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APRIL 13, 1999, TUESDAY

SECTION: IN THE NEWS

LENGTH: 2220 words

HEADLINE: PREPARED TESTIMONY OF
H. RUSSELL FRISBY, JR.
COMPETITIVE TELECOMMUNICATIONS ASSOCIATION
(COMPTEL)
BEFORE THE SENATE COMMITTEE ON THE JUDICIARY
SUBCOMMITTEE ON ANTITRUST, BUSINESS RIGHTS AND COMPETITION

BODY:

Good morning. My name is H. Russell Frisby, Jr., and I am President of the Competitive Telecommunications Association (CompTel). Thank you for giving me this opportunity to speak to you about how changes in merger review policies would affect competition in telecommunications. Your longstanding commitment to examining the ramifications of mergers in this area is much appreciated. CompTel is the principal national industry association representing over 330 competitive telecommunications providers and their suppliers, including large nationwide carriers as well as scores of smaller regional carriers. Our members include competitive local exchange carriers (CLECs), long distance carriers and resellers, fixed wireless, information service and Internet providers, equipment manufacturers and vendors.
I. OUTLOOK ON PROSPECT OF LEGISLATION GENERALLY
I'll say a few words about telecommunications legislation in general, then give CompTel's perspective on S. 467. At the outset, CompTel strongly supports the Telecommunications Act of 1996, and just as strongly opposes any efforts to reopen the Act.The Act has made the development of local exchange competition possible by breaking monopoly barriers and permitting competitive entry through a variety of business strategies. Thanks to the Act's market-opening provisions, entry by competitive local exchange carders is increasing every day, and these carriers continue to be successful in winning new local customers and in building new local exchange facilities. Although competition has not grown as rapidly as anticipated in those areas where the monopolies are not living up to their obligations under the Act, competition has, in fact, taken root. Given the opportunity, it will flourish.
This hearing is timely because we are at a critical juncture on the road to competition. One path leads to competition via the roadmap drawn out in the Telecom Act. The other path is an anticompetitive detour that is marked by proposals to circumvent the market-opening provisions of the Act. CompTel is pleased that the Supreme Court has upheld the FCC's local competition rules. We are hopeful that the Regional Bell Operating Companies (RBOCs) will finally commit themselves to complying with the Act and opening their local markets to competition, instead of circumventing Congress' intent through litigation and lobbying for legislation that would overturn the Act. The Act is working and it should be allowed to continue to do so. Any attempt to weaken the Act will leave local markets bottled up, destabilize competitive carders, and deprive consumers of the benefits of local competition.
CompTel is particularly concerned, for example, about any efforts to legislate a date certain for RBOC entry into long distance, to provide premature LATA boundary relief for RBOCs (e.g., for interLATA data services), or to alter the law by carving out any aspect of the incumbent networks from the Telecom Act's market-opening provisions. It is my understanding that Chairman DeWine and Ranking Member Kohl also oppose efforts to reopen the Act, and that S. 467 is only intended to provide some speed and certainty to the merger review process. Given this limited goal, great care should be taken to prevent the bill from being amended or expanded in any way that would alter the substance of the Telecom Act.
II. OUTLOOK ON S. 467
With that said, I'd like to share CompTel's perspective on S. 467. We understand and endorse the policy behind this legislation - to speed the FCC process for approving mergers and acquisitions. In fact, CompTel would like to see the FCC move faster in many other areas as well. S. 467's goal is laudable: to get competitive combinations to market as soon as possible. It is a fact of life in our rapidly- growing and technology-driven industry that companies will merge and acquire. In the vast majority of cases, new combinations are not only pro-competitive but critical to bringing the best technology and greatest efficiencies to consumers. Many recent mergers have benefitted consumers by bringing new services to the market, increasing the number of consumers who can access competitive services, creating new market capital, stimulating the development of new technologies, and increasing competition. Examples of such mergers include AT&T/TCI, MCI/WorldCom, Airtouch/Vodaphone, WorldCorn/Brooks Fiber, and Excel/Teleglobe, just to name a few. Soon, the FCC will consider another pro-competitive merger, that of Frontier and Global Crossing. The combination of the complementary, non-duplicative operations of these two companies will create a facilities-based carrier that will compete effectively in many sectors of the U.S. and global telecommunications market.Given the rapid changes we are experiencing in the telecommunications market, it is critical that policy makers permit such pro-competitive industry restructuring to move forward with ease and speed. An efficient merger review process helps stabilize the market, and it allows consumers, shareholders and even employees to make adjustments and move forward with new plans. For that reason, CompTel commends your effort and endorses the goals of S. 467.
Furthermore, S. 467 properly recognizes that the FCC's merger review process is a critical safeguard of the public interest. CompTel shares this view. In addition to determining whether a merger should or should not proceed, the FCC's public interest analysis provides an opportunity to create a more competitive environment by conditioning merger approval on market-opening actions.
In the vast majority of cases, the FCC's public interest review can and should take place within the time frames set forth in your proposed legislation. It is important, however, to recognize that the telecommunications industry is still in transition from a monopoly model to a competitive model. As a result, some mergers involving the largest monopoly providers may require more time than is provided in your bill. Even these must be reviewed with speed and be fairly resolved. Nonetheless, under certain circumstances, forcing an untimely decision could deny the FCC the proper opportunity to weigh all relevant factors, and to tailor a decision based on the individual merits of the merger request.To that end, CompTel proposes a modification to S. 467 that would promote efficiency while ensuring that the FCC has the time it legitimately needs to evaluate the ramifications of approving a new market combination. We propose adding to the bill a mechanism whereby the FCC, on a majority vote, could extend the bill's 180-day time limit by 90 days. This provision would be triggered in the rare number of circumstances where a combination is so important and raises such competitive concerns that the FCC cannot fairly air the issues within the proposed 180-day limit. Creating such a release valve would accomplish the administrative efficiency goals of the bill, while still protecting the public interest.
Let me give you a few examples that demonstrate why such an amendment may be necessary. The proposed Bell Atlantic/GTE merger is one that presents serious, complex issues for the FCC to resolve through its public interest analysis. This merger almost certainly would impede, and potentially even eliminate, competition in the markets for local exchange, exchange access, long distance and Internet access services, for many reasons. First, by proposing to merge, Bell Atlantic and GTE have effectively agreed not to compete against each other and, as a result, their merger will severely diminish the potential for local competition in their respective territories. Second, the merger raises serious issues of compliance with Section 271, the market-opening provision of the Telecom Act, because GTE provides interLATA services in Bell Atlantic's region.

Bell Atlantic does not have Section 271 approval to provide in- region, interLATA services in any state, and combining with GTE should not serve to relieve Bell Atlantic of any of its market-opening obligations. Third, even assuming that Bell Atlantic receives Section 271 authority in even part of its region, the danger that the new entity would increase the cost of access in order to disadvantage its competitors is significant. Finally, CompTel has argued that the Bell Atlantic/GTE merger should be denied because of Bell Atlantic's lack of compliance with the conditions imposed in the Bell Atlantic/NYNEX Order.
Another example of a large RBOC that may raise public interest issues requiting more than 180 days to resolve is the proposed SBC/Ameritech merger. In this case, merger conditions can be a critical tool for precipitating competition - particularly local competition in those RBOCs' territories. RBOCs in general have been reticent to comply with the market-opening conditions of the Telecom Act - some more so than others. Where a more cooperative RBOC, such as Ameritech, attempts to merge with a less cooperative RBOC, such as SBC, much can be gained through conditions that prevent obstructionist behavior from contaminating the entire new enterprise.
SBC has been particularly slow to appreciate the need to open its local market to competition. An SBC/Ameritech merger could have an anticompetitive effect by spreading SBC's litigious corporate culture to Ameritech. Instead of working to comply with the market-opening elements of the Telecom Act in order to gain entry into the long distance market, SBC has challenged the very constitutionality of those provisions and others in court. SBC's antagonism toward the Act has been well noted. Last year, in response to an SBC request regarding its entry into long distance, a Texas PUC commissioner remarked that evidence demonstrated numerous instances of SBC's "lack of cooperation with (CLEC) customers and evidence of behavior which obstructs competitive entry." A second commissioner said that SBC needed to "change its attitude" and suggested that it drop some of its numerous lawsuits challeng interconnection agreements with competitors.Furthermore, when SBC took over PacTel, PacTel's competitive record changed for the worse. The prospect of SBC's management dominating the combined company, and bringing with it a hardened attitude toward competition in the region, is daunting.
In such a case, the FCC should be able to use its public interest authority to seek greater compliance with the Telecom Act in order to provide some assurance that competition -- not concentration -- is the result of the combination. If this can be worked out within the time frames of S. 467, all the better. But given the complexity and what is at stake, we would like to see the FCC given the flexibility of our proposal.
It has been suggested that the FCC needs little time to consider mergers because the bulk of the work is done at the Department of Justice. DOJ's analysis and its role in approving mergers, however, differs from the FCC's and thus one cannot substitute for the other. DOJ's role is primarily one of assessing antitrust concerns, while the FCC should make a broader public interest determination, generally considering the pro-competitive and deregulatory goals of the Telecom Act. Among other things, the FCC must consider whether a proposed transaction will open all telecommunications markets to competition and enhance access to advanced telecommunications and information services in all regions of the nation. Also, the FCC must consider whether the merger will affect the quality of telecommunications services provided to consumers or will result in the provision of new or additional services to consumers. The legislation you are considering today correctly gives weight to the FCC's important and legitimate role to conduct merger reviews under the public interest standard. It is also important, however, to recognize that this mandate is broad and complex, and the FCC's ability to fulfill it should not be short-circuited.
In closing, let me reiterate our appreciation for your efforts to stimulate competition in telecommunications markets. We are encouraged to hear that Chairman DeWine and Ranking Member Kohl are developing legislation to ensure that all telecommunications providers have equal and non-discriminatory access to buildings. It goes without saying that competition cannot exist where only one market player can reach the consumer. In most cases, only the incumbent telephone companies are allowed access to consumers in apartment and office buildings at no charge. Building owners often demand steep fees from competitors for the same access. While we are committed to preserving building owners' rights to protect the integrity of their structures, granting preferential access to the incumbents seriously impedes the ability of new market entrants to win customers. Negotiating access in a building-by-building fashion is costly and time consuming, and at best it leaves the new entrant at a competitive disadvantage vis-a-vis the incumbent. Thus, a national solution is needed to speed competition to these market segments. Your commitment to ensuring that new entrants have a "fair shot" at winning customers in buildings is much appreciated.
Again, thank you for the opportunity to appear here today.
END

LOAD-DATE: April 14, 1999

Document 330 of 383.


Search Terms: telecommunications act of 1996, House or Senate or Joint
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