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TAP Review of IITF and NII Vision Statement
Taxpayer Assets Project
Information Policy Note
September 24, 1993
COMMENTS ON THE CLINTON ADMINISTRATION "VISION" STATEMENT
FOR THE NATIONAL INFORMATION INFRASTRUCTURE (NII)
A review of: THE NATIONAL INFORMATION INFRASTRUCTURE:
AGENDA FOR ACTION, report released on September 15, 1993, by
the National Telecommunications and Information
Administration (NTIA) of the Department of Commerce.
James Love, Director, Taxpayer Assets Project
P.O. Box 19367, Washington, DC 20036
v. 202/658-0880; f. 202/234-5176;
internet: love@essential.org
INTRODUCTION
Agenda for Action is the Clinton/Gore Administration's first
attempt to define its "vision" of the new National Information
Infrastructure (NII), the "information superhighway" of the
future. While the document is distributed by NTIA, it was
prepared jointly by several federal agencies, with notable
contributions from NTIA, OMB, NIST, the National Economic
Council, and the Office of Science and Technology Policy (OSTP).
As a statement of policy, the document is vague in many
important areas, indicating a lack of maturity in the policy
making process, as well as possible conflicts within the
Administration. Among the more revealing points are the
omissions. For example, AGENDA FOR ACTION is silent on the
important issue of telephone/cable mergers, or virtually all
interesting common carrier issues. The principle public interest
objective noted in the document is a ringing endorsement of
"universal service," but there are no details of how this will be
financed. Access to government information will be "improved"
but there isn't a single mention of the important federal
"Depository Library Program," which is threatened by the Vice
President's recently released National Performance Review (NPR).
In general, AGENDA FOR ACTION reads more like a campaign
platform, with platitudes designed to appeal to many groups, than
a serious policy statement. Few difficult choices have been made
at this point.
Specific items which caught our eyes are as follows:
COMMUNICATIONS REFORM LEGISLATION.
AGENDA FOR ACTION calls for passage of new communications
legislation by the end of 1994 that will:
increase competition and ensure universal access in
communications markets -- particularly those, such as
the cable television and local telephone markets, that
have been dominated by monopolies. Such legislation
will explicitly promote private sector infrastructure
investments -- both by companies already in the market
and those seeking entry.
Our comments are as follows:
UNIVERSAL ACCESS
The twin goals of increased competition and universal access
present difficult problems. Traditional policies to provide
universal access involve cross subsidies between different users
or services. If there is free entry into markets in order to
promote competition, there will be an erosion of the revenue base
to finance universal access, unless all participants are required
to contribute to the cross-subsidy pool. Requiring revenue
sharing to promote universal service also requires a workable
understanding of the revenue base being tapped to finance the low
income users. This is difficult when telecommunications
providers are allowed to provide so called "enhanced" services,
such as programming or data services.
We haven't heard any talk from administration sources about
new broad based subsidy schemes, nor have we heard of any other
mechanisms to address the issue of universal access, other than
some modest grant programs for local civic networks and
educational purposes, which could not in good conscience be
described as solutions to the issue of "universal" access (given
the small size of the grants relative to the cost of the
infrastructure).
The only "action" item on universal service identified in
the "vision" statement is a set of public hearings to "develop a
new concept," of universal service for the 21st Century.
INCREASED COMPETITION. Increase competition in
communications markets by explicitly promoting private
sector infrastructure investments -- both by companies
already in the market and those seeking entry.
The tone of the "vision" and discussions with administration
officials strongly suggest an end to the ban on telephone company
entry into cable markets. An important issue upon which AGENDA
FOR ACTION is silent concerns the legal right of local service
telephone companies to buy cable franchises that provide service
in the same market. There is enormous industry interest in such
mergers, which would eliminate head to head competition for
important consumer services. Also, telephone companies are
arguing in court that the first amendment prohibits the
government from banning such mergers.
If telephone and cable companies are allowed to enter into
joint operating agreements or mergers, the principle avenues for
"last mile" telecommunication services to individuals and small
businesses will be from firms holding FCC licenses for wireless
services transmitted over scarce radio spectrum. But it is
likely that many of the holders of the wireless licenses will be
companies affiliated with incumbent wired telephone, cellular and
cable businesses (On September 23, 1993 the FCC ruled that all
three are allowed to bid on the new PCS spectrum licenses). In
any event, as the PCS market matures, the available spectrum will
be less than demanded, limiting competition regardless of the
number of license holders.
Simply allowing entry into markets does not guarantee
competition. Local cable markets would be served by several
firms if there was genuine cable industry interest in entry
against incumbent firms. The fact that cable markets are nearly
always served by a single firm is due largely to the enormous
economies of scale in laying cable. The fact that cable and
telephone companies pose potential competition against each other
is an artifact of the legal barriers which have prevented the
telephone company entry into the cable business. Had the market
been open to entry in the earliest days, it is likely that the
local phone companies would have long ago monopolized the cable
market.
Often the existence of rate regulation has created the
appearance of competition. For example, neither MCI nor Sprint
would have likely achieved significant market penetration against
AT&T, were it not for FCC rules which set floors on AT&T prices.
Similarly, many of the firms providing telecommunications
services to large firms exist only because the local telephone
companies are required to set rates above cost in order to carry
out "universal service" cross subsidies. In the absence of local
rate regulation for the RBOCs, many smaller "competitors" would
have been eliminated by the incumbent phone companies.
There is nothing in the "vision" statement that even
acknowledges these unpleasant realities. The promise of future
"competition" in telecommunication markets serves as a promise,
yet unfulfilled, of better days to come, which is reminiscent of
the 1983-84 debate over legislation which removed the cable
television industry from rate regulation. Cable operators argued
that new "blue sky" technologies, like satellite delivered video,
were "just on the horizon," and capable of providing adequate
competition to cable companies. Nine years later Congress was
forced by angry consumers to acknowledge the obvious fact that
cable looked, acted and was priced like a monopoly.
Competition in telecommunication markets is an appealing
objective, particularly where competition will lead to greater
innovation and efficiency. A particularly important area for
competition, moreover, concerns competition in value added
markets, including markets for video and other editorial
products.
Regulatory schemes can promote or discourage competition,
both among communications carriers (the conduit) and in the area
of programming content. These regulatory schemes must be based
upon clear understandings of anticompetitive problems in
telecommunications markets. These include spectrum scarcity,
economies of scale for wire connections and centralized
switching, large sunk costs, and historical conditions which
create incumbent firms.
AGENDA FOR ACTION makes no distinction between competition
in carrier markets (the conduit) and the programming markets (the
content). Telephone, cable and broadcasting have been developed
with entirely different approaches to competition in content
markets. In our view, the most important consequence of any new
broadband communications regulatory scheme is its impact on
competition in content markets. The disastrous history with
cable franchises, which allows the carriers to control
programming content, should be reversed in any new reform
legislation.
Finally, AGENDA FOR ACTION ignores the far reaching changes
in regulatory policies over the past 12 years on a wide range of
public interest issues designed to promote a diversity of views,
non-commercial programming and democratic dialogue. The FCC's
rejection of the fairness doctrine, the inapplicability of the
equal time rules to cable franchises, the limited spectrum
allocation for non-commercial purposes, and the need to tie rates
for electronically delivered political ads to participation in
limitations on campaign spending are among the many issues which
should be addressed in a new "vision" of the NII.
THE NEED FOR NEW COMMON CARRIER MODELS.
THE NEED TO SEPARATE CONDUIT FROM CONTENT
AGENDA FOR ACTION is not a particularly encouraging starting
point for the new administration. There are few signs that the
Administration is prepared to acknowledge the importance of the
development of new regulatory models to achieve important goals.
Even the announced goals of including greater competition is
described in such a way that the enormously important issues of
vertical and horizontal concentration are never mentioned.
AGENDA FOR ACTION should have stated that a core objective
is to promote competition in content markets. The current cable
model, where the telecommunications carrier is allowed to own
programming and decide which "channels" are available to local
subscribers has lead to monopolistic practices. Today large
firms like Time-Warner and Telecommunication, Inc., wield
enormous control over who can succeed in the cable market.
Abundant press reports have documented the predictable
consequences of this flawed policy.
Efforts by the telephone companies to introduce common
carrier type switched video dialtone services to consumers offers
a better approach, with the potential for true competition in
video markets (as there is now in markets for value added data
services transmitted over telephone lines).
The large problem yet to be addressed, however, concerns the
lifting of "line of business" restrictions which have limited
telephone company entry into content markets. By "reducing" the
regulatory restrictions on the telephone company line of
business, regulators or anti-trust litigants will be forced to
deal with very complex issues concerning anti-competitive
practices by the telephone companies, who will be both a partner
and a competitor in those markets where it provides content
services.
A number of experienced regulators, including former FCC
Chairman Nick Johnson, express deep pessimism that regulators
will be able to prevent the telephone companies from using their
market power in local service markets to hurt their competitors
in the content markets. They argue that less regulation of the
line of business restrictions will inevitability lead to more
regulation of cross subsidies and other practices. This was also
the prevailing view when AT&T was broken up in the early 1980s.
Most of the Modified Final Judgement (MFJ) "line of business"
restrictions were designed to make it far simpler to introduce
competition in telecommunications markets, by separating the
monopolistic local ("last mile") services from the potentially
competitive markets for a number equipment and value added
services.
If, as expected, the Clinton/Gore administration is going to
eliminate many of these "line of business" restrictions, it will
be a large step backwards in promoting competition where it
counts -- in valued added and content markets.
THE NEED TO DEFINE ADEQUATE COMPETITION
AGENDA FOR ACTION never mentioned the words rate regulation.
Hopes that new "competition" will solve pricing problems are
often expressed by public officials who are on the receiving end
of endless lobbying by industry groups. If competition is to be
a solution to pricing problems, then more thought needs to be
given to what constitutes adequate competition. College
economics courses typically describe competitive markets as
markets with large numbers of firms offering similar products and
services. Markets for telephone or broadband video services are
served by small numbers of firms.
Consider, for example, the proposed auction of PCS spectrum
(an important new wireless technology). On September 23, the FCC
announced that it will auction thousands of PCS spectrum
licenses. The number of licenses per geographic market, however,
will be seven. Moreover, the FCC has proposed allowing the
initial seven licenses to be aggregated into as little as three
licenses. The FCC has also ruled that firms providing telephone,
cable and cellular services can bid on the licenses in their own
markets, even though the PCS license holders will be competing
against them for customers. Finally, the FCC will also allow
bidders to submit national bids, allowing a single consortium to
tie up a large block of the entire national PCS spectrum.
The PCS license holders will argue that since PCS is an
emerging industry, and subject to competition, it should not be
subject to rate regulation. How many license holders in each
geographic market will constitute "competition?" Most economic
theories of imperfect competition say there is a large difference
between 3 and 7 firms. Moreover, what if the licenses end up in
the hands of incumbent telephone, cable and cellular companies?
Won't this limit an important element of cross-technology
competition? And, as the market for PCS matures, demand for the
services will exceed the available spectrum, driving prices up.
Government regulators need to develop workable models of
pricing, which account for the number of firms, the existence of
alternative technologies, and other items, which can be used to
determine when and if rate regulation becomes desirable.
RULES ARE NEEDED TO PROMOTE DEMOCRATIC DIALOGUE
The new private sector NII which is described in AGENDA FOR
ACTION isn't bursting on the scene from a vacuum.
Telecommunications regulation today is the product of decades of
federal efforts to promote a variety of public interest purposes.
BROADCAST TELEVISION AND RADIO. Large sections of broadcast
spectrum (radio and television) are reserved for non-commercial
stations. Owners of broadcast licenses are subject to the
"equal-time" rules (ads must be made available at the "lowest
unit charge" for any and all candidates for political office).
>From 1949 until abandoned by Reagan's FCC in the late 1980s,
broadcast television and radio were also bound by the "fairness"
doctrine, which required the license holders to provide
"discussions of controversial issues" and the "expression of
opposing views" when only one side was aired in a broadcast (even
when the "one side" was first aired in a paid advertisement).
Broadcast stations were also required to ascertain and serve
local community needs, produce and air news and public affairs,
and provide programming for children. Several bills are now
pending before Congress that seek to require stations to offer
deep discounts on political ads to candidates who are willing to
accept voluntary limitations of campaign spending.
CABLE. Cable franchises were not subject to the equal-time
or fairness doctrine. Local franchising authorities, however,
often required cable systems to provide a number of community
services, including stations for local government or educational
use, and production facilities for locally produced programming.
Cable franchise operators were also required to provide channels
for non-commercial public access, as well as some "leased access"
time for independent programming.
TELEPHONE. Telephone companies are required to operate as
common carriers (they cannot refuse to sell services to value
added or "content" companies), and they are also required to set
residential rates below cost in many markets to promote universal
services.
As the older technologies converge and new technologies
(cellular, PCS, etc) become more important, regulators will have
to decide which types of the traditional public interest
objectives should be kept, which ones should be discarded, and if
any new public interest objectives are worth promoting.
The fact that AGENDA FOR ACTION doesn't mention any of these
issues is a telling statement on the Administration's new
"vision" for the NII. Many citizens are alarmed that the
"harmonization" of regulatory obligations is aimed at finding the
lowest common denominator of public interest objectives. These
issues warrant a much fuller discussion by Administration
officials, particularly in a "vision" document.
We are particularly interested in concrete proposals that
address a fundamental problem in the United States. Political
influence and the ability to debate important public issues is
far too dependent upon the amount of money you can spend. In a
world of highly sophisticated information technologies, the
voices of the rich and powerful are deafening. Congressional
candidates raise thousands of dollars per day from narrow
commercial interests so they can appear before the voters in 30
second commercials. Industry groups spend millions of dollars to
shape national debates on health care reform and other issues.
Most video programming, including important educational
innovations like Channel One, are simple vehicles for advertising
campaigns. Telecommunications markets are important because they
are part of our most important "product." The content of
communications is the soul of our democracy and our culture.
The regulatory crisis which is caused by the development of
new information technologies should be an opportunity to take a
sober look at how these technologies are serving society, and to
"rediscover" ways to serve the public interest in a world
connected by fiber optics and wireless communications.
To this end, the Clinton/Gore administration needs to
develop new technology relevant methods of achieving the
objectives of the equal-time and fairness doctrines.
Broadcasting, cable television, and telco video dialtone
regulation should promote campaign reform, by providing the
necessary incentives to achieve voluntary limits on the national
scandal that we call campaign fundraising. Older concepts of
spectrum allocations for non-commercial programming and public
access programming need to be updated for the new technologies.
Regulation of cable and video dialtone needs to provide much
better protections for the independent producers of video and
multimedia programming.
ACCESS TO GOVERNMENT INFORMATION
One of the early promises of the Clinton/Gore Administration
was a much broader public access to federal information databases
and systems. Twelve years of Reagan/Bush administration efforts
to privatize the dissemination of federal information have caused
enormous problems for citizens who seek access to even the most
basic government information. AGENDA FOR ACTION makes no mention
of the bitter debates over these policies, but the document does
promise to make federal information more accessible, at a "fair
price." The five "action items" are largely a listing of various
initiatives which are already well known, such as the recent
revisions to OMB's Circular A-130, the passage of the GPO Access
legislation, the development of the National Technical
Information Service (NTIS) FEDWORLD program, and the creation of
some type of a federal locator system (renamed a "virtual card
catalog").
This section of the report was cursory and general, and will
offend few readers. The Taxpayer Assets Project is concerned
about several issues which were not discussed. First, while
AGENDA FOR ACTION repeats the Administration's official policy
that agencies should charge no more than dissemination costs for
information products or services, it does not say how that policy
can be implemented without legislative changes in the charter for
NTIS. Specifically, since the mid 1980s, NTIS has been required
to operate without legislative appropriations. Since many of the
NTIS activities lose money, NTIS makes up the difference by
charging high prices on information products and services. A
single reel of magnetic tape from NTIS with EPA data can cost as
much as $2,800, and other datasets are even more expensive. For
example, ten years of "bank call" reports cost more than $20,000.
There is also a crisis in the important federal Depository
Library Program (DLP). This program, which dates back to the
beginning of the 19th century, has historically provided free public
access to most government reports and documents. GPO runs the
DLP, which serves 1,400 libraries, including at least one in each
Congressional district. Vice-President Gore's National
Performance Review (NPR) has recommended eliminating the current
statutory obligation that federal agencies use GPO for printing,
and OMB's newly revised Circular A-130 says that federal agencies
do not have to provide electronic information products and
services to the DLP. Federal documents librarians are justly
alarmed that these initiatives may lead to an end to the federal
commitment to the DLP, leading to an enormous loss of public
access to federal information.
CONCLUDING COMMENTS
As a starting point, AGENDA FOR ACTION is a vast
disappointment. The level of the discussion was extremely
general, without acknowledging the most obvious sources of
difficulty or controversy. The general tone of the
telecommunications sections is quite similar to the positions of
the major industry trade groups, who seem to be offering much
more pro-active leadership on the regulatory issues. The
problems with the AGENDA do not seem to simple matters of style,
but rather a lack of a compelling vision to guide the nation
toward outcomes that are not dictated by current market forces.
James Love
Taxpayer Assets Project
September 24, 1993
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Taxpayer Assets Project, P.O. Box 19367, Washington, DC 20036
v. 202/387-8030; f. 202/234-5176; internet: tap@essential.org
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