mits only a single provider. The winning provider, as we call him, is predictably the one who will accept the least revenue so that the BOC can garner the lion's share. It has been my understanding that the existing sole New Jersey provider receives approximately one cent per call while New Jersey keeps the other 12 cents of a total of 13 cents.

A myriad of other examples of abuses abound, abuses which could not survive in a true competitive environment.

Mr. MARKEY. Sir, I am going to have to interrupt you there. You will be given plenty of opportunity in the questioning to give further examples.

[The prepared statement of Mr. Fogel follows:]

PREPARED STATEMENT OF BRUCE FOGEL, CHAIRMAN OF THE BOARD, PHONE PROGRAMS,

INC.

Good afternoon, my name is Bruce Fogel.

I am appearing before you today in my role as chairman of the board of Phone Programs, Inc. which is an information provider on many local mass announcement or dial-it networks around the United States. My presentation today is thus limited in scope to this segment of the information services industry.

I am extremely grateful to the committee for affording me this opportunity to present certain facts and views from the perspective of a relatively small player when compared to the seven giant regional holding companies and their respective operating companies. On a day-to-day basis my company sees first hand how the bell operating companies-or BOCs are able to control and manipulate the marketplace in my business.

It is the position of my company, as well as my own personal and professional conviction, that any legislative proposal which would permit the BOCs to enter the marketplace as content providers on mass announcement networks would, if enacted, cause an abrupt and negative turn-around in the development of this infant industry. I believe that my company is particularly well qualified to identify the facts and circumstances which have led us—as well as Judge Greene-to this inescapable conclusion.

An initial word about Phone Programs. Phone Programs and its affiliates are closely held companies, owned by three individual businessmen including myself. We have operated continuously since 1972, and thus our experience both predates and spans across the effective dates of the FCC's second computer inquiry as well as AT&T's divestiture under the antitrust court's modified final judgment or MFJ.

The essence the bread and butter-of our business is the creation of short prerecorded audiotex programs which are delivered to the public for a fee through the local telephone exchange monopolies, which, in the main, are the BOCs. Our oldest program, Sports Phone, originated with us at the inception of our business in 1972. We also offer weather, financial, time of day, racing and other programs. On local dial-it or 976 networks throughout America, we provide approximately one hundred programs spread across almost twenty markets. To my knowledge, these kinds of audiotex programs are unique in their universal accessibility by the general public. Phone Programs has been described by others as a responsible citizen in this business, and the professionals in our company take great pride in what we believe has been our responsible approach. We have not ever provided, nor will we ever provide dial-a-porn programming. Phone Programs has been a leader in seeking ways to lawfully limit access to obscene or indecent program offerings. We have also avoided so-called gab or chat or live programming because of the evidence of widespread abuses in that type of service. In some regions, our advertising has become a model of full disclosure for other providers. I have personally taken an active leadership role in the industry, speaking at national conferences sponsored by the United States Telephone Association, the Information Industry Association and others. Currently, I am the chairman of the voice information services division of the IIA.

With this brief background in mind, what have Phone Programs and I witnessed over the past several years to cause me-or, better said, to require me to seek to be heard by you, the lawmakers of our nation?

In short, contrary to the hopes and expectations of Congressmen who may have been persuaded by the BOCs, the direct entry of the dominant telcos into content

provision will predictably stifle competition and diversity in the fledgling audiotex industry.

Prior to the dove-tailed regulatory and antitrust prohibitions against the BOCs, there were no information providers in mass announcement services as we know them today. That's right. None. Zero. Prior to 1983, with insignificant exceptions, the old Bell System and its component parts were responsible for all telephonic mass announcement programming and the content thereof. There was complete vertical integration.

Now, I mentioned a few moments ago that we have been in this business since 1972-an apparent contradiction to my statement that the Bell System controlled all content prior to 1983. The explanation for this apparent contradiction is simply that, prior to the now six-year-old prohibition against the BOCs from providing content, they contracted with companies such as mine to produce programming for them. They, however, were the owners and controllers of an entirely integrated system from program creation to the delivery of information content to consumers over local networks.

Until 1983, mass announcement or 976 or dial-it services had crept along in development at a snail's pace. Thus, for over fifty years, since the first such programming in the late 1920's, the monolithic Bell System permitted relatively few types of programs to reach the public through plain old telephone service (POTS).

From 1983 to the present, in spite of substantial barriers imposed by the BOCS (which I will get into momentarily), the dissolution of content control by the BOCS prompted in some geographical regions of the United States the immediate development of a fledgling information industry, offering great diversity and potentially extraordinary benefits to the public. Our business is competitive in that Phone Programs and other information providers compete with each other for local audiences. In many systems, there are specific programs which are directly competitive, offering the consuming public choices which they never had prior to divestiture and would not have today but for divestiture.

For myself and my two investment partners at Phone Programs, the rules which went into effect in 1983 seemed simple and straightforward. The dominant telephone companies of America were to be limited in my business to their traditional roles as common carriers. For presumably reasonable and nondiscriminatory fees, they would provide the transport of our programs through their telecommunications networks and perform billing services in conjunction with their existing facilities for billing local consumers. We, the providers, would be responsible for all programming content; we would take the risks inherent in free enterprise and reap the rewards of success or suffer the consequences of business failure.

Looking back upon what I viewed in 1983 as my own basic and fundamental expectations regarding the rules of the BOCs after divestiture, I now see that I was extremely naive. In practice, the BOCs, through ingenious methods and control of the local networks, have pressed through the outer limits of the rules and stunted the growth of the kinds of information services with which phone programs is familiar. I make this point and emphasize it for a couple of reasons. First, since 1983 any lack of development in mass announcement services of which the BOCs complain is directly attributable to their own repressive and monopoly-induced actions. Second, inasmuch as the BOCs have not played by existing rules, I ask rhetorically, how can the Congress believe that the BOCs would adhere in good faith to any future rules, especially where they would be direct competitors of information providers utilizing their own network facilities along with and in competition with us?

In recent months, the BOCs have tried to persuade the MFJ court, information providers, and the general public that they, as prospective information providers themselves, would have heavy competition. The BOCS claim that announcement services are already competitive from the perspective of the carrier because of the availability of the interstate services such as those offered by AT&T. As an active IP utilizing both the local services and the national, interstate services of AT&T, I can state categorically that the local exchanges still enjoy a meaningful natural monopoly in the provision of local mass announcement services. It is this monopoly power and the still-pervasive bottleneck character of local exchange services that enables the BOCs in various jurisdictions to (1) control the numbers of information providers, (2) manipulate or veto the content of local programming, (3) dictate advertising guidelines, (4) share in the revenues of providers while sharing none of their risks and (5) create various arbitrary requirements upon providers who have no competitive choices on the local level.

Please bear in mind that I refer to current, ongoing facts. This is not my speculation about the risks of future monopoly abuses by the BOCs. They are here, today,

in defiance of the letter and spirit of the MFJ 1982 and Judge Greene's triennial review decisions of last year.

A few examples.

Let's look at New Jersey Bell's local 976 service. Until a few years ago New Jersey was my home state, and I am familiar with the local 976 service there. New Jersey is the eighth most populous state in America; it is a prosperous state, cosmopolitan; it has a rich mix of cultures and backgrounds and a strong consumer base upon which a burgeoning information industry should be predicated. Today, if one of your staff were to telephone the marketing section of New Jersey Bell which deals with mass announcement services to ask for information about becoming an information provider on that system, what would your expectation be? no doubt, you would anticipate receiving an application and upon the satisfaction of some reasonable requirements, you could be in the business of providing mass announcement programming in the state of New Jersey.

You would be incorrect in your assumptions. If knowledgeable and truthful, the New Jersey Bell representative speaking to your staff member would explain that New Jersey Bell permits only a single provider who offers all thirteen programs on the existing network. The lone New Jersey IP attains its status by resort to a "bid" to New Jersey Bell. The "winning provider" is predictably the one who will accept the least revenue so that the BOC can garner the lion's share. In recent years, it has been my understanding that the existing sole New Jersey provider receives approximately one cent per call made by the public and that New Jersey Bell keeps the other twelve cents. While I am not absolutely certain of the exact split between the provider and New Jersey Bell (because of a claim of confidentiality), I am certain that my estimate is in the ball park.

A myriad of other examples of abuses abound. Abuses which could not survive in a true competitive environment. For example, the regional companies have now imposed uniform "policy," standards upon the industry whereby a BOC can refuse to offer service to an information provider if the provider's program content may be harmful to the "image" or "reputation" of the BOC. Mind you, none of the BOCS will limit this standard to pornography, and journalists such as myself may be chilled into presenting only the least controversial programming.

Many BOCs have required arbitrarily high minimum call volumes in order to become or remain an information provider. In this way, the potential benefit of service to targeted or specialized community segments is all but wiped out.

Most BOCs have managed to garner the greatest share of revenues for themselves by participating, in one fashion or another, in the goodwill or market success of individual programmers. Some, like New York Tel have tried it both ways. On the older 976 network, New York Tel have kept for itself a range of 80 to 90+ percent of dial-it revenues from programming, even though New York Tel takes none of the business risks of the progammers, nor does New York Tel create any of the program content. In its newer system, New York Tel has explicitly endorsed an unlawful "revenue sharing" arrangement whereby it would participate in the revenues of providers on a percentage basis. Of course, this kind of “sharing" arrangement would be impossible to sell to business customers such as Phone Programs if we had any competitive alternative.

In my business, I believe that the current efforts to displace the MFJ prohibitions with proposed legislation would be a terrible mistake. Judge Greene has issued detailed opinions regarding information services, and his decisions are now pending appeal in the United States Court of Appeals for the District of Columbia. A sudden disruption of the judicial process, in my estimation, would be wrong on at least two grounds. First, for the reasons I have already given, I believe that the current state of the law, per Judge Greene, is correct, in accordance with existing antitrust laws. Had it not been for regulatory and court intervention, I would not be here today talking to you about my "industry" because there would be no audiotex industry. Second, there are hundreds of small businesses out there, which, like mine, have placed their faith in the orderly judicial process. The courts have not been subject to lobbying or political considerations. Accordingly, Phone Programs and I beseech you to permit the judiciary to carry on its continuing review of information services, especially in the specific area of audiotex services with which I am familiar.

Thank you for your patience and consideration in hearing the views of one provider in this industry.

Mr. MARKEY. We will have the second witness, Mr. A. Gray Collins, senior vice president of external affairs for Bell Atlantic.

STATEMENT OF A. GRAY COLLINS, JR.

Mr. COLLINS. Good afternoon. My name is Gray Collins and I am Bell Atlantic's senior vice president for external affairs. I would like to thank Chairman Markey for holding these hearings and Congressmen Swift and Tauke for the interest they have shown in lifting the consent decree restrictions.

We believe the information age will improve the quality of life and the competitiveness of our Nation. Earlier this year we prepared a report which describes the types of services which might be developed if the present decree restrictions are removed.

The report describes nine American consumers, among them a farmer, a truck driver, an elderly homemaker, a teacher, and shows how information services would be part of their everyday lives. The services included language lessons, tutoring, medical applications, assistance for the deaf, and a multitude of others.

I will submit the report for the record, with your permission, Mr. Chairman.

Mr. MARKEY. Without objection, it will be included in the record. [The report is contained in the subcommittee files.]

Mr. COLLINS. Successful development of these information services requires understanding a host of different matters, including customer terminals, the communications network and information databases.

Successful integration of these components into information services requires substantial technical, marketing, operational, and financial resources, as well as time.

Bell Atlantic believes its entry would speed the process and bring information services to more consumers sooner and at more affordable rates. And we believe our participation will benefit other information service providers and speed their development of gateways and information services.

To date, Bell Atlantic has moved as quickly as the court and regulatory processes will allow. However, we cannot risk the substantial investment needed to spark the information age explosion with the existing prohibitions in place. Let me give you a couple of examples.

One year ago, last June, the court issued a final order authorizing the RBOC's to provide gateway services. Bell Atlantic viewed this change as a positive development and has deployed two gateways. Our efforts to develop one of the gateways are being impeded by the court's interpretation of the decree's long distance restriction.

Gateway service relies on a sophisticated computer system accessed via the existing telephone network. Bell Atlantic sought court approval to provide gateway services throughout the State of Pennsylvania using one centralized computer.

The decree court, however, said that we could not use that efficient arrangement. Under the court's decision, we must install separate gateway computers in each of the five local service areas to serve Pennsylvania.

Second, the decree's rules prevent us from making it easy for consumers to use computerized information services. Bell Atlantic had wanted to organize its gateway so that consumers could use

one common set of commands to retrieve information from various databases. You simply cannot expect customers to use a variety of commands when they are seeking information from various kinds of databases.

The court, however, said that we could not do that because the creation of a uniform command structure would cause us to make editorial judgments. We cannot make the information age a reality if we have to contend with these kinds of rules.

However, we are exploring in a limited way a number of information services in medical, educational and electronic yellow pages areas. To make one of the medical services useful, however, requires a huge upfront investment in determining how the data can be efficiently formatted, entered, stored, retrieved, and protected. Each party has to participate.

Trials have to be undertaken, and in the end, there must be enough ubiquity and value to users that they are willing to pay enough for the developers to recover their investment.

Bell Atlantic is prepared to invest in the development of the information age if the decree's artificial restrictions are removed and policy and implementation follows the public interest standards set by Congress and administered by the regulators.

If the rules are not substantially modified, our country will continue its antiquated public policy which ignores technology development, slows down the delivery of information services to consumers, and protects a few.

When you change the rules, we will be better able to bring the information age to rural as well as urban consumers. The information network will be developed faster, more information services will be available to consumers, and costs will be reduced as more applications are developed. Bell Atlantic is ready, Mr. Chairman. Mr. MARKEY. Thank you.

We will now turn to Warren Prince, chairman of TymnetMcDonnell Douglas Network Systems Co.

STATEMENT OF WARREN F. PRINCE

Mr. PRINCE. Good afternoon, Mr. Chairman and members of the subcommittee. I appreciate the opportunity to present Tymnet's views concerning the important issues being considered by the subcommittee.

As explained more fully in my written statement, Tymnet provides what are commonly referred to as value-added network, or VAN services. Examples of the kind of information services we provide include protocol conversion, which allows incompatible terminals and hosts to communicate, electronic mail, and gateway services.

Tymnet's offerings include many consumer oriented services as well as business applications. our network can be accessed in every LATA in the United States and in 80 countries around the world. We are proud of the fact that we were one of the first foreign companies to offer VAN services in Japan.

As you can see, Tymnet participates in the one segment of the information services market in which the FCC and the courts have authorized the BOC's to compete. We are not therefore here to try