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Safeguards have been proposed to prevent the kinds of discriminatory behavior described above, but they are equally as suspect as the accounting rules proposed to prevent cross- subsidization. The FCC rulemaking on Open Network Architecture (ONA) was designed to guarantee equal access to the network for all competitors in the

56 transition to a deregulated telecommunications environment.

In the ONA process, the RBOCs were responsible for establishing an array of basic communications building blocks which would be standardized and equally available to all users (a process known as unbundling). This arrangement, in theory, would allow RBOC subsidiaries to compete without regulation against independent companies, since both would presumably have equal access to the basic communications network which is under control of the RBOCs.

However, the RBOC plans as submitted to the FCC in 1988 are "nonresponsive to the requirements of the Commission," and if implemented will likely have the effect of continuing to deny competitive firms access to facilities, according to Hatfield

57 Associates, Inc., which studied the ONA plans submitted by the RBOCs. It found that the ONA plans were not a fundamental change in the RBOC way of doing business. "Little meaningful unbundling" into basic services took place, and so affiliated Bell companies would still retain the ability to discriminate against

58 independent companies who were dependent on local telephone company facilities.

Judge Greene found that the ONA proposal "[s]uffers [f]rom (s]ignificant (djefects," and that ONA "will not assure equal access or equal cost.'


Judge Greene further noted that the RBOCs themselves had challenged the FCC's authority to impose ONA requirements, even as they argued that ONA would prevent anticompetitive behavior.


56 FCC Amendment of Sections 64.702 of the Commission's Rules and Regulations (Third Computer Inquiry),

Report and Order, 104 F.C.C. 2d 958 (1986). This rulemaking was aimed at the "enhanced services" market (c.8, services like data processing), and it is not clear that this proceeding is an appropriate

approach for the vastly different television business. 57 Hatfield Associates, Inc., Open Network Architecture: A Promise Not Realized, submitted to the FCC by

ADAPSO, Computer and Business Equipment Manufacturers Association, CompuServe Inc., Dun & Bradstreet, Independent Data Communications Manufacturers Association, and Telenet Communications

Corporation, April 18, 1988, p. üü. 58 Ibid, p. ii. The FCC recently approved these ONA plans at their current, and inadequate, level of

unbundling (See Press Release, Report No. DC-1287, BOC ONA Plans Approved in Part but

Amendments Required (CC Docket 88-2 Phase I), November 17, 1988. 59 Triennial Review Order, 673 F. Supp. at 577. 60 Triennial Review Order, 673 F. Supp. at 576.

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This review, which is by no means exhaustive, demonstrates that since direstiture, the RBOCs bave engaged in a broad range of anticonsumer and anticompetitive behavior. As Judge Greene stated in his MFJ Triennial Review Order, "[w]bat is startling, however, is given the relative paucity of the field available for such acts, in how many ways these companies appear nevertheless to have managed to discriminate and to cross subsidize. 161

This review also shows that non-structural regulations designed to prevent such behavior have been ineffective, and that new regulatory proposals are considered unlikely to improve the situation. Given the recent behavior of the telephone companies, and the continuing inadequacy of accounting rules and other non-structural regulation, it appears that consumers and competition are best served by continued line of business restrictions preventing the telephone companies from entering the television business.

61 Tricanial Review Order, 673 F. Supp. at 580.

Mr. BROOKS. You worked with the Justice Department previously on the AT&T case, didn't you?

Mr. VERVEER. Yes, sir, I did. I was the first lead counsel in the investigation and then in the first several years of the prosecution of the AT&T antitrust suit.

Mr. BROOKS. Gives you an interesting background in the case.
Mr. Halprin.


Mr. HALPRIN. Thank you very much, Mr. Chairman.

Mr. Chairman and members of the subcommittee, thank you very much for giving me the opportunity to appear before you today and state my personal views on the subject of your oversight hearing.

The central view, which I bring to this subcommittee is that the telecommunications and information industries are the single most important sector of this Nation's economy as we move into the 21st century. It is the most important sector for determining the competitiveness of U.S. industry in what is fast becoming a fully globalized world economy. It is the most important sector in determining the quality of life of the average American, not just today, but in the century to come.

It will determine whether Americans have the same access to education, services, news and information, and entertainment as is enjoyed by the citizens of other information age countries.

There can be little doubt that, until the past few years, the United States stood in the lead in both of these aspects. The American telecommunications infrastructure has been a powerful tool of American business in its attempt to maintain, and sometimes regain, a leading position in serving world markets.

At the same time, American citizens have, until recently, enjoyed unparalleled access to news, information, entertainment, and the range of services which are supported by a nationwide communications network.

Over the past several years, however, unfortunately, our lead has been eroded and, in some cases, overcome. A chief reason for this is that, while other nations have, consistent with their political, economic, and social forms of organization, developed firm and aggressive national policies of promoting the rapid development of the information age, the United States has been focused on a narrow and frequently counterproductive effort to determine how one develops a national policy in the face of a judicial order, which has never been reviewed by or approved by Congress, by the Federal Communications Commission, or by any State legislative or regulatory body.

In no way do I mean to understate the importance of a firm and efficient procompetition policy. During my service at the Federal Communications Commission we laid the groundwork for what has been an extremely successful development of competition in the customer premises equipment field and in the long distance field.

I believe that the basic approach which we implemented-developing rules and enforcement mechanisms which would maximize

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the opportunities for all interested companies to compete in bringing lower prices, better technologies, and a more varied range of services to the American consumer-business and residential alike-has produced significant benefits for our economy.

It is very important to remember that the world that was looked at during the AT&T antitrust trial was not the present world which reflects a decade of development. Instead, the record before the Department of Justice and the divestiture court reflected the initial, stumbling stages of trying to cope with a monopoly—the biggest company in the world—which was being opened, but only in part, to competition.

This was an unprecedented circumstance in this country or in the world. It was, quite frankly, one which regulatory authorities did not immediately grasp the complexities of regulating.

My recommendation is that in evaluating the appropriateness of making substantial changes in the MFJ, Congress should instead look to the record of the past several years. I would particularly direct your attention to the customer premises equipment market. There is no portion of a communications sector in which it is harder to design and implement rules for the development of full and fair competition than the CPE market. The record of the AT&T antitrust trial was devoted in significant part to abuses in this field.

Despite this, the new techniques of cost allocation, technical equivalence of interconnection, recordkeeping, and enforcement, designed and implemented by the FCC, have resulted in the market for the provision of customer premises equipment being an almost ideally competitive one. New equipment at reduced prices containing features undreamed of during the days of the Bell monopoly is introduced quickly and sold competitively for the benefit of the American consumer.

It is also important to remember that the debate over the appro priateness of permitting the Bell companies into this field and over the efficacy of the regulations and enforcement mechanisms de signed to prevent their abuse of the local bottleneck, was virtually identical to the debate currently raging over the appropriateness of relaxing or removing the current MFJ restrictions.

All potential competitors expressed their views that if the FCC proceeded and let the Bell System into this field, and if Judge Greene let the Bell System into this field, that they would dominate the field and wipe out competition. Obviously, these predictions of doom have not taken place.

This is not solely because of the special abilities or knowledge of the new generation of regulators. It is, rather, a testament to the value of the lengthy proceedings which provided a full opportunity for all parties to assist in the development of the new regulatory techniques. These culminated in the promulgation of a comprehensive set of rules governing the terms and conditions of competition in this field.

It is vitally important to this Nation's future that a similar process take place, particularly in the information services and manufacturing fields. It is both appropriate and necessary for Congress to set national policy in this regard.

The time for change is now, and the direction of change must be forward to a state-of-the-art broadband network which is filled to the brim with voice, data and video—the lifeblood of American business and the source of education, information, and entertainment which can make our lives more fulfilling and more productive.

Thank you very much, Mr. Chairman.
[Mr. Halprin's prepared statement follows:

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