Letter to Sen. Hollings on S. 1822 and H.R. 3636

[Michael Ward <mike@essential.org>]

Distributed to TAP-INFO, a free Internet Distribution List
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TAXPAYER ASSETS PROJECT - INFORMATION POLICY NOTE
(please distribute freely)

The following letter was sent to Senator Hollings on March 18, 1994 from 
James Love, Director of Taxpayer Assets Project.



                          Taxpayer Assets Project
        P.O. Box 19367, Washington, DC  20036; voice 202/387-8030;
                        internet: tap@essential.org


March 18, 1994

Senator Hollings
Chairman
Committee on Commerce, Science and Transportation
U.S. Senate
Washington, DC  20510


Dear Senator Hollings:

     This letter describes some of our concerns about S. 1822 and
H.R. 3636, and indicates areas where we are undertaking further
research.

Common Carriage and Competition in Broadband Networks

     Very little attention has been given to the issue of
methodologies for common carriage of cable or video dialtone
services.  We have been studying various approaches of providing
non-discriminatory access to cable and video dialtone services,
in order to offer specific suggestions regarding the provisions
in the legislation that will encourage the most competitive
market for information services, including video programming and
data.  As you know, the House has taken a position that would
allocate space on a first come first serve basis, with a "build
out" required to accommodate new market entrants.  This may
result in a market structure that features a number of resellers,
competing against each other on the same wired connection, or
bottlenecks restricting competition.

     We believe it is important to examine some of the
ramifications of this approach, and reflect upon what changes, if
any, should be made to the proposed legislation.  

     pricing

     Will future entrants pay different prices than incumbents on
such a system?  If so, are these prices likely to be higher or
lower, given incremental costs for system build out?  How will
the system be priced if entrants connect at different points of
presence?  Several industry sources want to ban cost of service
price regulation for all telecommunications services.  Can
"unbundling" of switching services and access to shared
infrastructure be accomplished without cost of service rate
regulation?  We do not believe so.

     In current Video Dialtone proposals, carriers sometimes
charge programmers a percentage of revenues for carriage.  These
types of arrangements are generally not allowed in common carrier
telephone markets.   On a somewhat related issue, the Rand
Corporation has indicated that in leased access markets for
cable, the public welfare is enhanced by charging differential
rates for different types of programs, with the distinctions
based upon program content.  Rand used a consumer surplus model,
and compared a single price system, which would knock out many
low end services, with a multi-priced system, which would provide
a wider diversity of programming.

     Today many persons are opposed to content based pricing
rules.  On the other hand, a single price system may limit the
offerings over the system.  You committee must address some of
the alternative approaches to resolving this dilemma, and
indicate the appropriate legislative mandate, which would give
the FCC direction and flexibility in resolving these important
issues.


     use of contracts

     Cable does not operate as a common carrier, and as a closed
system, contracts are used to address a wide range of issues. 
Cable carriers have used contracts to control program content,
restrict competition among programmers, and to provide complex
revenue sharing terms.  Under the Video Dialtone proposal that
emerged from the House, it appears as though capacity will be
"leased" to various users.  The terms of these contracts will be
important in determining the bargaining power of the parties, the
opportunities for new entrants, and the fairness of the non-
discriminatory mechanisms.  We want to identity some of the most
important issues that may arise, and indicate if legislative
guidance is desired.

     customer to head office architecture

     The should FCC be given the responsibility to reject
proposals for broadband networks that do not provide low cost
build out options based upon currently available switching
technologies.

     Our discussions with the industry suggest there are number
of important choices faced by carriers that could open networks
up, or provide barriers to competitive entry.  We are
particularly concerned about this issue now that the House of
Representatives has eliminated the so called 75:25 provision,
which would have limited carrier ownership of programming to 25
percent of system capacity.  The greater the entry by the carrier
in the content markets, the greater the incentives for
anticompetitive behavior.

     exclusivity

     Non-exclusivity rules were instrumental in promoting DBS. 
Should there be additional non-exclusivity rules in order to
promote more competition across competing wired and wireless
services.  For example, if the "capacity" of the system is shared
by "competitors," will a single firm be able to condition
carriage on exclusive agreements?  At a minimum, the FCC should
have the authority to adopt rules on exclusivity which will
enhance intraplatform competition.

     user interface

     We strongly support an open architecture for the so called
set top box that will be the user interface for the new broadband
networks.  There should be competition from third parties for the
set top hardware and software.  If the telephone or cable
companies are allowed to choose a user interface, it will likely
be based upon a different set of criteria than the interfaces
chosen by consumers.  As bandwidth expands and consumers have
greater choices, it will be extremely important that consumers,
rather than carriers or programmers, control the information
flow.  Through open architecture and third party competition,
different tastes and needs will be accommodated, and consumers
will be subject to less manipulation by carriers or programmers. 
The House bill calls for a study on this issue, but we are asking
for a stronger mandate for open architecture, and competition at
the hardware and software level.

Non-Commercial Programming

     There has been an enormous amount of interest in the APTS
proposal which allows for 20 percent of the capacity of the
broadband networks be reserved for non-commercial use.  We have
also proposed a national fund for non-commercial information
services, to finance the costs of production for such services. 
This would be paid for through a small gross receipts payment by
all telecommunications carriers, or by a gross receipts license
fee by holders of spectrum licenses, including radio, TV, and
HDTV licenses, which are now free.

     The amazing growth and popularity of the Internet
illustrates the public hunger for non-commercial communications.  
We believe that it is appropriate that some modest proportion of
our NII resources be devoted to non-commercial information
services.

     While there has been considerable agreement regarding the
capacity that should be allocated to non-commercial information
services, and a growing interest in funding the production costs
of such services, there is controversy over who would be able to
use the access, or receive the funds.

     APTS supports a model of access that would involve some type
of gatekeepers.  Other have suggested equal access models based
upon pipeline common carriage of public access cable channels. 
We propose something entirely different, and much more democratic
and consumer driven.

     Our approach is based upon the system now used in the
Netherlands to allocate both production money and television and
radio broadcast time.  Rather than have a government agency or
body determine who receives the resources for non-commercial
broadcasting, non-profit organizations which are devoted to non-
commercial broadcasting can qualify for time and money, on the
basis of the size of their membership, subject to a minimum cut-
off size.  Groups with larger membership receive greater
resources.  The organizations must be democratic organizations,
controlled by the membership, and devoted exclusively to the non-
commercial broadcasting function.  At present there are 9
"movements," as they are called in the Netherlands, which qualify
under this system, including three Christian movements, one
humanist movement, one movement representing all political
parties, ....

     We believe the Netherlands model, which was developed in a
smaller country around broadcasting, can be modified to provide a
popular and accountable mechanism to allocate resources for non-
commercial information services.

     Our suggestion is that states be required to allocate
certain non-commercial resources to special democratically
controlled non-profit membership organizations.  The rules should
provide that any groups which met a minimum "cut-off" in terms of
the size of the membership (which would be subject to audit)
would be eligible for those resources, which would be made
available in proportion to the size of their membership.  This
would provide a "market" for non-commercial broadcasting, where
membership would act as a type of voucher.  Moreover, since each
of the qualifying organizations would be democratically run, the
viewers could not only choose which organizations they choose to
support, but they would also have an opportunity to influence its
management, through their membership.

     We are very excited about this approach, which we believe
addresses the most important and difficult criticisms which have
been made against the two competing models, which are the Public
Broadcasting model or the public access system for cable.  There
would be no government appointed gatekeepers, and by awarding
resources to several competing groups, diversity of views would
be better represented than they are today through the Public
Broadcasting model.  The problem of treating all comers are
equals, regardless of merit, is also rejected.

     Our system is one of choosing among competing information
providers, where the choice is made by the viewers.  This
provides a democratic mandate that is richly needed.


Consumer Protection

     Both the House and the Senate bills address the issue of
rate regulation, and there are many proposals, such as the
Administration's Title VII and Representative Tauzin's "rate
flexibility" proposal, which would pre-empt state powers on
important issues relating to rate regulation.  We object to two
issues.  First, we do not believe the FCC should pre-empt state
authority on determining which rates would be subject to
regulation, and which rates would be set by market forces.   In
our view, states are already searching for ways to deregulate
rates for services that are truly competitive, and this will
accelerate as states are required to allow competition for local
exchange services.  The danger in allowing the FCC to pre-empt
state authority in this area is the FCC will write rules that are
inflexible and do not reflect the needs of different geographic
areas.  Second, we object to any proposals that limit the rate
making methodologies used by state governments.  The telephone
industry, Vice President Gore, and Representative Tauzin, are
convinced that the american people need to be protected from cost
of service regulations.  Today some states are already
experimenting with other types of regulation.  But the FCC's
dismal performance in the cable area, using the industry's
preferred model of rate caps, illustrates the dangers of federal
pre-emption.  If cost of service regulation is really bad for
consumers, it should be a matter resolved at the state level,
where utility prices are more likely to be an important issue for
voters.

	Moreover, it should be pointed out that as we move toward greater
competition in the local exchange market, and concepts such as
infrastructure sharing gain more currency, there are really no
alternatives but to use cost of service models, since the goal is
to provide competitive access to various parts of the network at
just and reasonable rates.  With all its shortcomings, cost of
service rate making remains an important and useful methodology
which can be used to protect both consumers and competitive
carriers in a wide range of situations.  Congress should not pre-
empt state authority on this issue.

     We also strongly support measures which will increase the
power of consumers in advocacy before federal regulatory
agencies, such as the Citizen Utility Board Concept, which would
allow democratically controlled and privately funded
organizations to better compete against the well financed
industry advocacy efforts.


Anti-Trust Issues

     Congress has focused on a number of important anti-trust
issues in the pending legislation.  We strongly support measures
that separate the conduit from the content, and we believe it is
a mistake to allow local exchange carriers to enter information
services markets.  Moreover, we are concerned that Congress is
not providing a public record of the abuses that occur when such
separation is not provided.  This is needed as carriers seek
stronger and stronger first amendment protections.

     However, if Congress does allow entry, it should provide the
strongest forms of protections against anticompetitive abuses. 
At present the strongest models to protect against abuses are
found in the provisions of S. 1822 and HR 3626 which address
local exchange carrier entry into electronic publishing.  These
protections should be extended to video programming and other
content services.

     We also believe that S. 1822 should provide strong cross-
ownership provisions that will prevent incumbent telephone, cable
and cellular companies from obtaining the new PCS wireless
spectrum.


Universal Service

     We support the concept of a universal service fund, and we
suggest that the fund be largely managed by the states, including
questions of what the level of contributions should be, and what
types of services should be funded, subject to minimum federal
standards set by the FCC.

     We strongly support the Richardson anti-redlining amendment
for video platform services included in HR 3636.

In-kind contributions

     We strongly object to any proposals that would allow
carriers to satisfy universal service requirements through in-
kind contributions.  We are attaching a memorandum we have
written on this topic.

The Internet

     While Congress is redesigning the nations communications law
in order to promote the construction of an "information
superhighway," there has been little discussion about the
information superhighway that we already have.  The Internet not
only is an information highway, but it is one that is run much
differently than the broadband cable and video platform services
proposed under S. 1822 and HR 3636.  Internet users have
flourished in an environment were non-commercial services are the
main attraction, where private businesses, schools, and citizens
spend millions of dollars to "publish" information which is
freely disseminated, and where democratic debate is more popular
than pay per view.

     At a time when Congress is increasingly preoccupied with
raising money for campaigns and settling disputes among various
commercial interests, the rise of democratic discourse on the
Internet gives many citizens new hope that ideas will again shape
debates, and citizens will be able to participate in truly
democratic and dynamic decision making.

     The importance of the democratic experience that has grown
so rapidly on the Internet cannot be overstated.  However, we
believe that much of this has occurred because of a pricing
system for Internet communications that allows citizens to send
and receive thousands of messages under flat rate pricing.  Many
popular Internet "discussion lists" would be eliminated tomorrow
if Internet usages was metered and priced as are some commercial
networks.

     We are concerned about the future of the democratic
experience on the Internet, after the federal government
completes the privatization of the government funded-Internet
backbones.  While no one holds a crystal ball, we believe that
there are strong pressures to change current Internet pricing
rules, toward a metered usage system that would dramatically
change the culture and the charms of the Internet.  Therefore, we
urge you to include measures in S. 1822 which will preserve and
enhance the vibrant democratic discourse on the Internet.


     Thank you for your consideration of these suggestions,


     Sincerely,


     James Love
     Director, TAP



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