EFF Analysis of Bill HR-3626 Antitrust Reform Act of 1993 Introduced by Reps. Brooks and Dingell On Tuesday, November 23, 1993, House Judiciary Chair Brooks (D-Tex.) and House Commerce Committee Chair Dingell (D-Mich.) introduced major antitrust reform legislation, H.R. 3626. This bill would phase out the limitations placed on the Bell Companies under the modified consent decree that resulted in the antitrust agreement that broke up AT&T in 1982 (the "MFJ" or "Modification of Final Judgment"). The MFJ currently precludes Bell Companies from providing long distance service and manufacturing telephone equipment. Until two years ago, the Bell Companies were precluded from offering electronic publishing. The MFJ imposes long distance and manufacturing restrictions on Bell Companies to prevent them from using monopoly control to disadvantage their consumers and competitors in two principal ways. First, under the MFJ the Bell Companies cannot use profits earned from rates paid for monopoly local telephone operations to subsidize their long distance and equipment businesses. Monopolistic control over local telephone service makes it nearly impossible to prevent cross-subsidization of a variety of other telecommunications services with captive ratepayer dollars. Second, under the MFJ the Bell Companies cannot prevent competing long distance carriers and equipment manufacturers from gaining access to the local network, or to delay that access, thus placing them in an inferior competitive position. The local telephone network is key to the Bell Companies' potential monopoly over telephone service. It functions as the gateway to individual telephone subscribers, and must be used by long distance carriers to connect one caller to another. The immense cost of wires, cables, switches, and other transmission facilities which comprise the local network could insulate Bell Companies from competition. The Brooks/Dingell Antitrust Reform Act of 1993 would ensure that Bell Companies compete freely in new telecommunications markets. The bill was introduced on the same day as the Markey/Fields telecommunications infrastructure bill, H.R. 3636, which incorporates EFF's open platform proposal. EFF's open platform proposal is designed to give residential subscribers access to voice, data, and video digital telephone service on a switched, end-to-end basis. Unlike the Markey/Fields bill, the Brooks/ Dingell antitrust bill does not focus on infrastructure and competition issues. LONG DISTANCE The bill gives the Attorney General and the Federal Communications Commission (FCC) the authority to make a public interest determination before a Bell Company could offer competitive services. The bill requires the Attorney General, when granting a Bell Company application to provide interexchange telecommunications, to make a finding that there is no substantial possibility that the Bell Company or its affiliates could use monopoly power, for example by preventing access to networks or using profits earned, to impede competition in the market it seeks to enter. The Attorney General could make such a finding only if the evidence clearly and convincingly supports it, and the FCC could grant the request only if it is consistent with the public interest, convenience, and necessity. The FCC would be required to consider whether granting the request would affect consumers' rates and expedite delivery of new services and products to consumers, and whether the applicant will be precluded from engaging in coercive economic practices such as predatory pricing and collusion. The bill extends the right of judicial review in the U.S. Court of Appeals for the District of Columbia to companies aggrieved by the Attorney General and FCC determinations. The bill vests responsibility at the federal level for making a public interest determination before a Bell Company could offer competitive services, but it does not require a state finding that the public interest is served if the Bell Company gains access to the market. H.R. 3626 segments the long distance market into several submarkets: intrastate; interstate/regional; interstate resale; and nationwide networks. 1. Intrastate: The provision of intrastate long distance service was regulated by the states until the breakup of AT&T. Under H.R. 3626, state laws or regulations would no longer pose a barrier to a Bell Company seeking to offer in-state long distance service. 2. Interstate/Regional: The Bell Companies currently operate networks throughout their regions, which are made up of many states, but they are restricted from using them for interstate long distance service. Under H.R. 3626, the Bell Companies could petition the Department of Justice and the FCC to use their own telephone networks to provide long distance service. 3. Interstate Resale: Resale services involve reselling bulk capacity from networks owned by carriers such as AT&T, MCI, and Sprint, to regional telephone companies on a "retail" basis. H.R. 3626 would allow Bell Companies to petition the Department of Justice and the FCC to provide interstate resale services 18 months after the date of enactment. Downward pressure on rates from the entry of new competitors into resale services potentially could cause a reduction in long distance telephone costs for residential customers. 4. Nationwide Networks: H.R. 3626 would allow Bell Companies to petition the Department of Justice and the FCC to build and operate interstate networks outside of their regions 5 years after enactment. MANUFACTURING Within a year of enactment, H.R. 3626 would lift MFJ restrictions and allow a Bell Company to submit an application to the Department of Justice to engage in manufacturing of telephone equipment. The Bell Company would then be free to engage in manufacturing unless, within the following year, the Attorney General enjoins the company from going forward. H.R. 3626 would allow a Bell Company to engage in manufacturing activities through a separate subsidiary, and would be prohibited from cross- subsidizing its manufacturing. H.R. 3626 would require the Bell Company to conduct all manufacturing in the United States, but some components not available from U.S. sources could be used. The bill would require a Bell Company to provide functionally equivalent equipment to competing manufacturers, but leaves undefined the term "functional equivalent." The bill would require Bell Companies to maintain and file with the FCC information on protocols and technical requirements for connection and use of its telephone exchange service facilities. It does not, however, mandate full digital interconnectivity, which is the minimum standard necessary to achieve democratic, open platform goals. BURGLAR ALARM SERVICES H.R. 3626 would allow Bell Companies to apply to the Department of Justice to offer burglar alarm services 5 1/2 years after enactment. The Attorney General and the FCC would be required to make determinations that the entry of a Bell Company into the burglar alarm business is appropriate. Provision of burglar alarm services would be subject to post-entry restrictions, designed to ensure that Bell Companies compete faily in the new markets. ELECTRONIC PUBLISHING H.R. 3626 provides that Bell Companies could engage in electronic publishing only through separate affiliates or electronic publishing joint ventures. By increasing the visibility of electronic publishing business transactions, these safeguards are designed to alleviate the risk that Bell Companies could stifle the efforts of other electronic publishers or acquire a substantial monopoly over the generation of news. The bill would allow a Bell Company or affiliate that participates in an electronic publishing joint venture, with non-Bell Companies or affiliates, to maintain up to a 50 percent direct or indirect equity interest in the joint venture. For joint electronic publishing ventures with small, local electronic publishers, a Bell Company may have, for "good cause," an ownership interest up to 80 percent. The statutory restrictions in the legislation would sunset in four years. To prevent anticompetitive behavior, the bill would require a Bell Company to provide the same information to its competitors as it uses itself. The bill also would allow inbound telemarketing or referral services by the Bell Companies for electronic publishing affiliates. As a matter of privacy, however, the bill does not provide protection for customers who do not want to make information gathered about them by the Bell Companies available for marketing or other purposes. NETWORK ACCESS FOR DISABLED COMMUNITY H.R. 3626 also includes provisions designed to ensure that equipment and network services are accessible and usable to disabled individuals, unless the costs of making equipment accessible and usable would result in an undue burden or an adverse competitive impact. ***** The Brooks-Dingell bill is available online from EFF by anonymous ftp to ftp.eff.org, pub/eff/legislation/brooks.bill (AKA .../legislation/hr3626 and .../legislation/dingell.bill) ***** For introductory EFF info, send email to info@eff.org. For technical queries, send to eff@eff.org, for membership queries send to membership@eff.org, and for general queries send to ask@eff.org.