Ralph Nader testimony Telco

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Date: 2/11/94 4:16 AM
From: love () essential org
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TAXPAYER ASSETS PROJECT - INFORMATION POLICY NOTE


The following statement of Ralph Nader and James Love was
presented to the House Subcommittee on Telecommunications and
Finance by Ralph Nader on Feb. 9, 1994.




                  Statement of Ralph Nader and James Love
                               on HR 3636
                the National Communications Competition 
               and Information Infrastructure Act of 1993
                                before the
              Subcommittee on Telecommunications and Finance,
                     Committee on Energy and Commerce,
                       U.S. House of Representatives
                              Washington, DC


                             February 9, 1994


     Mr. Chairman, thank you for the opportunity to appear before
this subcommittee today to testify about the future of
telecommunications regulation.
     While we will focus today on Title I of HR 3636, which seeks
to create competition in local telephone service, we also have
general concerns about the proposed legislation.  The legislation
establishing the new telecommunications regulatory environment
should accomplish several key goals:


     BROAD GOALS FOR THE LEGISLATION


1.   Consumers should be protected from paying excessive prices
     for telecommunications services.
2.   When competition in carrier markets will benefit consumers,
     it should be allowed.
3.   Even more important than competition in carrier markets,
     consumers should benefit from the widest possible
     competition in content markets.  Competition in content
     markets is important for two reasons.  First, competition
     will lead to better products and lower prices.  Second,
     competition in content markets provides consumers and
     citizens with information from diverse sources, which are
     not controlled by the corporations which own the carrier
     facilities.  Because information is more than a commodity,
     it is the way we learn, persuade and communicate, we believe
     that competition in content markets should be a paramount
     goal in a democratic society.
4.   In designing an information infrastructure, it is essential
     to facilitate and promote non-commercial information
     services.  There are, of course, many important precedents
     for this, including the postal non-profit postage rate, the
     reservation of broadcast radio and television spectrum for
     non-commercial use, and the many public access provisions
     which were negotiated as part of the agreements between
     municipalities and cable companies.  Congress should provide
     for new "broadband" versions of these opportunities for the
     new information superhighway, in order to insure that it
     meets our needs as citizens, consumers, workers, scholars
     and artists.  The large telephone and cable companies are
     principally interested in building a marketplace, where they
     can promote pay-per-view services, infomercials, and home
     shopping.  This committee should consider the broader public
     interest in a communications structure that serves our non-
     commercial needs as well as our investors.


COMPETITION FOR LOCAL TELEPHONE SERVICE


     HR 3636 proposes to require states to allow competition in
local telephone service, and it also requires the Federal
Communications Commision (F.C.C.) to establish criteria for
determining if a service is subject to competition sufficient to
protect consumers from unjust or unreasonable rates.
     The legislation is a heavy handed pre-emption of state and
local regulatory authority on the issue of entry regulation. 
States would have no power to revoke a carrier's right to serve a
market based upon poor service or even fraudulent business
practices.  This appears to go too far, and it would be better if
Congress allowed states to impose reasonable standards for
entrants which protect consumers.
     HR 3636 gives states the right to determine if and when
sufficient competition exists to protect consumers from unjust or
unreasonable rates, but under criteria which are established by
the F.C.C.  The Clinton Administration has proposed that the
F.C.C. pre-empt local rate regulation when the F.C.C. decides
that effective competition exists, in its proposed (but yet to be
actually seen) Title VII regulatory scheme.  We strongly oppose
legislation which pre-empts state authority to set rates for
telecommunications carrier services.
     In 1984 Congress pre-empted the rights of states to regulate
prices for local cable television services.  The result was a
huge increase in the prices for cable television services which
harmed consumers.  When Congress finally attempted to correct
this mistake by passing the Cable Television and Consumer
Protection and Competition Act of 1992 (PL 102-385), it gave the
F.C.C. the job of adopting rules for the setting of cable rates
for thousands of local cable franchises.  As this Committee is
aware, the F.C.C. has struggled with this task, and many if not
most consumers still face excessive and sometimes higher rates
for local cable service.
     Last year Congress also pre-empted state regulation of rates
for cellular and certain other wireless services, in the Omnibus
Budget Reconciliation Act of 1993 (PL 103-66), in a provision of
the bill which was supposed to deal with revenue from the
auctions of electromagnetic spectrum for new wireless services. 
In fact, there had been little state regulation of cellular
rates, and as the wireless markets mature, one might have
anticipated, and indeed wanted rate regulation, particularly in
those markets where demand for the service exceeds available
spectrum.
     We believe that it is appropriate that states have broad
authority to protect consumers from excessive rates.  State
regulatory commissions are, on average, more responsive to
consumers than the F.C.C., which has increasingly become
"captured" by industry interests.  Moreover, consumers tend to
have much more influence on governors and state legislatures than
they do on the F.C.C. and Congress, on issues related to rates
for telecommunications services.
     Of course, state regulators can and do make mistakes, but
not only do consumers have more power to change local policies,
but the decentralized experiences of different states provide
important and instructive information about the merits of
different approaches.  If consumers in one state pay far more or
far less than consumers in another state, there will be an
opportunity to learn which regulators have gotten it right, and
which have made mistakes.  No such learning takes place when the
F.C.C. makes mistakes for all of us, as is evidenced by the
F.C.C.'s feeble efforts to protect cable consumers.


     PCS SPECTRUM


     An example of the F.C.C.'s lack of concern for consumer
interests and indeed its lack of understanding of the competitive
process, concerns its recent proposals for the auction of the new
spectrum blocks to be used for Personal Communications Services
(PCS).  The Taxpayer Assets Project proposed to the F.C.C. that
it license the PCS spectrum in the smallest possible blocks,
creating a large number of license holders.  Then we suggested
that the F.C.C. allow successful bidders to aggregate the smaller
licenses into larger blocks, subject to a determination by the
F.C.C. (made after accepting comments from the public) that the
benefits from aggregation (greater bandwidth), exceed the harm to
consumers from less competition.
     We also asked the F.C.C. to adopt rules prohibiting
incumbent telephone, cable and cellular companies from obtaining
PCS licenses, so that the new license holders would become new
entrants, and new competitors, in the provision of local
telecommunications services.
     The F.C.C. decided to lease the PCS spectrum in 7 small
blocks, but it allowed bidders to aggregate blocks, up to a
maximum of 40 Mhz, without any public interest finding by the
F.C.C.  Moreover, the F.C.C. allowed incumbent telephone, cable
and cellular companies to acquire the PCS licenses, in their own
service area.  Most license holders can only control 40 Mhz of
spectrum in a geographic market, while cellular incumbents may
only acquire 10 Mhz of spectrum (in addition to the spectrum they
control under their existing cellular license).  This proposal
will thus allow the incumbent telephone, cable and cellular
companies to acquire [up to] 100 Mhz of the 120 Mhz of new PCS
spectrum allocated in a geographic market.
     In many of the forums about the National Information
Infrastructure (NII), Administration officials have emphasized
the importance of new wireless services in providing competition
for local telephone, cable and broadband interactive services. 
This new competition can hardly be enhanced if the incumbent
firms are allowed to acquire [up to] 83 percent (100Mhz of
120Mhz) of the available PCS spectrum.


     UNIVERSAL SERVICE


     By opening up the local telephone service to competition, HR
3636 raises a number of issues concerning universal service. 
Generally speaking, universal telephone service has been promoted
by state rate regulation, including state rules about the
allocation of joint loop and switching costs between residential
and business subscribers.  While it is often asserted that
residential consumers are "subsidized" by business users, the
issue is often confused by the ways telephone companies and state
regulators seek to allocate joint costs among different types of
consumers.  Telephone companies, facing much more competition in
business markets than in residential markets, have an incentive
to allocate costs to residential consumers.  Thus, with broader
entry into local telephone service, it is important that states
have the incentive and authority to allocate costs fairly, so
that residential consumers do not bear an unfair share of the
joint costs of the switch and local loop.
     We support the use of a universal service fund, which is
financed by contributions from all carriers, as a useful
mechanism to promote social goals regarding universal service. 
However, this should work in conjunction with sound cost
allocation rules.  We also believe that the universal service
fund should be managed by the states, and that the states should
determine the level of contribution, the definition of essential
services, and the purposes for which revenues for the fund may be
used, subject to a set of minimum standards adopted by the F.C.C.
     We believe that in the future this fund should collect
future revenues from cable and broadband telecommunications
carriers (as our concepts of essential services and universial
service goals are expanded), and that states should have the
flexibility to use the funds to support a wide range of services
that the state believes are appropriate in the information
superhighway, including the provision of non-commercial
information services.
     Over the past decade Congress has not hesitated to interfere
with the authority of state regulators to control prices for
certain telecommunications services.  We urge Congress to take a
different approach in this legislation, and require states to
establish mechanisms to enhance the ability of consumers to
participate in rate making and other regulatory proceedings.  As
you are no doubt aware, telephone companies routinely spend
millions of dollars to pursue requests for rate increases and
other matters before regulatory commissions.  Consumers are
rarely represented in these proceedings, despite the enormous
stakes.  Congress should oblige states to enhance consumer
interests by establishing Citizen Utility Boards (CUBs), which
are privately funded and democratically controlled organizations,
to represent consumer interests.
     There are a number of other specific concerns we have about
HR 3636, HR 3626, and other proposals for new telecommunications
regulation, which we will provide to the Subcommittee for the
record.  Attached to this testimony are additional comments on
telecommunications legislation by the Taxpayer Assets Project,
dated February 9, 1994, and a September 24, 1994 Taxpayer Assets
Project review of the review of the Clinton/Gore Administration's
Agenda for Action "vision" statement on the NII.
     Thank you.




Additional Comments on 
                     Telecommunications Legislation.


                          Taxpayer Assets Project
                             February 9, 1994


1.   The Clinton/Gore Administration has suggested that
     telecommunications carriers be allowed to satisfy
     obligations to provide universal service through inkind
     contributions.  We believe that inkind contributions to the
     universal service fund present a number of problems, and
     will ultimately prove to be unworkable.  Carriers will have
     incentives to provide such inkind services in markets where
     they face competition, punishing their rivals by providing
     "free" services, or by inflating the value of inkind
     services.  It will be difficult to measure whether or not
     the carrier is the least cost provider for the service, or
     if the cost allocation for the service was done correctly,
     for purposes of measuring the contribution to the fund. 
     Finally, governments, and not carriers, should set
     priorities for needed public services.


2.   Telephone, cable, and interactive broadband
     telecommunications services should operate as common
     carriers.  HR 3636 requires telephone companies providing
     video services to reserve 75 percent of their video service
     capacity for non-affiliated companies.  We believe that the
     entire capacity should be available on a common carrier
     basis.  We strongly oppose the provision in HR 3636
     eliminating the 75 percent requirement in five years, thus
     allowing the telephone companies to control all the video
     programming content.


3.   Telecommunications carriers should not be allowed to own
     programming content.  However, if Congress allows carriers
     to enter content businesses, it should provide the types of
     protections against abuses which are spelled out in HR 3626,
     the Antitrust Reform Act of 1993, in the section on
     electronic publishing.  Indeed, these types of protections
     should be used in every area where the legislation permits
     vertical integration, including long distance service, video
     programming, and manufacturing.


4.   The legislation should prohibit telephone, cable and
     cellular companies from owning Personal Communications
     Services (PCS) licenses in the same market area.


5.   There should be a provision in the bill requiring the F.C.C.
     to adopt rules that would enhance competition for third
     party suppliers of the controllers which are used to manage
     the video and broadband signals.  Open architecture in the
     user interface should be a high priority for Congress, since
     it will likely be a key to true competition in content
     markets.


6.   Legislation should provide for strong representation by
     consumer interests.  Models of this include Citizen Utility
     Boards (CUB), intervenor funding, and a federal consumer
     advocate, who can represent the consumer interest before the
     FCC and other federal agencies.


7.   The new legislation should spell out in detail the ways that
     it will support non-commercial information services.  Older
     cable and broadcast models provided a number of set-asides
     for non-commercial information, and there should be
     something similar for the new broadband services.  We
     support in principle the proposal by the Association of
     America's Public Television Stations for a reservation of 20
     percent of the capacity of cable and broadband services for
     non-commercial use.


8.   The Internet is the most important new use of technology to
     promote democratic discourse in our generation.  Key aspects
     of this are the electronic mail discussion "lists" and "news
     groups," which are used every day by millions of persons
     worldwide.  Many internet users have access to non-metered
     (flat rate pricing) use of electronic mail.  This allows
     citizen groups, like ours, to send messages to tens of
     thousands of persons.  Because of the zero marginal cost of
     sending and receiving mail, the Internet has facilitated a
     unique and important forum for discussions on a wide range
     of issues.


     Today the Internet is going through a transition to a new
     privately funded service.  Many internet users are concerned
     that the extremely important civic dialog which currently
     takes place on the internet may disappear.  Moreover, many
     hope that with a broadband fully interactive network, the
     civic dialogues which now take place on the Internet through
     ascii email messages will become enhanced with multimedia
     communications.  Indeed, many firms and organizations are
     now using the Internet to provide such communications. 
     Whatever the regulatory structure, Congress should insure
     that the types of civic dialog which currently take place on
     the Internet are preserved and expanded.


9.   There should be a national fund to support non-commercial
     information service providers, funded by contributions from
     all telecommunication service providers.  Congress should
     require holders of broadcast and HDTV licenses to contribute
     a fixed percent of their revenues into the non-commercial
     services fund, in return for thier use of this valuable
     right to use public airwaves.  This fund should provide
     support for a wide range of non-commercial information
     products and services.


10.  The new legislation should take the strongest possible steps
     to protect consumer privacy regarding transactions over the
     new telecommunications services. 


11.  The federal government is a huge consumer of
     telecommunications services, and it should use its clout to
     broaden public accessibility to the networks, open
     architecture, and to promote a number of other important




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