December 23, 1999 FCC ASKS FOR COMMENTS ON ITAA - CIX REQUEST FOR SAFEGUARDS EXTENSION ADMINISTRATION RELEASES DRAFT ENCRYPTION EXPORTREGULATION- Had missed initial December 15th target Information Security: FEDS FACE COURT CHALLENGES ON PRIVACY ISSUES CALEA and NSA surveillance at issue E-DATA: ONLINE CASH REGISTERS ARE JINGLING THIS SEASON E-DATA: STUDY SAYS DSL TO REACH 9 MILLION HOMES BY 2003 E-HEALTH: HOSPITALS LINKING TO THE WEB E-HEALTH: STUDY SHOWS INTERNET APPEAL FOR HEALTH INFORMATION DISCOUNT FOR ITAA MEMBERS TO COMNET 2000 IN WASHINGTON, D.C. & TO ECUSTOMER INTIMACY WEST, IN SAN DIEGO ############################################################## FCC ASKS FOR COMMENTS ON ITAA - CIX REQUEST FOR SAFEGUARDS EXTENSION ITAA and the Commercial Internet Exchange (CIX) joined together to call for a two-year extension of the existing requirement that the Regional Bell Operating Companies (RBOCs) provide interLATA information services through separate subsidiaries in a petition filed with the Federal Communications Commission. The FCC responded by asking any interested parties to file comments on the request by December 17, 1999. Oppositions or responses to these comments may be filed by December 28, 1999. On February 8, 2000 the structural and behavioral safeguards applicable to BOC provision of inter-LATA information services will automatically sunset, under the Telecommunications Act of 1996 Sec. 272. The two associations noted that unless the commission takes action, the RBOCs that retain substantial market power will be allowed to enter the in-region inter-LATA information services market without ever complying with the structural and behavioral safeguards adopted by Congress. "Substantial evidence exists that the statutory structural safeguards are still necessary to prevent anti-competitive abuses," noted Barbara Dooley, president of CIX. "The BOCs continue to use their control over the local network to thwart the ability of independent ISPs to compete. If they are allowed to provide inter-LATA information services without complying with the Telecom Act, they will have an even greater ability and incentive to harm competition in the emerging market for broadband Internet access service," she added. Both ITAA and CIX members believe consumers benefit from robust telecommunications competition. "While telecommunications competition is increasing, it has not yet reached the point where Congress expected it would be when the four year sunset for information service separate services was set. The FCC should continue to use the tools Congress gave it in order to open markets," said Harris N. Miller, President of ITAA. "Our new information economy increasingly depends on the networks and services provided by competitive service providers. The FCC should ensure that the local phone monopolies open their markets before allowing their entrance into Inter-LATA data services," Miller added. ADMINISTRATION RELEASES DRAFT ENCRYPTION EXPORT REGULATION -Had missed initial December 15th target After delaying the implementation of its new encryption export regulations, which were previously scheduled to be formalized by December 15, the Administration released a revised version of its proposed regulations for encryption on December 17th. The latest version supercedes the heavily criticized draft dated November 19, 1999. The Administration plans to release a final version of the regulations on January 14, 2000. Originally the Administration announced on September 16, 1999 that it would make sweeping changes in its encryption export policy, and would formalize those changes in new regulations, to be released by December 15, 1999. At the time a White House press release, dated September 16, stated: "The Administration intends to codify this new policy in export regulations by December 15, 1999." That promise was instrumental in stopping the House of Representatives from proceeding to a vote on the Security and Freedom through Encryption (SAFE) Act. In summary, the latest draft marks a significant step forward in the effort to remove regulatory burdens on American companies seeking to export encryption related technologies. The revised draft contains a number of significant changes from the earlier November version, indicating that the Administration heeded comments and critiques from industry and Capitol Hill. The December draft comes much closer to fulfilling the Administration's promise of meaningful reform in the export controls over encryption issues. The new policy, however, retains the Administration's basic premise that the diffusion of encryption technologies can be controlled through regulation, even in the age of the Internet and truly global commerce and distribution systems. Screening: Company responsibility for screening on-line purchasers has been clarified and streamlined. The latest daft specifies that an automated or human monitoring mechanism should screen for domain names or Internet addresses where appropriate, such as "gov", "mil", etc. Previously, there was considerable ambiguity about what a company must do to comply with screening requirements. This is a positive step in clarifying the process. Source Code: The latest daft makes clear that the simple posting of source code on the Internet does not require a license. In situations where a license fee is required for the use of open source code, however, the product must be subject to review. Exports to U.S. Subsidiaries: The latest draft makes clear that no prior review of exports to U.S. subsidiaries is required. The Retail Definition: One of the most criticized features of the November 1999 draft was the overly restrictive definition of what would constitute a "retail" product. This definition was and is important because under the regulations, retail products are not subject to licensing requirements. The earlier draft appeared to limit the definition of retail to the so-called shrink-wrap distribution channel. There was no corresponding provision for Net-based sales and distribution. In the latest draft, the definition of retail has been expanded considerably to include sales "in large volume...through electronic transactions." And, encryption products that are functionally equivalent to other retail products are considered retail. Sales To ISPs and Telecom Entities: Another harshly criticized feature of the November 1999 draft were apparent restrictions on when sales to telecom entities and ISPs could be made without a license. The December draft expands the opportunity and clarifies that sales to telecommunications entities and ISPs can be made under the liberal ENC classification, unless the products are solely for government use, in which case a license is required. Toolkits: In the December draft, sales of commercial encryption source code and general-purpose toolkits have been liberalized. Trigger Date: In a major concession to industry, the December draft presented a bright line 30-day review process. 30 days after a company submits a classification request, products may be shipped to non-government customers, EVEN IF the U.S. government has not responded to the request. This is a significant improvement in existing regulations and promises a level playing field for all companies by removing the possibility of regulatory delay -inspired competitive handicaps. Reporting Requirements: The December draft also significantly reforms the previously complicated and potentially burdensome reporting requirements imposed upon industry. Unlike the November 1999 version, the New Draft sets forth reporting requirements designed not to require any reporting of information that is not collected in the ordinary course of business. This is a major improvement and promises to reduce greatly costs associated with regulatory compliance. Moreover, the December draft makes clears that companies are required to report direct sales to first level customers only, e.g. to distributors. What Constitutes "Government": The single most controversial aspect of the November 1999 version was the broad and vaguely defined term of what constituted a "governmental entity" for purposes of triggering a license application requirement. The original definition potentially included telecom entities and ISPs, making the sales to such entities subject to license application and approval. In the December draft, the definition of "government end-user" has been substantially narrowed. Moreover, the new definition specifically does not include telcom entities and ISPs. This is a major improvement in the new draft and resolves one of the most contentious issues between industry and the government. Information Security: FEDS FACE COURT CHALLENGES ON PRIVACY ISSUES-CALEA and NSA surveillance at issue An order by the Federal Communications Commission issued last August under the Communications Assistance for Law Enforcement Act (CALEA) has been challenged in at least four separate petitions for review filed with U.S. Appeals Courts. The CALEA order concerns the government surveillance capabilities with new communications technologies. In a related privacy law suit, the Electronic Privacy Information Center (EPIC) filed on December 3 against the National Security Agency to compel it to comply with a Freedom of Information Act (FOIA) request for documents pertaining to the legality of its signals intelligence activities. The NSA's refusal to provide these same documents to the House Intelligence Committee prompted Chairman Porter Goss to issue a strong denunciation last May. EPIC had submitted a FOIA request to the National Security Agency (NSA) on June 8, 1999 that requested "copies of all agency records that were located by the agency in response to a request from the House Permanent Select Committee on Intelligence, as described by Committee Chairman Porter J. Goss in . . . House Report 106-130." The Electronic Privacy Information Center (EPIC) is a Washington DC based privacy advocacy group. On CALEA, The United States Telecom Association (USTA), EPIC, the American Civil Liberties Union (ACLU), Cellular Telecommunications Industry Association (CTIA) and the Center for Democracy and Technology (CDT) are all challenging the FCC’s actions. The critics of both the FBI and FCC say that the FCC went beyond what CALEA permits the government to do. The law, passed in 1994, gives law enforcement broader wiretap capabilities in new telecommunications devices. It provides that wireline, cellular, and broadband Personal Communications Services carriers must make their equipment capable of certain surveillance functions. However a central legal issue is that CALEA provides that its provisions do not apply to "information services." E-DATA: ONLINE CASH REGISTERS ARE JINGLING THIS SEASON Online consumer spending rocketed up 60% for the week ending December 5 to reach $900 million. This is according to PCData, which with Goldman Sachs, conducted a survey from December 3 to December 5 on consumer shopping patterns on the net. PCData further reports that, like the previous week, toys were the most popular items: toy sites ranked number one in unique buyers with 1.3 million, followed by music sites with over 1 million. Software and health and beauty categories saw the biggest gains over the week in number of buyers with 92% and 91% respectively. Almost all categories showed significant jumps in spending as well. Even pet supplies, which are only in part bought as gifts (32%) jumped from $7 million to $23 million in a week. Overall, weekly spending for the top ten categories showed the following growth: Other survey data indicated that most Internet users shop online because of: · Convenience (52.7%) · Wide selection (13.1%) · Price comparison (12.7%) On the other hand those that shop in traditional venues, do so because: · You can have immediate possession of the item (25.8%) · You can see or feel a product (28.9%) The survey consisted of 3,199 home-based Internet users. E-DATA: STUDY SAYS DSL TO REACH 9 MILLION HOMES BY 2003 According to IDC, the market for Digital Subscriber Lines (DSL) is getting ready for a big surge forward. Starting from a small installed base of 50,000 in 1998, US households will adopt these lines at an increasing pace, reaching 9.3 million in 2003. This equals a 220% CAGR. Quite clearly, residences are leading the way in DSL adoption. "Work-at-home users as well as power users are quickly becoming frustrated with slow dial-up speeds," said Amy Harris, research analyst for IDC's Residential and Small Business Telecommunications Services program. Harris also notes that DSL growth will be affected by competing technologies, such as cable modems. Small business adoption of DSL is just getting under way. However, service providers face a dilemma here, since DSL may cut into revenues of other high-speed services, such as ISDN lines. These estimates may be found in IDC's recent report: Preparing for Liftoff: U.S. Residential DSL Market Assessment and Forecast, 1998—2003. For more information, www.idc.com. E-HEALTH: HOSPITALS LINKING TO THE WEB A recent survey by VHA, Inc., a national network of health organizations, shows Internet use is fast gaining ground in US hospitals. Currently, more than 80% of hospital staff and physicians are connected. Moreover, in the past year, online access by clinical and support staff members has more than doubled. Staff physicians showed the biggest gain rocketing from 28% to 82%. Among challenge to increasing internet accessibility identified by the survey are: security, cited by 69% of respondents, followed by cost (67%), management of employee's time (56%), and network infrastructure (56%). Other key points noted include: · 72% feel future IT applications should be web-enabled, 24% increase over last year · Respondents who see the web as not important dropped to 9%, from 21% in 1998 · 52% of web-enabled facilities host their own site compared to 48% that outsource · 50% of non-web-enabled facilities plan to develop a site within a year; 60% of them will be outsourced VHA interviewed 306 hospital and healthcare officers from 244 member organizations. For more story, see www.vha.com E-HEALTH: STUDY SHOWS INTERNET APPEAL FOR HEALTH INFORMATION For a growing number of Americans, the Internet is the primary marketing medium convincing them to ask their doctors for brand name prescriptions, according to research recently released by Cyber Dialogue. Since the vast majority of pharmaceutical direct-to-consumer (DTC) spending is devoted to television and print, the findings are likely to act as a wake-up call to pharmaceutical marketers because it suggests not only a unique opportunity to drive prescription sales, but also an opportunity to increase marketing ROI. In 1998, pharmaceutical companies spent less than one percent of their marketing dollars on the Internet, missing out on a clear chance to reach valuable customers. According to Cyber Dialogue's findings, of the 10 million Americans now searching for pharmaceutical information online, 3.4 million have asked for a prescription from their doctor. Of this number, 15 percent said they learned about a requested drug through the Internet, compared with nine percent through television ads and only five percent through print ads. "The low cost and high level of effectiveness of online DTC marketing signals a powerful, largely untapped opportunity for pharmaceutical companies," states Liz Melcher, executive vice president of Cyber Dialogue. "And with the number of e-health consumers increasing at twice the speed of the Internet population as a whole, that opportunity is growing quickly." Cyber Dialogue's Cybercitizen Health (CCH) findings also suggest that the Internet is an ideal, highly satisfactory means of communicating important health information to consumers - taking some of the risks out of online initiatives for healthcare providers. For Americans seeking pharmaceutical information online, CCH reports a much higher level of satisfaction with health-related information on the Internet than with information from television, magazines, or newspapers. Almost half (49 percent) of this group reports being very satisfied with the health information they gather online, versus 25 percent who are very satisfied with health information in magazines and newspapers and only 13 percent for television. "For pharmaceutical companies, the message is clear: if you're not marketing online, you're missing out on a large number of highly qualified leads," adds Melcher. "More so than any other advertising medium, the Internet is convincing consumers to 'ask their doctors' more loudly and clearly than ever before." Findings from Cybercitizen Health are based on in-depth interviews with more than 2,700 U.S. adults. The study was fielded in July 1999 and is accurate within +/- 1.9% at the 95% confidence interval. In addition to an overview of the online health market, CCH provides in-depth analysis of the following medical conditions: allergies, arthritis, asthma, depression, diabetes, high cholesterol, hypertension, pattern baldness, smoking, and weight management. DISCOUNT FOR ITAA MEMBERS TO COMNET 2000 -- WASHINGTON, D.C. & to eCustomer Intimacy West, San Diego ITAA members can receive valuable discounts to ComNet 2000 - an invaluable resource for new products, technologies, ideas and services. To receive free admission to the exposition and a 15% discount on all tutorials, seminars and classes, register on ComNet's Web Site by January 7, 2000, using this special discount code: CNUSAA For more information go to: WWW.COMNETEXPO.COM ; Tel: 781/551-9800 Fax: 781/440-0357. ITAA members are entitled to a 10% discounted registration to eCustomer Intimacy West, March 22-24, 2000, in San Diego. General Session featured speakers: -Martha Rogers, PhD, Partner, Peppers & Rogers -Jim Sterne, President, Target Marketing of Santa Barbara -Seth Godin, VP of Direct Marketing, Yahoo! -Jim Cecil, President, James P. Cecil Company, Inc. -Rich Bahn, DeNali Group, Inc. -Jim Dickie, Managing Partner, CSO Forum -Bob Chatham, Sr. Analyst-Business Applications Research, Forrester eCustomer Intimacy West Westin Horton Plaza San Diego, CA March 22-24, 2000 You'll hear, learn from, and share experiences during these BRAND NEW CASE STUDIES from these industry leaders! emailto:register@icdevents.com To ensure you receive the discount, be sure to REFER TO PRIORITY CODE: E2-T-ICD84 For more information, or to request our latest brochure: emailto:info@icdevent.com online: Visit http://www.icdevents.com