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May 1, 2001
Honorable Dennis Hastert Speaker United States House of Representatives H-232 The Capitol Washington, D.C. 20515
Dear Mr. Speaker: I am writing to request that you sequentially refer H.R. 1542, the "Internet Freedom and Broadband Deployment Act of 2001," to the Committee on the Judiciary for a sufficient time to plan and hold a hearing and a markup. I am authorized to state that Ranking Member Conyers strongly concurs in the views expressed in this letter.
Rule X(1)(k)(15) of the Rules of the House of Representatives provides that the Committee on the Judiciary has jurisdiction over the "[p]rotection of trade and commerce against unlawful restraints and monopolies." In addition, Rule X(1)(k)(2) of the Rules of the House of Representatives provides that the Committee on the Judiciary has jurisdiction over "[a]dministrative practice and procedure." Fundamentally, H.R. 1542 addresses a monopoly issue. It takes its place at the end of a long line of legislative efforts that confront the monopoly power of incumbent local exchange carriers in the telephone industry. For decades, such efforts have come under the jurisdiction of the Committee on the Judiciary.
This letter describes: the history of monopoly power in the telecommunications industry; the development of the Telecommunications Act of 1996 which opened the industry to local competition; the antitrust role the Justice Department and the Judiciary Committee have played in that process; and the negative antitrust impact H.R. 1542 would have by reversing the anti-monopoly provisions of the Act. In particular, the current state of the telecommunications industry -- the direct result of the AT&T antitrust case and consent decree -- includes § 271 of the Communications Act. Section 271 sets forth the framework to eliminate monopoly power in the local telephone market, and the Justice Department plays a critical role in that framework. H.R. 1542 eviscerates the Justice Department's role and eliminates the bargain reached in 1996 to allow local telephone monopolies to enter the long distance market after they open their local markets. There are several bases for Judiciary Committee jurisdiction over H.R. 1542, but in particular the undermining of § 271 alone suffices to place the bill within our purview.
What the Historical Precedent Is Until 1984, America had one dominant telephone company -- the American Telephone & Telegraph Company ("AT&T"). AT&T provided almost all local and long distance service throughout the United States, except that in some isolated areas independent phone companies provided local service. During the AT&T era, local service rates were kept artificially low, and the substantial differences in costs of providing local service in urban and rural areas were not reflected in local service rates. AT&T kept long distance rates, which were paid primarily by business, artificially high in order to subsidize low local rates. The policy, known as universal service, was that all Americans should have access to a telephone at an affordable rate regardless of the cost of providing the service. Because AT&T was one company, it was relatively easy to administer this system of subsidies.
As early as 1957, the Judiciary Committee held oversight hearings to examine the monopoly power that AT&T wielded because of its control of the local exchange and the Department of Justice's efforts to limit that power through antitrust enforcement. See The Consent Decree Program of the Department of Justice: Hearings Before the Subcommittee on Antitrust of the House Committee on the Judiciary, 85th Cong. (1957 and 1958); Report of the Antitrust Subcommittee on the Consent Decree Program of the Department of Justice, 86th Cong. (1959). These hearings specifically examined the process by which the Justice Department, in 1956, had entered into a consent decree with AT&T, under which AT&T agreed to cease anticompetitive activities in the context of its manufacture and sale of telephone equipment.
The Judiciary Committee's ongoing examination of the 1956 consent decree and other Department proceedings led, in 1974, to enactment of the Tunney Act, which strengthened and codified the process through which the Justice Department could enter into consent decrees in the antitrust context. Antitrust Procedures and Penalties Act, Pub. L. No. 93-528, 88 Stat. 1708 (1974). Also in 1974, the Antitrust Division of the Department of Justice sued AT&T for violating the antitrust laws in a number of ways -- most importantly, not allowing potential long distance competitors to connect to its local networks. Even as the case was going on, the Judiciary Committee began to consider the antitrust issues involved. Proposed Antitrust Settlement of United States v. AT&T: Hearings before the Subcommittee on Monopolies and Commercial Law of the House Committee on the Judiciary, 97th Cong. (1982); H.R. 6121, the "Telecommunications Act of 1980": Hearings before the Subcommittee on Monopolies and Commercial Law of the House Committee on the Judiciary, 96th Cong. (1980). The 1980 legislation was almost 150 pages long consisting of an extensive FCC regulatory scheme for the industry, and it was referred sequentially to the Committee on the Judiciary. The 1982 hearings were held jointly with the Committee on Energy and Commerce.
In 1982, the parties settled the lawsuit, and Judge Harold Greene of the United States District Court for the District of Columbia entered a consent decree known as the Modification of Final Judgment or MFJ. United States v. American Telephone & Telegraph Company, 552 F.Supp. 131 (D.D.C. 1982), aff'd, 460 U.S. 1001 (1983). This 1982 consent decree modified the consent decree entered in 1956 which the Judiciary Committee had studied in its 1957-58 hearings. In doing so, the court followed the Tunney Act procedures that the Judiciary Committee had written.
The MFJ created a new world. Beginning in 1984, it broke up AT&T into a new smaller AT&T, which was to provide long distance service in competition with other companies, and seven regional Bell operating companies ("RBOCs") - Ameritech, Bell Atlantic, BellSouth, Nynex, Pacific Telesis, Southwestern Bell (now known as SBC Communications), and US West. There was also one preexisting independent phone company, GTE Corporation, which was of a comparable size. These seven regional RBOCs and GTE were to provide local service where AT&T had previously been doing so. (Subsequent mergers have reduced these companies to four: SBC Communications, BellSouth, Verizon, and Qwest.)
At the time, the general consensus was that long distance service could be provided competitively, but that local service remained a natural monopoly. Based on that assumption, the MFJ prohibited the RBOCs from entering long distance service and other lines of business without prior court approval. The court's procedures under the MFJ required companies seeking that approval to negotiate with the Department of Justice before filing for the approval. As a practical matter, DOJ approval was required to get court approval.
In addition, policymakers wanted to maintain the universal service system. To do so, they required the long distance companies to pay "access charges" to the local companies for completing long distance calls. The local companies used these access charges to maintain low local rates in all geographical areas.
The impetus for the Telecommunications Act of 1996 arose from the application and effect of the MFJ. In the years following the MFJ, the long distance industry became highly competitive with the entrance of numerous companies offering consumers greater choice and lower prices. In contrast, the local exchange market remained under monopoly control. Because that monopoly control remained, the Judiciary Committee began in 1987 to conduct hearings on the impact of the MFJ and monopoly control of the local exchange. Competition in the Telecommunications Industry: Hearings Before the Subcommittee on Monopolies and Commercial Law of the House Committee on the Judiciary, 100th Cong. (1987); The AT&T Consent Decree: Hearings Before the Subcommittee on Economic and Commercial Law of the House Committee on the Judiciary, 101st Cong. (1989).
In the 102nd Congress, the Judiciary Committee continued to exercise its jurisdiction over the antitrust issues raised by monopoly control of the local exchange through the consideration of two bills -- the Telecommunications Equipment Research and Manufacturing Competition Act of 1991 (H.R. 1523) and the Telecommunications Equipment Research and Manufacturing Competition Act of 1991 (H.R. 1527). Both bills were jointly referred to the Committee on the Judiciary and the Committee on Energy and Commerce. Both consisted almost entirely of amendments to the Communications Act of 1934 directing the FCC to prescribe regulations to allow the RBOCs into manufacturing. Neither Committee took formal action on these measures.
The Committee on the Judiciary then held a series of oversight hearings on these issues. Competition Policy in the Telecommunications Industry: A Comprehensive Approach: Hearings Before the Subcommittee on Economic and Commercial Law of the House Committee on the Judiciary, 102nd Cong. (1991 and 1992). These hearings led to the introduction of H.R. 5096, the "Antitrust Reform Act of 1992," which was referred solely to the Judiciary Committee and which would have established a unified procedure and standard for the RBOCs to use in applying for authorization to engage in long distance and manufacturing. The Judiciary Committee reported H.R. 5096 favorably on August 12, 1992. H. Rep. No. 102-850 (1992). As reported by the Committee, H.R. 5096 contained an entry test requiring the Attorney General to determine whether an RBOC applying for long distance entry had proven that "there is no substantial possibility that [it] could use monopoly power to impede competition..." §§ 2(b)(2)(B)(i) & 2(c)(2)(A)(i) of H.R. 5096 as reported. On October 1, 1992, the House Committee on Rules held a hearing on H.R. 5096, but it was never scheduled for floor consideration.
The Committee continued its efforts during the 103rd Congress with the introduction and consideration of the "Antitrust and Communications Reform Act of 1994" (H.R. 3626), which was referred jointly to the House Committees on the Judiciary and Energy and Commerce. H.R. 3626 sought to modify the MFJ by permitting RBOCs to compete in new lines of business, including the provision of interchange telecommunications services. Importantly, H.R. 3626 contained language similar to the provision enacted in 1996 expressly establishing a role for the Department of Justice to consult with the FCC on matters effecting competition within the telecommunications industry. § 101(b) of H.R. 3626 as introduced. Under H.R. 3626, a RBOC seeking to enter the long distance market would apply jointly to the Department of Justice and the FCC. Applications would be approved only when the Attorney General found that "there is no substantial possibility that such company or its affiliates could use monopoly power to impede competition in the market such company seeks to enter," and the FCC found that granting the application is "consistent with the public interest, convenience and necessity." § 101(b)(3)(D)(i) & (ii) of H.R. 3626 as introduced. It also included extensive amendments to the Communications Act of 1934 to provide for FCC regulation of manufacturing, alarm monitoring, and electronic publishing.
The Judiciary Committee held three days of hearings on H.R. 3626. H.R. 3626, the "Antitrust and Communications Reform Act of 1993": Hearings Before the Subcommittee on Economic and Commercial Law of the House Committee on the Judiciary, 103rd Cong. (1994). On June 24, 1994, the Judiciary Committee favorably reported H.R. 3626. H. Rep. No. 103-559, Part II (1994). On the same day, the Energy and Commerce Committee also filed a report on the bill. H. Rep. No. 103-559, Part I (1994). A final agreed-upon substitute version passed the House on June 28, 1994 by a vote of 423-5. 140 Cong. Rec. H 5189-5216, 5246-47 (daily ed. June 28, 1994). The bill failed to become law, however, when a companion measure stalled in the Senate.
In the 104th Congress, the Judiciary Committee continued its review of the monopoly problems in the telecommunications industry with its consideration of the Antitrust Consent Decree Reform Act of 1995 (H.R. 1528) and the Communications Act of 1995 (H.R. 1555). The Speaker referred both measures jointly to the Judiciary and Commerce Committees. H.R. 1528 was primarily referred to the Judiciary Committee with a secondary referral to the Commerce Committee. H.R. 1555 was primarily referred to the Commerce Committee with a secondary referral to the Judiciary Committee. Again, this bill contained extensive amendments to the Communications Act of 1934 designed to address monopoly power in the local exchange. On May 9, 1995, the Judiciary Committee continued its long history of hearings on this topic. Telecommunications: the Role of the Department of Justice: Hearings before the Committee on the Judiciary, 104th Cong. (1995). On July 24, 1995, the Judiciary Committee reported H.R. 1528. H. Rep. No. 104-203, Part I (1995). On the same day, the Commerce Committee reported H.R. 1555, H. Rep. No. 104-204, Part I (1995). After modification resulting from extensive negotiations between the two Committees, the House considered and passed H.R. 1555. 141 Cong. Rec. H 8281-95, 8425-8501 (daily eds. August 3 and 4, 1995). In those negotiations, the Judiciary Committee successfully insisted that the Department of Justice have an integral role in the decision as to when RBOCs would be allowed to provide long distance service. This bill went to conference and ultimately emerged as the Telecommunications Act of 1996. Pub. L. No. 104-104.
More recently, in the 106th Congress, you referred legislation to modify existing antitrust law with respect to competition in the broadband market and to provide data relief to the RBOCs to both the Judiciary and Commerce Committees. The Internet Freedom Act (H.R. 1686), was referred primarily to the Judiciary Committee and secondarily to the Commerce Committee. The Internet Growth and Development Act of 1999 (H.R. 1685), was referred primarily to the Commerce Committee and secondarily to the Judiciary Committee. Both of these bills contained amendments to the Communications Act of 1934 that were similar in purpose to this year's H.R. 1542. Again, the Judiciary Committee held two days of hearings on these bills. H.R. 1686, the "Internet Freedom Act," and H.R. 1685, the "Internet Growth and Development Act of 1999": Hearings before the Committee on the Judiciary, 106th Cong. (1999 and 2000).
What the Telecommunications Act of 1996 Did The Telecommunications Act of 1996 arose from an antitrust consent decree. That consent decree, the MFJ, prevented the RBOCs from entering the long distance business because of their monopoly control over the local exchange. Congress structured the 1996 Act to offer the RBOCs a basic trade: the RBOCs were to open their local exchanges to competitors and, in return, they were to be allowed entry into the long distance market.
In particular, it added a new § 271 to the Communications Act to provide criteria and a process for scrutinizing RBOC efforts to open their local monopolies. 47 U.S.C. § 271. Given the Justice Department's unique expertise in competitive matters, Congress expressly provided within § 271 that the Department would review RBOC compliance with the market-opening provisions of the Act and that the Federal Communications Commission would give the Department's analysis substantial weight in making its decision with respect to an RBOC application to provide long distance service. 47 U.S.C. § 271(d)(2)(A). These provisions were included at the insistence of the Committee on the Judiciary. In providing this role for the Department, Congress sought to expand the Department's |