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determined that BOC provision of information content could lead to anticompetitive abuse of the local telephone network, Judge Greene also found that the public policy goal of wide availability of information services would be furthered if the BOCs were permitted to provide information gateways to the public. Accordingly, the prohibition against BOC generation of information content was generally retained but, in opinions issued in March and July of last year, the Court allowed the BOCs to engage in a variety of information services.
Specifically, the Court adopted an amendment to the MFJ which allows the BOCs to engage in the intraLATA (but not interLATA) transmission of information as part of a gateway to an information service, but not in the generation, manipulation or ownership of the content of information. "Transmission" was specifically defined as the performance of the following functions: data transmission; address translation; protocol conversion; billing management; and introductory information content. The Court additionally allowed the BOCs to provide voice messaging and electronic mail services, as well as storage of others' databases.
In that regard, it should be emphasized that the BOCs are no longer prohibited from providing information services. The seven Regional BOCs ("RBOCs") have been permitted to provide an array of information services · information gateways, information storage, electronic mail, voice messaging and voice mail, audiotex, and local packet switching with protocol conversion. Indeed, the RBOCs compete with US Sprint's Telenet in the packet switching, gateway and electronic mail markets. Within the past year, each of the seven RBOCs has individually embarked on various trials of their permitted information services. All seven of the RBOCs have instituted or announced plans for either or both information service gateways trials and voice messaging services trials. Individual BOCs have announced plans to provide other information services. The BOCs have already become major participants in the information services market, and it is, accordingly, erroneous to characterize the question before Congress as whether they should be permitted to offer information services. Rather, the question is whether the current authority enjoyed by the BOCs should be broadened.
If it could be determined that the information services marketplace is sufficiently different from the interLATA long distance market, so that adequate safeguards could presumably be adopted to assure that the bottleneck would no longer constitute a continuing substantial possibility of anticompetitive consequences in information services, then, subject to such safeguards, the information services restriction could be justifiably relaxed further. However, there do not now appear to be sufficiently definitive guidelines, safeguards or conditions to support a finding of adequacy.
The two most frequently discussed proposed safeguards to protect ratepayers and competitors from BOC abuse of their local bottlenecks are, first, Open Network Architecture ("ONA") and, second, rules for the BOCs to allocate the common costs between regulated and competitive services. Neither of these safeguards are yet fully in place, much less proven effective. We, therefore, foresee significant problems with both of these safeguards, as they are presently defined, which could potentially limit their effectiveness.
The most important precondition to any further relaxation of the information services restriction is a comprehensive review of the market and the consequences in the market of further BOC entry under the prescribed circumstances. Presumably, authorization of the BOCs to provide additional information services could be desirable if conditions could be devised to assure that their actions contributed positively to the development of increasingly robust competitive environment. However, further BOC entry into this market without this requisite inquiry, ascertainment of risks and benefits, and prescription of needed conditions would clearly be unsound and potentially harmful competition and the public interest.
United Telecom and US Sprint would support the relaxation of the manufacturing line of business restriction contained in the MFJ if it can be demonstrated that such action can be taken in a manner which will promote competition in that market. The restriction was initially imposed and subsequently retained by the antitrust court due to bottleneck and cross-subsidy concerns. These concerns must be adequately addressed before any relaxation of the restriction can
can be accomplished. In addressing those concerns, the benefits of relaxing the restriction must be weighed against the risks, including the substantial risk that safeguards intended to protect competition in manufacturing may be very difficult, if not impossible, to administer.
Admittedly, the potential benefits to United Telecom and US Sprint if the manufacturing restriction is relaxed are substantial.
The emergence of one or more large manufacturers competing for the provision of telecommunications equipment could significantly expand the options available to purchasers in the marketplace, could stimulate technology and innovation, could improve quality and could lower prices. On the other hand, elimination or relaxation of the manufacturing restriction could result in the development of hardware and/or software for deployment by the BOCs in a manner designed to create a competitive disadvantage to those vendors seeking to sell to the BOCs or to utilize the BOC facilities in the provision of competing products or services.
Furthermore, there is the very real concern that the BOCs could severely disadvantage other LECs or interexchange carriers ("IXCs") by coordinating their efforts and designing manufacturing specifications for network telecommunications equipment (like switching) that were unique or otherwise exclusive to the BOCs. If, in other words, the other LECs were not able to participate in any new network technology manufactured by the BOCs, or IXCs were foreclosed from the development of network standards, should the manufacturing restriction be so relaxed, the LECs and IXCs, as well as the nationwide provision of quality telephone service, would needlessly suffer. Thus, in addition to other competitive safeguards, a critical precondition to the relaxation of the manufacturing restriction must be the requirement for the sharing of new technology and network standards.
Mr. Chairman, United Telecom and US Sprint regard the core line-ofbusiness restrictions as an important part of the historic settlement of an antitrust suit, the enforcement of which we believe is still best left to the Court. We also believe that it is entirely appropriate for Congress to examine the MFJ from time to time to determine whether its restrictions remain consistent with the public interest. And, we believe that the FCC can assist Congress by developing a comprehensive record on the public interest benefits, if any, of any changes to the MFJ restrictions, the risks associated with such changes and the adequacy of alleged safeguards and other conditions. Only then can the Congress, the affected members of the telecommunications, information services and manufacturing industries, and the consuming public be assured that modification of the MFJ restrictions is necessary and appropriate national telecommunications policy.
The BOCs are among the biggest, brightest and best members of corporate America, and they represent the former Bell System companies which, in partnership with the Nation's independent telephone companies, were responsible for constructing, operating and maintaining the basic telecommunications infrastructure in this country that has been regarded for decades as the premier system in the world. The people of the Bell System, operating in a largely regulated monopoly environment, were driven by a deep sense of duty to provide high quality, affordable and universally available telephone service to the consuming public. The proper application of the federal antitrust laws, reflecting a strong national public policy favoring competition whenever possible, did result in the divestiture, however, and now appropriately govern much of the conduct of participants in both the local and long distance telecommunications markets. Since divestiture, local telephone subscribership has risen to alltime highs, long distance telephone rates have dropped by over 40%, an amazing array of technological developments have been brought to the market, and the consuming public is taking active advantage of the choices in quality, service and price that are now available.
We understand the BOCs' frustration at not being permitted to undertake certain ventures at their discretion, but genuinely believe that
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adherence to the antitrust principles established by Congress almost a century ago is absolutely necessary to preserve and protect the public interest. It is for that reason, lacking any additional new information or specific plans, we would remain strong advocates of the MFJ as interpreted and applied by the Court.
Thank you very much, again, for this opportunity. We look forward, Mr. Chairman, to working with you and the other members of the Subcommittee as you conduct your review of the MFJ. We sincerely appreciate and support your able leadership in this important matter.