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Mr. BROOKS. Thank you, Mr. Fish.

The Chair recognizes the gentleman from Florida, Mr. Larry Smith.

Mr. SMITH of Florida. Thank you, Mr. Chairman.

I just would like to say that I welcome these hearings this morning. This has been the subject of a great amount of controversy over the last number of years. I agree with the chairman that there are times and places where we see people together on issues who were obviously and very contentiously on opposite sides of issues just a few years ago.

Like Mr. Fish, I too have a rather open attitude about this whole question. I do have a certain concern that this subcommittee has had as one of its driving forces for quite some time. Just in the last few months, we have had a number of hearings in this room relating to competition. Just last week we had a hearing with reference to a thing called U.S. Memories, which is a group of huge corporations in this country trying to ban together to get antitrust relief and ultimately probably some tax breaks for a conglomerate of companies who want to compete on products with the Japanese and others. There was a whole bunch of small entrepreneurial companies who have made it in that market, notwithstanding the competition that exists there, who are opposed to that because they are not allowed to get into that particular small group of large corporations.

We have had corporate Time-Warner hearings, procompetition. We have had hearings on a number of issues, vertical price fixing; McCarran-Ferguson on insurance. People come here and plead for the right to be competitive. That, I believe, is the basis on which we are having these hearings as well.

What does the right to be competitive entail? How far does antitrust exemption spread, et cetera?

The only question that I have that I will pursue today to some degree is why should my constituents be shut out from having their local company, the one that provides them the telephone service every day, not be able to provide other items to them, when the Japanese can come in and do the same thing, but the local folks can't. I'm curious what the response is going to be to that question. To some degree, that is going to control how I will ultimately feel about this issue.

I am looking forward to these hearings and to determining from them hopefully how the ultimate consumer, our constituents, the American people, will best be served.

Thank you, Mr. Chairman.
Mr. BROOKS. Mrs. Schroeder, the gentlewoman from Colorado.

Mrs. SCHROEDER. Thank you, Mr. Chairman. I just want to say I think there are two issues we have to focus on. I'm pleased that you're having these hearings because this clearly belongs in this subcommittee, but second, I think there are two forms of competition-domestic and international-and while this decree has done terrific things for domestic competition, retrospectively, the question is how can America be most competitive in the future. I think we've got to look at both of those pieces as we sort all this out.

I thank you very, very much.
Mr. Brooks. Thank you.

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In order to save a little time this morning, the 'witnesses will appear in panels, in groups of three or four. I would ask each witness to give a brief 5-minute summary of your prepared statement. Following the summary of all members on each panel, we'll address questions to the panel. All the prepared statements submitted by the witnesses will be made part of the hearing record.

This morning, our first panel is comprised of representatives from the long distance carriers. We welcome John Zeglis, senior vice president-general counsel and government affairs of AT&T; William G. McGowan, who has been here before, chairman of MCI Communications Corp., and William T. Esrey, president and chief executive officer, United Telecommunications, Inc.

Mr. Zeglis, we'll start with you.
STATEMENT OF JOHN D. ZEGLIS, SENIOR VICE PRESIDENT-GEN.

ERAL COUNSEL AND GOVERNMENT AFFAIRS, AMERICAN TELE-
PHONE & TELEGRAPH (AT&T)
Mr. ZEGLIS. Thank you, Mr. Chairman. It's a pleasure to be here.

I might begin by saying it's not surprising that this has become an antitrust matter. The problem, after all, begins with local telephone exchanges, which nobody really can dispute are monopolies.

What's more, Mr. Chairman, they're not just monopolies, they are essential facilities, bottlenecks, in the language of antitrust law, for anyone who wants to compete in long distance or manufacture telephone equipment. They're bottlenecks for long distance because the long distance companies have to use those local lines to reach their customers, and they're bottlenecks for the manufacture of local switches because if a manufacturer doesn't sell to the local telephone company, it doesn't sell those local telephone switches at all. The local monopoly has total control over what it purchases for use in its network. Now, put those bottleneck monopolies together with two antitrust principles. First, that the Sherman Act applies with full force to telephone companies. No immunity there. Second, that the Sherman Act prevents a monopolist from leveraging its bottleneck into competitive markets by discriminating against its rivals.

Then, when you combine those facts and principles, you have a situation that epitomizes the central concern of the antitrust laws: Monopolies that can be used to foreclose full and open competition.

Now, in the old Bell System, AT&T owned both monopolies and competitive businesses, and we were constantly accused of abusing those monopolies to favor our own long distance and manufacturing.

We fought and fought. The Justice Department sued us; we said the antitrust laws don't apply; the courts said they do. Seventy more plaintiffs sued us; we said we'd done no wrong; they kept suing us. The Congress, the commissions, the courts all went to work on creating rules for a level playing field-how we were going to be able to use our monopolies, or not use them, in connection with our other businesses.

It was a chaotic period; people were spending time and money in courthouses and in this building that they should have been spending on research and development and innovation.

In 1981, we tried the Government's antitrust case almost to conclusion. But even if we had won, there was still no end in sight to this controversy because we still would have been mixing competitive and monopoly businesses in the same enterprise.

To get out of that insoluble problem, and to get the industry back on track, we agreed to the Justice Department's remedy for a permanent solution; namely, its two nonnegotiable demands, as Justice put it, that we divest those local monopolies and enjoin them from building back into competitive long distance and manufacturing. Otherwise, you would just re-create the problem that the Government set out to solve.

We had the divestiture. We're sitting here 542 years looking back and, somewhat to our amazement, it is all working just like antitrust policy says it's supposed to. Without that incessant controversy, without the fear that the local monopolies are going to favor their sister companies, we've got more firms competing-over 500 alone in long distance; more research and development spending; more features and services reaching the market; lower pricesdown 40 percent in long distance, more than that in a lot of equipment; and support for the Nation's balance of trade because American firms have a shot at their product succeeding in their home market solely on the merits.

So what we come down to at this point is whether we're going to give it all up. That is, whether we're going to lift the injunctions and let the telephone companies link up again with competitive businesses that depend on their bottlenecks. And in our opinion, Mr. Chairman, that would just turn back the clock on all of this controversy. The Sherman Act is still there, so are the bottlenecks. We would simply be injecting into the industry the same controversy that we had in the 1970's and early 1980's. We would be hanging over this industry the kind of chill and uncertainty that was said to have driven off competition and caused firms to delay innovation in the years before the divestiture.

Now, the only way to avoid that kind of controversy, Mr. Chairman, might be to grant the local companies immunity from the antitrust laws or otherwise subordinate somebody's view of the public interest, perhaps in regulatory commissions, to the antitrust principles embodied in the antitrust laws.

If that's the proposal, and that's the only kind of proposal that would even come close to solving the controversy, we say call it what it is, get it on the table, and discuss that as a policy matter.

We will tell you, candidly, that, in our view, it makes no sense. We think the Nation's competitive policies, as they've been embodied in the antitrust laws, are sound, and can comfortably coex, ist and support good communications policy. In this case, we've had the antitrust laws provide very sensible solutions.

Looking back, those antitrust laws and the decree took us out of that quagmire that we were in in the 1970's. Currently, the decree is producing consumer benefits from competition which the country is enjoying right now, and on into the future. Mr. Chairman, it's our view that the antitrust laws and this antitrust decree have set the stage for the Nation's continued telecommunications leadership in the 21st century through that most traditional and successful of American ways-namely, a lot of firms investing in innovation in the hope that their ideas will be better than their competitors, and that, solely on the merits of their products, they'll win in the marketplace.

We have, we believe, a classic use of the antitrust laws on behalf of the American consumer, and, in our opinion, neither the Sherman Act nor the decree requires a change.

Thank you, Mr. Chairman.
Mr. BROOKS. Thank you, Mr. Zeglis.
[Mr. Zeglis' prepared statement

follows:)

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Subcommittee's invitation to appear today to discuss the Modification of Final Judgment (sometimes referred to as the

"Decree") and, in particular, the Decree's line of business

injunctions on the divested Bell Operating Companies ("BOCS")

and their Regional Holding Companies ("RHCS").

My testimony is divided into four parts.

First, it

will discuss the antitrust basis and background for the Decree

and how the Decree was a response to initiatives of the

Congress and the FCC as well as decades of antitrust

proceedings. Second, it will describe how the experience of the last three years has witnessed the very competitive

conditions and consumer benefits that the antitrust laws are

designed to advance.

Third, my testimony will address the

Court's 1987 holding that there have been insufficient changes in the BOCS' local exchange facilities to warrant any change in the Decree's two core line of business injunctions the

provision of interexchange services and the manufacture of

telecommunications products

but that the other two

injunctions originally in the Decree could be modified.

Finally, my testimony will show that, contrary to some claims,

the District Court's role in administering the Decree is

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