THE WHITE HOUSE
Office of the Vice President
BACKGROUND ON THE ADMINISTRATION'S TELECOMMUNICATIONS POLICY REFORM INITIATIVE
On September 15, 1993, the Administration issued "The National Information Infrastructure: Agenda for Action," which unveiled our National Information Infrastructure (NII) initiative. There is a national consensus that construction of an advanced NII will "help unleash an information revolution that will change forever the way people live, work, and interact with each other." The "Agenda for Action" recognized that realizing the full potential of the NII will require aggressive, far- sighted government action on a number of fronts. The legislative proposals that Vice President Al Gore has outlined today are the culmination of extensive Administration efforts in one critical area -- telecommunications regulatory reform. Similar work is being done in other important areas, including support for innovative applications that will use the NII, improving access to government information, and protecting individual privacy and intellectual property rights.
In a December 21 speech at the National Press Club in Washington, DC, the Vice President announced the Administration's plans to present a package of legislative and administrative proposals concerning telecommunications and information policy. He stated that the Administration's policy would be based on the following fundamental principles:
The major elements of the Administration's legislative initiative are identified below, along with a brief discussion of how each proposal advances the principles set forth above. In doing so, the Administration has studied carefully the legislative initiatives of Senators Hollings, Inouye, and Danforth and Representatives Brooks, Dingell, Markey, and Fields. Its proposals reflect the strengths of, and build on, those bills. The Administration is building upon the dramatic steps taken by the states, including substantial and innovative regulatory reforms. The Administration intends to work closely with the states, some of which are moving aggressively to encourage competition, infrastructure modernization, and NII applications in health care, education, and government services.
In addition to the legislative package, it is a goal of this Administration that by the year 2000 all of the classrooms, libraries, hospitals, and clinics in the United States will be connected to the NII.
ENCOURAGING PRIVATE INVESTMENT AND PROMOTING COMPETITION
To fully realize the benefits of private investment and more competition in the information infrastructure, regulatory change is needed. For many years, government regulation assumed clear, stable boundaries between industries and markets. This assumption sometimes prompted regulators to view (and to regulate) firms in various industries differently, even when they offered similar services. It also caused regulators to address the threat of anticompetitive conduct on the part of some firms by barring them from certain industries and markets.
The time has come for another approach. Even if the lines between industries and markets were clear in the past, technological and market changes are now blurring them beyond recognition, if not erasing them entirely. Regulatory policies predicated on such perceived distinctions can harm consumers by impeding competition and discouraging private investment in networks and services. The Administration is therefore committed to removing unnecessary and artificial barriers to participation by private firms in all communications markets, while making sure that consumers remain protected and interconnected.
The Administration proposes to remove the current cross-ownership restriction of the 1984 Cable Act, and allow telephone companies to provide video services in their local exchange areas in order to promote investments that expand consumer choices and services. To ensure that telephone company entry does not harm consumers or competition, such entry will be subject to certain safeguards, most notably a requirement that the telephone company make channel capacity available to unaffiliated video program providers on a nondiscriminatory basis. This requirement should create market opportunities for competing providers of video services, thereby reducing prices and expanding the diversity of services available to television viewers. Further, to deter premature and potentially anticompetitive mergers between telephone companies and their most likely competitors -- existing cable companies -- the Administration proposes to prohibit telephone companies from acquiring cable systems located in the companies' local exchange areas. There would be an exception for those telephone companies operating in rural areas, which may be unable to support more than one carrier. However, to ensure that this measure does not outlive its usefulness, the Administration proposes to authorize the Federal Communications Commission (FCC) to begin proceedings that could allow such acquisitions five years after the date of legislative enactment, if certain conditions are met (e.g., the presence of sufficient competition in the telco's service area). Any telephone company/cable system acquisition would also be subject to the antitrust laws in the same manner as an acquisition in any other industry.
Competition has generated substantial benefits for consumers in a host of communications and information service markets, including customer premises equipment and long distance service. The varieties of customer premises equipment have expanded dramatically since deregulation. In addition, the price of interstate long distance telephone service for the average residential user has declined more than fifty percent in real dollars since 1984, due to competition and regulatory reform. Consumers will realize similar benefits by the expansion of competition in the local telephone service market. Competition in that market will reduce the ability of any telephone company to harm competition and consumers through monopoly control and will encourage investment and innovation in the "on and off ramps" of the NII. Accordingly, the Administration proposes to ensure that competing providers have the opportunity to interconnect their networks on reasonable, nondiscriminatory terms, with the facilities of all local telephone companies. Such companies should also be required to unbundle their service offerings so that alternative providers can offer similar services using a combination of, for example, telephone company-provided switching and their own transmission facilities. Finally, the Administration's plan will preempt state entry barriers, as well as rate regulation of carriers that the FCC finds or has found to lack market power. The Administration understands that the growth of competition for local telephone services may require repricing of some local services. Such repricing must not be allowed to cause "rate shock" for consumers. Therefore, in implementing network interconnection and unbundling, the FCC and state regulators will be directed to prevent undue rate increases for any class or group of ratepayers.
Modified Final Judgement (MFJ) Restrictions
The Administration is grateful for and appreciative of the excellent job done by the courts in connection with the MFJ. The break-up of AT&T has helped spur the competition and innovation that have kept America at the vanguard of the telecommunications industry. Now, the time has come to move beyond a decree remedying only specific violations of law administered by the courts and to enact a far-reaching and comprehensive plan reflecting a vision of the telecommunications world of the future. A key element of that plan must be to promote and protect competition, the engine of progress and jobs. Long Distance Service The Administration supports the Brooks- Dingell bill provision that requires Department of Justice (DOJ) and FCC approval before the Regional Bell Operating Companies (RBOCs) may provide interexchange services -- most notably long distance service. In determining whether to lift the restriction, the Department of Justice will apply the test contained in Section VIII(C) of the MFJ. The FCC will apply a public interest test like that set forth in the legislative proposal offered by Chairmen Brooks and Dingell. These entry tests are designed in part to ensure competition and to protect consumers and local telephone ratepayers against cross-subsidization and other potential abuses of monopoly power. In working with the Congress, the Administration will explore the creation of incentives for RBOCs to increase the transparency of their facility-based local services, because of concerns associated with cross-subsidization and abuses of monopoly power. The Administration's plan will also include an immediate and limited exception to the prohibition of the provision of long distance services incidental to RBOC provision of wireless, cable television, and certain other services. Information Services As current law provides, the RBOCs are permitted to offer information services. The Administration supports the approach taken in the Brooks-Dingell legislation that requires a separate affiliate for electronic publishing. Manufacturing In keeping with the principle of removing barriers to participation by all firms in all markets except where necessary, the Administration proposes to remove the current ban on RBOC research, development, and manufacturing subject to safeguards to prevent cross- subsidization and discriminatory practices. The safeguards to be applied before entry would include a notification-and-waiting-period procedure, as contained in the legislation proposed by Chairmen Brooks and Dingell, under which an RBOC would submit relevant information about its proposal to the Department of Justice, which could investigate and sue to enjoin the proposed entry. The Administration also supports substantive post-entry safeguards, as contained in legislation introduced by Chairman Hollings and passed by the Senate in the last Congress. Those safeguards include, among other things, requirements that manufacturing be kept separate from the monopoly portion of the telephone company's business, that the RBOC not discriminate in either procurement or sales, and that needed network information be timely disclosed to competing manufacturers.
OPEN ACCESS/PROGRAMMING DIVERSITY
There is a long-standing national policy, embodied in the First Amendment, of protecting diversity and competition in the flow of ideas. This fundamental interest is critical not only with respect to the provision of entertainment, but also with respect to educational material, health information, information necessary to an informed citizenry, and other programming matter. To further this goal, the Administration plans to require the FCC, one year after enactment, to impose nondiscriminatory access obligations on cable television systems, except when technology, costs, and market conditions make it inappropriate. ENSURING REGULATORY FLEXIBILITY AND FAIRNESS The new regulatory framework that the Administration seeks to create is designed to adjust to the technological and market changes that have undermined the regulatory regime created by the Communications Act. Legislation in this area must stand the test of time, by addressing tomorrow's challenges as well as today's. The Administration's lodestars in this efforts are flexibility, adaptability, and fairness. The regulatory instruments we choose must be supple enough to accommodate the continual change that will typify communications industries in the future. At the same time, those instruments must be equitable; similarly situated services should be subject to the same regulatory requirements. Beyond tackling the problems that have arisen as a result of current technological and market changes, the Administration recognizes that a new kind of communications service provider will emerge, one that offers switched, broadband digital transmission services to home and office. Such firms face the potential of being regulated under two different parts of the Communications Act -- Titles II (common carriers) and VI (cable communications). These firms will also be regulated at the state level for the intrastate component of their Title II services and at the local level for their Title VI services, creating a needlessly overlapping and complex regulatory environment. The nation needs a flexible, adaptable regulatory regime that encourages the competitive provision of the broadband, switched digital transmission services that can truly knit homes and businesses together. The Administration will propose a future-oriented regulatory regime, to be enacted as a new Title VII to the Communications Act, that will encourage firms to provide these services. The Administration's proposal would provide the FCC with broad forbearance authority while maintaining key public policy goals, including open access and interoperability requirements, along with obligations to support universal service. In addition, consistent with the approach taken in the 1992 Cable Act, the proposal will provide for rate regulation until competition is established in these service markets, with a presumption of forbearance for new entrants that are not dominant in related services. State and local regulation of services not subject to competition could take place subject to FCC guidelines. Under the Administration's plan, the FCC would adopt transition rules to move to this new regime. Firms would elect to be regulated under the new framework, provided that they meet threshold criteria established by the FCC. In addition, the Administration proposes to allow the FCC to reduce regulation for telecommunications carriers that lack market power. This provision will ensure that unnecessary government regulation -- however well- intentioned -- does not harm users of the infrastructure, or impede competitive entry, investment, and the introduction of new services.
The United States has long been dedicated to "universal service" -- widespread availability of basic telephone service at affordable rates. As stated in the "Agenda for Action," the Administration is committed to developing a new concept of universal service that will serve the information needs of the American people in the 21st century. Indeed, the full potential of the NII will not be realized unless all Americans who desire it have easy, affordable access to advanced communications and information services, regardless of income, disability, or location. It is a goal of this Administration that by the year 2000, all of the classrooms, libraries, hospitals, and clinics in the United States will be connected to the NII. The Administration recognizes, however, that crafting a new, meaningful, and practical definition of universal service will require flexibility, foresight, and the balancing of diverse interests. Given these circumstances, the proposed legislation will establish several overarching guidelines and charge the expert agencies -- the FCC and the state regulatory commissions -- with establishing the details. The Administration therefore proposes to: o Make the preservation and advancement of "universal service" an explicit objective of the Communications Act, in order to establish the goal that advanced services be available to rural and urban lower income users, to users in areas where the costs of service are high, and to social institutions, especially schools and health care facilities. o Charge the FCC and the states with continuing responsibility to review the definition of universal service to meet changing technological, economic, and societal circumstances. o Establish a Federal/State Joint Board to make recommendations concerning FCC and state action on the fundamental elements of universal service. In its deliberations, the Joint Board must gather input from non-governmental organizations. o Oblige those who provide telecommunications services to contribute to the preservation and advancement of universal service. However, the FCC, in consultation with the states, would be authorized to permit "sliding scale" contributions (e.g., to avoid burdening small providers and new entrants), or "in-kind" contributions in lieu of cash payments (e.g., to reduce the monetary payments owed by providers that offer to connect with schools, hospitals, etc.).