN. Yes, that's one of our main concerns. There is a great fear that the company that controls the local network where we get our local phone service, where we have no alternatives but to pay whatever they charge us for our local telephone services, will have an incentive, if they can get into new businesses, to overinvest in the network, to buy equipment at too high a price.

They can pass it on to consumers in the form of rate increases, and we would have no alternative in the local arena to shop elsewhere for our local phone service.

Mr. Mazzoli. Well, that sounds very pat, but let me ask you this. Now, I'm speaking and not Chairman Brooks. Let me ask you this: When the sophisticated buyer, the big building or the giant company can pretty much put its own system in, it doesn't have to worry with a Bell operating company. They interface, but you can put your own stuff in.

That's happening quite a bit. They're being circumvented quite often, much to their financial detriment. If you keep them out of other services, ancillary services which they are prepared to offer and can offer to make some money, aren't you maybe condemning the very people—talk about the actual homeowner user who can't switch off at this point until new technology comes downstreamaren't you condemning them to the worst of the worst by not letting the Bell operating companies do something different that they can do?

Mr. KIMMELMAN. Mr. Mazzoli, that's theoretically possible, but we don't see that happening. The concern for the average consumer in this area, to use an analogy is, are you going to take a 4lane highway that provides the services that you need and you're willing to pay for the 4 lanes and make it 10 lanes and make everybody pay.

Mr. MAZZOLI. If I listened to Ms. Easterling correctly, she said high rates are coming-rates have been going down to begin with, and higher rates are coming at us soon. I mean, how is the consumer better?

Mr. KIMMELMAN. Well, rates have been coming down, and I think because of the constraints on the Bell companies, regulators have been able to do a better job monitoring. They have come down in the local area in the last 2 years, and we have a tradition of that. There is greater productivity in this industry than in almost any other industry in our country.

As we put new signals through those lines; as we use the telephone more, the per unit cost goes down and that has traditionally been reflected in lower rates and I think we're going to see more of that.

Mr. Mazzoli. Well, thank you. Ms. Worthy, a question from the chairman. Do you foresee the Bell operating companies in the near future developing and installing a nationwide fiber system to upgrade the present system? If so, who will be paying for the system?

Ms. WORTHY. I have been told that the Bell companies do anticipate and do want to have the opportunity to replace the network with fiber.

They visualize the lifting of the restrictions and the opportunity to get into new services as a basis upon which to justify enhancing and modernizing the network.

The costs associated with that effort range from $400 to $500 billion. It is my opinion that some of that cost and the risks associated with the venture should be borne by the stockholders of the company. I've been advised by Bell Atlantic Co. representatives that they feel the ratepayers of this country should bear the entire cost for that investment.

Mr. MAZZOLI. For all of you, should Congress consider factors other than competition in setting the national communications policy. Mr. Kimmelman and Ms. Easterling and Ms. Worthy.

Mr. KIMMELMAN. Absolutely, Mr. Mazzoli. We have always recommended that Congress look carefully at the Communications Act. It's over 50 years old. Consider updating and reviewing it. Our recommendations are to start with the basic things that people need-affordable phone service, high quality phone service. Consider the consumers' needs, consider the company's needs and we would like to see as much competition as possible. In the areas in which competitive markets have developed, we think consumers are better off.

We're just concerned that in areas where there's not competition that we preserve traditional regulatory controls.

Mr. MAZZOLI. I'm not sure I follow that. You said something that consumers were better off in one instance.

Mr. KIMMELMAN. In markets where competition has developed, we think consumers are better off, but the

Mr. Mazzoli. Yet, you're speaking against competition with respect to manufacturing and with respect to information services?

Mr. KIMMELMAN. Not in the least bit, Mr. Mazzoli. We believe that information services competition is growing as is manufacturing competition. Our only concern is the potential of discriminatory practices by the company which also has the local service monopoly.

Mr. MAZZOLI. You know what's going to happen; I would not be very surprised that if at some point there's going to-just like you now have microwave relays that just totally avoid the local system at all-you know, they transfer signals without going through the interchange. I would bet you that somewhere along the line, some backyard tinkerer or some down basement tinkerer is thinking of offering a system to Ron Mazzoli so I don't have to worry about anything-C&P or South Central Bell or anything.

I just put this little gizmo in my house and I point it in the right direction and pretty soon somebody picks up the telephone at the other line. That would then be catastrophic to the little one who lives in Kentucky up some hollow and some rural area. I mean, I think we have to be extremely careful. I would like to have your observations too. If we go too far in a hamstring, these Bell companies that have been no saints in the past-we'll stipulate that for the record-but given that, if we put too many hamstrings on them because we're reliving the past and we're trying to flagellate them for past sins, we may very well condemn the very consumers that your agency has well represented over the years to a fate worse than they have today.

I would very much debate you as to whether or not the system for the average consumer is better today than it was 10 years ago. Ms. Easterling, how do you see where we go from here, you know, sort of in response to the question about factors other than competition to be considered in setting national policy?

Ms. EASTERLING. Well, as I indicated in my testimony and as we have testified before other committees, we're very much in favor of the Bell operating companies getting into the information services. Once the basic equipment is maintained at a reasonable rate so that anyone in the United States can have a telephone, then the information services should be there and available to those who can afford to have the enhancements.

Our concern again is manufacturing; that it be done in the United States. We don't even object to them getting into manufacturing, although even the major telephone company in the world which is Nippon Telegraph & Telephone does not have it. There is no telephone company that has its own manufacturing. In fact, Nippon uses a variety of companies throughout the world.

But we say that if they're intent upon getting into manufacturing, that it should be in the United States. We need the jobs.

Mr. Mazzoli. There should be protections and safeguards. You heard the debate earlier today about different kinds of safeguards. You're satisfied that if proper safeguards are put in, it would be safe to let the Bell operating companies into manufacturing and into information gathering?

Ms. EASTERLING. Yes, we have testified to that—and as long as there is employee protection so that we don't have the disaster that occurred during divestiture.

Mr. MAZZOLI. Thank you. Ms. Worthy.

Ms. WORTHY. Congressman, my concern is that the modified final judgment is a very narrow aspect of telecommunications policy or communications policy for this country. Although I think it's an intriguing and complex and important issue, I would prefer to see Congress spend the time to reassess our communications policy on a national level—the broader picture.

I think once we do that, what to do about the MFJ restrictions will fall into place.

Mr. MAZZOLI. Thank you very much. You've been an excellent panel. Let me mention that I have the same problem with MFJ. I go into Chinese restaurants and say, hold the MSG. I'm going to have to say, hold the MFJ from now on. I'll get confused.

Ms. Easterling, please convey my best wishes to Nelle Horlander, a very dear friend of mine for many, many years. Gentleman and ladies, as I said to the earlier panel, Chairman Brooks and Mr. Fish may very well have final followup questions or something, in which case they'll submit them.

The gentleman is recognized.

Mr. DOUGLAS. I just had one question for Ms. Worthy. Apparently your group, the Association of Regulatory Commissioners, issued

a report a few years ago saying that the RBOC's were taking capital and draining it off into unregulated activities. Is that still a problem or have you looked at that recently?

Ms. WORTHY. We have audits that are ongoing now that are being done regionally, Congressman, and I have no basis to indicate to you that that situation has changed.

Mr. DOUGLAS. All right, when do you guess you will be finished with the audit, such that you might have an updated report?

Ms. WORTHY. If I could, I would submit something to you in writing to the chairman of the subcommittee?

Mr. DOUGLAS. But do you have a guesstimate of the date?

Ms. WORTHY. There are seven regional companies, and what we have attempted to do is to pull staff from those commissions that regulate those companies to conduct joint audits. For example, Bellcore's recent audit was completed about 3 months ago, but I don't know the status of other audits.

I would be more than happy to provide for you the status and also the findings of any recent audits.

Mr. DOUGLAS. If you would, I would appreciate that. It would be helpful.

Ms. WORTHY. We'd be more than happy to.
Mr. DOUGLAS. Thank you, Mr. Chairman.

Mr. MAZZOLI. Again, thank you very much, Mr. Douglas. Ladies and gentlemen, thank you very much. We will stand adjourned.

[Whereupon, at 4:30 p.m., the subcommittee adjourned, to reconvene at 10a.m., Wednesday, August 2, 1989.]

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