Yield Signs On The Info Interstate

Ask Vice-President Al Gore what happens to the U.S. if it doesn't reform its antique telecommunications laws, and he tells a story about the Titanic. More concerned with profit than safety, the ship switched off its wireless after sending the last messages for its passengers. So it didn't receive iceberg warnings that could have prevented the disaster. That led to tough new laws. Now, says Gore, government needs to step in to "not only save lives but utterly change and enrich them."

Gore--and just about everybody else in Washington and in the communications business--views U.S. telecom regulations as dangerously out of date. Cable and telephone companies are forming alliances and invading each other's turf. Long-distance carriers are trying to grab pieces of the local-phone monopolies. It's all part of a frenzied leap toward a nationwide Information Superhighway, a powerful electronic network capable of delivering vast amounts of data and entertainment to businesses and couch potatoes alike, as well as potentially life-saving remote medical diagnosis.

"The telecommunications world as we understood it is gone--shattered," says Jerry Berman, director of the Electronic Frontier Foundation, a Washington advocacy group. James G. Cullen, president of Bell Atlantic Corp., predicts "five years from now, we will not be able to remember which companies were telephone companies and which were cable companies, and, we hope, which were long-distance or wireless."

So there's broad-based support for a major rewrite of the nation's 60-year-old communications laws. Both Congress and the Administration are hard at work. Pending bills aim to break down outmoded barriers that separate local service from long-distance, telephones from cable TV, and programming owners from delivery systems. And on Jan. 11, Gore pledged in a speech to the Academy of Television Arts & Sciences in Los Angeles that the Administration would rapidly push through its own sweeping legislation. "This will be the biggest year in telecommunications in decades," says U.S. Representative Rick Boucher (D-Va.), a key player in the rewrite.

THORNY ISSUES. It could also turn out to be the most contentious--although you would never guess from appearances. Publicly, business interests that had fought bitterly over telecom regulations for decades have lined up together. "Traditional bones of contention aren't being chewed on anymore," says Federal Communications Commission Chairman Reed E. Hundt. To smooth the path to the digital future, local and long-distance carriers and cable companies all agree to support the general principles spelled out in the forthcoming legislation: that the Information Superhighway should continue to be built by private industry with a minimum of government intervention; that existing regulatory restrictions on phone companies be lifted; and that new regulatory policies ensure open access to the data highway--making sure that the new digital networks don't bypass poor and rural America.

But once you get past the generalities and ponder the particulars, you see how thorny the issues remain. In the end, everybody will have to give a little. The local phone companies, for example, agreed to open their networks in exchange for the right to sell now-prohibited services such as entertainment. Cable operators will open theirs in return for the chance to compete in the phone business. And both groups grudgingly agree with public-interest organizations that everyone must have access to the digital cornucopia (table). Education is another hot issue. On the eve of Gore's speech, Bell Atlantic and Tele-Communications Inc. (TCI) announced that they will pay to wire 26,000 schools.

The bills now before Congress would allow local phone companies to manufacture equipment, provide long-distance services, offer TV programming, and compete with each other. Cable companies would be allowed to offer local and long-distance phone service. The key remaining restriction: barring local phone companies from buying cable operators within their regions, "to ensure that no single giant entity controls access to homes and offices," says Gore.

Even at the Jan. 11 Los Angeles confab, a veritable love-in attended by luminaries including Barry Diller and Michael R. Milken (now an investor in interactive education), the tensions were not far from the surface. Indeed, even comedian Lily Tomlin's onstage appearance with Gore had an edge. Got up as Ernestine the operator, she asked if the new networks will be for everyone or just the "elite." Cable executives were openly leery of even the restrained government role Gore outlined. Said Time Warner Inc. Chairman Gerald A. Levin: "What I worry about is the unintended consequences of this type of legislation." Adds John C. Malone, chairman of TCI: "The government should be mainly a cheerleader."

However, Washington's role will certainly go beyond waving pom-poms. It will have to. Take the concept of open access. Basically, it means that each company's network must be open and accessible in order to create true competition. Anyone who wants to provide a service, such as customized stock listings, over anyone else's highway "should be able to do it just by paying a fair and equitable price to the network provider," says Gore. In addition, Washington wants networks to be linked in such a way that information can flow seamlessly from one to another, creating a true national highway rather than a jumble of private roads. That means mutually compatible equipment and software at the interchanges.

PREDATORS? The Administration's stance is to leave the details for the FCC and local regulators to work out later. That has some players wary. Cable companies have built their industry on proprietary technology and have no history of either allowing third-party equipment to hook up to their systems or carrying everybody's programming. In a Jan. 6 speech, American Telephone & Telegraph Co. Executive Vice-President Robert M. Kavner likened cable companies to voracious beasts, eager to take advantage of those who offer services on their network. Kavner fears that the cable companies won't open their networks to new AT&T hardware or services.

Another issue that may require more than broad brush strokes from Washington is guaranteeing universal service to prevent creating a class of information have-nots among both the inner-city poor and rural residents. "We have to make sure we don't Balkanize the country," says House telecommunications and finance subcommittee Chairman Edward J. Markey (D-Mass.), co-sponsor of one of the bills in the House.

Everyone favors universal access. But exactly what is it in the multimedia age, and who pays for it? These questions were easy in the good old days. Regulators required long-distance and business customers to subsidize money-losing service to rural and poor customers. But rate subsidies won't work if local calling is opened to competition. New players would skim off the profitable customers. "The objective would be to ensure that companies are not allowed to cherry-pick the system and then leave the telcos with the carcass," says Markey.

LIBRARY DUES. Congress and the Administration plan to avoid leaving road-kill on the Information Superhighway through a new scheme of subsidies and a new definition of basic service. The proposed legislation requires that every home and business get a digital line. That way, explains Boucher, "all services will be available in the homes that want them"--or more precisely, to those who can afford to pay for them. But what about socially beneficial services, such as electronic access to libraries, that many people won't be able to afford? The legislation would require each service provider to pay a portion of its revenues into a pool, administered by an FCC-headed federal-state board. The money would subsidize those who can't afford to pay the full cost of whatever is defined as an essential service.

The concept has widespread support from industry. "The private sector is willing to work with the government on this," says Suzanne Tichenor, vice-president of the industry-backed Council on Competitiveness. "We recognize we have a social responsibility." But nobody has yet addressed a more fundamental question: Who will pay the cost--perhaps $1,500 per home--to extend the high-speed network to such customers? And what, precisely, will comprise basic service in 2000? "What should be included?" asks Columbia University telecommunications expert Eli M. Noam. "Cellular phones for the poor? Nobody would go for that."

Some industry executives are already concerned about the subsidies. "The government can go too far in insisting on too large a tax to fund access for everyone," says Edward R. McCracken, CEO of Silicon Graphics Inc. Asks AT&T CEO Robert E. Allen: "Why should AT&T long-distance customers be paying for some support for people who otherwise couldn't afford local service?" Allen raises another concern: "Who's going to play God as to who's going to be entitled to universal service and at what price?"

When it comes to crucial particulars like these, the Clinton Administration "has not delivered yet," says Noam. "I'm waiting for them to move beyond generalities." The FCC's Hundt, for instance, declines to specify exactly when and how local phone companies will be allowed to go into long distance. In part, this vagueness is intentional. "Any legislation must have the flexibility to deal with changing technology and market structure," explains a key White House telecom official. Another concern: Writing overly specific rules could touch off a treasure hunt for loopholes. That happened with the 1993 cable reregulation bill. Cable companies obeyed the letter of the law, but flouted its spirit, which was to hold down price increases.

The lack of specifics in the new regulations has both advocacy groups and companies agitating behind the scenes. Consumer groups fear that equating universal access with a digital line into every home misses the point. Nearly every existing phone wire can carry digital signals; what counts is whether the line can support true interactive video, and what services it brings in. Unless everyone gets high-capacity links, frets the EFF's Berman, "we could end up with islands of digital nirvana instead of a national highway."

Worse, these islands might be connected only by one-way bridges. "It's hard to have a true information market when you have a big highway to homes and offices and little roads coming back," says Michael L. Dertouzos, director of Massachusetts Institute of Technology's Laboratory for Computer Science. Such limited-capacity return lines could prevent individuals or small companies from marketing services on the networks. Unless that changes, only the big programmers will get access.

Companies have another set of worries. Timing, for one. H. Laird Walker,

U S West Inc.'s vice-president for federal relations, wants barriers to come down "yesterday," he says, so that U S West can start competing with cable and long-distance operators. Those companies want to wait. John R. Alchin, senior vice-president of cable operator Comcast Corp., argues that phone companies should be kept out of cable in their local area until cable companies win a substantial share of the phone market. AT&T's Allen argues for delaying the Baby Bells' entry into long distance until there's true local competition.

At this point, the Clintonites are being careful to accommodate all views. On Jan. 6, for instance, Commerce Secretary Ronald H. Brown announced the formation of a 27-member advisory council made up of such industry and media bigwigs as MCI Communications Corp. Chairman Bert C. Roberts Jr. and Robert L. Johnson, head of Black Entertainment Television Holdings Inc.

They'll have to work fast, though. Because of the flurry of activity in the industry, including pending megamergers, "it's now or never for legislation," says the EFF's Berman. The House has put the issue on the fast track, with enactment targeted by midyear, before health-care reform dominates the congressional agenda. "I think the bills will be on the President's desk by summer," says Boucher.

A swift overhaul of the 1934 Communications Act would be a momentous achievement. But both the opportunity and the risks are great. That's why Washington must work closely with industry on critical details--while still insisting that broad principles of competition, universal service, and open networks be uncompromised. What lawmakers do will have a profound effect not only on the shape of the highway but on how effectively the U.S. economy uses technology in the new century.

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