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Telecommunications Reform Returns to Congress

Telecommunications legislation - which will dictate how we communicate for decades to come - is under way in Congress. Who's in charge and what are the stakes for state and local governments?

After nearly a year of committee hearings, bill rewrites and million-dollar advertising campaigns by interest groups, Congress last session fell short of crafting the laws that will govern the emerging information infrastructure. State and local governments were relieved that some of the legislation did not pass because local control over cable and telephone companies would have been usurped by the federal government.

But the battle will begin anew this year as the now-Republican controlled House and Senate begin hearings on bills before reconfigured committees. The new Congress will begin nearly from square one, and the emerging laws may be significantly different from bills introduced last session by Democratic lawmakers.

The importance of this legislation cannot be underestimated. Congress is developing the ground rules for companies expected to build the information infrastructure. Telecommunications companies see an emerging, lucrative market, but they won't make serious investment until they know the rules of the game, such as how they will be regulated and by whom.

WHAT'S AT STAKE

The telecommunication debate boils down to managing the technological ability to provide both voice and video service to homes and businesses with a single line. This is a relatively new ability, and was incomprehensible when many of the laws currently on the books were written.

The main law in force is the 1934 Communications Act, which, among other things, created the Federal Communications Commission. Parts of the act have been superseded by legislation and court orders, including the breakup of American Telephone and Telegraph. AT&T; was allowed to continue its monopoly for installing telephone lines under the 1934 act, provided it adhered to certain restrictions, including universal access and allowing the states some regulatory power. Crossover services between video and voice are prohibited by law, including the 1984 Cable Act. And long-distance services and local carriers cannot compete with one another because of the 1982 AT&T; ruling.

Today, Congress is rewriting the 1934 law and other statutes to reflect new realities. The anticipated new rules would allow crossover services between local telephone service providers, long-distance carriers, and cable companies so services can be provided on a single cable.

This ability has caused a frenzy of business speculation by the private sector. Occasional news reports of mergers and negotiations by media giants such as Tele-Communications Inc. and Time-Warner Inc. are indicative that the private sector anticipates a lucrative market if they can merge service delivery.

The goal in Washington, D.C., is to define the conditions under which this competition can take place. Congress is also grappling with setting the amount of regulation that can be placed on the emerging telecommunications arena, and who would do the regulating.

The Clinton administration and Congress agree that the private sector will build the nation's information infrastructure, and public outlays will be kept to a minimum. But businesses won't make heavy investment in projects until they know precisely what the conditions for competition will be.

Interest group pressure on Congress has been immense, and is concentrated on members of commerce committees, who are overseeing telecommunication bills. The main interests in this drama are local telephone carriers, long-distance telephone companies and cable television companies.



TELCOS

Local telephone carriers are primarily Bell companies created when AT&T; was broken up. AT&T; still provides long-distance service, but must compete with companies such as Sprint and MCI.

The Bell companies, meanwhile, have been advocating removal of the barriers to providing long-distance service, which, as noted, the AT&T; court-ordered breakup prohibits. Local telephone carriers also want to compete in the local video markets, which the 1984 Cable Act prohibits.

CABLE AND LONG-DISTANCE INTERESTS

The cable television industry wants, among other things, to delay local telephone service-carrier entry into the video domain until cable can compete in local voice markets. Long-distance carriers also anticipate entering local markets. There is pressure to delay local service providers from competing in video and long distance markets until local carrier services and infrastructure, which the locals have a virtual monopoly over, is broken down to allow for competition.

The bills introduced last Congress basically provided for this. The Bells would be able to compete, after a delay of about a year, with cable companies; cable companies would offer local telephone service and long-distance carriers would sell local service.

THE MARKET AND REGULATION

A key issue of the telecommunications debate is the amount of government regulation that should govern the industries. Failure to resolve this issue was the main reason the Senate killed the legislation until this year.

While Rep. Ed Markey, D-Mass., was successful in passing H.R. 3636 through the House, Sen. Ernest Hollings, D-S.C., ended up withdrawing S. 1822 because of last minute Republican demands for easing restrictions on the entry of local carriers into other markets, as well as other portions of his bill.

A key issue is the timing of allowing telephone carriers and cable to compete in the same market. Hollings' bill allowed the markets to merge after a delay on local telephone carriers, and contained other regulations on pricing and consumer protection. The delay was sought to give the various players time to adjust to the new markets being opened.

This was contested at the last moment by Sen. Bob Dole, R-Kan., who introduced amendments to the bill that would have eliminated the delay on local carriers and would have significantly deregulated other parts of S. 1822.

Because Dole's amendments were introduced in the last few weeks of the session, and the Republican Senate leader said they were "non-negotiable," Hollings decided to withdraw his bill and begin again in 1995. But now the Republicans control Congress and new legislation will likely differ from Hollings' bill.

Sen. Larry Pressler, R-S.D., who is earmarked to replace Hollings as chair of the Senate Commerce, Science and Transportation Committee, has said he will begin holding hearings on a communication bill this month. He has also been quoted in the media as saying that legislation crafted by his committee will be less regulatory than previous Democratic legislation, but there were no details of his proposal available at this writing.

UNIVERSAL SERVICE

An example of some of the regulatory issues in telecommunications reform is the concept of universal service. The idea is to promote basic communications infrastructure and service to all neighborhoods and segments of society to prevent companies from "redlining" poor neighborhoods by concentrating their services in more affluent neighborhoods and business districts where there is more profit for their investment.

The concept of universal service was included in the 1934 Communications Act, and has been at least partly responsible for the fact that telephone wires reach nearly every home in the country. The concept, used to regulate local area telephone monopolies, is also responsible for the basic rates paid by consumers today.

Many residential basic service rates are artificially low to allow for low-income households, and a subsidy is paid by charging business customers a higher rate. But this arrangement may not be made in the new laws being worked on in Congress. Lawmakers are under pressure from industry on one side to allow the free market to decide fair prices for services, and are pressured from the other by consumer advocates hoping for some regulation of the market.

Universal service may also be to the private sector's benefit in certain cases. Wiring neighborhoods creates potential customers, and this makes the communication systems more useful because a wider range of people can be reached.

Last session's Senate bill would have required the FCC to create broad guidelines for defining universal service. Then the states would develop their own laws and regulations within the guidelines. The bill also would have created a pool that telecommunications companies would be required to pay into to fund universal service. The House bill, meanwhile, would have created a state and federal board to recommend guidelines for universal access and develop ways to fund it.

The final game plan will likely be a relative balance of social issues and business needs. Although the increased competition from deregulating the emerging markets should decrease prices and increase the variety of products, there is the very real possibility that some communities won't be served because the infrastructure costs of installing fiber may be higher than anticipated profits.

SETTING THE RULES

The divestiture of AT&T; in 1984 and the entry of other long-distance carriers into the market serves as an example of successful deregulation. Overall, the competition has lowered consumer long-distance rates, and contributed to the private sector race to install updated equipment and fiber-optic lines.

But deregulating the local market may be a bit more tricky. By its very nature, cable television and telephone carriers have monopolies in local areas because they own the lines going into households and can control access by competitors. Deregulating too much may allow monopolies to develop, but not allowing companies enough leeway may mean the infrastructure isn't built quickly.

Congress grappled with these issues most of last year, holding countless committee hearings and meetings among interest groups to hash out an agreement. Developing telecommunications laws that will serve everyone's interests will be difficult, as the new Congress may find out when it gives the legislation a shot this year.

But the same issues will be reviewed and debated for at least several months before passing both houses and being sent for a presidential signature. Stay tuned; the action may have just begun.



Campaign Contributions Keep Rolling In

Telecommunications companies know that the regulatory scheme that emerges from Congress will lay the ground rules for their businesses into the next century. The importance the legislation holds for their future can be illustrated by the findings of a Common Cause study done last year.

Between 1984 and 1993, the public interest group reported, Bell companies and long distance political action committees fed Congress nearly $20 million in campaign contributions.

And in the past decade, of the 22 House members receiving more than $30,000 each from telecommunications interests, 20 sat on committees hearing telecomm legislation.

Sen. Ernest Hollings received $81,697 from Bell political action committees and $35,500 from long distance PACs during the period of the study. His likely successor as chair of the Commerce Committee, Sen. Larry Pressler, R-S.D., received $15,550 from Bell PACs and $17,250 from long distance PACs during the decade.

According to a September report in The Hill, a Washington, D.C. newspaper, telecommunications contributors between January 1984 and June 1994 were led by AT&T;, with over $6 million in donations, followed by GTE Corp. with $3 million. The National Cable Television Association, meanwhile, donated $2 million between 1984 and June 1994, according to the report.