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THE WHITE HOUSE

Office of the Press Secretary

                         BACKGROUND BRIEFING
                                  BY
                   SENIOR ADMINISTRATION OFFICIALS

December 20, 1993

The Briefing Room

3:17 P.M. EST

SENIOR ADMINISTRATION OFFICIAL: Good afternoon. Vice President Gore will deliver the luncheon address tomorrow afternoon at the National Press Club to do one of two major speeches that he will present on telecommunications policy and reform that the administration will be pursuing in 1994 with both legislative and administrative actions.

In between the Vice President's speeches, Secretary Ron Brown will deliver a speech also in early January regarding the implications of telecommunications reform for the economy. The second speech the Vice President will deliver will be in California, in Los Angeles, on January 11th at an all-day summit hosted by the Television Academy of Arts and Sciences on the superhighway -- information superhighway. I believe they put out a press release about 10 days ago on that and are finalizing the agenda and the participants. But that will have representatives from all of the information industry -- cable, television, telephone, movies, energy industry, education community -- at which point the Vice President will lay out the blueprint for the administration's proposed reform of both those aspects of the Telecommunications Act of 1934 and the modified final judgment from the AT&T divestiture judicial restrictions on communications industry in the January speech, followed by legislation at the beginning of the next session.

Tomorrow afternoon, the Vice President will lay out several principles that he thinks should guide the administration and the Congress's reform of the telecommunications laws and the creation of the marketplace of the future in information. As part of that he will also discuss some of the processes that we have been going through in the administration both interagency and between the White House and the Congress to communicate with and respond to the many bills that have been introduced on the Hill regarding telecommunications reform.

With the confirmation of Reed Hundt now as the Chairman of the FCC and the team in place at the Department of Commerce and the Department of Justice, there are all the people in place to take responsibilities for different aspects of the decisions that would have to be made for a transition from the Telecommunications Act of '34 and the system that both legislative and administrative changes would set up.

Let me introduce my colleague in just a moment to talk about some of the process we've through as well as the implications.

SENIOR ADMINISTRATION OFFICIAL: What I thought I'd do is just give you a sense of what's the desired end point, what is the nature of the phase we're in now, and what's the nature of -- what are in broad terms the kinds of issues that we have to deal with. And I'll stay with the sort of -- the most fundamental information industry kinds of questions.

What the changes in technology to which the Vice President's speeches and Secretary Brown's speeches will basically be responsive to really mean is that for the first time since we've had a telecommunications -- since telecommunications has been a central part of the economy is that -- is the possibility for absolutely pervasive competition in every single line of business of telecommunications. And therefore the desired end point is to move to -- is to move to a point ultimately where any company can offer any services through any network to any set of consumers. That's the desired end you'd like to reach to, and where all of the facets of the industry are competitive.

Obviously, the period that we're in at the moment is a period -- and it'll probably be a long period -- of transition between a telecommunications and an information environment that was characterized really quite differently, when technologies were very different and when there were lines of business, when particular technologies offered particular lines of business and there was really no merging between the two. And the best way, I think, to think of the issues that are going to be on the Hill next year and to which the Vice President and Secretary Brown will be referring and responding in the course of their speeches is the following: There are a whole set of problems which derive from what are the kinds of services that a company can offer. Can it offer local competitive services -- i.e., in the local loop where telecommunications go to the home? Can a company offer long distance services? Can a company engage in manufacturing? Can a company engage in what are called "information services," which is the offer to the home or to a business of particular information.

So one area in which legislation is being considered and upon which the Vice President will comment will be the loosening of restrictions which affect what services a company can offer.

Another whole area derives from the fact that because of the history of telecommunications and the different history of companies, companies with different kinds of history now offer different kinds of services and are restricted in that way. So a cable company offers one kind of services, broadcast television offers another kind, now convergent mostly with cable television, telephone companies offer another kind. And, again, another set of legislation is increasingly -- moves in the direction of saying that the past history matters less and less, and as long as there is competition, companies can -- irrespective of their past history -- can offer competing services. Both are responding to the basic fact that the technology has changed fundamentally and that all of these things are now convergent.

The end result of all of that I stated in one way, which is -- is the capability to offer any set of services to any consumer through any network at any time. Another way, though, of thinking about that is the enormous changes and advantages as we begin -- as that begins to be put in place nationally for our economy. Not only is it in itself -- do those changes involve an enormous amount of investment, and therefore jobs, but they also increase radically the flexibility of our economy, its capability to deal with change, the capability to offer new and different services, the capability of companies to work with each other so that you can see a merging out of the information infrastructure an economy that functions in quite significantly different ways. And that's the end result, is a much freer, much more competitive telecommunications and information marketplace that, because it is that way, changes in quite fundamental ways the nature of the economy.

My colleague and I are available for questions if there are any.

Q How does this affect the average person? Is this -- it sounds wonderful, but I'm not sure how it affects them and when it will affect them.

SENIOR ADMINISTRATION OFFICIAL: I think that the first way it affects them is going to be lower prices for telecommunications and information services. I think that the second way that it will affect them will be the increased investment, the increased number of jobs that the information industry change means. The third way it's going to affect them is it's going to change the very nature of their work. I mean, just as an example, video conferencing is on an almost vertical rise up within companies as the price has come down. You're going to see much more of that. You're going to see a very large number of people working in companies who can now spend more of their time at home as telecommuting replaces vehicle commuting.

Now, timelines for those -- the first couple of changes that I announced -- that I mentioned -- price changes, investment changes, probably over the next very few years. The longer changes of lifestyle -- end of the century, seven years, eight years.

Q Would this be happening without what you're doing? Because I've heard about this for quite a while. What is the White House doing with this legislation that wouldn't happen otherwise?

SENIOR ADMINISTRATION OFFICIAL: Regulation -- let me make one point about laws and regulations and my colleague can make another. The technology that changes that are occurring are going to change and the changes are going to occur irrespective of what anybody does. And to suggest that they wouldn't is a little bit like pretending you're King Knute. Technology has historically shown a tendency to move much more rapidly than regulation. And what this does is catch regulation up with where technology is and give it -- and provide a capacity so it can change much more flexibly.

Q Except that how do you define competition? This is a tough thing to get your arms around because nobody knows yet where the market's going or what the mergers are going to end up being.

SENIOR ADMINISTRATION OFFICIAL: That's right.

Q So you must have, in whatever proposals you have that you're sending to the Hill some kind of definitions for what you would consider competition. Is it two companies, side by side? Must it be three? And then, before you get to that competition, you must also be thinking of some kind of regulations that protect the people from a monopoly developing.

SENIOR ADMINISTRATION OFFICIAL: Let me make one point on this, and then my colleague should speak. My colleague made the point that no one can predict the shape and appearance of markets that are changing this rapidly and their shape and appearance in the future. But what we can do is try to build certain values into the system. And one of those values has got to be a competitive environment and a competitive marketplace.

And, therefore, what the regulatory system has to do as it ushers us through a transition like this, is provide for checks along the way so that one can ask the question, is there, in fact, competition.

SENIOR ADMINISTRATION OFFICIAL: And we're not saying that these models will be developed overnight or even be clear and accepted by everybody when the proposals are introduced by the administration in January and early February. But already, on the Hill, you see people who are providing models that, as in the Dingell-Brooks bill, that for certain changes in the law, there have to be reviews by the Justice Department and the FCC in their areas of jurisdiction and in antitrust considerations regarding what is competition.

Now, the challenge is that the Telecommunications Act of '34 dealt with a much different world. We have now had the challenge of coming up with models that define competition in the modern world where you don't have competition that's based just on how many wires go into your house, but what your access is to wireless technology. The fact that we're going to be talking to our televisions and watching our telephones means that we have to redefine what competition means because we're going to be getting information from every source imaginable. And as one person put it, everything we do now through wires in the ground we're going to do in the air; and everything we do now in the air we're going to do through wires in the ground. So we have to rethink the models at the same time that we're rethinking the technology.

If I could go back quickly to the question about what does this mean for the average American and how soon will it mean it, we're already seeing a situation in which education is reversed in the home. Parents are learning computers from their children. Parents are learning how to program their VCRs and their cell phones from their children. The technology revolution is occurring more quickly than the education system can handle it or the regulatory system. And as a result, all of these changes that we read about everyday in the paper are occurring -- they're running into the wall of regulations and judicial restrictions, and they're all finding little fish ladders around the dam so to speak. We're got to start dealing with how to open up the dam in a controlled way to let these technologies flow in a way that still protects universal service, competition, open access and privacy.

Q You talked about removing barriers between various industries. And right now the FCC licenses services for very specific -- gives licenses for the airwaves for very specific purposes like broadcast tv or cellular phones. Could you ever foresee, say, a television station being allowed to use maybe a portion of its spectrum for another kind of service or cellular phone system -- using it for some other thing?

SENIOR ADMINISTRATION OFFICIAL: I could foresee it. I don't think that's something that we're going to have to deal with in this initial proposal that deals with the legislative angle. But let me say, if you look at the companies who are now making a living by gathering taxi cab radio frequencies and bundling them together for cell networks. There's a great opportunity here to convert one form of use of the frequency into another form that has a much better economic potential.

Q One of the reasons the local phone companies have been kept out of long distance, and it's obvious they're a monopoly, how much of their monopoly do they have to lose in order for them to be allowed into this new area? I mean, is it 90, 80, 70, 60?

SENIOR ADMINISTRATION OFFICIAL: That's the same question we got just a second ago. The Justice Department will have to be setting up those kinds of models. The important thing is, are we going to start the process of addressing that question and dealing with proposals like Ameritech's and others who have said, we'll let you into our area if you'll let us into yours. And we have to decide, what do we mean by effective competition before we let the regional companies into other areas and prevent monopolies.

SENIOR ADMINISTRATION OFFICIAL: Let me give you another perspective on your point. I said that we're in a period of transition that'll last a decade or more. After all, the Communications Act of '34 is now 50 years old -- 60 years old. And we're not in the legislation that will be considered this next year, going to get to the point that you've stated. But very, very respectable people in the business and in the academic fields that look at it, say that we're getting to the point where you really ought to think of these different kinds of companies as bit companies -- they're as bits companies. And some of them sell them by overthe -air broadcast, and some of them sell them by other kinds of wireless technologies, and some of them sell them through wires under the ground. And that, ultimately, the point is that they're all going to be selling bits, and they ought to all be regulated in a way that recognizes it in certain fundamental ways that are in the same business.

Q Is that going to affect newspapers having restrictions on TV stations they can own and vice-versa, in the same market --

SENIOR ADMINISTRATION OFFICIAL: Not the current legislation. The current legislation does not, and largely, I think, because the system can only accommodate so much at any given time. We really are in a period of transition. But if you follow the logic of what I just said, yes, ultimately.

Remember, the fundamental switch that is occurring here is from scarcity to plenty; that the reason why most of the regulation has been in effect for so long is the basic underlying assumption that the ways to the consumer were limited; and therefore control over them was antithetical, both to the nature to our economy and also to a democracy.

If you've reached a point where spectrum space, because of the many different ways of using over the air and also fiberoptics, coaxial cable is essentially unlimited, then you begin to reach a point where you care less about the nature of regulation as it is now and you begin to look for a change.

Q Are there some companies -- I'm not an expert in this -- but are there some companies like an AT&T or whatever that are not going to care for this kind of change that you're talking about?

SENIOR ADMINISTRATION OFFICIAL: The devil's in the details -- if you went around to the industry and you said do you subscribe to the -- any company through any network, any information service to any set of consumers, everyone would agree. It's in the answering of the specific questions, like how do you judge competition, what particular rules do you have in effect where people are going to -- out.

Q Well, on that note, what specific provisions in bills on the Hill do you like? And could you talk about what you're looking at as far as some of the subsidiary guidelines, pricing things -- what do you see up there that you like, and what might the Vice President be endorsing?

SENIOR ADMINISTRATION OFFICIAL: Well, first of all, all of the bills that are currently introduced on the Hill are a step in the right direction. They tend to compliment each other -- there's some overlap. There's very little contradiction. You'd have to get into the details to see some areas where there would be some real disagreements.

In his speech tomorrow, the Vice President -- well, first off, the Vice President has spoken with the spoken with the sponsors of all of the bills that are on the Hill in the last month or two and has met with many of them personally, and has had an interagency group that has been reviewing all of that. Tomorrow in his talk he will address where he would like to go with some of those bills, although the administration proposal and which of the bills we will incorporate and which provisions will be announced in the January speech in Los Angeles.

Q That hasn't been decided yet then?

SENIOR ADMINISTRATION OFFICIAL: Some of the basic principles -- let me put it this way -- the basic principle that we are going to change our regulatory system to allow for -- to decrease the restrictions on the cable companies, the telephone companies, the information services provided by telephones and to provide for easing of the MFJ, modified final judgment restrictions. That decision is clearly made. The details of the architecture of how you do that and the timetable under which you do that and the tests, both entry and post-entry that you use to guard that, is still under discussion.

Q To what extent are you worried that deregulation might have the same effect on the telecommunications industry that it did on the airline industry or the breakup of the phone companies?

SENIOR ADMINISTRATION OFFICIAL: Well, first off, we're not talking about instant deregulation; we're talking about a transition period from a system that is well-known but not wellworking and a system that is not yet in place which we think will provide much better market measures -- or market incentives for competition and for in investment. The difficult time is the transition.

And in that transition, you will still need to have government regulation; you will always need to have anti-trust review of the market as it exists to prevent monopoly advantage. So, we are not talking about a black or white situation. We are talking about walking a line between the current antiquated system and a system in which market principles would apply except in those areas where either geography or economic benefits create a monopoly that we find unacceptable based on the values that the Vice President is going to talk about tomorrow.

Q When you talk about easing the MFJ, are you talking about letting the regional phone companies get into long distance -- because you know the fights that exist between the long distance companies and the regional phone companies about crossing into each other's territory? So, are you just going to -- are you going to open that up and say let's get rid of the MFJ, or are you talking about contingent on something else you can get rid of this part of the MFJ?

SENIOR ADMINISTRATION OFFICIAL: Well, remember we're not operating in a vacuum. The Dingell-Brooks bill lays out, for instance, a timetable for the regional companies to get in on the long distance going through certain entry barriers and Department of Justice and FCC reviews. We are -- we think that that provides a very good model. We are looking at how that could be incorporated. We have some issues that we still need to understand about the bill.

But we're not talking about just taking two opposing groups and throwing them in the same room together. We're talking about coming up with rules of the road when we get to this intersection. And even today, AT&T said that although they had been skeptical, historically, of this kind of relaxation, they now see some good things about it. So we think there's a way to work this out.

Q To borrow a phrase from health care, is this sort of like "managed deregulation"? Is that what you're talking about?

SENIOR ADMINISTRATION OFFICIAL: Well, any kind of deregulation is going to be managed. And somehow I don't think that I -- it's a nice term, but I don't think it's a appropriate analogy. We face next year -- have the opportunity of seeing next year the largest single change in telecommunications regulation and law that's occurred since 1934. And the changes are really absolutely substantial.

There is, I think, with respect to the kinds of values that my colleague underlined, which is to say, privacy, competition, access, there is a responsibility to make certain that certain kinds of values get built into the system. But if by "managed," you mean, do we think that we have some sense that we can make this a careful, stately kind of transition irrespective of the way the technology is flowing, no. Technology is occurring extremely rapidly, and government doesn't affect that rate of change much.

Q Would the administration's bill include some provision on these mergers -- like, for instance, TCI-Bell Atlantic -- AT&T? Did you all address those issues --

SENIOR ADMINISTRATION OFFICIAL: No. The administration's bill -- when those mergers were announced, the White House statement on those was that we favor competition, we favor improved opportunities for information provision to all sectors of society, and that there are formal reviews going on on all of those mergers, and we let those processes run. We are not going to try and pick and choose among all the mergers in the legislation.

We are trying to, in the proposals we will put forward -- and the Vice President speaks tomorrow -- talk about the market that's out there, how the market is changing, and how the technology improves communication. This isn't so much about technology, although that's what we read about every day, as it is about technology's effects on the way we communicate and the way we're going to communicate, and who will have information and who will not. And the provision of information to the public, to schools, hospitals, libraries, as well as to the economically well-off sectors of society is a crucial point that we want to make sure is included in any reforms that happen.

Q Well, you mean, he won't outline what his plan is; he'll just do an overview of --

SENIOR ADMINISTRATION OFFICIAL: He will do an overview of some of the questions we're going to address as well as the principles he thinks need to be incorporated in the blueprint, as well as principles that we anticipate, or that we would like to see in the marketplace that the private sector creates as well, because there are many responsibilities we think the private sector should take on that relate to the values of universal service and open access, some of which are governed by anti-trust principles, others are governed by the value we put on information's importance to any democracy.

Q I missed who the Vice President is going to talk to tomorrow.

SENIOR ADMINISTRATION OFFICIAL: The National Press Club.

Q What the difference between the January 4th and the January 11th speech?

SENIOR ADMINISTRATION OFFICIAL: Ron Brown will do the January 4th speech, primarily on the economic aspects of the --

Q And what -- the January 11th speech is going to be about?

SENIOR ADMINISTRATION OFFICIAL: Is the Vice President's blueprint in Los Angeles.

Q public institution, so is there going to be a universal access for poor people so they can get phones, and are they considering television and cable television now, something that that should also be available no matter how --

SENIOR ADMINISTRATION OFFICIAL: The extent of how we define universal service is actively under discussion. And the question of subsidies or rate subsidies is also a very difficult one. As you know, the definition of universal service has gone to having a party line phone to having an individual line. Is call-waiting part of universal service? Is a modem hook-up part of universal service? Those are some of the questions that we have to answer. We don't expect to have all of the answers, because the market will surprise us down the road in terms of what's available.

One of the issues we want to propose to deal with that question is how to make the regulatory system more responsive more quickly to technology changes. We can't wait 60 years at a pop to catch up with technology. So that's one of the problems we're going to reach is, how can we make the regulatory system more responsive to the technological opportunities.

THE PRESS: Thank you.

END3:43 P.M. EST