ATTACHMENT B: TELE-CAUSE AMENDMENTS

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1 ATTACHMENT B: TELE-CAUSE AMENDMENTS Effective Comoeti.tion. S : currently requires the- FCC to. find that effective competition exists before services or facilities- may be transferred from. AT&T's reg.ulated parent to its unregulated "fully separated affiliate" (FSA). This amendment would remedy a serious deficiency in the bill by not allowing similar services or facilities to be created by the unregulated FSA until the- finding of. effective competition is made. Without such a provision, the effective competition principle of S. 398 would be meaningless. Outside- Financing- Tae purpose of creating an FSA, is- to puc. AT&T's unregulated activities- on. an equitable footing- with those- of its. competitors by requiring that the FSA compete: on. its own merits. S. 898, however, currently would permit AT&T to use its financial power and resources ($50 billion in revenues and $6 billion., in profits each year), achieved thraugh. its" publicly regulated monopoly activities, to support the private ventures of the.- FSA through virtually unfettered provision of funds- to the FSA. The bill should be. amended to requ-ire financing to come from independent sources. This would limit incentives for preferential self-dealing- and. enhance the prospects for comnetition withou.t disturbing AT&T's- overall control af its FSA. Customer-Premises Equipment. S. 898 currently would permit the immediate trans.fer of all of AT&T's equipment now in service, such as basic telephones or business switchboards, to an unregulated FSA. To prevent the transfer of AT&T's monopoly power to its -unregulated FSA, this equipment, representing some 80% of the U.S. total, should be kept under regulation, in the interest of the subscribers for whom it was acquired, for its "remaining life" an accounting procedure already in use by the FCC for the regular amortization of telephone investment.

2 Manufacturing Separation. The line which - S. 898 draws between AT&T's- regulated and unregulated, activities extends to manufacturing by such Bell System, companies.as Western Electric- Although manufacturing for regulated services and products; is ostensibly distinct, from that for unregulated enterprises,, the bill allows six years for the boundary to be established, and permits the FSA to obtain all of the "components and sub assemblies" that go into, a final product from AT&T forever. The six-year period should be shortened, and components and sub: assemblies should be treated no. differently than, end* products. Tariff and Pricing P.roblems*. Tariffs are a public meass of. setting prices and other terms for providing regulated telecommunications services, and for ensuring non-discriminatory application, of these terms. S".. 898, however, would abridge certain basic rights of".the- public to participate in the tariff process now available under the present: Act. S» 898's tariff provisions should be amended to maintain existing rights and. improve meaningful public participation with respect to regulated telecommunications services. AT&T FSA Relationships. S. 898 recognizes that AT&T's huge revenues derived from monopoly services, as well, as its other resources, could be used to finance the FSA's competitive enterprises r even at a loss, until smallet competitors are- driven from, the marketplace. Nevertheless, the bill would permit AT&T's regulated carriers and unregulated. FSA to jointly use property and technical information, engage in joint ventures, and to cooperate in other ways which invite "crosssubsidy" destructive of competition. The TELE- CAUSE amendments are designed to reduce the risks of cross-subsidy, tying, and other forms of unfair competition, and to enhance competition.

3 Universal Interconnection. Under S. 898, some telecommunications services will remain regulated, but others will not- The bill requires carriers to allow users to connect their own equipment and other services to carrier-provided regulated telecommunications services, but.it does not afford similar user flexibility to^unregulated services. TELE-CAUSE believes that universal interconnection among all services and facilities will maximize efficiency- and diversity of use, as well as facilitate competition.. *s Exchange Access and Surcharges. S. 898 establishes the framework for charges; and other:- terms for delivery of long distance telecommunications services to the, customer using monopoly local, tele phone? companies. The bill seeks to protect local users:,, especially in high-cost areas, from disruptive, increases in. rates. TELE-CAUSE believes that the exchange access and surcharge provisions should be clarified- to ensure that long-distance services and users are not subjected to discriminatory or unjustified charges. Redefinition of Basic Telecommunications Services and Information Services. The FGC recently defined these services in a proceeding popularly called "Computer IT," although it used the terms differently, to draw a line between what were to be considered'"basic" or pipeline transmission services, subject to regulation, and what were "enhanced" telecommunications or information services, not subject to regulation. TELE-CAUSE believes the FCC's definitions most closely approximate the realities of the marketplace, and should be more closely mirrored by the bill. These FCC

4 - 4 - standards, appropriately recognize the- role of telecommunications in the entire- national economy, and are- designed to promote- competition in appropriate industry sectors* AT&T Procurement. The Bell System, is not only a, huge, supplier of services and products, but also 3L large purchaser* of telecommunications, equipment through, its Long- Lines and local telephone- operating companies. This TELE-CAUSE amendment will assure that AT&T's broad purchasing power is exercised fairly and openly. The proposed amendment requires AT&T" companies- to satisfy a specified portion of their equipment needs- from independent suppliers. S has no comparable provision* Transition Period. S. 898 generally contemplates a two-year period in which currently regulated pro.ducts and services- may be readied for deregulation^ Recognizing that two years may well be consumed by the process of determining" which services are to be deregulated, TELE-CAUSE suggests that: the period should be extended to a more realistic faur year period, to prevent sudden disruptions of service, and to ensure users che continued availability of vitally needed services on fair and reasonable terms. Exemption from Regulation. Nothing: in S. 898 ~~ would prevent the FCC from exempting AT&T from any or all of the complex, and painstakingly constructed statutory provisions governing the relationship between AT&T's regulated and unregulated activities. TELE-CAUSE believes that the Congressional classification of AT&T as "dominant," as well as the accompanying- competitive safeguards, must remain in the hands of Congress, and that the FCC should not be given carte blanche to exempt the dominant carrier from the Act.

5 Patent- Policies.' S specifies that certain patent-licensing requirements of the 1956 Consent Decree, which currently apply to AT&T, shall not apply to any Bell FSA. TELE-CAUSE believes that this is appropriate, as long as: (1) AT&T patents, developed under regulation with monopoly revenues, are not allowed to be transferred to the FSA, and (2) patents, held by the FSA are truly the. subsidiary's own creation, not the parent's. The- parent, however,. could license its. patents to the- FSA,. as it would to any third, party, A. related amendment would help equalize the currently unequal bargaining advantage of- AT&T in. relation: to its- patent licensees- if the bill were: to allow, as the. Consent Decree presently does not, a five year limit on patent license grants, at the option of the patent-holder.