IV. THE INFORMATION SERVICES RESTRICTION SHOULD NOT BE ALTERED The universal availability of new information services to American consumers depends both on new market demand and on the further development of gateway access services by the Bell Companies and other local telcos. The MFJ information services restriction was relaxed last year to promote this development without allowing full vertical integration of all information services. The owners of monopoly telephone distribution facilities need not also become purveyors of information content. Hundreds of diverse information service vendors are up and running. Unfortunately, their ability to mass market has been limited by the FCC's unwillingness to conclude its 3 year old "ONA" or "Computer 3" proceeding to require that the Bell Companies offer connections to advanced network functions on an a la carte basis at cost based prices. Again, the Bell Companies, as sole source suppliers of enhanced access connections should not be allowed to compete directly against information database vendors. Nor is there any need to modify the interexchange ban for the sake of information services, because telephone customers throughout the U.S. already have access through local or 800 numbers to multiple inter-LATA fiber optic networks that carry information services at usage rates much lower than those for individual long distance calls. If the interexchange provisions of the consent decree were breached, it would be virtually impossible to limit a Bell monopoly's expansion to inter-LATA information services only. Regular long distance services could be offered under the guise of information services and thereby bootstrapped into an unregulated service mix financed largely by captive local telephone ratepayers. V. CONCLUSION The In summary, antitrust jurisdiction over the Bell monopolies belongs with the Justice Department and the Federal Courts. 1984 decree's limits on Bell long distance operations are a cornerstone in the foundation of a competitive U.S. telecommunications industry. Stronger Congressional oversight of the FCC and its regulation of dominant and monopoly carriers could further stimulate new investment and innovation throughout the industry, yeilding greater competitiveness in the information age. Mr. BROOKS. Mr. Frischkorn. STATEMENT OF ALLEN R. FRISCHKORN, JR., PRESIDENT, TELECOMMUNICATIONS INDUSTRY ASSOCIATION Mr. FRISCHKORN. Thank you, Mr. Chairman and members of the subcommittee. I'm pleased to be here today to address an issue of great importance to the U.S. telecommunications industry and the American consumer of telecommunications services. TIA, the trade association which I represent, has nearly 500 members, which include manufacturers and suppliers of all types of telecommunications equipment and related products. Before going into the policy reasons why the MFJ is a good and solid idea, I'd like to review a little bit of the antitrust history relating to competition in telecommunications. As you are no doubt aware, this is not the first occasion on which the Judiciary Committee has reviewed the provisions of a consent decree entered in settlement of antitrust litigation involving the Bell operating companies. In the 1949 litigation, the Justice Department sought divestiture of the Bell operating companies manufacturing affiliate, which was called Western Electric at that time. However, in 1956, the Department agreed to a settlement which allowed the Bell System to retain its in-house manufacturing operation. Following extensive investigative hearings exploring the circumstances surrounding the 1956 consent decree, the House Judiciary Committee's Antitrust Subcommittee issued a report sharply criticizing the Government's decision to approve a nonstructural decree, which, in the words of the subcommittee's report, abandons the theory of the Government's complaint. In words that would later prove prescient, the subcommittee noted that the 1956 consent decree was founded on the "theoretically dubious, factually false, premise" that dealings between the Bell operating companies and Western are effectively supervised under existing indirect regulatory power. Subsequent events clearly demonstrated the inadequacy of the 1956 decree and the inability of regulators to prevent the continued foreclosure of competition in telecommunications equipment markets. As you know, in 1974, the Justice Department again filed suit under the antitrust laws and mounted yet another effort to achieve an enduring solution to the competitive problems arising from the Bell System's simultaneous involvement in monopoly telephone service and adjacent, potentially competitive equipment markets. Post-divestiture industry experience has confirmed the wisdom of the structural approach embodied in the MFJ manufacturing prohibition. By severing the tie between the RBOC's and Western Electric and prohibiting their reintegration into manufacturing, the MFJ has in a relatively short period of time had a dramatic, positive impact on competition in telecommunications equipment markets in the United States. The Census Bureau has put together figures which indicate that there are between 1,500 and 2,000 companies which now manufacture telecommunications equipment in the United States. The more open, dynamic environment created by the MFJ has reduced equipment prices as much as 30 to 50 percent and has stimulated innovation throughout the industry-producing substantial benefits to the American economy. The emergence of an intensely competitive equipment marketplace in the United States has forced American manufacturers to become increasingly creative and efficient in meeting the needs of their customers. The RBOC's suggest that the long history of anticompetitive abuse and regulatory failure which led to the imposition of the MFJ in the first place is irrelevant to today's marketplace. We think that's bull. If allowed to manufacture, a single RBOC would still have the ability to foreclose 15 to 20 percent of the U.S. market for many types of equipment through self-dealing and other forms of anticompetitive behavior. The collective impact of such behavior by all the RBOC's would foreclose more than 75 percent of the telecommunications equipment market in the United States to other companies. Once again, the Bell companies and their supporters argue that regulatory safeguards would provide adequate protection to competition and consumers. Quite frankly, such claims must be viewed with a great deal of skepticism. In the equipment procurement area alone, the FCC expended enormous resources over many years prior to divestiture in trying to control the procurement practices of the Bell operating companies. There is no evidence that the competitive problems arising from integration of the RBOC's into manufacturing can be dealt with effectively today in an environment of reduced regulation and fiscal constraint. The RBOC's also argue that they should be allowed to manufacture as a means of improving our Nation's trade balance. However, allowing RBOC entry into manufacturing is not likely to alleviate the trade deficit or enhance the competitiveness of U.S. manufacturers in domestic or foreign markets. In fact, the most likely effect of removal of the MFJ prohibition is going to be the formation of RBOC joint ventures with foreign manufacturers to the exclusion of U.S. firms. And even if they don't align themselves with foreign manufacturers, the RBOC's entry into the manufacturing business will make it increasingly difficult for efficient U.S. independent manufacturers to obtain the financial support and the volume of production they need to compete at home and abroad. The potential adverse impact of allowing RBOC entry into manufacturing is likely to be most pronounced for smaller manufacturers-of which I have approximately 400 members in my association-the very group which the RBOC's argue would benefit from removal of the MFJ restriction. A return to closed markets could well be the death knell for all but a chosen few as investment capital is diverted to RBOC-affiliated suppliers. In summary, the MFJ's effect on telecommunications equipment procurement in the United States has been dramatic. We now have a dynamic, innovative and competitive marketplace—exactly the type of marketplace the antitrust laws were put in place to pre serve. I am frankly amazed that the RBOC's, companies making very large profits providing local service, would want to set aside the MFJ restrictions and get into manufacturing. However, there can be no return to the situation that we had only 5 or 6 years ago where competition was stifled by a system where the RBOC's procured their equipment from AT&T. At least I certainly hope not. And in closing I'll just repeat Santayana's admonition: "Those who fail to learn the lessons of history are doomed to relive history." Thank you. Mr. BROOKS. Thank you very much. [Mr. Frischkorn's prepared statement follows:] TESTIMONY ALLEN R. FRISCHKORN, JR. TELECOMMUNICATIONS INDUSTRY ASSOCIATION Mr. Chairman and Members of the Subcommittee: My name is Allen R. Frischkorn, Jr. I am President of the Telecommunications Industry Association (TIA). I appreciate the opportunity to appear before the Subcommittee today to discuss the current state of the telecommunication equipment marketplace and to articulate TIA's position on the public policy issues raised by legislative proposals to remove the MFJ restrictions on Regional Bell Operating Company (RBOC) entry into the telecom manufacturing business. The Telecommunications Industry Association is a national trade association whose membership includes nearly 500 manufacturers and suppliers of all types of telecommunications equipment and related products. TIA'S members are located throughout the United States, and collectively provide the bulk of the physical plant and associated products and services used to support and improve the U.S. telecommunications network. In addition, TIA members are involved on an ever-increasing basis in providing telecommunications equipment and services in other developed and developing nations around the world. TIA supports Congressional efforts to ensure that the "line of business" restrictions imposed on the divested Bell Operating Companies (BOCs) under the terms of the AT&T antitrust consent decree (the "Modification of Final Judgment" or "MFJ") remain consistent with the broader national interest. However, TIA believes that a careful examination of the origins of the MFJ manufacturing prohibition and its effect on telecommunications |