THE WHITE HOUSE

Office of the Press Secretary

                    ADMINISTRATION WHITE PAPER ON
                     COMMUNICATIONS ACT REFORMS

I. Introduction

Vice President Al Gore and Secretary of Commerce Ron Brown announced the Administration's National Information Infrastructure (NII) initiative in September 1993, establishing an agenda for a public-private partnership to construct an advanced NII to benefit all Americans. In speeches and policy papers since then, the Administration has proposed legislative and administrative reform of telecommunications policy, based on the following fundamental principles:

• Encouraging private investment in the NII;
• Promoting and protecting competition;
• Providing open access to the NII by consumers and service providers;
• Preserving and advancing universal service to avoid creating a society of information "haves" and "have nots";
• Ensuring flexibility so that the newly-adopted regulatory framework can keep pace with the rapid technological and market changes that pervade the telecommunications and information industries.

The Administration shares the belief of many in Congress that legislative reform of telecommunications policy is essential to meeting these goals, in order to bring the benefits of advanced communications and information services to the American people. For many years, government regulation assumed clear, unchanging boundaries between industries and markets. This assumption sometimes led regulators to view and regulate firms in various industries differently, even when they offered similar services, and to address the threat of anticompetitive conduct on the part of some firms by barring them from certain markets and industries.

A new approach is needed. Even if the lines between industries and markets were clear in the past, technological and market changes are blurring and erasing them. Regulatory policies that are based on such perceived distinctions can harm consumers by impeding competition and discouraging private investment.
In light of these realities, the Administration is committed to removing unnecessary and artificial barriers to participation by private firms in all communications markets, while making sure that consumers remain protected.

In developing legislation to meet these challenges, the Administration is grateful to Chairman Markey, Congressman Fields, and their colleagues on the Telecommunications and Finance Subcommittee for their pathbreaking, bipartisan work on H.R. 3636, which addresses many of the Communications Act issues that are most important to the development of the NII. The Administration's legislative telecommunications reform proposals build on H.R. 3636, as well as S. 1086, developed by Chairman Inouye and Senator Danforth. The Administration also salutes H.R. 3626, the related legislative initiative to reform the AT&T consent decree undertaken by Chairmen Brooks and Dingell, and the leadership of Chairman Hollings on these matters.

The specifics of the Administration's legislative proposals on telecommunications reform are discussed below. Because the Administration supports the general approach and many of the existing provisions of H.R. 3636, the provisions of that bill serve as a framework for describing the Administration's proposals. Those proposals also reflect the innovative regulatory reforms taken by many state telecommunications regulators.

II. Local Competition and Interconnection

Competition has generated lower prices, improved choices for consumers, and rapid technological innovation in many communications and information service markets, including customer premise equipment and long distance service. Similar benefits should be realized by the expansion of competition in the local telephone service market. Competition in that market also 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.

• The Administration supports the general requirement of H.R. 3636 that all carriers must interconnect with other providers of telecommunications and information services. Such a requirement helps ensure that the NII functions seamlessly.
• The Administration also supports the approach of H.R. 3636 to impose more specific pro-competitive interconnection requirements on local exchange carriers (LECs), in light of these carriers' monopoly positions:

          an obligation to interconnect at any "technically 
     feasible and economically reasonable point";

          an obligation to afford nondiscriminatory access to 
     network facilities, services, functions, and 
     information, where technically feasible and economically 
     reasonable;

          no restrictions on resale or sharing of network 
     facilities and services.
*    H.R. 3636 would require the FCC to adopt regulations 
     governing the price, terms, and conditions under which 
     carriers may provide interconnections, access, 
     facilities, and services.  The Administration agrees 
     with this general approach, but suggests that some of 
     the details of this provision, such as the tariff filing 
     requirement for LECs, are unnecessary based on current 
     law and practice.  The Administration also would 
     emphasize that, in carrying out this requirement, the 
     FCC and the States must prevent undue rate increases for 
     any class or group of ratepayers.

• The Administration supports the approach of H.R. 3636 of requiring carriers to provide facilities, services, and network functions on an unbundled basis, i.e., carriers would have allow customers to pick and choose the constituent parts of the services to be taken. Thus, for example, instead of offering only switched local telephone service, a carrier would also have to offer separately the switching and transport components of that service.
  • The Administration supports authorizing the FCC to modify all of the foregoing obligations for small LECs and LECs serving rural areas. This differs slightly from H.R. 3636, which would exempt carriers serving rural areas from the foregoing interconnection and unbundling obligations and authorize the FCC to modify those requirements for carriers with fewer than 500,000 access lines nationwide.

III. Relations with the States

Because of the crucial role of the states in protecting ratepayers and addressing economic and technical infrastructure issues in their areas, substantial state jurisdiction over telecommunications must be preserved. However, when national interests are at stake in realizing the benefits of an advanced, interconnected NII, particularly through local competition, national policies, with limited preemptive effect in a few key areas, are necessary.

• H.R. 3636 would prohibit state entry regulation for telecommunications services or state action restricting a firm from exercising the interconnection rights granted by the bill. Similarly, in order to realize fully the benefits to consumers of increased competition in telecommunications, the Administration proposes to preempt state entry regulation for provision of telecommunications and information services.
• H.R. 3636 does not address state and local rate regulation. However, rate regulation of new entrants and other firms that lack market power not only is unnecessary, but can act as a powerful deterrent to the development of a truly competitive marketplace. Accordingly, to further the procompetitive goals discussed above, the Administration proposes to preempt state and local regulation of the rates for any service charged by a telecommunications carrier that the FCC finds, or has found, after notice and comment, to lack market power. However, the Administration would permit states to petition the FCC to retain or regain authority to regulate such rates under certain conditions. This approach for rate regulation is substantially the same as that passed by Congress in the last session for commercial mobile services, as codified in Section 332(c) of the Communications Act.

IV. Regulatory Flexibility

An Administration priority is to make government work better for the American people by reducing red tape and eliminating regulatory overkill. This is particularly important with regard to the telecommunications and information industries, which are subject to continuing technological and market changes. Detailed regulatory requirements that may be well-suited for incumbent firms with monopoly or near-monopoly positions may be quite inappropriate, and even anticompetitive, when applied to firms that lack market power. Telecommunications reform legislation should provide the FCC with the flexibility to adapt its regulations to meet changing conditions, consistent with the public interest.

• The Administration proposes to authorize the FCC (1) to exempt carriers lacking market power from any provision of Title II of the Communications Act (except provisions relating: to the duty to serve and interconnect; the duty to charge just, reasonable and nondiscriminatory rates; damages; and customer complaints) and (2) to tailor the regulations it does impose to reflect a carrier's market power. H.R. 3636 currently does not have comparable provisions.
• The Administration supports the general approach of H.R. 3636 authorizing the FCC and the states to permit carriers pricing flexibility for their competitive services. H.R. 3636 is very detailed in requiring the FCC to develop standards and criteria to guide regulators in exercising that authority. The Administration believes that legislation should provide more general guidance to the FCC. V. Universal Service

The United States has long been committed to "universal service" --widespread availability of basic telephone service at affordable rates. As we move rapidly into a world in which advanced telecommunications capabilities, well beyond traditional telephony, will soon be available to many Americans, it is critical that our universal service goals and policies advance as well. The Administration seeks to work with Congress and the states to develop an enhanced concept of universal service that will serve the information needs of the American people in the 21st century.

• It is an Administration goal that, by the year 2000, all of the classrooms, libraries, hospitals, and clinics in the United States will be connected to the NII. To help attain that goal, the Administration proposes that the National Telecommunications and Information Administration of the U.S. Department of Commerce conduct an annual nation-wide survey of the availability of advanced telecommunications services to those locations and report on its findings. Moreover, the Administration proposes that the FCC be directed to commence an inquiry and, subsequently, a rulemaking proceeding to ensure, to the extent feasible, the availability of advanced telecommunications to public school classrooms, health care institutions, and libraries. The FCC would consider the tariffing of preferential rates for interstate services to such locations, and ensure that standards are in place to permit uniform interconnection to the NII.
• The Administration supports the approach of H.R. 3636 in making the preservation and advancement of "universal service" an explicit objective of the Communications Act (as opposed to an implicit goal emanating from Section 1 of the Act). The Administration would provide more general guidance, and more flexibility to the FCC and the states in specifying the details of how that objective should be achieved. The Administration would state that advanced services should 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 educational and health-care facilities.
• The Administration supports charging the FCC and the states with continuing responsibility to review and revise objectives for expanding universal service to meet changing circumstances.
• The Administration supports the requirement of H.R. 3636 that the FCC and the states address universal service issues through a Federal/State Joint Board. The Administration proposes giving the Joint Board more time to develop its recommendations to the FCC, and the FCC more time to act on them.
• H.R. 3636 would require all providers of telecommunications service to make "an equitable and nondiscriminatory" contribution to the preservation of universal service. The Administration agrees that the FCC and the states should have broad authority to require all providers of telecommunications services to contribute to the preservation of universal service. In exercising that authority, the FCC and the states must ensure that no service provider is unfairly burdened relative to its rivals, and that contributions to universal service do not unduly distort consumer choices among alternative services.
• The Administration also proposes authorizing the FCC, in consultation with the States, to permit "sliding scale" contributions (e.g., to avoid burdening small providers and new entrants), as well as "in-kind" contributions in lieu of cash payments. H.R. 3636 has no comparable provisions.

VI. Cable-Telephone Crossownership

Although the existing cable-telephone company crossownership restriction of the 1984 Cable Act may have been appropriate when enacted, today it is an unnecessary and artificial barrier to competition in the delivery of video programming to American consumers and to investment in advanced local infrastructure. The Administration's proposal to remove the current restriction, coupled with its proposals to promote competition in local telephone service, will allow telephone companies and cable operators to compete in providing a full range of video, voice, and data services to the public. Such competition can promote investment that expands consumer choices and services.

To ensure that cable firms and telephone companies do not harm consumers or competition in providing these services, the Administration proposes several safeguards specified below, most notably requirements that most telephone companies and cable operators make transmission capacity available to unaffiliated video providers on a nondiscriminatory basis. In doing so, the Administration also seeks to protect diversity and competition in the flow of ideas, and to ensure that similarly situated firms are regulated similarly.

The Administration supports the general approach of H.R. 3636 to allow LECs to provide video programming in their telephone service areas, subject to certain conditions and safeguards. The Administration would propose somewhat different conditions and safeguards, which, however, are also designed to protect consumers and competition and prevent undue control of information content and conduit by any one firm.

Structural Separation:

• The Administration supports the approach in H.R. 3636 of requiring LECs to provide video programming through a separate affiliate, in order to prevent improper crosssubsidization and discrimination by the LEC.
• H.R. 3636 specifies many of the details of the separation requirements. The Administration proposes modifying this approach to charge the FCC with specifying the required degree of separation, subject to two basic requirements from H.R. 3636:

          A LEC's video programming affiliate must have 
     separate books, records, and accounts; and  
          Any contract or agreement between a LEC and its 
     affiliate (1) must be pursuant to regulations adopted by 
     the FCC, (2) must be on a fully compensatory and 
     auditable basis, (3) must be without cost to the LEC's 
     telephone service ratepayers, (4) must be filed with the 
     FCC, and (5) must adhere with rules that will enable the 
     FCC to assess the compliance of any transaction with its 
     rules.

• The Administration supports the approach of H.R. 3636 in permitting the FCC to modify separation requirements for small and rural LECs at any time. H.R. 3636 would allow the FCC to modify separation requirements for other LECs beginning 5 years after enactment. The Administration proposes reducing that waiting period to 2 years, to provide greater regulatory flexibility in the face of changing conditions.

Nondiscriminatory Access Obligations:

• In order to promote competition and diversity in the flow of ideas, H.R. 3636 would require a LEC that provides video programming to subscribers in its service area to establish a "video platform," based on the FCC's current "video dialtone" rules, and make it available to unaffiliated programmers on nondiscriminatory terms. The Administration supports this general approach, with some modifications.
• H.R. 3636, by its terms, would require that the rates for the platform be nondiscriminatory. The Administration proposes specifying that LEC provision of the video platform will be subject to all requirements of Title II of the Communications Act.
• H.R. 3636 appears to require a LEC to afford nondiscriminatory access to its video platforms only when it carries "affiliated" video programming (i.e., programming in which the LEC has an ownership interest). The Administration proposes requiring a LEC to afford unaffiliated programmers nondiscriminatory access to its video platform whenever the LEC carries video programming.
• H.R. 3636 would require the FCC to limit the number of channels on a LEC's video platform that can be occupied by its video programming affiliate (that limit can be no lower than 25% of the platform's capacity). The Administration proposes to authorize the FCC to impose such a limit and give the FCC discretion in selecting what the limit should be.
• The Administration proposes to permit the FCC to modify any of the foregoing requirements for small and rural LECs. H.R. 3636 contains no similar provision for small, non-"rural" LECs.
• The Administration supports allowing the FCC to modify the definition of "video platform" beginning 1 year after enactment. H.R. 3636 contains no such provision.
• The Administration proposes to direct the FCC to adopt regulations, within 1 year of enactment, that would require cable operators to offer nondiscriminatory access to channel capacity on their systems for unaffiliated programmers, except when technology, costs, and market conditions would make such offering inappropriate. H.R. 3636 requires that the FCC study whether to impose such obligations and report to Congress within 2 years after enactment.

Anti-Buyout Provisions:

• To protect competition in the provision of communications and information services and to further the flow of ideas, the Administration supports limiting a LEC's ability to enter the video services market via acquisition of cable systems operating in its telephone service area. The Administration proposes to limit cable companies' ability to acquire LECs providing local telephone service in the cable companies' franchise areas.
• The Administration supports the provisions of H.R.3636 permitting in-region acquisitions occurring in rural areas and for joint LEC/cable operator use of the cable "drop wire." The Administration proposes eliminating the provision of H.R. 3636 that would permit a LEC/cable acquisition if the number of households served by the cable systems acquired constituted less than 10% of all households in the telephone service areas of the acquiring LEC and its affiliates.
• H.R. 3636 would also authorize the FCC to waive the anti-buyout policy at any time under certain conditions. The Administration proposes authorizing the FCC to change the policy by rule, or to grant waivers on a case-by-case basis, beginning 5 years after enactment, if it determines that such action would be in the public interest. Such acquisitions would, however, remain subject to the antitrust laws.

Franchise Obligations:

• The Administration supports the general approach in H.R. 3636 of removing some requirements of the Cable Act for the LEC's video programming affiliate and any other user of the LEC's video platform, while maintaining others, such as must carry, retransmission consent, the provision of public, educational, and governmental channels, and others designed to protect consumers.
• To promote symmetric regulation of similarly-situated firms, the Administration proposes to authorize the FCC to remove some Cable Act requirements (most notably, the requirement to have a cable franchise) for cable systems that offer nondiscriminatory access substantially similar to that required of LECs by the bill, while maintaining the overall Cable Act regulatory structure. H.R. 3636 has no comparable provision.

Rural Exemption:

• H.R. 3636 states that provisions concerning the video programming affiliate, the video platform, provision of affiliated programming, and the ban on acquisitions do not apply to LECs offering video programming in rural areas. The Administration proposes to authorize the FCC to modify those provisions for such LECs.

VII. Regulation of Two-Way, Broadband Transmission Services

(Title VII)

The Administration proposes adding a new Title VII to the Communications Act to apply, on an elective basis, to providers of two-way, broadband, digital transmission services, offered on a switched basis to end users. The Administration would emphasize these services because, well into the 21st century, they will connect and empower the American public by providing them with a variety of voice, data, video services, and other information that will enhance our nation's economic competitiveness and the quality of life of our citizens.

A new Title VII would provide a unified, symmetric treatment of providers of two-way broadband services, in contrast to the present disparate treatment of common carriers and cable operators under Titles II and VI of the Act. It also would provide important incentives to promote private sector development of this part of the NII and spur availability of advanced services on a widespread basis. The Administration recognizes that communications services are developing in a rapidly changing technical and marketplace environment. A new Title VII would create a regulatory regime that should stand the test of time by providing the FCC with the flexibility to adapt its regulatory approach in light of changes in market and technological conditions.

Eligibility and Certification

• Under the Administration's proposal, firms could elect Title VII regulation of the two-way broadband, interactive, switched, digital transmission services they provide to end users ("Title VII broadband services"), if they offer such services to at least twenty percent of their subscribers in a state. The FCC would be authorized to define Title VII broadband services in greater detail and to modify the subscriber threshold.
• If a firm were to certify to the FCC that it meets the threshold in one or more states and the FCC does not disallow the election, the FCC would apply streamlined Title VII regulation to the firm's Title VII broadband services and the other services that share broadband facilities in those states.

Regulatory Framework for Title VII

• Title VII would impose the following broad requirements (to be implemented by the FCC) to apply to Title VII broadband services and the services that share broadband facilities with them:

          Open access obligations (including access for the 
     disabled) to enable all persons to send information over 
     the firms' broadband facilities;

          Universal service requirements consistent with 
     those under other parts of the Communications Act; and

          Interconnection and interoperability requirements

• Title VII would promote regulatory flexibility by providing that the FCC shall:

          Regulate rates only for Title VII services that are 
     offered by firms the FCC finds have market power in the 
     provision of such services; and

          Establish procedures to resolve any complaints 
     expeditiously.

• Title VII would also authorize the FCC adopt rules, as needed, to:

          Address public interest concerns, such as those 
     currently addressed in Sections 223 through 228 of the 
     Communications Act (dealing with: obscene and harassing 
     communications; regulation of pole attachments; services 
     for hearing and speech-impaired individuals; telephone 
     operator services; use of telephone equipment; and 
     carrier provision of pay-per-call services, 
     respectively).

          Ensure that delivery of video programming directly 
     to subscribers over broadband facilities is consistent 
     with certain principles now applicable to cable services 
     (e.g., Sections 325(b), 611, 614, 615, and 632 of the 
     Act, dealing with: retransmission consent; public, 
     educational, and governmental access; must carry; and 
     protection of subscriber privacy).

• If a Title VII firm also provides communications services that do not share broadband facilities with Title VII broadband services, those other services would remain subject to regulation under Title II or Title VI, as appropriate.

Relations with State and Local Regulators

• Consistent with the Administration's general approach to relations with state and local regulatory authorities, federal authority over the rates, terms, and conditions under which communications services are provided would predominate only when needed to ensure that national goals of promoting competition and liberal interconnection and access require it.
• Title VII would preempt state and local authorities from regulating rates of Title VII services if the FCC determines that the providing firm lacks market power.
• States would continue to regulate rates for the intrastate components of Title VII services provided by firms with market power:

          for Title VII broadband services, in accordance 
     with models and guidelines adopted by the FCC in 
     consultation with the states;

          for other services delivered over the facilities 
     used to furnish Title VII broadband services, in the 
     discretion of the states, subject only to a reserved 
     right of Federal preemption that could be exercised to 
     the extent necessary to avoid conflicts between state 
     regulatory actions and the policies of Title VII.