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AT&T CONSENT DECREE

WEDNESDAY, AUGUST 2, 1989

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON ECONOMIC AND COMMERCIAL LAW,

COMMITTEE ON THE JUDICIARY,

Washington, DC. The subcommittee met, pursuant to notice, at 10:10 a.m., in room 2141, Rayburn House Office Building, Hon. Jack Brooks (chairman of the subcommittee) presiding.

Present: Representatives Jack Brooks, Romano L. Mazzoli, Edward F. Feighan, Lawrence J. Smith, Michael DeWine, Chuck Douglas, and Carlos J. Moorhead.

Subcommittee staff present: Jonathan R. Yarowsky, chief counsel; Judith Bailey, counsel; Gary Goldberger, counsel; Mary V. Heuer, research assistant, and Deloris Cole, clerk; full committee staff present: William M. Jones, general counsel; James E. Lewin, chief investigator; Alan F. Coffey, minority chief counsel, and Charles E. Kern II, minority counsel, Committee on the Judiciary.

Mr. BROOKS. The subcommittee will come to order.

Today we will continue our oversight hearings on the AT&T consent decree, or commonly referred to, the MFJ—the modified final judgment. Our witnesses this morning represent a wide range of diverse interests and I look forward to hearing their testimony.

At yesterday's hearing, representatives of the three national long distance companies testified in opposition to an immediate lifting of the MFJ restrictions. In fact, I believe it would be safe to say that in Bill McGowan's eyes, never is not long enough.

The regional Bell representatives presented an equally impassioned and competent argument in favor of lifting the MFJ restrictions as soon as possible. They believe very strongly that the consent decree is undermining the competitiveness of the U.S. industry, both at home and abroad. It might contribute to the tremendous trade deficit that we have.

Certainly, the current controversy surrounding the consent decree rivals that of the original conflict over the breakup of AT&T. Emotions are running high and most everyone seems to be lined up either in favor of or against freeing or turning loose the Bell operating companies.

If it were simply a matter of adding up the sides, the Bell companies appear to be greatly outmatched. Most of the major trade associations have expressed reservations—if not outright opposition-to relaxing the MFJ restrictions. Many consumer and other public interest groups have expressed similar concerns.

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However, setting sound public policy is not merely a matter of numbers, names, or decibel levels. It requires careful and deliberate analysis.

I believe the question before us comes in two parts: First, is it in the country's best interest to eventually allow the Bell companies to compete freely, without restriction, in the telecommunications market? If so, and should this occur, what safeguards need to be adopted to prevent anticompetitive practices by these companies? And can you design safeguards that would prevent that? Can it be done? I hope today's witnesses will be able to assist us in our consideration of these important matters.

Mr. Carlos Moorhead, the distinguished gentleman from California, did you wish to make a statement at this point? If not, we'll continue.

Mr. MOORHEAD. Mr. Chairman, only to welcome the witnesses today and to say that I look forward to the second day's hearings on this very, very important subject.

We've all talked to many people about it over the last month and we hope there's more light shown on the subject today.

Thank you, Mr. Chairman.
Mr. BROOKS. Mr. Feighan, the distinguished member from Ohio.
Mr. FEIGHAN. Thank you very much, Mr. Chairman.

I have no opening statement at this time but I certainly welcome the witnesses for another day of informative sessions.

Thank you.
Mr. BROOKS. Mr. DeWine.
Mr. DEWINE. Good morning, Mr. Chairman.
Mr. BROOKS. Delighted to have you here.

Mr. BROOKS. The subcommittee will use the same procedure as yesterday. The witnesses will appear as a panel in groups of three and I would ask all the witnesses to please give us a 5-minute summary of the prepared statement as he or she is recognized. The difficulty is we have a lot of things on the floor, and going back and forth we have to cut off this and stop, start, and stop. It makes it very difficult. I'm sorry about that but I can't do anything about handling those two appropriation bills on the floor today.

Followi the summary of all members of each panel, we'll address questions to the panel. I want you to understand that every pristine word that you have written in your statement will be in the record. We will not leave any of it out, but don't repeat it all, please.

After yesterday's hearing I'm going to take my time now on the telephone using the telephone company's clock. When it says my 5 minutes are up, I'll say, I've got 7 or 8 minutes left.

We do welcome the members of the first panel.

Robert Johnson is publisher, president, and chief executive officer of Newsday, Inc., and 1987-88 was chairman of the telecommunications committee of the American Newspaper Association. He is a man who is not only a lawyer but a news analyst and an executive of tremendous experience.

Mr. Philip Verveer is a partner dealing in antitrust and communications law with the firm of Willkie Farr & Gallagher. He represents the National Cable Television Association, one of the hottest businesses in the United States. You should all be in cable TV. You should own a small one in a pretty good market, and sell it to them.

[Laughter.] Mr. BROOKS. They will buy it, and they've got the cash. No credit. No stock. You know, just money.

Mr. Albert Halprin is a partner with Myerson Kuhn & Sterrett, and is a nationally recognized telecommunications expert.

Mr. Johnson.

STATEMENT OF ROBERT M. JOHNSON, PUBLISHER, PRESIDENT,

AND CHIEF EXECUTIVE OFFICER, NEWSDAY, INC., ON BEHALF OF THE AMERICAN NEWSPAPER PUBLISHERS ASSOCIATION

Mr. JOHNSON. Good morning, Mr. Chairman, members of the subcommittee.

My name is Robert Johnson, and I'm publisher of Newsday. Today I'm testifying on behalf of the American Newspaper Publishers Association, which represents more than 1,400 daily newspapers.

Let me explain very briefly how the electronic information services work and why it is so important to preserve competition and diversity in the industry by preserving the MFJ restrictions in this area.

Today, consumers across America have access to an enormous variety of information at their fingertips.

A Congressman can look at AP stories on his office computer or can pull up the electronic libraries of many newspapers from across the country; an Orioles fan can pick up a phone and listen to the latest box scores; a rancher in Texas can monitor the commodities markets, check cattle prices, and respond to classified ads; all on his or her personal computer.

Today, a tremendous variety of information services are available to consumers and small business people as many in Texas as there are available to the bankers on Wall Street.

The reason: Very simple-competition, entrepreneurship, and diversity among thousands of information businesses.

What all these services have in common is that they all must pass through the local telephone lines. There simply is no practical alternative. The BOC's own these lines. They run them. They have a bottleneck monopoly and now they want to go into the business of publishing over their own lines.

The BOC's already control the medium. They now want to control the message.

This would hurt American consumers. It would hurt American world competitiveness and it would hurt America's commitment to a diversity of voices and free expression.

Our argument is essentially the same as that of the long distance carriers. We have a service. We have to use the local telephone lines to provide our service. The BOC's have a monopoly on the lines. If the BOC's are permitted to provide information content services over their own lines, they are inherently in a position to abuse their monopoly power and compete unfairly.

Congress should continue to prohibit them from doing so. You will notice that no one is clamoring to move these restrictions from the BOC's, except the BOC's. You do not see consumer groups or local businesses seeking these changes. And there's a reason for that.

Although there have been rapid advances in the industry, although consumers now have a wider choice of information services to choose from, the fact is that nothing gave rise to the restrictions on the BOC participation has changed.

First, the BOC's still retain 100-percent bottleneck control. That gives them the same incentive and the same ability to block competition by discriminating against nontelephone company electronic publishers.

These discriminatory actions are not simply hypothetical. For example, charges have been filed against BellSouth and Pacific Telesis for giving customer information to their own unregulated affiliates while refusing to sell that information to their affiliates' competitors, or charging higher rates or imposing more onerous terms.

Second, the BOC's still have the same incentive and the same ability to shift costs of electronic publishing services to their local monopoly services.

This cross-subsidization will be at the cost of higher phone bills to the American consumer.

The danger of cross-subsidization again is not simply hypothetical. In 1986, the California Public Utilities Commission found that PacBell had crossed-subsidized some $17 million in unregulated services with rate base revenues and personal and property transfers.

Third, if we free the BOC's we may find ourselves all less free. Extending the BOC's monopoly power to information services will result in smaller competitors being driven out of business. Hypothetical? We don't think so. Remember, the BOC's even tried to keep cable companies off their telephone poles.

Let me state plainly: We at ANPA do not want to prevent the BOC's from speaking out. Right now we have four major daily newspapers in New York. It's a tough market but nothing in the MFJ prevents a BOC from coming in and starting up a newspaper in New York. We'd welcome them.

Our position, however, is that they should not be allowed to provide information services over their own monopoly lines, because they would be in a position to stifle the other voices using those lines.

If the BOC's think they can make money in electronic publishing, let them all try in the regions outside of the area where they control the lines. Each one of them has 6/7ths of the United States to engage in electronic publishing where they don't control their line. Let them do it there.

I would also suggest that the BOC's not be allowed if they do that to use their shareholders' dollars to subsidize that business.

Fourth, we all agree that international competitiveness should remain a goal of U.S. telecommunications policy. The fact of the matter is, the U.S. policy is working.

Fifth, if the BOC's monopolize services currently provided by the diverse sources, the BOC's will be able to compile detailed profiles on all their consumers. That could raise severe privacy issues.

Some people have said that the FCC will be able to regulate this. Mr. Chairman, we submit that simply will not work. The MFJ was a direct result of the FCC's inability to regulate the telephone industry.

Mr. Chairman, Congress has a crucial role to play. America's information services must remain second to none in the world. All Americans must have basic telephone services at affordable rates, and we have to preserve the diversity of news and information sources to the American public.

The MFJ is working. If Congress decides to lift the MFJ and impose its own jurisdiction, we not only have no problem with that, we support it, but we hope that when it is done that you provide the same protections which are sound antitrust policy.

Thank you.
Mr. BROOKS. Thank you very much.
[Mr. Johnson's prepared statement follows:]

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