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.
Cable-Telco Cross-ownership
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.
Local Competition
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.
UNIVERSAL SERVICE
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.).