FOR IMMEDIATE RELEASE: Contact: Paige Darden
January 9, 1998 202-482-7002
pdarden@ntia.doc.gov
 
TEXT OF LARRY IRVING COMMENTS
CONCERNING TEXAS COURT DECISION
(Statement was made at a meeting with reporters on January 8, 1998)
 

WASHINGTON, DC-- The dispute engendered by the court's decision must be viewed in a larger context, namely its implications for the introduction of meaningful competition into the market for local telephone service. The Administration is committed to doing anything possible to increase competition in all telecommunications markets. The reason is that competition benefits consumers by producing lower prices, an expanded range of available services, and improved service quality.
 

A fundamental objective of the 1996 Act was to introduce competition into the local telephone services market, which is currently dominated by the incumbent local telephone companies. The interconnection, unbundling, and resale provisions of section 251 were the tools that Congress chose to open up the local market.
 

Section 271 -- one of the provisions struck down by Judge Kendall -- was designed to create incentives for the BOCs, which now control about 75-80% of the local market, to cooperate in advancing local competition. In essence, Congress held out long distance entry as a reward for the BOCs' acceptance of and expeditious compliance with the market-opening provisions of section 251.
 

By invalidating section 271, and thereby reducing the BOCs incentives to facilitate competitive entry in their monopoly markets, the court's decision has disrupted the incentive structure that Congress carefully constructed. The effect will be to slow dramatically the growth of a competitive local telephone market.
 

Some may argue that allowing the BOCs into long distance now will benefit consumers by increasing competition in that market. While that may be true to some extent, we must bear in mind that the long distance market currently has more than 400 competitors, and the competition for many customer groups is quite intense.
 

On the other hand, as one Senator pointed out during the debates on the 1996 Act, most people have no choice in their local telephone company. If they are dissatisfied with rates or service quality, their choices are to be dissatisfied customers or to disconnect. The Justice Department has properly concluded that creating choice in a market where there is now none will benefit consumers more than would rapid BOC entry into a long distance market that is at least workably competitive.
 

So the court's decision is bad as a matter of telecommunications policy. It is also bad as a matter of law. The decision rests on a doctrine -- bill of attainder -- that is invoked about as often as Northwestern goes to the Rose Bowl. News reports indicated that the judge acted without taking oral argument. Indeed, it seems that the issue did not even arise until rather late in the game.
 

The court's legal argument also does not withstand even cursory analysis. While one could readily dispute several aspects of his decision, the heart of the matter is the court's conclusion that Congress intended section 271 "to punish the BOCs for their parent AT&T's transgressions over two decades ago for crimes yet to be committed by the BOCs." In the court's view, Congress' decision to penalize the BOCs without a prior judicial finding of guilt constituted an unconstitutional bill of attainder.
 

That decision misunderstands the nature of section 271 and ignores more than two decades of history. Section 271 did not impose any new penalty on the BOCs. It simply continued a restriction -- a ban on long distance entry -- that had been included in 1982 Consent Decree negotiated by AT&T and the Department of Justice, and approved by a federal district court.
 

Further, AT&T's decision to negotiate a decree was precipitated by the court's finding -- after some eight years of trial -- that AT&T had impeded competition in several telecommunications markets. More importantly, the court found that it was AT&T's control of local operating subsidiaries like SBC that enabled the parent to transgress the antitrust laws. To prevent the recurrence of such anticompetitive conduct in the future, the court approved a consent decree that both divested AT&T of its local BOCs and barred the BOCs from providing long distance services until they could show that there was "no substantial possibility" that they could use their local monopolies to impede competition in the long distance market.
 

In enacting section 271, Congress accepted the need for a long distance restriction and the district court's rationale for imposing it. Congress objected, however, to the standard that the court had established for judging requests to eliminate that restriction (no substantial possibility of competitive harm) and bridled at the fact that so important an issue was being decided by the Department of Justice and the courts, rather than by Congress and the FCC. Accordingly, Congress structured section 271 so that decisions about BOC long distance entry would be made by the Commission in accordance with congressionally-mandated criteria, and after consulting with the Department of Justice and the relevant State regulatory commissions.
 

Properly viewed, section 271 does not punish the BOCs, but rather establishes a new way to escape a restriction that had been imposed by a court after exhaustive judicial proceedings. The nonpunitive nature of section 271 is confirmed by the fact that Congress reduced the existing long distance restriction in several important respects -- such as by allowing the BOCs immediately to offer wireless long distance services and wireline services outside of their monopoly service areas.
 

To sum up, the Administration believes that the Texas court's decision is bad as matter of telecommunications policy, it's bad as matter of antitrust policy, and it's bad as matter of law.We are confident that, after being stayed pending appeal, the decision will be reversed.
 

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Larry Irving is the Assistant Secretary for Communications and Information and Administrator of the National Telecommunications and Information Administration (NTIA). The Commerce Department's NTIA serves as the principal adviser to the President, Vice President and Secretary of Commerce on domestic and international communications and information issues and represents the Executive Branch before the Congress, other Federal agencies, foreign governments and international organizations. For more information, visit NTIA's homepage at http://www.ntia.doc.gov.