Testimony of Robert M. Johnson House Subcommittee on Economic and Commercial Law August 2, 1989 Mr. Chairman, my name is Robert M. Johnson and I am the Publisher of Newsday. Today, I am testifying on behalf of the American Newspaper Publishers Association (ANPA), which represents more than 1,400 newspapers over 90% of the daily circulation in the U.S. I appreciate the opportunity to testify on the Modified Final Judgment, or MFJ, which broke up AT&T into eight pieces, seven of which retained monopoly control over local telephone service. Yesterday, the Committee heard testimony on why the MFJ was entered, and how it is working. Today, my testimony will focus on the information services restriction, and why it is important to preserve it. Let me explain how electronic information services work and why it is so important to preserve competition and diversity in the industry. Right now, consumers across America have access to an enormous variety of information services at their fingertips. A Congressman can look at AP stories on his office computer. A lawyer can use the Lexis service to research Court decisions. An Orioles fan can pick up the phone and listen to the latest box scores. And a rancher in Texas can monitor the commodities markets, check cattle prices, and respond to classified ads from his or her local newspaper all on his or her personal computer. Today, a tremendous variety of information services are as available to consumers and small business people in Texas as they are to bankers on Wall Street. The reason? Competition, entrepreneurship, diversity. Information services are provided by thousands of businesses competing with each other to serve business and residential consumers. What all these services have in common is that they all must pass through the local telephone lines. There is simply no practical alternative. The BOCS own the lines and run them. They have a bottleneck monopoly. And now they want to get into the business of publishing over the lines they own. The BOCS already control the medium, and now they want to control the message. That is not a level playing field. It is not even just a home field advantage. It is like asking their competitors to play ball in a swamp. The BOCS are asking Congress to help them wriggle out of a consent decree which they freely entered into, and which reflects sound judicial decisions based on our nation's antitrust laws. That would hurt American consumers. It would hurt America's world competitiveness. And it would hurt America's commitment to 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 BOCs have a monopoly on the lines. If the BOCs are permitted to provide information content services over the lines they own, then they are inherently in a position to abuse their monopoly power and compete unfairly. This is an anti-trust issue. It is a telecommunications issue. And it is an issue of diversity of sources of news and information for the American public. Right now, the MFJ allows the BOCS to participate in a wide range and number of electronic services, including electronic mail, database storage, and the provision of "gateways," which provide access to many and diverse information providers. The BOCs were granted permission to operate "gateways" as a result of Judge Greene's court decision last year. And just last week, Judge Greene lifted a seven-year restriction in the MFJ, and granted AT&T the right to enter electronic publishing. Judge Greene reaffirmed that the crucial issue is bottleneck control, and found that AT&T no longer had such control over the long-distance exchanges. These are examples of the built-in flexibility of the 1982 MFJ, which is designed to prevent anti-competitive and anti-consumer behavior by the BOCs, while promoting advances in telecommucations for the public good. And that is just what is happening. For instance, New York Telephone now provides a gateway called 'Info-Look' that allows people with a personal computer to dial a local number and be connected with a wide range of services from columns in USA Today and Newsday to horoscopes, to sports results, to Wall Street stock quotes or financial news. This gateway, and others like it, if properly developed and promoted by the BOCS, would update the MFJ to the information age of the Year 2000 and beyond. Yet many of the BOCs have resisted fully developing the gateways in the hopes of dismantling the MFJ and entering the information market with an inherent advantage. Congress should continue to prohibit them from doing so. You will notice that no one is clamoring to remove these restrictions except the BOCS. You do not see consumer groups or your local businesses seeking these changes. 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 that gave rise to the restrictions on BOC participation has fundamentally changed. First, the BOCs still retain almost 100% bottleneck control over local telephone services in the communities they serve. That gives them the same incentive and the same ability to block competition by discriminating against non-telephone company electronic publishers. Second, the BOCs still have the same incentive and the same ability to shift the costs of their own new electronic publishing services to their local telephone monopoly services. This 'cross-subsidization' will be at the cost of higher phone bills for American ratepayers. Third, in addition to the negative economic effects of BOC monopolization of the information market, there would also be negative effects on the sources of news and information. BOC entry would mean fewer voices reaching the American public. Fourth, today, America is second to none in the world in information services. BOC entry into the market is not only unneccessary to spur international competitiveness, it will actually hurt competitiveness. Fifth, BOC monopolization of the information services market would raise a new public policy issue: Given the huge data profiles that the BOCS would be able to amass on the tastes and habits and business arrangements of American citizens, how can Congress protect individual privacy rights? I will expand on these five points below: DISCRIMINATION FIRST. If BOCs are allowed to become information content providers, they will have a strong incentive to drive their competitors out of the market. BOC bottleneck monopoly control over local telephone services gives them the means to do so. As the Department of Justice recently noted, "the LECS are virtual monopolies with respect to residential and most business customers and appear likely to retain their monopoly position for the foreseeable future." [DOJ Price Cap Reply at 2.] There are many ways the BOCs could discriminate against other providers. The BOCS can give their competitors lower quality lines, less efficient switching services, or slower routing. The BOCS can deploy their own advanced technology to favor their own services. They can offer competitors slower dialing and response times than they would to their affiliates. They |