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To: [e-mail]
Subject: Competitiveness Council Press Release - FYI
Date: Sun, 09 Jan 94 20:16:41 -0500
From: "Vinton G. Cerf" <[e-mail]>




COUNCIL ON COMPETITIVENESS
PRESS RELEASE


CONTACT: STEPHANIE SCHOUMACHER
[phone]



COMPETITION POLICY CONSENSUS FORGED BY COMPETITORS

The Council on Competitiveness has released a report on
competition policy that includes an unprecedented
consensus among AT&T, regional bell companies, and the
full range of information infrastructure providers. The
report, Competition Policy: Unlocking the National
Information Infrastructure, is the second in a series of
policy reports of the Council's 21st century information
infrastructure project chaired by John Young, former CEO
of Hewlett- Packard and Charles Vest, president of the
Massachusetts Institute of Technology. "This report marks
the first time that representatives from long distance and
local telephone companies, alternative access providers,
cable companies, utilities, information companies, users,
academic institutions, labor unions and public interest
groups have agreed on the need for full competition in the
communications market and hammered out a transition
framework to get us there," said Paul Allaire the new
chairman of the Council on Competitiveness and CEO of
Xerox Corporation. "By stimulating competition at home,
consumers will benefit from greater choice, lower prices,
and enhanced services. Moreover, U.S.-based firms will
gain a competitive edge in world markets." The essential
framework contained in this report applies to all
providers and addresses four interlocking issues.
Recommendations reflect consensus on the following: 1.
Agreement by all providers, including the local telephone
companies, to provide access to their essential services.
This "unbundling" of services will speed the competitive
interconnection and interoperability that are essential to
developing a national information infrastructure.

2. Agreement to reduce the debate about entry into
restricted lines of business to two options. Everyone
agrees that essential facilities must first be opened to
competitors and regulatory safeguards must be in place to
prevent predatory pricing and cross-subsidies. They differ
only on whether competitors must also gain a predetermined
share of the incumbent provider's market before
restrictions to enter new lines of business are lifted.

3. Agreement to provide dominant providers more pricing
freedom (with certain cap and floor limits during the
transition). This agreement will provide incentives for
dominant providers to lower costs, a key to ensuring
universal service.

4. Agreement that support for universal service should be
shared by providers of essential services, and directed to
users. Also, that any universal service program should
include those services that are necessary to maintaining
U.S. competitiveness.

"It is remarkable that we could agree that in the end,
everyone should be able to enter all lines of business,"
said John Young. "In doing so, the private sector has
provided some fundamental guidelines for the
Administration and Congress as they develop national
policy in this critical area."

The Council on Competitiveness is a coalition of chief
executives from leading businesses, presidents of
universities and presidents of labor unions whose mission
is to improve the competitiveness of U.S. industry and its
workers in a global marketplace.

                                              ####

The following statement by the Vice President was released
by the White House on December 16, 1993:

"If America is to develop a world class information
superhighway, we must promote healthy competition at home
-- competition that enhances consumer benefits, stimulates
the development of new products and services, unleashes
new technologies, and gives U.S. based firms an edge in
world markets. The Council's report, Competition Policy:
Unlocking the National Information Infrastructure,
outlines a policy framework designed to do just that. We
will consider it carefully as we develop our legislative
package in this area."

                                            ####

The report can be ordered from the Council on
Competitiveness at a cost of US $25.00 plus shipping and
handling (domestic) and $3.50 (overseas).

To order (please send order and check or money order) or
for more information please write:

Publications Office
Council on Competitiveness
900 17th Street, NW -- Suite 1050
Washington, DC 20006
[phone]
[phone]



COMPETITION POLICY: UNLOCKING THE NATIONAL
INFORMATION
INFRASTRUCTURE

FOREWORD

America's information infrastructure is evolving faster
than anyone thought possible. Although the Clinton
Administration came to office promising to accelerate
deployment of the information superhighway, the private
sector has been the real driving force behind progress.

The past few months have witnessed a string of proposed
mergers and acquisitions. U.S. West announced that it
would acquire 25 percent of Time Warner, the nation's
second largest cable network. AT&T announced plans to
acquire McCaw Cellular Communications, America's largest
cellular telephone company. Bell Atlantic announced its
decision to merge with Tele-Communications, Inc. (TCI),
America s largest cable corporation. Bell South decided to
link with Prime Management's cable systems. Southwestern
Bell decided to purchase cable systems from Hauser
Communications. NYNEX announced its intention to invest in
Viacom.

These new alliances and others are fundamentally reshaping
the information and communications industry. Until
recently, cable, telephone, broadcasting, computing,
publishing, wireless communications and utilities were
viewed as separate businesses. The steady push of market
forces and the rush of technology are rapidly breaking
down the walls separating these markets.

Despite this market convergence, much of America's
regulatory framework remains rooted in yesterday's notion
of distinct and separate businesses. Many government
officials have greeted with skepticism the announcements
about major mergers and acquisitions. While the
government's concerns about equal access and fair prices
are serious ones that must be addressed carefully, they
must be balanced against efforts to speed the realization
of the new national information infrastructure.

Today's market shifts represent the beginnings of the new
information network that will be at the center of
tomorrow's economy. Just as no manager or analyst can
accurately predict the contours of this infrastructure,
neither can any government official. If the government
insists on overly restrictive regulations, America's
ability to create the new information infrastructure will
be in jeopardy. What the urgency of the marketplace and
the unrelenting onrush of technology require are fewer
regulations, not more.

This interim policy report is the Council's attempt to
understand the competitive pressures driving the evolution
of the U.S.-based communications industry. In it, we offer
the best-thinking of a broad cross-section of the private
sector on this complex and at times highly contentious set
of issues. Many diverse industry groups, as well as
academia and labor, helped forge the consensus represented
in these pages.

We recognize that we do not have all of the answers and
that we do not address all the concerns surrounding the
evolution of the information infrastructure. Given the
complexity of the issue and the competing interests
involved, not everyone agrees on every detail of every
point in this report. What we offer is a consensus
framework -- one that lays the foundation for the
transition to a fully competitive U.S. communications
market that will drive America's economic performance and
standard of living in the future.

We hope that this framework will help inform the public
policy debate, and we stand ready to do whatever we can to
assist that process.

Paul Allaire
Council Chairman
Chairman and Chief Executive Officer
Xerox

George M. C. Fisher
Former Council Chairman
Chairman and Chief Executive Officer
Eastman Kodak Company

Charles M. Vest
Project Co-Chairman
President
Massachusetts Institute of Technology

John A. Young
Project Co-Chairman
Former President and
Chief Executive Officer
Hewlett-Packard Company

Thomas E. Everhart
Council Vice Chairman
President
California Institute of Technology    .

Henry B. Schacht
Council Vice Chairman
Chairman and Chief Executive Officer
Cummins Engine Company, Inc

Jack Sheinkman
Council Vice Chairman
President
Amalgamated Clothing and Textile
Workers Union, AFL-CIO, CLC

EXECUTIVE SUMMARY

In its report, Vision for a 21st Century Information
Infrastructure, the Council articulated a vision for a new
national information infrastructure (NII):

The information infrastructure will enable all Americans
to access information and communicate with each other
easily, reliably, securely and cost effectively in any
medium -- voice, data, image or video -- anytime,
anywhere. This capability will enhance the productivity of
work and lead to dramatic improvements in social services,
education and entertainment.

This report expands on that vision, focusing on the need
for a competitive communications environment as a
prerequisite for a versatile information infrastructure.
By creating an environment in which U.S.-based firms are
permitted to compete and encouraged to take advantage of
the information infrastructure, we can sharpen America's
performance in world markets and advance national
interests. The efficiencies that result from competition
will induce cost reductions and lower prices, increase
demand for services and products, and expand output of new
applications, all to the benefit of the consumer. The
market is already responding. The recent spate of planned
strategic alliances among the telephone, cable, wireless
and entertainment companies, coupled with the emergence of
small local exchange competitors, indicates that a
dramatic and volatile restructuring of the communications
industry is beginning and will continue for some time. No
one can foresee the outcome. But the driving forces are
becoming clear.

There is no question that the nation is in a profound
economic transition. As often happens during periods of
transition, however, the government is struggling to keep
pace with market developments. Laws, regulations and
governing processes, created under different market
conditions and social environments, should be adapted to
new circumstances. Competition is colliding with the
regulated monopoly framework in the local cable and
telecommunications services markets. The NII will only
develop fully if competition can flourish at all levels of
network operations and service provision. It is imperative
that industry and government focus on removing obstacles
to competition in the immediate future.

This report offers a framework for developing the
transitional rules required to ensure that a competitive
communications environment emerges. It applies to all
U.S.-based providers -- long distance and local telephone
companies, cable companies, alternative access providers
and power companies. It is particularly relevant to the
local services market, where the regulated monopoly
framework is colliding with competition. While the issues
this framework confronts are well known, they have been
dealt with in a piece-meal fashion. This approach has
contributed to today's fragmented regulatory and policy
structure. The Council believes these issues are
inextricably linked and should be addressed concurrently
to assure a coherent transition to a fully competitive
marketplace.




FINDINGS

1) TECHNOLOGY AND MARKETS ARE FUSING. New technologies
and
the prospect of an explosion in "tele-information"
applications are forcing a restructuring of the
communications industry. Companies that have traditionally
seen themselves in fully separate and unrelated lines of
business are finding themselves in direct competition with
each other. At the same time, companies and industries are
merging. The term "telecommunications" has become too
limiting to describe an industry that is being redefined
to include the creation, processing, storage and delivery
of voice, data, images and video. The broader terms
"communications" and "information" are more accurate
descriptors.

Along with this redefinition, the long held tenet that the
local communications market is a natural monopoly is
eroding. The very definition of a "local exchange" may be
obsolete. Technologies are offering the potential for
choice, and entrepreneurial firms are capitalizing on this
potential in niche markets.

2) REGULATIONS AND POLICIES ARE FRAGMENTED. Current
government policy views components of the communications
sector as businesses restricted to traditional markets,
despite the fact that technology is drawing them into new
ones. Regulatory oversight and policy development are
fragmented. They are dispersed among local regulatory
bodies, fifty-two state public utility commissions,
Congress, the Federal Communications Commission (FCC), the
Executive Branch (National Telecommunications and
Information Administration (NTIA), Office of Science and
Technology Policy (OSTP) and other Administration
agencies), and the courts.

3) IT IS IMPOSSIBLE TO PREDICT ACCURATELY THE FUTURE
PATH
OF THE MARKET OR TECHNOLOGY. The current market is fluid.
New companies and new technologies are emerging at a
breathtaking pace. No one is certain which technologies
will succeed, which of the proposed mergers will work, or
which products and services the market will demand.

4) GIVEN THE DRAMATIC RESTRUCTURING UNDERWAY, THE
KEY
ISSUE IS NOT WHETHER, BUT WHEN AND UNDER WHAT
CONDITIONS,
TO PERMIT FULL COMPETITION IN ALL MARKETS. Ultimately, any
vendor should be able to offer any communications service
to anyone anywhere using any technology. In the present
market environment, regulated monopolies dominate certain
segments, and state and federal regulations restrict
companies from offering certain services. Given this fact,
government officials should recognize the need for less
regulation, not more, so that the market can proceed.

RECOMMENDATIONS

As policy makers develop the regulations and policies
required to make the transition to a fully competitive
market, they must ensure that the process is evenhanded.
The policy context should be industry neutral and
technology neutral. Policy makers should focus on ensuring
that the consumer has a choice of providers, products and
services at reasonable prices. Users and providers should
be able to respond to market opportunities without undue
regulatory burden. Marketplace rules should permit
competition and encourage technology investment. Essential
regulation that ensures fairness should be encouraged
while excessive regulation that stifles innovation should
be eliminated.

The Council has four recommendations for policy makers and
U.S.-based companies that provide a core framework for
developing the transition rules required to move to a
fully competitive market. These recommendations should be
addressed concurrently since the issues they concern are
interlocking.

1) ENSURE INTERCONNECTION AND INTEROPERABILITY
AMONG
NETWORKS. All providers should be able to combine their
facilities in a building-block approach. Elements of local
distribution facilities, switch, transport and ancillary
services should be unbundled and priced separately.
Operational features, such as switching elements,
transport elements, signalling systems and databases, that
allow the network and its users to find each other, to be
found and to connect, are "essential facilities." Access
to these facilities is key to increased competition.

2) REMOVE BARRIERS TO MARKET ENTRY. This recommendation
applies both to new U.S.-based entrants into an incumbent
provider's market and to incumbent providers into
currently restricted lines of business. This includes
telephone companies entering the cable market, cable
companies entering the telephone market, new providers
(including power companies) entering the local services
market, local service providers entering the long distance
market, etc. Federal and state policies should be aligned
to permit competition in all segments of the
communications market.

There is strong disagreement about which is the best
policy path to pursue with respect to incumbent entry into
currently restricted lines of business. Out of the
multitude of proposals, the Council has narrowed the
debate to two options. They differ on whether competitors
should gain a predetermined share of the incumbent
provider's market before the incumbent provider is
permitted to enter other lines of business.

Option One

Permit a dominant provider, whether cable, telephone,
power or some other company, to enter other lines of
business (including long distance, manufacturing and/or
video programming) as soon as: 1) essential facilities are
open to all providers and 2) regulatory safeguards are in
place to prevent anti-competitive and monopolistic
behavior during the transition to a fully competitive
market.

Option Two

Permit a dominant provider, whether cable, telephone,
power or some other company, to enter other lines of
business (including long distance, manufacturing and/or
video programming) as soon as: 1) essential facilities are
open to all providers, 2) regulatory safeguards are in
place to prevent anti-competitive and monopolistic
behavior during the transition to a fully competitive
market and 3) competitors have achieved a predetermined
share of the dominant provider's market.

3) LET PRICES REFLECT COMPETITIVE MARKET CONDITIONS.
Transitional regulations must balance protection against
monopoly pricing abuse and cross-subsidies with the
regulated incumbent provider's desire to respond to
competition. Currently, incumbent providers have limited
ability to adjust their prices to respond to new
competitors. As competition increases, they should be
granted greater pricing flexibility. During the transition
phase, there should be price ceilings to protect customers
from excessive rate increases and price floors to protect
nascent competition. As incumbent providers are permitted
to enter other businesses, safeguards should be adopted to
prevent cross-subsidization.

4) PROTECT UNIVERSAL SERVICE AND SHARE ITS COSTS. As
competition emerges, adjustments must be made to ensure
universal service. Where required, assistance should be
directed to end-users so that they can purchase services
from competitive providers. Providers of essential
services should equitably share the responsibility of
contributing this support. Policies that encourage
competition should result in providers reducing their
costs. As lower costs are translated into lower prices,
fewer customers will require support mechanisms for
essential services. This report does not attempt to
redefine universal service nor does it discuss whether all
Americans should have access to some base level of
educational or cultural services distributed over the
information infrastructure. We believe, however, that the
definition of essential services should be reviewed and
periodically updated. If new services have emerged that
are essential to U.S. competitiveness, they should be
considered for inclusion in the universal service program.



ABOUT THE COUNCIL

Founded in 1986, the Council on Competititveness is a
nonprofit, nonpartisan organization of chief executives
from business, higher education and organized labor who
have joined together to pursue a single overriding goal:
to improve the ability of American companies and workers
to compete more effectively in world markets, while
maintaining a rising standard of living at home.

To build consensus within the public- and private-sectors
on the actions needed to help Americans compete, the
Council pursues a three-part agenda: increase public
awareness of the breadth and severity of America's
economic problems; mobilize the political will required to
set the United States on a positive economic course; and
assist in the development of specific public policies and
private-sector initiatives. To that end, the Council
focuses on issues in the areas of fiscal policy, science
and technology, international economics and trade, and
human resources.

The Council is governed by an executive committee and
draws on the resources of its national affiliates -- over
forty trade associations, professional societies and
research organizations -- to help analyze issues and
develop consensus. The Council is privately supported
through contributions from its members, foundations and
other granting institutions.