TESTIMONY OF LARRY IRVING ASSISTANT SECRETARY FOR COMMUNICATIONS AND INFORMATION U.S. DEPARTMENT OF COMMERCE ON TELECOMMUNICATIONS REFORM LEGISLATION
BEFORE THE SUBCOMMITTEE ON ECONOMIC AND COMMERCIAL LAW COMMITTEE ON THE JUDICIARY HOUSE OF REPRESENTATIVES JANUARY 26, 1994
Mr. Chairman and Members of the Subcommittee:
Good morning. Thank you for this opportunity to testify before you today on issues related to the development of a national telecommunications and information infrastructure -- and, specifically, on Administration legislative proposals to promote the advancement of this infrastructure in a procompetitive manner that benefits all Americans. I am pleased to join Assistant Attorney General Bingaman, who will focus on the Administration's reform proposals bearing on the AT&T Consent Decree. I will discuss more generally the changes in the competitive landscape that make the passage of telecommunications legislation this year a top Administration priority, and, in the context of that discussion, highlight elements of the Administration's proposals not covered by Assistant Attorney General Bingaman.
Vice President Gore and Secretary Brown unveiled the Administration's National Information Infrastructure (NII) initiative in September of last year, setting forth an agenda for a public-private partnership to help bring about this revolution.
This includes support for innovative applications that will use the NII, improving access to government information, protecting individual privacy and intellectual property rights, and the passage of telecommunications legislation -- the subject of today's hearing.
Before proceeding further, let me underscore, Mr. Chairman, the profound debt of gratitude the Administration owes you and Chairman Dingell for seizing the initiative in developing H.R. 3626. Our proposals for reform of the AT&T Consent Decree substantially build upon your efforts. The Administration also wishes to salute the creative bipartisan legislative initiatives undertaken by Representatives Markey and Fields, and by Senators Hollings, Inouye, and Danforth, among others. We have closely studied their proposals. Aspects of our set of legislative proposals, which I will touch on today, also build in large part upon the foundation they have established. The Administration looks forward to working closely with Congress to arrive at a final telecommunications legislative product that will stand the test of time.
THE NEED FOR LEGISLATION
There is a national consensus that an advanced information infrastructure will transform life for every person in the United States in the near future. We have all heard of countless examples of how broadband, interactive communications will connect and empower all people in this country. Vice President Al Gore recently said that the word "revolution" by no means overstates the changes ahead.
The newspapers bring us daily examples of the ways in which the development of the NII will revolutionize American life. The January 19 Washington Post reported how interactive dial-up computer network services allowed individuals to communicate with friends and relatives in the Los Angeles area immediately after last week's disastrous earthquake, and to spread vital news to other interested subscribers within a matter of minutes. On January 19 Secretary of Health and Human Resources Shalala announced a contract that will provide by the end of this decade for the electronic payment of nearly all of the $1 billion annual Medicare bills. The Mountain Doctor Television Project (MDTV) in West Virginia brings high quality care to rural residents by allowing rural physicians to link to medical specialists at the University of West Virginia. Likewise, the Texas Telemedicine Project offers interactive video consultation to primary care physicians in rural hospitals as a way of alleviating the shortage of specialists in rural areas. Also, the Texas Education Network serves over 25,000 educators and is making the resources of the Internet available to classrooms, so that students in small school districts can access NASA and leave messages for the astronauts, browse around in libraries larger than they will ever be able to visit, and discuss world ecology with students in countries around the world, among other things.
These and countless other examples attest to the rapid rate at which the American public is entering the information age.
It would be a mistake, however, simply to "let nature take its course" and allow change to proceed under the existing legal regime, whose underlying structure was established 60 years ago.
This is true for three essential reasons.
First, in an increasingly competitive world trade environment -- which will become even more open with the implementation of NAFTA and the GATT Uruguay Round -- we simply must ensure that our telecommunications capabilities remain the best in the world. Because information transmission increasingly is the life's blood of all our industries, archaic rules that inappropriately retard innovation by telecommunications firms have a negative impact on the international competitiveness of the private sector in general by inhibiting industrial productivity and job creation. Legislation that lifts these outdated structures will enhance competitiveness and spur the creation of good new jobs.
Second, the existing regulatory structure has been altered on an ad hoc basis over six decades to meet perceived problems of the moment. This has created an uneven playing field that artificially favors some competitors over others, and that in some instances unnecessarily discourages investment and risktaking. These effects, in turn, inappropriately skew the growth of industry sectors and retard the development of the NII itself.
Accordingly, legislation is needed to eliminate these unwarranted regulatory disparities.
Third, we need to be sure that our telecommunications policies are fully responsive to the needs of the American people as a whole, and, in particular, poorer and disadvantaged Americans. As Secretary Brown stated in a January 5 address, we cannot "become a nation in which the new information age acts as a barrier, rather than a pathway, between Americans" -- a nation divided between the information rich and the information poor.
Yet, while the universal provision of "plain old telephone service" has long been a national goal, the existing regulatory structure may not be sufficient to ensure that all Americans benefit from the broader range of information services that will become available under the NII. Accordingly, legislative reform is urgently needed to address this shortcoming. As Secretary Brown stated on January 5, "the Administration will propose a renewal and re-invention of the concept of universal service." I will have more to say about the Administration's views on universal service below.
THE ADMINISTRATION'S PROPOSAL
The Administration, as promised last fall, has developed a comprehensive set of legislative proposals setting forth the principles under which we believe the advanced infrastructure should operate. As I have already indicated, the Administration's proposals further the visions set forth in House and Senate legislative initiatives. We build upon innovative regulatory reforms and other dramatic steps taken by various states, and we will work closely with the states in promoting an advanced telecommunications and information infrastructure.
Together we can encourage competition, infrastructure modernization, and advanced NII applications in health care, education, and government services.
Underlying the Administration's proposals are five fundamental principles that Vice President Gore and Secretary Brown have outlined. These principles are:
ENCOURAGING PRIVATE INVESTMENT AND PROMOTING COMPETITION The Administration believes it is time to act decisively to lift the artificial regulatory boundaries that separate telecommunications and information industries and markets.
Those clear, stable boundaries served us well in the past.
They enabled regulators to establish separate regulatory regimes for firms in different industries. They also prompted regulators to address the threat of anticompetitive conduct on the part of some telecommunications firms by barring them from certain industries and markets.
Technological and market changes are now blurring these boundaries beyond recognition, if not erasing them entirely. As Vice President Gore emphasized on January 11, we are moving away from a world where technologically valid regulatory distinctions may be made among local telephone, long distance telephone, cable, and other purveyors of information transmission. Digital technology enables virtually all types of information, including voice, video, and data, to be represented and transmitted as "bits" -- the ones and zeros of computer code. Thus, rules which artificially distinguish among different types of "bit transmitters" based on old historical understandings will no longer serve a socially useful purpose. Accordingly, regulatory change is necessary to fully realize the benefits of private investment and greater competition in the information infrastructure. Regulatory policies predicated on the old boundaries 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. These reforms are necessary in order for people in the United States to "win" the information revolution as soon as possible.
To this end, the Administration supports the initiation by the Federal Communications Commission (FCC) of a review of current broadcast policies. Broadcasters remain the principal source of free, universally available electronic information in the United States, and it is important to ensure full participation by that industry in the NII.
LOCAL TELECOMMUNICATIONS SERVICES The Administration supports removal of those barriers
preventing competition in the provision of local telecommunications services. Competition already has generated substantial benefits for consumers in a host of communications and information service markets. For example, the varieties of customer premises equipment have expanded dramatically since deregulation. In addition, the price of interstate long distance telephone services for the average residential user has declined more than fifty percent in real dollars since 1984, due to competition and regulatory reform. At the same time, the infrastructure used to provide long distance service has been substantially upgraded. There are now four digital, fiber-based national networks serving this market, and many more interconnected regional networks. Consumers will realize similar benefits in service innovation, declining prices, and infrastructure enhancement from the expansion of competition in the local telephone market. Such competition 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.
Current policies regarding interconnection and service bundling, as well as specific barriers erected by individual states, inhibit competition -- and the low prices, service choices, and other benefits such competition brings to consumers.
The Administration proposes to ensure that competing providers have the opportunity to interconnect their networks to local telephone company facilities on reasonable, nondiscriminatory terms. Local telephone companies will 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, in order to ensure a consistent, procompetitive environment for telecommunications services, the Administration proposes to preempt state entry barriers and rate regulation of new entrants and other providers found by the FCC to lack market power.
Competition in local telecommunications markets should generally lower prices and increase innovation in the services offered users. Nevertheless, we are aware of concerns that repricing of some local services may result in rate increases in some cases in an increasingly competitive environment.
Accordingly, in order to guard against any possible "rate shock" for users, the FCC and state regulators will be directed, in implementing network interconnection and unbundling, to prevent undue rate increases for any class or group of ratepayers.
MODIFIED FINAL JUDGMENT (MFJ) RESTRICTIONS
The Modified Final Judgment (MFJ) in the AT&T Consent Decree helped unleash an era of competition and innovation that brought low prices and new service choices for consumers. In short, it has been a tremendous success. The Administration acknowledges the great public service the judiciary has performed in overseeing the breakup of that monopoly. But twelve years have passed since the basic framework of the MFJ was established, and it has been ten years since the breakup took place. Technologies and markets are changing rapidly. A judicial decree may at some point become a barrier to a more comprehensive, far-reaching approach to an advanced information infrastructure.
Reform of the MFJ goes hand-in-glove with opening up local competition, which I described above. The development of fullfledged competition in the local provision of telecommunications services will alleviate the competitive concerns that prompted the strictures placed by the MFJ on the activities of the Regional Bell Operating Companies (RBOCs). Thus, comprehensive legislative procedures for loosening the MFJ restrictions as competition develops are appropriate. Implementation of these procedures in the wake of enhanced local competition will allow the RBOCs to compete in markets for goods and services now closed to them. This will further enhance innovation in the American economy and benefit consumers.
Assistant Attorney General Bingaman will address the MFJ reform provisions. I wish to note, however, that while Assistant Attorney General Bingaman will describe the Administration's MFJ position, the Departments of Commerce and Justice have worked together closely in developing our position in this area. This position represents not only the joint efforts of our two Departments, but also the work of others in the Administration who have joined in this policy initiative.
CABLE TELEVISION-TELEPHONE COMPANY CROSS-OWNERSHIP
The Administration supports repeal of the current cable television-telephone company cross-ownership restriction in the 1984 Cable Act. We believe that telephone companies should be allowed to provide video services in their local exchange areas, subject to effective safeguards to protect consumers and competition.
OPEN ACCESS AND PROGRAMMING DIVERSITY
The public benefits of the information revolution would be severely diminished without a wide range of diverse programming.
An advanced information infrastructure, to be truly useful, must offer a potpourri of educational material, health information, home and business services, entertainment, and other programming matter, both passive and interactive. Barriers to open access and widespread availability of programming serve only to harm users. The Administration's legislative proposals are designed to further the goals of promoting a diversity of programming and open access to distribution of this programming.
ENSURING REGULATORY FLEXIBILITY AND FAIRNESS
As barriers to an advanced information infrastructure fall, the regulatory regime must adapt to the changing environment. In the rapidly changing telecommunications and information industries, the only certainty is uncertainty. A new regulatory framework is required that will stand the test of time, without the need for continual upheaval in the nation's overall approach to telecommunications and information policy. At the same time, in the interest of fairness, similarly situated services should be subject to the same regulatory requirements. The Administration proposes to address these concerns by granting the FCC flexibility to reduce regulation for telecommunications carriers that lack market power.
The Administration also proposes a new Title VII to the Communications Act, that will encourage firms to provide broadband, interactive, switched, digital transmission services.
The Administration's Title VII proposal will provide the FCC with broad regulatory flexibility while maintaining key public policy goals, including open access, interconnection, and interoperability requirements, and obligations to support universal service.
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. In his January 5 speech, Secretary Brown challenged the private sector "to expand universal service to the National Information Infrastructure." He pointed out that promotion of universal service advances American competitiveness, stating:
"Just as progressive businesses have increasingly recognized that their fate is tied to education and good schools, so the businesses that will take advantage of the new information marketplace must realize that our national fortune is dependent on our national competitiveness -- on ensuring that no talent goes to waste."
In conclusion, enactment of telecommunications reform legislation will promote the development of the NII in a flexible, procompetitive fashion that creates incentives for desirable investment, economic growth, and the widescale availability to all Americans of new, highly valued information services. The Administration looks forward to close collaboration with Congress to enact a set of legislative proposals that achieves these desired ends. This concludes my testimony. I would be pleased to respond to any questions you may have.