Subject: 07/28/94 Intl Working Group Hearing Transcript NEW 08/04/94 UNITED STATES OF AMERICA - - - - - DEPARTMENT OF COMMERCE - - - - - INTERNATIONAL TELECOMMUNICATIONS HEARING - - - - - THE EMERGING GLOBAL INFORMATION INFRASTRUCTURE Thursday, July 28, 1994 The hearing was held in the Grand Ballroom, Georgetown University Conference Center, Washington, D.C., at 1:00 p.m., Carol Darr, presiding PRESENT: CAROL DARR, Chairperson, DOC DIANE CORNELL, FCC DAVID LYTEL, OSTP TOM SUGRUE, DOC MIKE NELSON, OSTP BILL CLEMENTS, OSTP I-N-D-E-X Opening Remarks 3 Larry Irving 3 PANEL 4: PRINCIPLES OF THE GII Nanette Di Tosto, Manager 12 U.S. Council for International Business Daniel C. Duncan, Sr. Advisor for Global 19 and Industry Affairs, Information Industry Association Randy May, Partner 26 Sutherland, Asbill & Brennan Leo Mondale, V.P. of Government Affairs 35 and Strategic Planning, Iridium Russell Daggatt, President 42 Teledesic Lon Levin, V.P. & Regulatory Counsel 51 American Mobile Satellite Corporation Comments and Questions from Hearing Board 54 PANEL 5: LOOKING FORWARD TO THE GII. Thomas J. Tauke, V.P. for Government 76 Affairs, NYNEX Jeffrey Winston, Manager of 84 Telecommunications, Unocal Corporation Claiborne Johnson, EDS 93 Richard M. Hayden, Director, Information 101 Infrastructure Programs, ANSI Ellwood Kerkeslanger, Vice President for 110 Technology and Infrastructure, AT&T Mike Roberts, Vice President of 118 Networking, Educom Comments and Questions from Hearing Board 126 P-R-O-C-E-E-D-I-N-G-S 1:17 a.m. CHAIRPERSON DARR: I'm pleased to open the second day of hearings of International Telecommunications Working Group of the NII Task Force. That committee working group is a subcommittee of Larry Irving's full Committee on Telecommunications Policy. We'll have a panel this afternoon, two panels, one on principles of the GII and the final panel looking forward, how do we get from here to there and where is there? I'd like to start off this morning introducing Larry Irving. He certainly needs no introduction. Most of you all know him already. He's the Assistant Secretary of the Department of Commerce for NTIA. He just returned from a trip to Russia and I'm sure he'll have some things to tell us about that. Larry Irving? MR. IRVING: Thank you, Carol. It's a pleasure to be here. I apologize in advance that I won't be able to stay the entire afternoon. I did just get back from Russia and I did just have a hearing this morning before Congressman Markey on Global Information Infrastructure Initiative, believe it or not, and so I'm going to have to run back to the office and take care of a few things, some homework that Congressman Markey gave us today. I want to commend Carol and the International Telecommunications Working Group for putting together these two days of hearings. I know that the Secretary very, very much enjoyed being here yesterday to open these proceedings and I'm delighted to be here as kind of a pinch hitter for him on the second day as we begin. There's an incredibly distinguished group of panelists that are appearing today and have appeared yesterday and we really do appreciate the hard work of the panelists as they bring their insights and intelligence to these extremely important issues involved in the development of the NII. I'm encouraged by the response that we've received from private sector with respect to the GII. Seven months ago there was no such thing. No one ever heard of it, it didn't exist, it wasn't even, I don't think, a germ in even the Vice President's brain at that point. But since the Vice President talked about the GII in Buenos Aires in March, we have seen a tremendous outpouring both domestically and internationally toward progress in creating that global infrastructure. The Clinton Administration appreciates the input of the private sector into the policy making process. The testimony and the comments that we're receiving today will help us as we draft the agenda for cooperation. It will be critical to our developing cooperative joint ventures with other nations around the globe. Let me talk a little bit about why we think the GII is so important. We're only beginning to realize what telecommunications can mean in the global marketplace. On Tuesday, the Los Angeles Times reported that telecommunications is now the world's largest economic sector. The L.A. Times said that telecommunications has strategic importance that surpasses that of oil or steel or even the motion picture industry. Anderson Consulting estimates that global telecommunications will represent a $1.1 trillion industry by the year 2000. That's about double its current level. I know that most of you know that CEA estimates that domestically our GDP in the telecommunication information sectors will grow from about ten percent presently to about 20 percent, particularly with passage of the bills pending before the respective bodies of Congress. It's becoming increasingly apparent that countries without access to telecommunications and information networks will have trouble competing in the world economy. Advanced LAN line, mobile, satellite telephone systems are being installed in record numbers. This year as many as $100 million phone lines will be conducted to the expanding web that is the world's telecommunications system. We're going to see incredible and amazing growth in the telecommunications infrastructure in countries such as China and India. China's working on how to wire a nation of 1.2 billion people to phone and data services. It plans on quadrupling the number of phones it has in service by the end of the decade. I think I heard Chairman Hunt say this morning that there are -- or Chairman Markey, I'm not sure which one, that there are one billion -- it was a chairman. I don't know. I don't get a title of chairman. I'm just an assistant. That there are one billion people in China and 10 million phones. If that's the case, that's an incredible statistic and clearly there's a lot that needs to be done in China. India similarly. It's committed to spending $15 billion to modernize its telecommunications sector. While the economics of telephony and telecommunications is important, I think it's important that we also factor in the human points, what it means for average people around the world. It's striking when you think of two statistics that I recently found. One is that one-half of the world's population has never used a telephone. Approximately approaching two billion plus people have never used a telephone, and roughly one-half of the world's population lives two or more hours from a telephone. It's incredible that those of us who have instant communications, who walk around with small phones or cellular phones or beepers or PCS items, which are selling for something approaching $1 billion for the PCS auction right down the street here, that there are literally one out of every two people in this world have never used a phone or are two hours away from the nearest telephone instrument. It lets us know that there's a lot of work that we have to do and we have to think about beyond just the economics, what can we do about using these technologies to improve the lives of people around this globe. At the ITU World Development Conference in Buenos Aires, Vice President Gore talked about what we should do and can do to develop the GII. He basically enunciated five fundamental principals, encouraging private investment, promoting competition, creating a flexible regulatory framework to keep pace with technological and market changes, providing open access to network to all information provides, and ensuring universal service to all the peoples of the world. The Vice President also has proposed cooperative efforts among ITU member nations to create a global digital library involving the interconnection of schools and libraries in every country with the Internet. These proposals were incorporated in the Buenos Aires action plan, reflecting with the ITU development sector and its members will undertake over the next four years. Secretary Brown similarly has taken concrete steps to develop the EII. At the end of June, I traveled with the Secretary to Latin America and there he signed an MOU with the Chilean government establishing cooperative joint ventures in the telecommunications and information fields. The MOU with Chile will foster telecommunications-related trade between our two countries. It will also encourage development of Internet and other electronic networks on libraries, schools, hospitals and health clinics in the United States and Chile. Chile has taken a leadership position with regard to telecommunications technologies, liberalizing the markets and working closely with this nation as they go forward in developing their structure. But other nations, including Argentina in Latin America also see the benefits of liberalizing their markets, working closely and are eager and anxious to work with our country and other countries around the world to help create the GII. Similarly, Deputy Assistant Secretary or Ambassador-designate McCann, Chairman Hunt and I were part of a delegation that went to Russia where we had bilateral talks on telecommunications. At the conclusion of those bilateral discussions we also signed an MOU for scientific, technological and regulatory cooperation between Russia and the United States on telecommunications, an important step, incredibly important step for our nation, but similarly important for Russia which needs to improve its telecommunication infrastructure as it tries to become a greater participant in the world economic marketplace. Congress is increasingly interested in development of the GII. It is not an accident that these hearings are being held on roughly the same time frame as the Hill has begun to become involved. Both the Executive Branch and Congress recognize that when you're talking about things that are going to create jobs, improve lives, determine how we educate people around the world, we have got to come up with a strategic plan, both domestically and internationally. This morning, in testifying before Chairman Markey's subcommittee, holding hearings in international satellite communications policy, we all seemed to have the same idea, that the same things we've done in this market with regard to liberalizing markets and opening up those marketplaces should and can be done with regard to international satellite communications. I don't want to monopolize the time this afternoon. There are a lot of people who know a lot more about these issues than I do who will be spending time talking. I do want to thank Carol for her outstanding leadership in pulling this together. I know that the government representatives here today have a lot to add, but I also know that we all have a lot to learn and I'll look forward to working with the people here today and I want to thank you for your attention this afternoon. CHAIRPERSON DARR: Thanks, Larry. I'd like to introduce the hearing panel. To my far left is David Lytel from the White House Office of Science and Technology Policy. To his right is Tom Sugrue, the Deputy Assistant Secretary at NTIA. My name is Carol Darr. I'm at the Office of the General Counsel this week and next week will be at NTIA myself. To my right is Diane Cornell, who is the chief of International Section of the Common Carrier Bureau of the Federal Communications Commission. I'd like also to introduce our first hearing panel. As I do, I would ask each of them to stand up so that the audience can see them. The first is Nanette Di Tosto, the U.S. council for International Business; Daniel Duncan, Information Industry Association; Randy May of Sutherland, Asbill and Brennan; Leo Mondale of Iridium; and Lon Levin of the American Mobile Satellite Corporation. The first panel is a continuation of yesterday's panel on the principles of the GII, which is private investment, competition, flexible regulatory schemes, universal service and open access. The first person to testify today is Nanette Di Tosto. MS. DI TOSTO: Thank you very much. Thank you for this opportunity today to present to you a business perspective on the policy foundations for the NII and the GII. My comments today are drawn from a more elaborate U.S. Council position paper entitled "Private Sector Leadership: Policy Foundations for the NII," which is being printed as I speak. So, I'm sorry I don't have it for distribution. By way of background, the U.S. Council is a New York based private sector organization with a membership of some 300 multinational corporations, trade associations and law firms. The U.S. Council uses its unique affiliations with global business organizations to advocate American business views to key intergovernmental institutions that influence international business, such as the United Nations, the General Agreement on Tariffs and Trade, the GATT, the Organization for Economic Cooperation and Development, the OECD, and the European Union. The Government's Agenda for Action Report published last September has provided the government's vision and suggested direction for the future development of networks and the information that they carry. The NII is, in fact, well into development and will, if encouraged by sound government policy, fulfill its role as an engine for economic growth and a catalyst for continuing improvements in U.S. competitiveness. The U.S. NII is, of course, an integral part of the global information infrastructure that permits users today to conduct business on a global scale. In expressing our views on the international aspects of the NII, it would be misleading to assume that there is a clear distinction between the national dimension and the international aspects of such a dynamic sector of commercial activity. The U.S. Council's policy recommendations are equally applicable to the national and international aspects of information infrastructures. The U.S. Council believes that the ongoing development of the NII should be primarily driven by the private sector and we are gratified at hearing the repeated view from government officials that the private sector will remain the major driving force. In our view, the single most important role for the government is to craft a legal and regulatory environment conducive to competition. This in turn will enable private industry to develop the NII and the GII more rapidly and efficiently. Government may also productively support some forms of pre-competitive research and conduct or support selected demonstration projects. Additionally, the government should be an informed consumer in its efforts to apply communications and information technologies to the challenges of operating government and serving citizens. Furthermore, it's our view that the government should not attempt to develop or mandate network standards concerned with interconnectivity, interoperability or security. Solutions to these problems should be market driven, commercially accepted and internationally proven. I would like to mention a study that this Board might find of interest that's being conducted on standards since there was a great deal of discussion on standards yesterday. That's a study being done by the National Research Council entitled "Standards Conformity Assessment and Their Impact on U.S. Trade." That study, among other issues, will examine the role of government in the standard-setting process and it should be available during the first quarter of 1995. Government plays an important supportive role by setting down the official rules of the road under which many private sector decisions are made. Four areas have been identified as central to the NII and I would like to highlight our views in each of these four areas, being telecommunications, information security, privacy and transporter data flows, and fourth is intellectual property. In the area of telecommunications, to derive the maximum benefits from the development of a global telecommunications marketplace, government policy should promote an environment characterized by open competition. Rates for services provided by dominant carriers should be based on the cost of providing the services and such services must be offered on non-discriminatory and transparent basis. Access to and use of public telecommunications, transport facilities and services must be offered without usage restrictions or other conditions. The certification and type approval process for telecommunications equipment should be non- discriminatory, should be based on no harm to the network criteria, and should be open to any manufacturer or agent. Regarding universal service, the U.S. Council believes that it would be premature to expand the concept of universal service beyond the prevailing notion of simple two way voice grade access to public switch telecommunications networks without a thorough consideration of all of the costs and benefits that may be associated with a more expansive definition. In any event, competition in the marketplace should be relied on in the first instance and to the maximum extent possible to provide universal access or universal service. Turning to information security, government policies should promote information security and the preservation of the confidentiality and integrity of the users business proprietary information. The NII and the GII should embrace certain important principles in information security as follows. First is standards. Standards must be internationally developed and accepted. Second is free choice. Users should be free to choose from available security methods, including encryption, that best fit their needs. Third is flexible implementation. Vendors and users should be free to make technical and economic choices about modes of implementation and operation. Fourth is accountability. Owners, providers and users of security methods should agree on the responsibility, accountability and liability for such methods. Fifth is export controls. With the exception of encryption methods specifically developed for military or diplomatic uses, encryption methods should not be subject to export or import controls or other restrictions. While the U.S. Council welcomes the government's efforts to develop a comprehensive security policy, the Administration's initiatives threaten to restrict legitimate commercial interest in information security and hinder the competitiveness of U.S. based multinationals. These initiatives, commonly known as the clipper chip, capstone, testra and the digital signature standard, are very much alive and still part of the Administration's policy on security despite recent accounts in the press that have indicated otherwise. Were these to become standards for the NII, however, they could well create a number of serious obstacles to the development of the NII as part of the GII. In the area of privacy, government policy should promote the protection of privacy in three international information flows. The U.S. Council endorses the approach that is consistent with international practice as delineated by the 1980 OECD guidelines on the protection of privacy in transporter data flows. We support the continued sectoral approach to privacy and data protection. Codes of conduct, contractual relationships and U.S. laws directed at specific data activities have consistently safeguarded privacy while ensuring the free flow of information that individuals have come to expect. Fourth is intellectual property. Government should craft sound government policies to promote and encourage the protection of intellectual property rights. The U.S. Council believes that reliance on individualized licensing will encourage flexibility and promote the widest possible economically feasible dissemination of information. Voluntary collective administration and collective licensing arrangements are useful tools in these voluntary arrangements should be encouraged as ways to foster the continued development of an information marketplace. The U.S. Council opposes any efforts to institute compulsory licensing as these would inhibit information dissemination. Also, piracy of copyrighted materials is running rampant in some countries and the Council supports government's efforts to combat piracy through bilateral and multilateral agreements. These longstanding U.S. Council views have been expressed in various forums to the U.S. government, to foreign governments and to international institutions. We encourage the government and governments around the world to adopt policies that encourage competition. We also encourage the U.S. government to work with other governments as well as industry around the world in open forums to develop internationally accepted policies that will in turn enable private industry to develop the GII more rapidly and efficiently. Thank you. CHAIRPERSON DARR: Thank you. Mr. Duncan? MR. DUNCAN: Thank you. Thank you for the opportunity to appear today on behalf of the Information Industry Association. My name is Dan Duncan. I'm the Senior Advisor for Global Industry Affairs at IIA. Our association appreciates the opportunity to work with the Administration's Information Infrastructure Task Force. We're particularly pleased the task force has expanded its focus to consider how the NII will relate to the global information infrastructure. IIA is the trade association of leading companies that develop and distribute information products and services to meet the needs of businesses, professionals, researchers and consumers worldwide. For over a quarter century, our members have been instrumental in the creation and development of information resources that have made the United States a recognized world leader in this field. IIA member companies include both the pioneers in commercial on- line services as well as those companies, both large and small, who continue to provide innovative products to meet the demands of a global economy in which the value of timely and accurate information is growing exponentially. IIA has long recognized the global nature of the information marketplace. Over six years ago the Association became a founding member of the Global Alliance of Information Industry Associations, known as GAIIA. GAIIA counts among its membership nearly 50 counterpart associations in 29 countries. In addition to opportunities that have provided for business development, GAIIA serves as a forum for these associations and their member companies around the world to recommend policy initiatives that will encourage the unhindered flow of information products and services within and across national borders. In doing so, GAIIA, through its counterpart associations and their member companies has already helped lay the groundwork for the GII. In 1992, GAIIA formally adopted 15 public policy principles known as the GAIIA guiding principles which were attached to my written statement. They set out general guidelines for national and international entities to follow when shaping laws and regulations affecting the flow of information, whether on a national or on an international basis. IIA subscribes fully to these principles and commends them to the working group as it studies how government can contribute most effectively to development of the United States infrastructure. Since our counterpart associations throughout most of the world have also endorsed these principles, they provide a good foundation for approaching issues involved in the global information infrastructure. The principles speak to issues involving intellectual property, private/public partnerships, development of networks and privacy. The written statement I've provided addresses particular concerns of our industry about each of these areas and I'll take only a few moments today to outline the general focus of the principles. In general, we believe the main role of government should be to foster competition in all facets of the information marketplace. In regard to intellectual property, this goal can best be accomplished by maintaining strong protections for copyrighted materials in the national information infrastructure in concord with the recommendations recently put forward by the Information Infrastructures Task Force's Working Group on Intellectual Property Rights. The relationship between private industry and government in disseminating government information is a crucial one for consideration in designing the NII or the GII precisely because government is itself such a large supplier and user of information products and services. Government must be cautious not to exert undue control over its information, nor to displace private sector providers who bring benefit to society at large by offering a diversity of sources for government information. The question of developing transmission and distribution systems for information is another area in which the government and its citizens would be best served by increased competition. Government's should actively pursue policies that open up current monopoly networks to effective competition and acting in this arena, however, government should promote but not itself set standards that ensure service quality and availability. There should also be a clear distinction made between providing universal access to facilities and guaranteed access to information services. IIA has special concerns about the continued use of terms like digital libraries, a concept which we believe is not economically feasible and will not further develop innovation in either the NII or the GII. IIA has already filed detailed comments on privacy concerns and the private sector use of telecommunications-related personal information before this agency. The Association supports continued adherence to the norms established under the 1980 OECD guidelines. Privacy may be the most difficult policy concept to harmonize in the context of the GII, but IIA would encourage our government to strong uphold the longstanding U.S. approach to privacy. Among its strengths are respect for the First Amendment principles, a focus on restraining intrusive government activities, and a pragmatic sectoral approach that seeks to empower individuals to protect their own privacy rather than relying solely on government powers of regulation and enforcement. In relation to extending the benefits of the NII to a global infrastructure, IIA believes the U.S. government can be of great assistance in using its official contacts with other nations and regions to advance the sound policy principles established in our own country. These include all aspects of the development of an effective GII, providing continued strong protections for intellectual property, promoting availability and use of government information, fostering competition and provision of transmission and distribution networks and striking the delicate balance between privacy and the benefits of the free flow of information. The government should uphold such positions as part of trade negotiations, as well as making the development of an effective GII an agenda item in the activities and programs of international governmental organizations like United Nations and the Organization of American States. The U.S. can also achieve greater influence in helping other nations establish policies and practices competitive with the Administration's vision of NII through foreign assistance programs. Many nations without other resources will need help in developing their own information infrastructures and it would be appropriate for the United States to provide such assistance in some cases. Such proposals and their implementation will require careful monitoring, however. The establishment of a private sector advisory board to aid U.S. assistance agencies in making such determinations could be of great value both to our government and to those who would receive our aid. In conclusion, I would note that Americans enjoy variety and richness of information products and services that are the envy of the world. IIA will continue to work closely with government and the public to ensure that policies are developed that maintain our country's leadership role and competitive advantages in the global information marketplace. An active policy dialogue with the private sector, as exemplified by this very proceeding, is a crucial ingredient and maintains the generally favorable balance that has been struck between public and private sector interests and responsibilities. We would encourage this process to continue both on the national level and the international level. The full support of our government in various bilateral and multilateral fora will be a tremendous aid in realizing the development of an effective GII. Thank you. CHAIRPERSON DARR: Mr. Duncan, thank you. Mr. May? MR. MAY: Thank you, Madam Chair. My name is Randy May. I'm a partner in the Washington, D.C. office of Sutherland, Asbill & Brennan. I'm presenting this testimony on behalf of Capital Cities ABC, CBS, NBC and Turner Broadcasting System. As major users of international video, voice and data transmission services and facilities, the networks welcome this opportunity to submit their views on some of the international policy issues related to the development of the GII. The networks applaud the Administration's vision concerning the creation of a global information infrastructure as presented in Vice President Gore's March 1994 speech in Buenos Aires. The five principles enunciated by the Vice President has underlined the Administration's vision of the GII in general provide a sound framework for considering more specifically the development of GII policies. The networks use international telecommunications facilities in a variety of ways to achieve their missions. They use international satellite services to bring fast breaking news, sporting events and other programming from overseas back to the American public. Over the past decade, as U.S. viewers have come to expect up to the minute coverage of news events occurring across the globe, the demand for international satellite services to support such services has been growing very rapidly. The networks also increasingly use international services satellite facilities for the export overseas of U.S. news, sports and other programming. For their international video space segment requirements, the networks primarily reply upon the facilities of INTELSAT. They also utilize, but to a much lesser extent, the international video and audio transmission services of separate international satellite system providers, such as PanAmSat and, under certain circumstances, U.S. domestic satellite services for transporter transmissions. For technical, operational and economic reasons, the networks presently do not use underseas cables for video transmissions. To meet their earth station requirements for international video services, the networks generally utilize on the U.S. side the fixed up-link and down-link services provided by U.S. international common carriers or their own licensed earth station facilities. In many foreign countries, however, the networks do not have a choice of earth station facility providers and are required to utilize the facilities of the PTT administrations that not only are monopoly terrestrial carriers, but typically are the signatories and exclusive operating agents of INTELSAT and INMARSAT. In those few countries where PTTs have been privatized and/or the restrictions on the operation of non-PTT earth station facilities have been eased, the networks may be able to utilize the facilities of competitive earth station providers. In overseas locations where they are able to obtain the necessary regulatory authorizations, the networks also sometimes utilize their own transportable satellite news gathering facilities that cover events that require rapid and mobile response or that occur in locations where either fixed earth station facilities are unavailable or where it is economically infeasible to use such facilities. As technology has advanced and SNG units have become ever more compact, lightweight and cost effective, their use by broadcasters has permitted the coverage of news events occurring in remote locations that in the past could not have been covered because of the lack of availability of alternative facilities or would not have been covered because of prohibitive cost. Unlike international video services which are provided almost exclusively over satellite facilities, the international voice and data services utilized by the networks are provided over a combination of satellite and terrestrial facilities. In operating their program transmission networks, ABC, CBS, NBC and TBS rely on the availability of various types of international services and facilities. Therefore, the networks have a very real interest in the development of a global information infrastructure that allows all broadcasters throughout the world to cover news and other events and distribute their programming on a cost effective basis with a minimum of technical and regulatory constraints. The networks historically have been strong supporters of U.S. government efforts to encourage the entry of new competition in the international telecommunications marketplace to increase the availability of end user options, to promote cost- based pricing and to eliminate restrictions on the provision and use of international services. In those international service markets were effective competition does not yet exist, however, the networks have recommended the maintenance of regulatory scrutiny over the rates, terms and conditions of international services. Specifically, for example, until COMSAT's provision of international video transmission services become subject to effective competition, the networks continue to support application by the FCC of dominant carrier, cost of service regulation for COMSAT's international video services. Effective competition also does not yet exist in the international video services marketplace. Historically, most countries of the world have not separated the regulatory and service provider functions with regard to telecommunications, but rather have consolidated both functions in the government-controlled PTT, making it very difficult for effective competition to develop. The networks recommend that the U.S. government encourage the development in other countries of independent regulatory authorities that will play roles similar to that played by the FCC in this country as an integral component of the transition to an effectively competitive international environment. Without effective independent regulatory oversight from national administrations, the GII principles of encouraging private investment and promoting open access realistically cannot be implemented to bring effective competition in overseas markets. Thus, although the network support in principle, proposals for the ultimate privatization of INTELSAT and INMARSAT, they caution that privatization in and of itself will not benefit end users. Vice President Gore expressly recognized this reality when he stated in Argentina that, "Privatization is not enough, competition is needed as well." Even if the international satellite organizations were privatized tomorrow with the accompanying loss of treaty-based privileges and immunities and the like, INTELSAT would continue to possess dominant market power in international video and audio transmission services, and INMARSAT would continue to possess dominant market power in the marketplace for mobile satellite services. Thus, it is necessary for a substantial number of foreign administrations to effectuate separation between regulatory and service provider functions. Here in the United States, for example, upon privatization of the ISOs, international satellite organizations, it will be necessary for the FCC, through the Section 214 certification process and tariffing process to continue to exercise jurisdiction over international satellite organization transmissions originating or terminating in the United States, as well as maintaining regulatory oversight of COMSAT, which resells international satellite organization transmission capacity. The exercise of FCC jurisdiction over a privatized INTELSAT and INMARSAT is necessary because the FCC cannot evaluate whether the rates, terms and conditions of COMSAT's retail provision of international space segment meets the Communications Act standard to be just and reasonable without being able to examine the underlying wholesale cost of the privatized entity of which COMSAT is a shareholder. It will be necessary for other countries as well to exercise this same type of jurisdiction over a privatized international satellite organization. Moreover, in order to be beneficial to end users, the transition to international satellite organization, privatization must be accompanied by a substantial number of administrations in the world, changing their policies to allow access on an unbundled and competitive basis to international satellite organization's space segment. In many countries now, broadcasters are required to pay bundle charges to the ISO signatory for space segment and earth station services, even when the broadcaster is allowed to use a competitive earth station provider or its own equipment. Such a bundling requirement obviously has the effect of deterring the development of a competitive environment. In any event, with or without privatization of the ISOs, consistent with ITU regulations, the U.S. government should take all appropriate measures to promote the development of cost-based rates by foreign administrations for the end user video and audio transmission services provided to and from their jurisdiction. The rates currently charged to U.S. broadcasters by many foreign administrations for earth station and space segment access, are substantially above the costs that are charged by COMSAT in the U.S., and thereby add to the U.S. net telecommunications trade deficit and hinder the development of the GII. How much time does that mean I have? CHAIRPERSON DARR: None. MR. MAY: If I could just take a minute or so to wrap up. The next point that I wanted to make is a very important one. The Vice President also, of course, spoke about open access as one of the underlying principles of the GII. For broadcasters, open access has a very important significance, which transcends sort of unbundling the physical facilities. We think that one of the primary goals of GII should be to try and implement and open skies policy as part of the GII such as we had, of course, in this country with our domestic satellite policy. Then, more specifically, and this is a very important point for the broadcasters in terms of the GII. It's very important for the U.S. government to work to eliminate foreign ownership restrictions abroad that currently hinder the U.S. networks from using their satellite news gathering equipment in many countries. I think yesterday someone spoke here about the European Commission for Foreign Ownership proposal that relates to their mutual recognition of satellite licensing policy. In order to do that, increasingly broadcasters are hearing about our policy in this country under Section 310. We would urge and specifically with regard to satellite news gathering facilities, if we're unable to tackle it in a larger way, that specifically the Administration support as part of this GII program the proposal that's been in the FCC's legislative package for the last couple of years to amend Section 310 of the Communications Act, Section 310(a) of the Communications Act, to exclude the operation of satellite news gathering facilities. That's currently in the FCC's package and we think the Administration would support it. But in sum, and in general, the model that the FCC used in this country of open skies, which mean in effect multiple entry in terms of both space segment and in terms of ground segment, is a very good model to use abroad. We appreciate the opportunity to be here with you today and thanks for this opportunity. CHAIRPERSON DARR: Mr. May, thank you. Mr. Mondale, representing Iridium. MR. MONDALE: Thank you. It is a pleasure for me also to address this panel and we have a large number of detailed items we would love to go over. But I think instead we're going to try and stick to the mission here, which was to discuss the principles of GII. CHAIRPERSON DARR: Thank you. MR. MONDALE: As a consortium of global partners who have already pledged over a billion dollars to launch the concept of global voice and data services to hand held devices, we of course have a direct interest in this initiative and we are very encouraged to see the NII being recharacterized as the GII. But before you get to the five principles, you've got to analyze the slogan. GII stands for Global Information Initiative in our parlance, but I can tell you that some of our friends across the water are starting to go around the world speaking on behalf of developing countries saying that global information invasion is what it really stands for. They're talking about industrial invasion. They're talking about invasion of services. And they're talking about invasion of political influence. I think it's going to be important as we carry the GII message around that it not be perceived that way and that in fact we turn that kind of concept back on the people who are suggesting it, and we have at Iridium a couple of ideas on how to do that. We could start by taking apart the expression GII. Initiative it certainly is. The Congressional hearings that some of us were at this morning made it very clear that we have a very broad buy-in on this information initiative. We've heard from this panel today and yesterday about the various points of view there can be with regard to information, so we have a very broad concept that covers media, computers, telecommunications, a large number of information paths. What I think we don't pay enough attention to is perhaps global. What does global really mean? It's not a physical concept only. It's also a political concept and a regulatory concept, and I'd suggest that there are a couple things that global means that we need to take into account. Global means that you're in the one country, one vote environment. The ITU, the works, the plenipots work on a one country, one vote system. And that means the developing world has more than half the votes. Add them up, 54 countries in Africa, 21 in the Middle East. You've got a majority right there, and we've seen at Work '92 how that can influence policy in the rest of the world. I would say that when you're dealing in that one country, one vote environment, there are two things you've got to respect. One of them is national sovereignty. We're big respecters of our own sovereignty, but I think our GII had to respect every national sovereignty somehow. And then equity I think is the other aspect. People have to see what is in it for our country and for ourselves, and so as we go around the world trying to sell GII we'd better have answers to those questions. I think what's missing from the GII, at least as I've heard it, is really something to address this developing world concern. What I suggest is that what we need is a model for telecom's development. Going all the way back to the ITU's Maitland Commission report, we have tremendous statistics and anecdotes about the need for telecommunications and what it can do to economic development. I heard Irving this morning mention that half the world's population has never used a phone and is more than two hours or more from a telephone, but I think we need to sit back and recognize that that doesn't mean that half of the world's population is ready for fully interactive two-way virtual reality games. You know, I think that we've got to start somewhere and give them a model that makes a little bit of sense to someone who doesn't know what a telephone is and has no idea how it's going to help them. Same goes for television. Same goes for computers, et cetera. We find similar statistics there. Our interest, of course, is in the telecommunications area, so I would address that leg of the GII, if I might, in a little more detail. I think the question is, what could the model be. Again, you come back as a first rule, sovereignty, and I think there are a couple of guiding principles there that we'd better find ways of living with. The first is you have to obey national rules. That means if you need a license to operate you have to go get that license, and that applies to satellite news gathering as well as to a suitcase phone as well as to a hand-held phone. It's coming up a little bit in terrestrial, but satellites really illuminate this point and we at Iridium of course recognize the challenge we have in front of us of trying to get 200 plus national licenses around the world in the same band for the same type of service. The second point I mentioned earlier was equity, and frankly the best way we've found to address the equity question is to talk about revenue sharing, at least tackle it from an economic point of view to say that we're not just going to come in and provide services. We're going to share revenues and we're going to try and develop a local value added industry, whether it's a basic services provision industry or whether it is in fact a value added to the basic transmission means. But it's our feeling that if we don't have this kind of offer a lot of countries are going to back down. I would also mention in the context of the discussion regarding the international satellite organizations that that is one area, as kind of off- shoots of the United Nations, where they've had a huge advantage. In fact, private operators have to pick up part of that mantle of public service, universal service, if we're going to be sold by this kind of ITU culture that says telecom's development has to be conducted in the public interest. Another perhaps more important point as to what a model for telecom's development could be that could help us sell the GII is to start with a dial tone first. Again, I'm not in any way critical of broad band global systems, whether they're wire line, wireless, et cetera. I'm not critical of any band width approach from the commercial point of view. All I'm saying is that you're going to have to get these developing countries to understand what you're offering them and it's very hard to skip too many generations. It took America, you know, 80 years to get to where the telephone became ubiquitous and necessary and no longer a rich man's toy. Cellular, that process, has happened much more quickly, and surely the developing world is going to skip some of that step, but it's not going to skip all of it. I would still suggest that one thing we really should do is consider a very simple explanation of how you're going to start joining the information infrastructure. And my suggestion is dial tone, because dial tone includes what we consider the basic personal communications services: voice, first of all, which still predominates; data, at least to the extent it's needed for fax and for personal computer communications. I think those things can have a real impact and immediate interest to large numbers of people. If we can make that dial tone available on a somewhat universal basis, I think then we're in a good position to recruit support at the Plenipotentiary Conference at the Works '95, et cetera, for this overall initiative of GII, which I think has caught the imagination of a lot of people. They do appreciate the initiative, but our message here is that we think we have to back off of that, simplify the message going into these two conferences. Let's not forget the Plenipot is a very important conference from a lot of points of view and that it will determine the role of the ITU, if you will, in regulating the global environment, which of course is central to the concept of a global information initiative. So, again, our message is we think that in order to garner the support that's needed to have a truly global information initiative we're going to have to back it down and come up with a telecommunications model that appeals to the majority of the countries around the world because that's the way the system works, one country, one vote. Thank you very much. CHAIRPERSON DARR: Mr. Mondale, thank you very much. Mr. Russell Daggatt from Teledesic. MR. DAGGATT: Thank you. On behalf of Teledesic, we appreciate this opportunity to contribute our views in this forum. I should begin by stating emphatically that we endorse the Clinton Administration's Global Information Infrastructure Initiative and the five principles around which it seeks to focus that effort. The Administration has identified universal service as the most important of these principles and it's on that that we'd like to elaborate. Most of the people on this plane do not have access even to the most basic voice service. To cite a few examples, in India, with a population of 860 million people, there are about six million telephone lines, virtually all in a few large cities. More than 80 percent of the villages in Africa have no telephones. This problem is even more acute with respect to advanced information services. In this country the universal service principle that underlies telecommunications policy is one of the great success stories of modern government. Over 94 percent of U.S. households have access to basic voice service, one of the highest percentages in the world and extraordinary for a territory as vast and diverse as the United States. But, as access to more advanced information services becomes increasingly essential to economic development and social welfare, there's a danger that the gap will increase between those who have affordable access to such services and those who do not. Perhaps the central telecommunications policy dilemma is how to reconcile the twin objectives of, on the one hand, expanding the scope of universal service, and, on the other hand, placing greater reliance on competitive market forces. In the wire line model, you cannot do it affordably in the absence of some form of subsidy scheme. The longer the local loop and the fewer people it serves, the higher the cost of access. In this model, the cost of access for remote rural subscribers can run ten, 20, even 30 times or more what it costs to serve the average urban subscriber. This apparent conflict between deregulation and universal service underlies the challenge we set for ourselves at Teledesic. The company was formed over four years ago with the objective of providing a means of affordable access to the widest possible range of information services to rural and remote parts of the U.S. and the world that would not be economic to serve through traditional wire line means. We seek to do this in a manner that's economic in its own right and at costs comparable to current urban wire line prices. That's a tall order and the means we've proposed are ambitious, a global constellation of 840 satellites in low earth orbit, but that same kind of ambition is reflected in the inclusion of the universal service principle and the agenda for the global information infrastructure. Whether it's a legal mandate or simply a social aspiration, the scope and importance of the universal service principle will increase as information becomes increasingly essential to all those things we associate with quality of life, including education, health care, economic development and public services. Satellites have a unique role to play in expanding universal service. Satellites can cover vast areas and provide service at a cost that's indifferent to location. Satellite terminals can be deployed much more quickly and flexibly than cables may be laid. Moreover, because satellite network assets are not rigidly and exclusively dedicated to particular users, utilization rates can be optimized over many users all sharing the same satellite resources. The comparative advantages of satellites generally increase with the distances between users and the variability of the traffic. Satellites have the additional advantage of being invulnerable to surface calamities such as earthquakes, floods, fires, and hurricanes that cripple terrestrial communications systems. Of course, there's great diversity even among satellite services and systems. Motorola deserves considerable credit for familiarizing many people with the concept of a large low-earth orbit satellite system with its pioneering Iridium project. Others since have proposed similar mobile voice services based on LEO systems. Teledesic has taken a different approach focusing on broad band services using a higher part of the radio frequency spectrum but also employing a low- earth orbit satellite system. For certain applications these LEO systems have some inherent advantages, including low transmission delay and the ability to use smaller terminals and antennas requiring less transmission power. With this approach, Teledesic seeks to provide global access to low cost band width on demand that can accommodate a wide range of services from basic voice channels to high rate data transmission and interactive multi- media applications. LEO systems with satellites moving in relation to the earth are inherently global in their coverage patterns. While these systems offer great promise for the future of commercial satellite communications, they require a global coordination spectrum. If satellite spectrum is allocated randomly from country to country, no LEO system could operate. As the leader in developing these innovative global satellite systems and the source of most of the technology underlying them, the U.S. should take a leadership role in the spectrum coordination process. Certainly the United States should take care not to unilaterally authorize incompatible terrestrial services in the bands internationally allocated for satellite use. To do so would cripple the development of the U.S. commercial satellite industry. We would also be setting a bad precedent for other countries who might be inclined to ignore international spectrum coordination efforts in favor of more parochial domestic interests. It's not a foregone conclusion that the U.S. will remain in the lead in these advanced technologies which have important commercial and defense applications. In fact, as a recent study undertaken by NASA and the National Science Foundation documented, we're being challenged or surpassed in many of them. With the end of the cold war and ensuing cut-backs in government aerospace programs, a robust commercial satellite industry is essential to continuing U.S. leadership in these advanced technologies. While we're on the subject of policy recommendations, we'd like to offer one more. We must adopt more dynamic regulatory structures that are more compatible with the pace of technological advance. The U.S. leads the world in information technologies in general and satellite technologies in particular, but that lead will be meaningless if it takes years for the licensing of a satellite system. In today's world, any competitive advantage is tentative and short-lived. If we're slow, we'll lose, and potential users in the U.S. and throughout the world will lose if the benefits of these systems are delayed or lost altogether. Of course, the value of systems like Teledesic ultimately is measured by their ability to enhance the quality and meaning of our lives. The benefits to be derived from the advanced information services they enable are as vast as the areas of need to which they can extend. With universal access to interactive broad band capabilities, information can flow freely between people creating wider communities of interest and support. In the field of health care where remote access to x-rays or other diagnostic images is required, broad band capability can literally be a matter of life and death. For example, transmission of an x-ray image over an ordinary 9.6 kilobit per second phone line would take more than 20 minutes while the same image can be transmitted over T1 channel of the kind that Teledesic could accommodate in less than eight seconds. Band width also determines the video quality that can be supported by a communications channel. Many medical specialists will not perform critical care diagnosis unless the video signal is at least of the VCR quality that can be supported by a T1 channel. In the area of education, the Administration has adopted as a goal the interconnection of all classrooms to the National Information Infrastructure. Yet, as Chairman Hunt has observed, only one-eighth of all classrooms currently have telephone lines in this country. Many of those classrooms are a long way from the nearest trunk line and the cost of providing them wire line access would be astronomical. The interactive broad band capabilities of the Teledesic network coupled with its wireless access technology hold the promise of delivering distance learning services to the most remote parts of the United States and the world, thereby offering meaningful educational opportunities to people who would otherwise be cutoff either economically or geographically from traditional centers of learning. Advanced technologies have revolutionized the way people exchange and process information in urban areas of the United States and other developed countries, but there is a broader unmet need. Today the cost to bring modern communications to poor and remote areas is so high that many of the world's citizens cannot participate in the global community. Yet the benefits of the information revolution should be extended to all people, including those who do not reside in or near centers of commerce or industry who do not have ready access to doctors, hospitals, schools or libraries, and who are at risk of being left behind. Compared to the magnitude of the need, the role that any one company can play in the solution is infinitesimal, but Teledesic is committed to doing its part and hopes to address some of the most difficult and problematic areas of need. The Administration deserves praise and enthusiastic support in it's global information infrastructure. The goals are ambitious, but we will all benefit when they are achieved. Thank you. CHAIRPERSON DARR: Mr. Daggatt, thank you. Mr. Levin from the American Mobile Satellite Corporation. MR. LEVIN: Good afternoon. My name is Lon Levin and I am Vice President and Regulatory Counsel, American Mobile Satellite Corporation. AMSC is the FCC licensee to provide domestic mobile satellite service throughout the United States. Next year AMSC will launch and operate the most powerful commercial mobil satellite system ever built. AMSC will provide wireless telephony and data services to the entire United States. For the first time, many rural and remote areas not now covered by terrestrial facilities will have the benefits of mobile services. Additionally, AMSC will make available for the first time nationwide dispatch for point to point mobile services. Thank you for this opportunity to provide AMSC's views on the U.S. global information infrastructure initiative. My comments will be brief, focusing on the immediate opportunity for the United States to promote its interests at the upcoming International Telecommunication Union Plenipotentiary Conference to be held this fall in Kyoto, Japan. In reaction to U.S. global initiatives, including U.S. low earth orbit or LEO mobile satellite system proposals, some countries are proposing the creation of a separate policy forum within the ITU to develop guidelines to deal with emerging global telecommunications efforts, including the GII as well. Other countries are promoting aggressive strategic planning within the ITU which could in turn result in greater centralized global telecommunications planing and standards setting. Now, these proposals must be studied carefully. They should be opposed, however, if they lead to greater international regulation, particularly by the ITU. This does not mean, however, that these issues should not be debated at the ITU. The ITU is a natural forum for the discussion of new global telecommunications ideas. The U.S. policy position should be that whatever the outcome of the international debate the sovereignty of each nation to develop telecommunications policies should be respected. Each nation should be encouraged to develop it's version of a national information infrastructure according to its own vision and its own regulatory regime. Differences in policy and implementation can be worked out through bilateral or, as appropriate, multi-lateral efforts. One particular outcome to be avoided is global standardization. Traditionally the U.S. government has avoided setting a single domestic technical standard, instead relying on the marketplace to develop an industry standard or to form multiple standards. Currently the ITU uses the concept of recommendations to reach a political consensus on one or more global "standards" without mandating the adoption of a particular standard or standards. We believe this practice should continue. Additionally, there is no need to establish new ITU organizational structures to deal with these new global issues. The ITU's current structure which was recently modified in December of '92 has ample forums, whether it be world radio communications, study groups, or other existing forums to deal with these matters efficiently and effectively. Any new structure will reduce the effectiveness of these existing established forums and unnecessarily increase costs at the ITU, the later being a result that's contrary to the U.S. goal of zero real growth in the budgets of international organizations. A final specific immediate action at the '94 Plenipot is for the U.S. to assure that the ITU officials elected at the upcoming Plenipot share the U.S. interest and vision of the global information infrastructure. The five top posts up for election are secretary general, deputy secretary general, and the directors of the three operating sectors, radio communications, standardization, and development. Of course, we should be promoting as best we can the election of Hal Kimbell, the U.S. nominee for Director of Radio Communications Sector, as well as others that we believe will be responsive to U.S. initiatives. Their leadership will be critical as the GII develops. Thank you for your attention. CHAIRPERSON DARR: Mr. Levin, thank you. Mr. Lytel, do you have questions? MR. LYTEL: I do have a question. I wanted to agree with Mr. Mondale that foreign governments must see equity. They cannot see the Global Information Infrastructure Initiative simply as a new way of casting an attack on their domestic PTTs which I don't need to remind you are among the most powerful organizations in each nation, many times the largest employer and the largest domestic investor. It's for that reason that we have in the proposal that the President had accepted at the G-7 meeting, put on the agenda for GII discussions, the idea of a global digital library initiative on the idea that the British through the British Museum and the French Bibliotheque Nationale and other nations would see something that they could contribute as well as receive. So my question is really to Mr. Duncan. What's not to like about a national digital library initiative? MR. DUNCAN: Well, I don't think that per se the Information Industry Association would say that it's improper for government libraries to provide certain kinds of information on a wide open basis, but I think it's also important to remember that those libraries contain a great deal of copyrighted material that that copyrighted material has been developed as a result of a great deal of investment and time and effort on the part of the providers and there are laws certainly within this nation that allow for and encourage those people to continue producing because they can get a return on that investment. I think the concern that the Association has and that it's expressed many times in discussions on the NII and the GII is that to make such information available wholesale and free to large populations without consideration of how to reimburse the people who own that property will in essence destroy the basis of the information you are trying to get across for a national information or global information infrastructure. CHAIRPERSON DARR: Can I follow up on that? Do you see any way to accommodate their interest and have any kind of widely available information? How would you do it? MR. DUNCAN: I am not a copyright expert, so let me put that caveat out first, but I can say that many of our members certainly see the libraries as some of their best customers. Many of our members are traditional publishing companies who have gotten into electronic or on-line information of some nature. They are very used to dealing with libraries. They're used to dealing with licensing agreements, contract agreements. Most libraries, I would say, are used to dealing with publishers and providers in this nature. I don't believe that our industry is taking or wants to be viewed as taking an attitude that we are not going to make our information available. Our information is available. It works well. We have a very well developed on-line information system in this country. Many of our companies provide digital library services themselves, companies like Dialogue for example. I think that we are willing to and continue to work with those customers even in the library community who are trying to seek more and better information sources for their customers and thus far have done so very successfully. MR. SUGRUE: Could I follow up on that? I mean, is the basic problem, then, that the enhanced access provided potentially through an information infrastructure and a digital library could essentially eviscerate the worth of the copyrighted material? MR. DUNCAN: Yes, especially in a digital environment. Many of our companies have already encountered cases in which they have lost control of the information once it's sent out on an electronic network, especially a network like the Internet for example. If they cannot control how that information is used and redistributed, that's a problem from their perspective in maintaining quality and ensuring the timeliness of the information. They also cannot guarantee a further recipient on down the line that the information that that person received is accurate. That is a big part of what stands behind the good name of many of our firms in our association. MR. SUGRUE: Do you have any specific suggestions? For example, if I -- now a library system wants to buy a book, each library buys the book or whatever, how many are going to have it. One of the economies or efficiencies presumably from this type of a digital library might be that there'd be less direct sales like that and more people could tap into -- receive access to that book. Are there any specific -- and I take it the problem would be there'd be fewer sales or sales may not be the relevant concept. Are there specific proposals for compensating the copyright owner? MR. DUNCAN: Well, many of our companies and the Association itself have been working on some proposals. I think we see many of these things are going to be resolved through technology itself. There are tracking mechanisms, metering mechanisms, ways of allowing for further distribution under specific contract terms within a limited digital environment which are already out in the marketplace and being tested. I think this is an area in which we would again emphasize the need for the free market to allow to work. Customers will let us know if they feel that they are not getting the information they need at the cost they wanted in the manner that they wanted, and the simply way of letting us know is that they don't buy it anymore. So if we are not successful in delivering our product on to the consumers and the businesses that use them, they will let us know immediately that we have to redesign them in a way that is most effective for them to use. CHAIRPERSON DARR: Diane, did you have some questions? MS. CORNELL: Yes, actually, I would like to ask, since we have an interesting group here, we have a couple of -- I guess you could call yourselves users collectively, even though you also have some enhanced service providers and satellite providers. I guess I'd like to ask Don Abelson's question from yesterday. What do you folks think is the best way to encourage competition and encourage other countries to introduce competition into their markets? Do we take a reciprocity-like approach or do we just sort of the proverbial lead by example with appropriate safeguards, making sure that market power is not inappropriate? What do you folks -- I mean, all of you are trying to get access to other markets and I know I've had discussions with several of you on this issue off-line, so to speak, but I'd be curious to get your views on this issue. MR. MAY: I'll start and maybe I can even, if I reserve the right to come back if someone says anything that I want to follow up on. We always have led by example and I think that that's important on the reciprocity issue that I mentioned in my statement, specifically with regard to Section 310, for example. You and I, I think, have talked about this off-line, but that's a good example of where in other countries they, I think, with some merit-- you know, we always have got to be careful and not assume because we are generally the leaders in having developed competitive environments and market places that that is uniformly true and that there aren't some further things we can do. That's a place that's an example where countries I think correctly can point to us and say that you should do something further and I think we should in that regard. I think from a user's point of view, because a lot of times on these types of panels -- and I really do commend you for throughout this hearing actually having the user viewpoint so adequately represented, and I mean that. That's very helpful. A lot of times the users are not represented and this point I think gets lost a lot from our point of view. We've got to be careful not to equate competition and having a competitive marketplace with the existence of one other provider in the marketplace or maybe two other providers. And that happens a lot domestically and internationally and that's why from the network's point of view I pointed out that having a PanAmSat in the market that someone can point to and say there's another provider, and we're happy to -- we actively supported the development of the International Satellite Policy and are happy PanAmSat is there, but that's not really a competitive marketplace. So the other side of your question, until we get to a competitive environment, is that it's important really not to equate another entrant with competition or privatization with competition as well. MS. DI TOSTO: The U.S. Council does support the Administration's adoption of the two- pronged approach to liberalization of basic services and network infrastructure: first being the multi- lateral negotiations under the auspices of the GATT to open foreign basic services markets, and the second prong being the bilateral agreements which I think the Administration is gearing up to proceed. We don't -- the Council does not support mirror image reciprocity as a way to open up foreign markets. Beggar thy neighbor policies will only build higher walls and not break down the barriers to trying to get companies into foreign markets to provide the services that their users and the customers are really demanding nowadays. Education -- so, leading by example is certainly a good approach and so is education. The International Chamber of Commerce a few years ago, which represents business views in over 110 countries, came out with a position paper entitled "Towards Greater Competition in Basic Services and Network Infrastructure." This paper led or sparked a debate at the OECD, the Organization for Economic Cooperation and Development on infrastructure competition, and recently, as this Board knows very well, the OECD adopted a statement on the benefits of infrastructure competition. And that statement is extremely important because the OECD is comprised of 25 governments, so it was sort of a ringing endorsement for infrastructure competition for basic services competition that each government, including the telecom ministers in those PTTs, adopted. It's been a slow process to get the governments to come on board for competition in sort of the last area of telecommunications, but now that we have those governments endorsing this approach the time now is ripe to go out and pursue, as you are doing so well, the bi-lateral and the multi-lateral agreements and negotiations. MR. MONDALE: I'd like to say that the example has got to be where you start, because that's where you get the proof that you can use with other administrations that they should do it. I think there are a couple things that we run into as we go around the world trying to espouse the American competitive example and I would cite particularly this question of foreign ownership, and that's becoming -- I think has the potential of becoming an Airbus level trade issue between the United States and Europe. I think they treat it as an extremely unfair and one-sided area, particularly when that concept was perpetuated in a recent reclassification or creation of this kind of public mobile service provider. That's really got the Europeans upset, no question about it, so it makes it very hard for us to try and sell the example abroad when they've got something, basically a sore thumb issue that they think is a really bad example, so that's a problem we have. We would like to see the example set for licensing of service such as our own, and then we would accept the responsibility of selling that case on a national level as we go around the world. We think that in every case that we've encountered so far we can make a case that competition will lead to more revenue for national governments, better service for national populations, possibly in many cases even more traffic for the PTT. You can make a pretty good case with these new services in just about every national level. That's what's ultimately going to break the door down. I don't think that the U.S. needs to espouse a policy of reciprocity, but I think it needs to be ready to use that club in cases where you've got, say, a private entity that might be willing to take on the PTT in a particular country. The PTT enjoys, perhaps, competitive rights here in the United States. I think there will be cases when it will be appropriate to invoke reciprocity, particularly in this area of global operators who can play games with PTT relationships on the one hand and put a different face forward here in the United States. MR. SUGRUE: Mr. Mondale, you're endorsing reciprocity as both a carrot and a stick? MR. MONDALE: I think that the carrot has to be principally the example and then I think the government also is not necessarily the best advocate of a competitive marketplace, that perhaps the private sector is the one that has to go make the case. The competition is going to be good in the various national markets around the world and we have that responsibility, but then I think in some cases we're going to find that all the elements of introduction of competition are there and are being stymied in a way that only reciprocity can resolve. That is, after all, the only tool just about that the U.S. has come up with that works without really violating national sovereignty. All you're doing is exercising American sovereignty in an effort to urge them to effect their own policies. MR. SUGRUE: But, specifically, does Motorola support the FCC's use of 310(b) to permit foreign owned companies into the U.S. market in radio services on a reciprocal basis? MR. MONDALE: Well, I don't speak for Motorola. I speak for Iridium Incorporated. MR. SUGRUE: Excuse me, Iridium. MR. MONDALE: But, I'd have to say yes, we do, because otherwise we're going to encounter that exact same problem and we already are in Europe, European legislation that's being proposed, and that can just have a disastrous kind of waterfall effect. MS. CORNELL: I'm not so sure I'd necessarily agree with Tom's characterization of what the FCC has done, but -- MR. SUGRUE: Well, not what the FCC has done. I thought if the FCC were to do that -- MS. CORNELL: Yes. Certainly, yes. Okay. I'll take that. Did you have another question? MR. SUGRUE: I do. MS. CORNELL: Go ahead, Tom. MR. SUGRUE: I just wanted to ask a question on universal service. It seemed to be a theme in a number of remarks. Often when people talk about universal service, they sort of treat it as a motherhood issue and no one criticizes it. I heard a few negative things along the way here, so I'd like to explore that a little bit. Nanette, you start off by saying, "limit it to two-way voice," for example. That sounds a little bit, you know, like a wet blanket for a national information infrastructure with all the possibilities out there. Why should we start off -- I mean, we have it for two-way voice, at least in this country. Are your remarks limited to the international arena, or are they meant to apply to domestic policy as well? MS. DI TOSTO: Well, they certainly applied to domestic policy and we do support that as an international policy as well. We do believe that there are some serious considerations and some principles regarding universal service and universal access that must be addressed before expanding the concept that we have today. MR. SUGRUE: And your concerns about expanding the concept are based on what, cost? MS. DI TOSTO: Yes, based on cost. There's a great deal of merit in that. The longer the loop, or the wider the loop and the fewer people there are to service that or to pay for it, the more you see your revenues going down the drain. At first, we do believe that competition in the marketplace should be relied on for providing universal service and universal access. And to the extent that subsidies are needed as sort of a margin or at the fringes, they have to be specific and targeted. MR. SUGRUE: Mr. Mondale and Mr. Daggatt -- I don't know whether there was a little debate going on. I seemed to pick out different themes. Mr. Mondale, you were saying let's define it as dial tone, voice dial tone types of services. Mr. Daggatt seemed to be suggesting that without some form of broadband interconnectivity, you've missed the boat a lot and it's available with today's technology. Not to sort of caricature your statements, but certainly, we don't say, "well, the developing countries should start with telegraph because we did and therefore, we'll have to build out a national telegraph system. Then we'll go to an analog voice system, and then maybe we'll consider digital." I suspect if you're putting a new switch even int he least developed country, you put in a digital switch right now. I'm not sure major manufacturers even make large analog switches anymore. So, I don't know if there's a way to harmonize those two statements, or whether you've just got different business plans and that reflects what you're saying. But if you both could address that? MR. DAGGATT: Well, I believe that universal service should be an aspiration and we should not abandon it as an aspiration. In fact, it should be expanded to include the full range of advanced information services. Those information services, the broadband applications, are going to become increasingly essential to education, health care, economic development, public services. If we exclude those broadband applications from the scope of our universal service aspirations, we really are condemning most of the world and large parts of this country, to falling further and further behind. So, I think it should remain an aspiration. How you achieve it is ultimately a matter of economics. To be accessible, the cost has to be affordable. That's why we focused on developing a means of driving the cost down in a manner that's indifferent to location. That lead us ultimately to a large satellite base solution. I think the U.S. can play a role in encouraging a dynamic competitive environment because that will drive the cost down and lead to more creative solutions. The approach Teledesic has taken, we believe, helps address sort of the chicken and egg problem of economic development. Increasingly, you can not have any kind of really advanced dynamic economic activity taking place without access to broadband capabilities. And yet, people will not build in a terrestrial infrastructure to accommodate those in the absence of manifestation of existing demand. The advantage of a satellite base solution is it is inherently ubiquitous and therefore, the capability exists over all areas, whether you want it to or not. And it can address a lot of other issues which I won't get into, but social issues. How do you keep them down on the farm? It allows rural areas to diversify their economies away from agriculture and to have access to not only the essential things like health care and education, but even the things that are also sort of essential to the soul, the cultural amenities as well. In a lot of areas, the broadband applications may not be intended really for individual use as much as they are for institutional use: for hospitals, schools, libraries, government offices, and businesses and the like. But clearly, if the more remote areas, if the rural areas, including most of the developing world -- if you're not going to condemn them to falling further and further behind, then I think it should remain an aspiration and the Administration deserves praise for putting that foremost. MR. MONDALE: If I may, I'd address your question head-on. I don't think there's a difference in our approach here. I thought I went out of my way that I wasn't critical of broadband approaches. What I'm concerned about is how you can sell this to the developing world. And again, it's kind of a crawl before you can walk situation. I agree, of course, that telex and telegraph are probably not appropriate technology. And you probably know that appropriate technology is a very big, important catch word in the development community around the world. So, I would maintain -- and I think this is borne out by the data -- that voice is perhaps the building block of telecommunications and the place to start. It accommodates all forms of verbal communication. It doesn't matter what language people speak and I think you've got to start there. But my point was really directed toward how can you market the GII to the developing world? I'm concerned that X.25 networks and broadband go over the head of a lot of these countries, frankly. I'm not accusing them of being unsophisticated or intelligent. Many, many of them are. But you've got to recognize that the politics back home are still very basic, and so you've got to have a very basic type of approach to it. So, I would still maintain that we need a model that we can show to the majority of countries of the world that shows us enhancing their capability to have voice communications nationally. MR. SUGRUE: Well, I agree that we have to have a goal in the model that the rest of the world, and the developing world can buy into. It's just a matter of defining that. I think part of the tradeoff is if -- describe it sort of two-way voice service, there's the concern that you're relegating them to the past. Meanwhile, you know, the U.S. will sort of surge past that -- all the developing world surges past that -- and you're pushing us off on the older technology. I know it's a balance. But just as you say you hear some of the things you're describing, I hear the other side of the coin sometimes. MR. MONDALE: Sure. I would just counter that by saying that, you know, this telecom development issue is not a new one. And in 20 years, if the pace of technical development were what we thought it was 20 years ago in this country, it would already have phones for half the population of the world. The fact is, they still don't. So, we still ought to address that underlying issue before we move on to the more sophisticated one. MR. SUGRUE: And one final point. I hadn't heard the GII described as an invasion and I have heard Iridium described as invasive. I guess we're in the same boat now on some of that. CHAIRPERSON DARR: Diane, if I could just make one? I'm mindful of the time, so I'll just make one very quick comment just to pick up on Mr. Mondale's marketing point, so-to-speak, and also a point that Mr. May made earlier. From what we've seen -- and I expect you folks have seen the same thing -- one of the most important things that we can do is to educate the users in other countries. You know, your customers and your counterparts, essentially, as to the benefits that they can get from an introduction of competition, lower rates, et cetera. We have been hearing this from regulators in other countries, that users are beginning to talk to them and talk to the telephone companies. That's having much more of an impact than anything any of us can do for the immediate future. I would very much urge all of you to give some thought as to what we can do to sort of mobilize, particularly the sophisticated users. Obviously, that's going to be the first step. But to mobilize the user communities in other countries and give them a better appreciation of what they're missing, so-to- speak. So, I think that's going to be one of the most important things we can do to really put pressure on governments and on the PTTs abroad. MR. DAGGATT: I would agree. I mean, ideas have a lot of force in the Administration's Global Information Infrastructure policies, an excellent example of our ability to set the agenda. Merely framing the issues goes a long way toward shaping the outcome. CHAIRPERSON DARR: Mr. Daggatt, thank you. Why don't we take about a 15 minute break and then we'll be back for the final panel on where do we go from here? Thank you. (Whereupon, off the record at 2:46 p.m., until 3:12 p.m.) CHAIRPERSON DARR: We have our final panel here on where do we go from here? It is thought to be one of the most interesting discussions and presentations we've had so far. I'd like to introduce the hearing panel again. Tom Sugrue on my far left. The Deputy Assistant Secretary of Commerce for NTIA, Bill Clements on detail to the White House, the Office of Science and Technology Policy; and Diane Cornell, Chief of the International Policy Division of the Common Carrier VERO of the Federal Communications Commission. My name is Carol Darr. Before we start, I'd like to take a minute to thank some of the people who have put this hearing together. Hearings like this, particularly when they're done well, look easy, look simple and very much hide the enormous number of hours that go in to providing the packets, to getting the room, to organizing the phone calls. I'd like to publicly thank some of the people who have worked on this. I'd like to thank the NTIA interns: Jack Suffi, Paul Deesa, Noai Jerraro, Derek Claufin, and Sean Kennedy. I'd very much like to thank Larry Irving and his staff: Greg Francis, and particularly RoAnn Robinson who has done a wonderful job helping us organize this. My staff: Nicole Brown and Angie Mitchell. I'd like to thank Meagan Griffins, Michelle Farquier, Suzanne Settle, Jim Wasalouski, Larry Williams, Paige Darden. I'd particularly like to thank Randall Cooke who is behind me, who has quarterbacked this entire effort. I know a lot of you all have spoken with him and I'd very much like your applause for Randall. He's done a wonderful job. Thank you. Let's start with the first panel. As the panel is introduced, if you'd stand up so that the audience can see you? Thomas Tauke from NYNEX, Jeffrey Winston from the Unocal Corporation, Claiborne Johnson, Jr., from EDS, Richard Hayden from the American National Standards Institute, Woody Kerkeslanger from AT&T, and Mike Roberts from Educom. They will be speaking to the issue of where do we go from here? First, Mr. Tauke? MR. TAUKE: Thank you very much. Although our distinguished chairperson alluded to the fact that there has been a lot of duplication of messages today, and that if she had any advice for me it was that I shouldn't say "if they build it," or "if they build it, they will come," I am compelled to note that I was born just a few miles from the field of dreams in Dyersville, Iowa. And so, as a result, it seems like an appropriate thing for me to say. However, I believe that it is a bit simplistic to suggest that if we build it, they will come. The fact of life is that as we look to the future of the Global Information Infrastructure, we don't know what it will look like. We don't know precisely what it is the consumers want. And certainly, we aren't sure precisely what the role of either NYNEX or the government ought to be in the development of the Global Information Infrastructure. I guess the point is, we're all feeling our way a little bit. Nevertheless, despite the fact that we are feeling our way, we believe that there are some fairly clear objectives that we should have as a company and some fairly clear goals and activities which the government should embrace. First, let me observe that NYNEX applauds the Administration's Global Information Infrastructure initiative. We have learned from our experience in the international marketplace how important sound U.S. policy is in promoting the goals of the GII. In our judgment, Vice President Gore captured the core issue of GII policy debate. That is that sensible regulation is key, that sound policy is based on private investment, competition, and flexible regulation. Recent developments in the International Telecommunications marketplace merit the review of U.S. policymakers. All the mergers, alliances, the market liberalization, globalization -- these things have profound implications for us domestically, but they also have great implications for our activities around the world. In our view, what happens in the NII has a major impact on what we are able to do and what will happen in the GII. NYNEX supports a collaborative effort among the nations. This can not be an American- dominated effort. We think America has a leading role to play, but we have to have a collaborative effort among the nations. We have certainly learned that in our own experiences. We applaud the Administration's effort to initiate international dialogues such as the upcoming Telecommunications Summit. What is it that the U.S. government can do to promote the GII in the future? First, the government, in our view, ought to promote international trade in services. Being blunt, the U.S. economy is now 73 percent services based. But we wouldn't know that, in our judgment, from the way in which the United States trade negotiators approach the international marketplace. Trade in telecommunication services creates jobs for U.S. workers who support international operations of U.S. companies. From a macroeconomic perspective, the establishment of the GII will spur overall global trade and a better climate for U.S. job creation across all sectors of the economy. We believe that U.S. trade negotiators who have had, frankly, more experience in trade matters relating to manufacturing and goods and things you can put your hands around, need to become more familiar with and aggressive when it comes to promoting trade in services, in dealing with the issues that are involved in trade in the service economy. I might observe that while it's a little tougher to point to the exact number of jobs created from the improvement of trade and services, that nevertheless, there are huge numbers of jobs created and huge benefits that flow to the U.S. economy. We all have to figure out a better way to get a handle on that and to get the focus on that aspect of trade because so much of our economy is based on it. The second observation we have is that the U.S. government can promote the GII by improving the regulatory environment at home and working for reasonable regulatory structures abroad. I can comment further on that in questions, or you can look at my written testimony. Third, we believe that the U.S. government can promote the GII by encouraging appropriate international standards. Probably not by trying to have government set those standards, but by ensuring that there are appropriate consultations among industry groups and governments in order to establish standards where they will foster economic growth and the development of the GII. Again, I refer you to my written testimony. The last point, and the one I want to dwell on a little bit is that we believe that the U.S. government can promote the GII by acknowledging that commercial interests will drive deployment by recognizing that private investment is key and by facilitating that private investment. NYNEX's international ventures I think highlight the fact that private investment is key and perhaps can give some clues as to how that investment can be leveraged and encouraged. We have used a lot of our own capital to help build the GII. But we also have brought other capital into it from players who are not necessarily otherwise involved in the communications arena. Our international activities have taken on many different forms: strategic alliances, build, operate and transfer kinds of agreements, and dual servicing provisioning. Let me touch on a few of these projects in order to demonstrate the way in which we have leveraged capital. First, Fiber-optic Link Around the Globe, or FLAG. FLAG will be the world's longest undersea cable, 30,000 kilometers. It will connect Europe, the Middle East and the Far East. The construction of it will be completed in 1996. It will be a GII backbone, where it will offer competitive transmission, foster efficiency, and give greater consumer choice to people around the world. NYNEX Network Systems is the managing sponsor of FLAG. We are the ones, if you will, who have the expertise in the communications business. We have partners who are equity partners in this enterprise: Dala al Baraqa group which is in Saudi Arabia, Gulf Associates from New York, and the Marobini Corporation from Japan. They are players who have taken a major interest in this, but they are not engaged so much in the operational side, if you will, of FLAG. We believe that this kind of partnership which brings others into the efforts to raise the capital to support the necessary investment in the GII is important. TelecomAsia in Thailand, our effort there is another one that we believe illustrates the way in which private capital can be brought to bear on GII projects. In 1992, NYNEX formed a partnership with a Thai company, TelecomAsia, to construct a two million line network in the greater Bangkok metropolitan area. That's the equivalent, for example, of the telephone system in the state of Louisiana. TelecomAsia has secured a cable franchise which will now serve as an outlet for American programming through that infrastructure. In TelecomAsia, we have an 18.7 percent equity interest. Again, we are the managing partner. TelecomAsia has become the largest capitalized company in the Thai stock exchange, so it's become quite popular. Our structure in this case is a build-transfer-and operate scheme. NYNEX, TelecomAsia builds the two million line network by 1997. Once the network is built, ownership is transferred to the telephone organization of Thailand. TelecomAsia then, i.e. NYNEX, operates the network for a period of 25 years and retains 84 percent of the revenues generated from the network. This is a method which makes, frankly, the country in which the infrastructure is being built reasonably comfortable. It allows the American company to have an equity interest and return value to share owners. And it allows us, if you will, to share our expertise with the rest of the world, which we believe has long- term implications for our economy. We have engaged in other projects. For example, NYNEX CableComms in the United Kingdom where the favorable regulatory climate, frankly, encouraged the very liberal investments on the part of NYNEX and many other international players. While we have talked about wire line services, obviously wireless services, various information services are also part of the Global Information Infrastructure. On an international basis, we have those things too. For example, we are publishing the telephone directors in Poland and the Czech Republic. We believe that they are part of the activity which allow people around the world to communicate. The bottom line is that we think that U.S. companies have a lot to offer in helping people around the world develop the GII and communicate better. We believe that the U.S. government can play a role in facilitating the entry of U.S. companies into the GII business. And we believe that when that happens, that that will leverage additional investment from outside the communications industry to achieve the goals for which we are here today. Thank you. CHAIRPERSON DARR: Thank you. Mr. Winston from Unocal. MR. WINSTON: Good afternoon. My name is Jeffrey Winston. I'm the Manager of Telecommunications for Unocal Corporation, headquartered in Los Angeles, California, a company which produces and sells a broad array of energy resources, petroleum products, chemical fertilizers, and specialty minerals worldwide. My responsibilities include the planning, design and operation of Unocal's data and voice communications networks worldwide. I have implemented systems for Unocal based on a wide variety of communications technologies including a company-wide virtual private voice network, an extensive high-speed multi-protocol wide-area data network, video- conferencing systems, telephone systems utilizing advanced ISDN features, and a satellite network for interactive point-of-sale and remote field operations. I am also the Chairman-designate of the American Petroleum Institute, or API Telecommunications Committee. In short, I am not sort of an end-user, not kind of an end-user, but I am very much an end- user of telecommunications services. The petroleum industry has become increasingly global in nature. Many large petroleum companies are U.S.-based multi-national corporations engaged in exploration, production and distribution activities around the globe. API member companies are engaged in exploration and production activities on every inhabited continent and in virtually every country in Central and South America, Africa, and the Middle East, as well as in the Pacific Rim. In addition to maintaining operations in traditional oil production areas such as the North SEa, the Middle East, Venezuela and Mexico, many American petroleum companies maintain substantial distribution and refining operations in South America, Western Europe and part of the Far East. A pointed example of our challenge was the need for Unocal, in particular, to install specialized and very expensive satellite communications equipment to support plain old telephone service as well as fax service from a hotel suite in Baku, Azerbaijan. To add insult to injury, electromagnetic interference from a nearby television transmitter made this task all the more complicated. And that's not to mention a $10.00 per minute price point for these services. A substantial portion of petroleum exploration and production activities take place in developing countries lacking a sophisticated or, in some cases, even a basic communications infrastructure. Sophisticated communications are essential to petroleum companies to enable them to transfer and process substantial volumes of data that are necessary for successful exploration and production activities. I might suggest that international locations are not necessarily truly international. Unocal recently established a data network connectivity to chemicals plants in Kenowic, Washington and Kenai, Alaska. Our T-1 data circuit to Kenowic was the first such data circuit ever installed by the local telco. The reliability and availability of our connection to Kenai was so poor that we may as well have transported data using a dog sled. The development of the Global Information Infrastructure, or GII, will have a direct and lasting affect on the nature, quality, and affordability of telecommunications available to petroleum companies in connection with their expanded global operations. Accordingly, API appreciates this opportunity to present its vision of the GII. API agrees with the Administration that a truly Global Information Infrastructure will provide numerous benefits to the domestic and world economy. In order to bring about such benefits, any policy driving the development of the GII should embody the following key elements. (1) Cost-based rates for telecommunication services. (2) Availability of specialized communications worldwide. (3) Removal of Export/Import controls. (4) Equipment standardization. (5) System protection and privacy. In the area of cost-based rates, API strongly supports the global implementation of cost- based rates for telecommunications services. A major impediment to a robust global information infrastructure is the cost underlying communications transport and switching. Excessive accounting rates underlie non-cost leased International Message Telephone Service sales to many countries. There is no incentive for significant investment in telecommunications infrastructure on a global basis if rates are not cost-based. Indeed, so long as these rates are set well in excess of ascertainable costs or benchmarks, development of a truly "global" information infrastructure will be relegated to the distant future. The petroleum industry needs access to sophisticated voice and data services. In developing countries, as well as many industrialized nations, the telecommunications infrastructure is nowhere near as developed as it is in the United States. The problem of an antiquated communications infrastructure is particularly acute for petroleum companies that have extensive operations in such countries. The existing infrastructure in many countries is simply unable to support the telecommunications requirements of large U.S.-based petroleum companies. For example, in Chad, Vietnam and the South China Sea, the lack of fiber optic facilities directly impedes petroleum exploration and transport operations. Petroleum companies must therefore rely on specialized service arrangements to provide the communications necessary to support their sophisticated voice and data requirements. For the near term, and at least through the beginning of the next century, specialized communications such as international satellite services and INTELSAT's IBS will constitute the only infrastructure capable of supporting a given service and provide the most practical solution to meet the petroleum industry's requirements. The overriding near-term challenge in the global market is to confront this lack of specialized communications capability. Any GII policy must recognize the importance of specialized communications, and in particular, the critical need for such communications capability in less developed areas of the world. Many foreign nations currently restrict the import of customer premises equipment, or CPE, in reaction to U.S. export controls. Such restrictions directly affect petroleum companies which routinely move CPE from country to country based on shifting levels of exploration activity. Restrictions on transborder movement of CPE limit users' communications equipment options to outmoded technologies, and hinder the ability to implement global communications systems. Indeed, in some developing nations, import restrictions amount to sentencing their international corporate inhabitants to life imprisonment in the technological dark ages. A recent opportunity that Unocal had to relocate a telephone switch from a Unocal office near Chicago to a facility in Indonesia was plainly prohibited by Indonesian import controls. Elimination of export controls is a win- win situation. Opening up borders to the flow of telecommunications equipment and services promotes market-based technology standardization. It also enables the host government's economy to benefit from the economic efficiencies generated by the installation and use of advanced equipment. Finally, because the U.S. still retains its leadership in telecommunications equipment manufacturing, a reduction or elimination of export controls should enable the U.S. to retain its lead, while stimulating the sale of U.S. manufactured equipment in overseas markets. Equipment standardization is the crux of a successful, interoperable GII. API supports the proposition that the standardization process must not be government-mandated. The process must be market driven, technology neutral, and developed by international consensus. A GII policy that allows marketplace forces to work will facilitate the most efficient and advanced global information infrastructure. Such a policy will also allow American telecommunications equipment manufacturers to compete on a level playing field. Lastly, but by no means least, the security and privacy of communications must be a basic element of the GII. Information security and system reliability are critical to the successful operation of a business. API believes that users must be absolutely confident that business can be conducted over communications systems without the threat of compromise or artificially induced system dysfunction. In order for the GII to reach its potential as a vehicle for expanding global commerce, the international business community must have confidence in the security and privacy of communications traversing that infrastructure. The utilization of encryption technology is a critical means of ensuring information protection and system security. API supports providing users with the ability to encrypt and decrypt communications, with encryption equipment of the user's choice and preferred design. In the absence of evidence that particular encryption equipment is being sold for illegal uses, commercial encryption products and technology should be free of export or import controls. In addition, restrictions should not be placed on the use of encryption equipment solely to facilitate information gathering by law enforcement authorities. An effective GII will provide unfettered access to networks and prohibit denial of service by governments or other entities. In addition, private networks should not be unnecessarily burdened with regulations designed for common carrier services. Private networks should be afforded maximum regulatory flexibility in contrast to the multiple and multi- faceted regulation typically imposed in other countries on providers of domestic and international service. In today's increasingly global marketplace, petroleum companies and other U.S. corporations operating abroad, rely on the sophisticated communications available at home to successfully manage their businesses. For petroleum companies, which operate largely in developing nations, a mature telecommunications infrastructure is critical. To ensure the development of such an infrastructure and its integration into a truly global information infrastructure, a GII policy must ensure the availability of specialized communications equipment, communications at cost-based rates. Export and import controls must be eliminated or reduced and policies must be adopted to effectuate equipment standardization and to ensure that the information making up the GII remains secure and private. Only by ensuring that these elements are integrated into the GII can the U.S. government help ensure that the GII reaches its true potential. Thank you again for the opportunity of addressing the panel. CHAIRPERSON DARR: Thank you, Mr. Winston. Mr. Johnson from EDS. MR. JOHNSON: Madam Chairwoman and members of the working group, I am Claiborne Johnson, one of the Corporate Vice Presidents with EDS. EDS, or Electronic Data Systems, is a major information technology services provider and our services include consulting, systems development, integration, maintenance, and processed management. Our revenues were about $8 billion in 1993, and our markets include health care insurance, communications, manufacturing, transportation, financial services, energy, government, and retail services. We employ 70,000 people in over 30 countries for about 7,000 customers. We operate one of the largest private digital networks in the world. So, even though we did not collaborate beforehand, I'd like to echo Mr. Winston's motions that I am here as a user, a rather gigantic user in fact. We're pleased to be here to discuss issues related to the Global Information Infrastructure. But first, let me compliment you all on holding this hearing and listening to such a wide range of interested parties. We're particularly pleased we were selected to participate because of what I said. We do feel we represent the business users, and that group is not necessarily always particularly visible in this kind of a process. We and our customers are users of the GII today, insofar as it exists. And we certainly feel like we'll be on the forefront of using it as it develops. And so, we think we have a particularly good perspective on representing that view. There are several technological areas, such as standards, interoperability and so forth that must be addressed to achieve our collective vision for the future. But today, I've chosen to focus on three policy inhibitors that must be resolved quickly and effectively with our United States global partners if we're going to establish a truly Global Information Infrastructure to the level that's possible. I am relatively confident that the technical issues can be resolved fairly expeditiously. We need though that the policy inhibitors also get resolved in time for the GII to move forward at a pace consistent with technology. The U.S. government needs to play a role in the global community to resolve these issues. I will briefly summarize for you all, the three issues that we believe are among the most critical in this development. (1) Intellectual property rights need harmonization and enforcement. (2) Consensus is needed on principles for global security and encryption systems. (3) The government should take a broader view of the international telecommunications services marketplace in negotiating market access. Now, in slightly more detail. First, intellectual property rights. Strong intellectual property protection for our nation's innovations are critical to our future and ultimately, to the success of the Global Information Infrastructure. So far, I think the body of U.S. copyright and patent law that has served U.S. innovators well to date is probably sufficiently flexible for the future needs of the digital revolution. But the type and level of copyright protection afforded to technology innovation needs to evolve as the technology matures to insure that the protection moves with the work, regardless of its form or method of communication and distribution. In nations that have weak protection of or enforcement of laws protecting proprietary work, a real disincentive, obviously, is created in using the highways simply because content providers will not be assured payment for their work. Just as the GII provides new opportunities for innovation, it also creates new opportunities for infringement of protected intellectual property on a truly massive scale. The second point, the consensus on principles for security encryption systems. As the economies of all the nations become more global, business is increasingly dependent on international telecommunications networks to conduct its daily affairs. And vast amounts of sensitive and proprietary information are flowing freely around the world so encryption is becoming an important component in efforts to protect that information and restrict its access to authorized users. As a basis for discussion with foreign governments, we recommend further consideration of seven principles that will serve as both an underpinning of policy regarding encryption, and a touchstone on which to evaluate various encryption methodologies. These principles are also generally consistent with those articulated last week in Vice President Gore's letter to Representative Maria Cantwell. We enthusiastically applaud the Administration's willingness to work closely with industry to find solutions that will provide for the needs of law enforcement and national security while not undermining U.S. competitiveness. Now that principles have been crafted to guide U.S. policy development, we encourage U.S. officials to seek a global consensus on those principles, especially with our largest trading partners. Briefly, the seven principles as we see them are: (1) Variety. There needs to be available for use a wide range of encryption methodologies and techniques so that it will permit the user to scale his security requirements to a particular encryption strength. (2) The algorithms ought to be public. In order to ensure international acceptance and public confidence, I think it follows that the algorithms must be available for public scrutiny. (3) International acceptance. The methodologies must be widely acceptable within the international community and remain essentially free of export or import controls. (4) Implementation flexibility should be available. For example, the user should be free to implement either hardware or software solutions depending on what he thinks he needs. (5) User Key Management. Users must retain the ability to change keys for their own piece of mind, if nothing else. (6) But along with that goes key escrow, and the principle of key escrow is acceptable with the following conditions: (a) In obtaining wiretapping access to a transmission, at least one key holder must be a non- governmental trusted third party. (b) Keys must be made available for specified, limited time frames. (c) The process for obtaining and using keys for wiretapping purposes must be auditable. (7) And finally, the seventh and last principle on encryption is liability. The unauthorized disclosure of keys will generally have economic consequences. So, if a key is disclosed through fault or negligence during the wiretapping process, there must be acceptance of liability by the parties involved. Now, back to the main part of our thesis, that the government should take a broader view of international telecommunications services marketplace in negotiating market access. EDS, like other large service providers, has a continuing need to communicate and manage information on a global, real-time basis for our customers and for ourselves. And in looking for ways to satisfy our needs in an efficient and innovative manner, we and our customers want and need the full range of alternatives that are available in the marketplace, to include regulated and unregulated service providers. Regulated carriers are the most significant group of players in the international services marketplace. But customers increasingly look to private carriers, systems integrators, and enhanced service providers such as EDS, to satisfy their communications and information management needs. Often, there is no single marketplace solution, and solutions must be pulled together from both regulated and unregulated providers to develop customized solutions to global communications needs. This seems to be especially true of the more innovative leading users such as Mr. Winston, who just spoke before me. So, E