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equipment markets in the United States makes it clear that removal

of the restriction at this time would have a significant adverse

impact on competition, innovation, consumer welfare, and the competitiveness of the U.S. equipment industry in domestic and

foreign markets.

In TIA's view, the economic and social benefits arising from

advances in telecommunications technologies will be fully realized

a

an

in public policy environment which encourages open, competitive marketplace. By severing the tie between the divested RBOCs and Western Electric (now AT&T Technologies) and prohibiting

RBOCs 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 U.S. The pro-competitive impact of the MFJ

the telecommunications equipment industry cannot be overstated. Since divestiture, the industry has undergone

remarkable

on

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transformation.

Under the MFJ, RBOC equipment purchasing practices almost

immediately began to diverge markedly from their historic pattern,

as the BOCS began to purchase on the basis of price and quality, in many cases selecting products offered by suppliers other than Western Electric. The increased competition spawned by the MFJ has yielded a number of tangible benefits, most notably reductions in telecommunications equipment prices of 30 to 50%. Competition on the basis of non-price factors, such as warranty protection, delivery time, and after-sales service has intensified as well.

Perhaps most significantly, the MFJ has increased the technological dynamism of the U.S. equipment industry. The more competitive environment spawned by the MFJ has stimulated the development and deployment of new telecommunication technologies

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industry.

As the District Court observed, at the conclusion of its

exhaustive Triennial Review of the MFJ, "there has been a flowering

of research, development, introduction of new products and quality

assurance; new firms have entered the market; prices of equipment

have declined dramatically ... and competition flourishes in a

market that had seen relatively little of it before."

The opportunity to compete for sales to the divested BOCs, the largest purchasers of telecommunications equipment in the industry, has encouraged increased capital investment in efficient U.S.

manufacturers who have at long last been afforded access to the

as

as

a

Bell market, well

host of promising new "start-up" enterprises which did not even exist prior to divestiture. The emergence of an intensely competitive equipment marketplace in the U.S. has forced American manufacturers to become increasingly

creative and efficient in meeting the needs of their customers, and

therefore, better able to compete both domestically and in overseas

markets.

In assessing the validity of claims by the RBOCs that the

manufacturing prohibition is no longer necessary or, conversely, that its removal would yield substantial benefits to the U.S.

economy,

it is important to recall the long history of antitrust litigation and regulatory disputes which led to imposition of the

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extent, on the competitive problems arising from the Bell System's

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advocated a structural remedy involving the divestiture of the Bell

Operating Companies' manufacturing affiliate, Western Electric.

However, the Department later bowed to political pressure and agreed to a settlement which allowed the Bell System to retain its manufacturing operation. Following extensive investigative

hearings exploring the circumstances surrounding entry of the 1956

consent decree, the House Judiciary Committee issued a report sharply criticizing the Justice Department's action.

Subsequent events demonstrated the inadequacy of the 1956

decree and the inability of regulators to prevent the continued

foreclosure of competition in telecommunications equipment markets.

In the 1974 litigation, in private antitrust suits, and in numerous proceedings conducted by state and federal regulators, evidence was presented detailing the Bell Operating Companies' participation in

broad range of anticompetitive conduct, including biased

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equipment prices from monopoly service revenues.

Not surprisingly, the RBOCS contend that the long history of anticompetitive abuse and regulatory failure which led to imposition of the MFJ is irrelevant in the post-divestiture marketplace. Because there are seven of us, the RBOCs argue, it is unlikely that any one of us would be able to "remonopolize" the equipment industry. Even assuming the validity of the RBOCS'

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clearly not.

Even a single RBOC still has the ability as well

as the incentive to foreclose 15-20% of the U.S. market for many

types of equipment, through self-dealing and other forms

of

anti

titive behavior.

The collective impact of such behavior

could result in the foreclosure of more than 75% of the market.

Nor can the potential for tacit cooperation or outright collusion

among the regional companies be discounted, particularly in light

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development, product testing) which have a substantial impact on

the ability of manufacturers and suppliers to design and market

equipment to the BOCS.

The proponents of legislation lifting the MFJ restriction purport to address certain of these concerns by authorizing BOC entry into manufacturing subject to "safeguards" which they argue will provide adequate protection to competition and ratepayer interests. However, virtually all of the regulatory mechanisms

cited by the

RBOCs

and their supporters in support of

such

proposals existed in one form or another prior to divestiture.

Aside from the bare assertions of the RBOCs and some regulators,

there is nothing to indicate that the manifold problems arising

from integration by the Bell operating Companies into manufacturing

can now be effectively contained through regulation.

At the federal level, the FCC has removed the structural

separation requirements imposed under its computer II decisions,

in favor of less stringent, "non-structural" safeguards.

In the

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full and fair opportunity to compete for sales to the BOCS. The dramatic shift in BOC purchasing patterns following divestiture

clearly demonstrates the inability of federal and state regulators

to prevent discrimination by the BOCs in favor of an affiliated

supplier. Effective regulatory oversight is further hampered by the Communications Act's division of regulatory responsibility between the FCC and the states, uncertainties as to the extent of regulatory jurisdiction over diversification by common carriers

into manufacturing, and the

uneven distribution of regulatory

resources and expertise at the state level in particular.

The RBOCs suggest that their entry into manufacturing will

enhance competition. History and logic suggest that they are far

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