TESTIMONY OF LARRY IRVING ASSISTANT SECRETARY FOR COMMUNICATIONS AND INFORMATION U.S. DEPARTMENT OF COMMERCE ON FOREIGN OWNERSHIP RESTRICTIONS ON TELECOMMUNICATIONS COMPANIES BEFORE THE SUBCOMMITTEE ON COMMERCE, TRADE AND HAZARDOUS MATERIALS COMMITTEE ON COMMERCE HOUSE OF REPRESENTATIVES MARCH 3, 1995 Mr. Chairman and Members of the Subcommittee: Thank you, Mr. Chairman. I am pleased to be here this morning to testify on the issue of foreign investment restrictions imposed on telecommunications companies pursuant to Section 310(b) of the Communications Act. This hearing on H.R. 514 -- as introduced by you, Chairman Oxley, along with Chairman Fields and your colleagues Representatives Boucher, Hastert, Tauzin, and Paxon -- is most timely. The effort to open worldwide markets reflects the interest of U.S. telecommunications providers and equipment vendors in expanding into overseas markets and developing a Global Information Infrastructure (GII). As companies expand globally, more jobs are created, and U.S. companies' competitiveness is boosted. This, in turn, provides benefits to the American public at large by strengthening the economy, as well as providing an increased array of telecommunications and information services, at lower prices and higher quality, around the globe. As the focus of U.S. industry increasingly has shifted from the domestic marketplace to the broader international arena, we too must focus on the global picture. Legislation should be crafted to ensure that the American public realizes the benefits from expanded competition. Only open and competitive markets -- not closed markets -- will foster the development of a GII that brings the citizens of the world closer together. Thus, the Administration strongly supports lifting our foreign investment restrictions for other countries who open their telecommunications markets to U.S. companies. Last weekend the United States met in Brussels with representatives of Japan, Great Britain, France, Italy, Germany, Canada, and the Commission of the European Union (EU) for a Ministerial Conference on the Information Society. This Conference, which was proposed by President Clinton, and sponsored by the European Commission, was the first time that the G-7 nations met to exchange views on the policies and regulatory changes needed to move the GII vision forward. At the first World Telecommunication Development Conference in March 1994, Vice President Gore called upon every nation to help build the GII by using the following principles as building blocks: o private investment; o competition; o open access; o universal service; and o flexible regulations. The Administration has played a leading role in advancing international consensus on these issues. In fact, a few days prior to the G-7 conference, NTIA released the Global Information Infrastructure: Agenda for Cooperation, which identifies the steps the United States, in cooperation with other nations, can take to make the vision of a GII a reality. These steps include recommendations regarding market access. The G-7 conference on the Information Society resulted in a number of accomplishments that will go a long way in helping to stimulate the development of the GII. The Vice President's five basic principles were embraced by the G-7 member nations as part of a set of principles they adopted. These principles form the basis for cooperation among the G- 7 partners to realize common goals. The nations agreed to work together to develop solutions for protecting privacy, improving information security, encouraging creativity, and protecting intellectual property. One immediate consequence of the decisions taken at the meeting will be the initiation of 11 key pilot projects demonstrating technological applications that will help ensure that each nations' citizens have access to the benefits of the new information age. The Ministerial meeting sent a clear -- and highly important -- message that all countries must open their markets to more competition or be left behind in the technological revolution. In his keynote address at the G-7 conference, Vice President Gore stressed the Administration's support for achieving competition and opening telecommunications markets. Vice President Gore stated more specifically that: "First, we [the G-7 countries] must drop our barriers to foreign investment together. For more than 60 years the U.S. has had limited restrictions on foreign investment in certain telecommunications services. In this respect, we are going to change and change this year. Whether by new law or new regulation, we intend to open foreign investment in telecommunications services in the United States for companies of all countries who have opened their own markets." Vice President Gore also stressed that the development of the information society cannot be accomplished through a piecemeal approach. He committed the Administration to continue work on multiple fronts to increase international competition and promote an open, multi-faceted GII for foreign investment. As Vice President Gore stated in his keynote address last weekend: "The governments represented here and others have an historic opportunity to open telecommunications markets around the world in the negotiations within the General Agreement on Trade and Services. The deadline for these negotiations is April 1996." The General Agreement on Trade in Services (GATS) negotiations are open to all members of the World Trade Organization, which is presently composed of 116 countries. Presently, more than twenty countries are negotiating and more than thirty additional countries are participating as observers. The United States' key objective is to persuade our trading partners to open their basic telecommunications markets to competition. In its GATS negotiating strategy, the United States is also emphasizing the need for commitments on pro-competitive regulatory principles that will ensure open competition. These commitments would provide for economical interconnection, competition safeguards, transparent rulemaking and enforcement processes, and an independent regulator. Commitments on these pro-competitive regulatory principles are necessary to guarantee competition once a market access agreement is reached in the GATS process. At the same time that the United States pursues multilateral trade negotiations in the GATS, under the auspices of the World Trade Organization (WTO), the United States will continue its efforts to liberalize foreign markets through international organizations such as the OECD (Organization for Economic Cooperation and Development), APEC (Asia-Pacific Economic Community), CITEL (the Inter- American Telecommunications Commission of the Organization of American States), and the ITU (International Telecommunication Union). POSITION ON H.R. 514 Again, we support the thrust of the hearing -- and indeed the goal behind H.R. 514 -- to achieve open telecommunications markets worldwide. We welcome this opportunity to discuss the Administration's views on the best way to achieve our mutual goal. The GII cannot reach its fullest potential without the seamless interconnection of networks and services, as well as open access for service providers and users. At the domestic level, the U.S. experience with telecommunications liberalization provides evidence that the ample benefits of competition strongly outweigh the challenges of achieving full and open competition here and abroad. Competition has increased telephone penetration in the United States, improved infrastructure development, created new jobs, and increased economic growth. The widespread provision of improved customer services, often at lower costs, has been the ultimate result. The Administration believes that increased customer choice and lower prices can and should be expanded to international markets. With the increasing number of alliances and proposed alliances between U.S. companies and foreign corporations, we can not overlook the fact that many overseas markets continue to remain closed to U.S. companies, despite the great strides and positive examples set by those countries which have been opening their markets. Currently, there are a handful of countries (for example, Great Britain and Chile) that demonstrate a high level of private investment, liberalization, and robust competition. These pro- competitive countries could potentially work independently or in concert to promote greater regulatory flexibility, market access, and competition. While many other countries have progressively introduced competition in customer premises equipment, value-added services, private networks, and satellite and mobile networks, and services, the majority do not yet allow competition in basic voice telephone networks or services. Clearly, in our examination of Section 310(b) we must recognize that many countries are in the process of change, but progress will be varied among countries and will evolve over time. We believe, however, that as more countries open their markets, momentum and demand will build both from national and multinational companies, as well as increased global alliances and create a powerful force pushing the remaining countries toward competitive and open markets. Thus, while the thrust of H.R. 514 is consistent with the Administration's desire to achieve open markets, we are considering a slightly different approach to carry out the Vice President's announcement that we intend to open foreign investment in telecommunications services in the United States for countries that have opened their telecommunications markets. We suggest that a determination of whether this goal has been achieved for a particular country should be made by the Executive Branch, which is experienced in making such decisions. Providing such authority through legislation is a critical step to facilitate the United States' goal of opening foreign markets through our GATS negotiations. Of course, any exercise of authority under this approach would be exercised consistent with any existing U.S. treaty obligations. We hope that the net result of the approach proposed by the Administration will be to provide a greater array of services at competitive prices to users around the world. We fear that if Section 310(b) limits are simply lifted unilaterally, there will be insufficient incentives for other countries to open their markets and expand the benefits of competition worldwide. Thus, we would like to work with this Committee and the Congress to craft legislation that provides flexible and appropriate negotiating leverage and that will give other countries positive incentives to open their markets to competition and foreign investment. Further, we recommend that Section 310(b) restrictions on broadcast licenses remain in place, especially in view of the public trustee concept applied to broadcasting in this country. Foreign ownership for broadcast licenses presents different questions than for other types of radio spectrum licenses. Historically, foreign control of limited broadcast information outlets, particularly in time of war, was a principal consideration in adopting the 310(b) restrictions. Today, the same concerns exist, namely that foreign control of a broadcast license confers control over the content of widely available broadcast transmissions. Therefore, the Administration believes that we should not be too hasty in lifting restrictions on the amount of foreign influence over, or control of, broadcast licenses which exercise editorial discretion over the content of their transmissions. This concludes my testimony. I would be pleased to respond to any questions you may have.