Federal Communications Commission

“ Given the actuality of competition as it exists today and the potential for much greater competition in the future, there is no longer a reason for the Commission to permit the joint tariffing of services and equipment, especially considering the risks of cross-subsidization that such joint tariffing entails. Under our interpretation of the 1956 Consent Decree, AT&T gains authority to compete for any enhanced equipment customer. But, importantly, consumers will be in a better position than they are today to determine what equipment offerings will best serve their needs. ”

“ Alfred Kahn's treatise on The Economics of Regulation in support of the propositions that "... while AT&T has mounted a significant defense of vertical integration, it does not take into account the likely contributions which competition can bring, and has brought, to innovation," and that "the generalized case for vertical integration by a monopolist is not without serious dangers, particularly where the company is rate-regulated and seeking to engage in unregulated activity." ”

“ For its universality, its versatility and its economy, our telecommunications network is unmatched by any in the world. I believe it would ill-serve the public interest if AT&T, GT&E or any other participant in the network were denied the opportunity and the challenge of bringing their financial resources, their tradition of universal service and importantly their in-place research capabilities to the rich new compunications field. ”

“ We began this proceeding in 1976 by recognizing that the boundary between data processing and communications that had been drawn five years earlier in our First Computer Inquiry was already obsolete. In our Tentative Decision last year we supported a distinction of a similar kind between simple customer premises telephone equipment that could continue to be regulated as a part of "basic service" and the more sophisticated equipment that embodies advanced technology and allows customers to do more than just engage in conversation. ”

“ Over time, because of competition, we anticipate that consumers, in general, will pay less than they otherwise would and at the same time will have available a much broader array of products from which to choose.
We are also taking steps to ensure that competition in provision of this technology will be fair to all parties--to AT&T and GTE as well as their competitors. The ability of the two industry giants to cross-subsidize will be largely eliminated, because we are imposing some structural safeguards on them. ”

“ It requires a confidence that I believe we can and will develop as we move forward. I expect that we will choose to abandon some of our heavier weapons as we proceed through the jungle trails and become more familiar with the environment. Once we begin to distinguish shadow from substance, our perceptions are likely to change.
I am gratified that the Commission has agreed to broaden the language of the Order to permit affiliates of the competitive entities to provide the necessary firmware in both network and customer premises equipment. ”

“ The convergence of the technologies used to provide communications services, which we regulate, and data processing services, which have not been regulated, has continued at accelerated pace since 1971. The major issue now, as it was then, is the extent to which carriers subject to our jurisdiction can use computer and communications technologies to provide communications service or some combination of communications and data processing service. ”

“ State jurisdiction is preempted. Charges for equipment must be unbundled by all carriers. AT&T and GTE will be required to market customer equipment through a separate subsidiary. The scheduled date for deregulation is March 1, 1982. In the meantime a Federal-State Joint Board is to be convened to determine whether adjustments in other exchange plan allocations may be warranted in light of the deregulation of customer equipment.
The deregulation of terminal equipment can only benefit consumers. ”

“ The public costs of a contrary interpretation of the Decree, requiring us to regulate these markets, and extending the government's reach into the data processing field, is far too high.
The Final Order in the Second Computer Inquiry is a giant step forward for consumers and for the industry. Faced with the choice of solving a problem by either extending or reducing government regulation, we have chosen to reduce regulation. ”

“ In addition to the resale requirement, the following degree of separation is required of AT&T and GTE resale and CPE subsidiaries:
Separate maintenance of records, accounting Separate operating personnel and officers Separate marketing Separate installation and maintenance No sharing of computer capacity Limited joint software development Further,
A subsidiary providing enhanced services and/or CPE may not provide communications hardware used in a network. Such subsidiaries must also deal at arm's length with any other affiliated equipment manufacturers. ”

“ These steps are taken to protect the monopoly ratepayer from the potential evils of cross-subsidization and anti-competitive conduct. They are taken only with respect to AT&T and GT&E because they are the only two communications firms now in a position to exercise monopoly power in the national enhanced services markets. Given the ineffectiveness of accounting measures standing alone to monitor anti-competitive practices, the need for a separate subsidiary, in addition to accounting requirements, is obvious. ”

“ So long as we allow a firm to compete in several fields, we must expect it to seek the competitive advantages of its broad-based activity--more efficient production, greater ability to develop complementary products, reduced transaction costs, and so forth. ”

“ The problem with this approach is that the evidence of the need for stricter conditions might well be the corpses of competitors on the field of competition and higher ratepayer charges. We have proposed the minimum conditions necessary to prevent this result.
AT&T and GTE will, I am certain, have the incentive and ability to improve their basic networks. We do not prevent them from using any technology. Indeed, if AT&T wishes to be a supplier of the building blocks for enhanced services, it will be required to update its basic network. ”

“ The necessary corporate, financial, and logistical transitions will be highly complicated and difficult enterprises. For example, the potential impact of the decision on over one million AT&T and GTE employees in terms of wage structure, benefits, pension rights, seniority and collective bargaining rights is substantial and has not been addressed thus far by the Commission. Similarly, I expect that the impact of the proposed CPE de-tariffing on the interests of bondholders will raise significant legal issues. ”

“ Since the Commission chose to forbear overt Title II regulation and to rely instead upon the forces of vigorous competition in the provision of enhanced services, I feel confident that we will be able and willing to remove any remaining barriers to full and fair competition as the need is demonstrated. ”

“ Without a more adequate cost/benefit analysis, there is no assurance that the proposed separate subsidiary structure, with the recommended degree of separation and information flow requirements, will not force the public to obtain enhanced services and CPE at substantially higher cost than if such services and equipment were provided by a more vertically-integrated entity ”

“ On the assumption that operation by AT&T and GTE on a vertically integrated basis may benefit both them and their customers, I believe we should not now impose on their enhanced services and CPE subsidiaries the degree of separateness contained in today's decision. Two of the limitations which seem especially problematical are those on sharing of computer facilities and joint design and development of software. ”

“ The proposed industry structure and deregulation could totally preclude AT&T from offering either CPE or enhanced services if the proposed interpretation of the Consent Decree is not accepted; and
(4) The basic/enhanced dichotomy may be a serious disincentive or impediment with respect to the construction of a nationwide digital core network; and we may be faced with the prospect of a myriad of interconnected sub-networks,
77 F.C.C.2d 384, 516 owned by many entities, with no one entity in a position to assert overall technical planning authority. ”

“ Finally, I am confident that during the transition period the Joint Board of FCC and State regulators will be able to arrive at a separations approach that will not mean a significant increase in telephone bills for any customer as a result of deregulation of terminal equipment.
5. Why permit regulated carriers to provide unregulated enhanced services? AT&T, GT&E and 1500 smaller telephone companies have
77 F.C.C.2d 384, 520 cooperated to assemble an integrated communications network that I consider to be a wonder of the modern world. ”

“ The degree of separation proposed by the item for the enhanced service/CPE subsidiaries should be relaxed in favor of cost-based, fully-compensatory, auditable contract/accounting systems with respect to installation and maintenance and software development. Subject to resale and accounting requirements, sharing of transmission computer capacity should be permitted. ”

“ Under these circumstances, the toll pool revenues attributable to these terminals can be used as a direct subsidy to reduce local exchange rates by the amount of these attributable toll revenues.
The disallowance of CPE toll revenue requirements will also result in a reduction in toll rates equivalent to the upward pressure on local exchange rates. This occurrence does not, however, have a break-even impact on all consumers. Those consumers who make infrequent toll calls will indeed see higher total monthly telephone bills. ”