May 2, 1995 CONGRESSIONAL RECORD— SENATE S5961 

Mr. GORTON. Madam President, I 

wish to repeat once more that I understand there are additional amendments 

to be proposed by the Senator from 

Tennessee [Mr. THOMPSON], the Senator 

from Arizona [Mr. KYL], the Senator 

from Utah [Mr. HATCH], the majority 

leader, the Senator from Kansas [Mr. 

DOLE], and the Senator from Alabama 

[Mr. SHELBY], from this side of the 

aisle and perhaps additional amendments on punitive damages on the 

other side of the aisle. We have no 

unanimous consent on the subject yet. 

I hope that Members who want to 

speak to the subject of punitive damages and introduce amendments on the 

subject of punitive damages will do so 

as promptly as is convenient to them. 

I suggest the absence of a quorum. 

The PRESIDING OFFICER. The 

clerk will call the roll. 

The bill clerk proceeded to call the 

roll. 

Mr. BYRD. Mr. President, I ask unanimous consent that the order for the 

quorum call be rescinded. 

The PRESIDING OFFICER. Without 

objection, it is so ordered. 

f 

AUTOMOTIVE TRADE WITH JAPAN 

Mr. BYRD. Madam President, America’s trading relationship with Japan is 

now reaching a historic, serious phase 

in what has been a long history of innumerable initiatives and negotiations 

to gain access for American products 

into her market. Strong action will 

very likely need to be taken by the administration, and the support of the 

Senate and American industry will be 

important. 

The United States and Japan are 

nearing the end of over a year and a 

half of negotiations on automotive 

trade, aimed at reducing our $66 billion 

trade imbalance with Japan by opening 

major elements of her closed domestic 

market to our products. The issue, access to Japan’s automobile market, including to her dealerships for American 

cars, and to the lucrative auto parts 

market, is reaching a critical juncture. 

The issue this time involves, once 

again, more than the securing of commitments by the Japanese in a written 

agreement to try to do something to 

open her market. It goes to the heart 

of America’s strategy on how to gain 

the actual results of opening the Japanese market. 

The question is whether we, including both the executive branch and the 

Congress, along with American industry are all prepared to stick to our 

guns and take action against Japanese 

imports if the auto market in Japan remains essentially closed to our cars 

and our spare parts. Specifically, are 

we willing to take retaliatory action 

and impose trade sanctions on her 

products, under section 301 of the 1974 

Trade Act? I say to my colleagues that 

now is the time to change the paradigm in our trading relations with 

Japan. If we are not prepared to take 

retaliatory actions under the law, in a 

situation which is about as perfectly 

suited as is possible to the intent of the 

law as it was written, then we may be 

looking at a continuation of these deficits in perpetuity. 

Madam President, if anyone doubts 

the persistence of unfair barriers in 

Japan to her marketplace, then they 

ought to take a look at the 1995 National Trade Estimate Report on Foreign Trade Barriers, which provides an 

annual inventory of the most important foreign barriers affecting U.S. export of goods and services, foreign direct investment, and protection of intellectual property rights. The latest 

report dedicates some 44 pages of material to the subject on Japan alone, far 

more than to any other country, far 

more than to the second place, the European Union, most of the important 

countries of Western Europe combined, 

which takes up 28 pages, and double 

that of China, with which country we 

run our second largest annual trade 

deficit—44 pages, much of it dedicated 

to the automobile trade. 

How important is the auto trade for 

America’s current account balance and 

for the American economy? The answer 

is: as important as any single sector 

can be. America’s trade deficit with 

Japan in 1994 reached another record 

high, at $65.7 billion, up 10 percent 

from 1993, when it totaled $59.3 billion. 

Of that amount, the bilateral automotive trade deficit accounted for 

about $37 billion, or 56 percent of the 

total, so most of our deficit with Japan 

can be attributed to cars and to auto 

parts. More than that, the auto trade 

deficit with Japan constituted some 22 

percent of our entire trade deficit with 

the world. The policy announced by our 

Trade Representative, Ambassador 

Kantor—according to his testimony before the Finance Committee on April 4, 

1995—is that this deficit is the result of 

unfair Japanese practices, that it is unacceptable, that he will use every tool 

at his disposal to correct it, and that, 

in general, he will use a practical, market-based, results oriented approach to 

dealing with these non-market barriers. I strongly support this approach, 

and I believe that the Senate as a 

whole does as well. 

As far as the impact on the American 

economy is concerned, a strong auto 

sector is crucial. Two million, two hundred thousand people in the United 

States are employed in the parts industry alone—such vital industries as aluminum, steel, glass, rubber, electronics, semiconductors, machine 

tools, and many others. This is on top 

of the some 700,000 people employed by 

the Big Three auto manufacturers 

themselves, the Nation’s largest manufacturing industry. Sales of cars and 

trucks constitute some 4.4 percent of 

our gross domestic product. 

Negotiations with Japan have 

reached a crucial stage regarding the 

auto industry’s attempts to deregulate 

the Japanese auto parts market. Negotiations on access to the Japan auto 

business began as a result of the agreement reached by this administration 

with the Government of Japan in July 

of 1993, the so-called Framework for a 

New Economic Partnership. This 

framework established a general set of 

results to be used in specific negotiations, and refocused the criteria for 

progress away from the process of removing trade barriers to actual results 

in the way of real economic progress in 

market penetration. After 18 months of 

negotiations on automobile negotiations—including access to the motor 

vehicle market by breaking into Japan’s dealerships, the purchase of original parts by Japan’s automakers from 

United States suppliers, and the regulation of the auto parts aftermarket, 

which is repair parts—Ambassador 

Kantor has concluded that ‘‘there has 

been virtually no progress.’’ One result 

has been the initiation by the Trade 

Representative, on October 1, 1994, of a 

section 301 investigation of Japan’s replacement auto parts market, which is 

virtually closed. 

The difference between the United 

States and Japanese markets in this 

area could not be more dramatic and 

more symbolic of our troubled trade relationship: A Department of Commerce 

study in 1991 estimated that Japanese 

vehicle manufacturers controlled about 

80 percent of the parts market, while in 

the United States the situation is the 

reverse, and independent replacement 

parts producers account for 80 percent 

of the market. So, while the United 

States market is wide open, the Japanese market is closed. To make the situation more unfair to us, the Japanese 

closed market allows their manufacturers to run the prices up on their own 

consumers for repair parts. Another 

U.S. Government survey has concluded 

that their aftermarket repair parts 

cost, on average, some 340 percent 

higher than comparable parts in the 

United Sates. 

This tremendous windfall of billions 

of dollars in extra profits helps subsidize the Japanese car industry, so 

that it can compete more effectively in 

the international market, subsidizing 

lower costs for Japanese cars here in 

the United States, Europe, and elsewhere. Therefore, it’s a triple whammy: Our parts manufacturers cannot 

sell effectively in the Japanese market; 

Japanese consumers get gouged; and 

the whole thing results in cheaper, 

more competitive Japanese cars worldwide. 

The ‘‘Karetsu’’ system of interlocking and cozy exclusive relationships among suppliers, manufacturers, 

and dealers serves as an effective 

blocking action against market penetration, and I am advised that the powerful Japanese Government bureaucracy serves to abet this exclusivity in 

supporting a regulatory framework not 

conductive to easy access. Japan’s 

competition law, known as the 

Antimonopoly Act, which prohibits unfair trade practices has, according to 

the 1995 Foreign Trade Barriers report, 

a ‘‘weak and ineffective’’ enforcement 

history. The 

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S5962 CONGRESSIONAL RECORD— SENATE May 2, 1995 

Japan Fair Trade Commission, which is 

supposed to implement that law, has 

‘‘not shown any serious inclination to 

use its enforcement powers to eliminate the anticompetitive practices in 

sectoral markets that are excluding 

foreign goods and services from the 

Japanese market.’’ This is a system totally incompatible with the principles 

of free international trade. 

As to new American cars, it is nearly 

impossible for Japanese businessmen 

who operate dealerships and showrooms to agree to sell American cars. I 

understand that many of these dealers 

would like to do so, but they fear retribution from Japanese car manufacturers and are warned against taking 

American business. Hence, the marketplace for new American cars in Japan 

remains extremely narrow and difficult 

to penetrate. What are the results? 

While Japanese automakers hold some 

22.5 percent of the American market, 

the share of the Japanese market held 

by the Big Three United States automakers is less than 1 percent. 

The Japanese economy is, in many 

ways, a sanctuary market, closed to 

the world, but depending to a large extent on robust exports. Trade agreements are, more often than not, written agreements which are frustrated by 

a maze of business practices, Government regulations, and other hurdles for 

importers to jump. The problem is that 

other nations, particularly in Asia, are 

engaging in the same practices, and if 

the Japanese market is not pried open, 

these trade imbalances will be mirrored elsewhere, as they are today with 

China. We see the same kind of practices in Korea. 

Therefore, the stakes in fair trade 

with Japan have worldwide ramifications and affect the very future of 

American participation in a trading 

system which enjoys access to a wide 

open American market. We need to demand reciprocity, which would allow 

our products to compete freely. If our 

products fail to attract buyers because 

they fall short on the merits, fine, then 

that is our fault. But this is not what 

is driving the large deficits with Japan, 

and our industries and economy will 

suffer as they are suffering, and as they 

have suffered. 

I was very pleased to see the dramatic accord that was achieved by our 

Trade Representative with China on 

the matter of intellectual property 

rights, and I would note that it was 

achieved only at the 11th hour and with 

the certainty of definite retaliation by 

the United States, absent achieving an 

accord. Given the history of trade practices with the Japanese, I fear that 

only a believable threat, or actual retaliation, may be sufficient to get equitable results in the Japanese auto market. 

In the new world that is emerging 

after the collapse of the Soviet Empire, 

it is important to see the overall 

United States-Japanese relationship as 

one of give-and-take across the board. 

The United States still maintains 

armed forces in Japan and that relationship has been excellent, with Japan 

providing needed host-nation financial 

support. It is an excellent burden-sharing arrangement. While our security 

relationship has been in balance, and a 

close relationship remains intact, the 

trading situation has generated 

unneeded frictions. 

Today, American national security 

and economic security go together, 

hand-in-hand. Japan has a deep-vested 

interest in the health of the American 

economy, and economy increasingly 

dependent on trade. Eleven million 

Americans are now employed in exportindustry jobs, a doubling of the number 

from just 10 years ago. It will be more 

and more difficult to maintain robust 

deployed forces in the Pacific, as we 

should, without a strong American 

economy. 

Persistent massive trade deficits 

with Japan and other Asian nations 

runs counter to this, and they erode 

our ability to sustain the kind of a Pacific rim presence that both we and our 

allies in the Pacific, particularly 

Japan, believe is in our overall interest 

of stability and peace. And so it is important for the Japanese Government 

to make every effort to ensure that our 

trade relationship enjoys the same 

healthy substance of a two-way street. 

The deficit in the United States-Japanese automotive parts trade reached a 

record $12.8 billion in 1994, deteriorating 15 percent from 1993, at the very 

time that negotiations were ongoing on 

this matter. The Japanese sold a record 

$14.3 billion in auto parts in the United 

States, compared to a meager $1.5 billion in United States auto parts which 

managed to squeeze into the Japanese 

market. It is a major element in our 

deficit picture, and something has to 

give. 

It is precisely in this situation that 

the 301 law is available to the Trade 

Representative, and I certainly expect 

that he will probably have to use it and 

he should have no compunction against 

using it. This means that when the section 301 investigation of unfair practices in the auto parts market is concluded—at the latest by October 1, 

1995—if the current stalemate continues, the United States should not 

hesitate to retaliate. According to a 

New York Times article of April 13, 

1995, an administration ‘‘task force has 

already been established to draw up a 

list of Japanese products that would be 

subject to 100-percent tariffs unless 

Japan takes what one senior official 

today called ‘enormous leaps’ during 

meetings scheduled over the next several weeks.’’ These officials indicated 

such a list would be announced this 

month. I note that the next round of 

negotiations with the Japanese is 

scheduled to take place this week, on 

tomorrow, Wednesday, May 3, 1995, and 

I hope that our negotiator there, Ambassador-designate Ira Shapiro, will 

tell the Japanese that stonewalling 

will result in retaliatory action, with 

strong Senate action, if needed, to follow up on the retaliatory measures 

that might be announced by the administration. 

I point out, Madam President, that 

there is extensive support across the 

board in American industry for the 

strong action that might be required 

against Japanese products in the event 

that the results sought by the administration are not obtained. I include in 

the RECORD a list of 27 major United 

States companies and associations that 

deal with Japan which support our negotiations on this matter. It includes 

the Business Roundtable, the major 

auto companies, and associations representing those manufacturers who 

have a stake in the health of the auto 

and auto parts industries, such as 

glass, iron and steel, and electronics. It 

includes the major labor organizations, 

including the United Auto Workers and 

the AFL–CIO. There is obviously very 

broad consensus across American business and labor organizations that the 

time for action is past; so we have only 

now left to us. 

It is clear that, while there may be 

every good intention on the part of 

Japanese policymakers and other sectors of Japanese society and business 

to open the Japanese market to American automobiles and products, what 

really counts in the long run are results, and actions to do so. Performance, not promises, is only what we are 

seeking, and one must be prepared to 

take strong action to encourage such 

performance. 

Madam President, automobiles and 

parts have been the central problem in 

Japan’s trading relations with the rest 

of the world for many years. If we can 

solve the problem, and break the 

‘‘keiretsu’’ psychology and practices 

which close Japan’s markets, a new era 

between our two nations will emerge. If 

we fail, our relationship will continue 

to deteriorate. 

Mr. President, I ask unanimous consent that a group of supporting documents be printed in the RECORD. 

There being no objection, the material was ordered to be printed in the 

RECORD, as follows: 

ORGANIZATIONS SUPPORTING UNITED STATESJAPAN AUTO AND AUTO PARTS TRADE NEGOTIATIONS

Aluminum Association. 

American Automobile Manufacturers Association. 

American Electronics Association. 

American Federation of Labor Congress of 

Industrial Organizations. 

American Forest and Paper Association. 

American Iron and Steel Institute. 

American Textile Manufacturers Association. 

Association of Manufacturing Technology. 

Automotive Parts and Accessories Association. 

Business Roundtable. 

Chrysler Corporation. 

Copper and Brass Fabricators Association. 

Ford Motor Company. 

General Motors. 

Guardian Industries. 

International Insurance Council. 

Joint Automotive Supplier Government 

Action Council. 

Motion Picture Association. 

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May 2, 1995 CONGRESSIONAL RECORD— SENATE S5963 

Motor Equipment Manufacturers Association. 

National Association of Manufacturers. 

National Glass Association. 

Pharmaceutical Research and Manufacturers Association. 

Semiconductor Industry Association. 

Specialty Equipment Market Association. 

United Auto Workers. 

United States Business and Industrial 

Council. 

US-Japan Business Council. 

NATIONAL CONSUMERS LEAGUE, 

Washington, DC, April 25, 1995. 

The PRESIDENT, 

The White House, Washington, DC. 

DEAR MR. PRESIDENT: On behalf of the National Consumers League, I want to express 

our support for the Administration’s position in the Framework negotiations with 

Japan and our interest in opening the Japanese market to competitive American automotive products. The vehicles and parts 

made in this country meet a wide variety of 

safety and environmental standards. The 

production facilities in which they are made 

meet standards for their operation as well. 

The workers in these plants benefit from 

protective health and safety laws and many 

have won further protection through union 

representation. All of these conditions contribute to beneficial results for Americans 

who are consumers of the products made by 

the industry and consumers of its environmental impacts. 

The companies that meet these conditions 

should be able to supply markets abroad on 

the same terms as foreign companies find in 

this market. All foreign producers of vehicles and auto parts have unrestricted access 

to the U.S. market. We understand that the 

Clinton Administration is seeking just such 

access to the Japanese market for U.S. automotive products and we fully support that 

objective. 

American industries that contribute to the 

social and economic well-being of the nation, 

as does the automotive industry by meeting 

a variety of legal and regulatory standards 

and affording workers a voice in their work 

lives, deserve the support of the U.S. government in gaining the ability to sell their 

products internationally. American consumers and Japanese consumers would benefit from the elimination of Japanese barriers to access to that market for the quality 

products made by American workers. 

Sincerely, 

LINDA GOLODNER, 

President. 

CATERPILLAR, INC., 

April 7, 1995. 

The PRESIDENT, 

The White House, Washington, DC. 

DEAR PRESIDENT CLINTON: I’m writing as 

Chairman of the U.S.-Japan Business Council 

which represents the interests of leading 

U.S. manufacturing and service firms. The 

purpose of my letter is to commend your Administration for the aggressive leadership 

it’s providing on behalf of U.S. automobile 

and auto parts producers as they attempt to 

compete in the Japanese marketplace. 

As your trade negotiators have recognized, 

the fundamental problem in the U.S.-Japan 

economic relationship is that Japan’s markets in a host of industrial and service sectors remain more restrictive than those in 

the United States and other major economies. It’s equally clear that the U.S. trade 

deficit with Japan will persist—despite sharp 

appreciations of the yen and a sizable reduction in the U.S. budget deficit—until Japan 

reforms its regulatory and market entry 

practices. 

Your Administration has managed to negotiate several results-oriented trade agreements with Japan in such areas as government procurement of medical and telecommunications equipment, insurance, flat 

glass, and financial services under the U.S.- 

Japan Framework Agreement. The members 

of the U.S.-Japan Business Council, many of 

whom will benefit once these agreements are 

implemented, commend your trade team for 

this achievement. 

But the fact that no agreement has been 

reached in one of the most important sectors 

of our trading relationship with Japan—

autos and auto parts—is troublesome . . . especially given the broad range of industries 

and jobs involved in the automotive sector 

. . . electronics, semiconductors, steel, 

chemicals, and machine tools. 

Although U.S. auto and auto parts companies are now competitive and committed to 

the Japanese market, they and other foreign 

producers continue to be denied full and 

comparable access to the Japanese automobile distribution system, as well as markets for original equipment and replacement 

parts. 

Meanwhile, the bilateral trade imbalance 

in motor vehicles and parts, which typically 

accounts for some 60 percent of the U.S. 

trade deficit with Japan, hit a record high of 

$36.7 billion in 1994. Forecasts suggest even 

greater deficits in this sector in 1995. 

On behalf of the U.S.-Japan Business Council, I urge your Administration to continue 

working toward a comprehensive agreement 

that will result in increased access and sales 

opportunities for U.S. automobile manufacturers and parts producers in the original 

equipment and replacement parts markets in 

Japan and the United States. 

Sincerely, 

DONALD V. FITES. 

STATEMENT OF THE NATIONAL ASSOCIATION OF

MANUFACTURERS ON THE UNITED STATESJAPAN AUTO NEGOTIATIONS

The NAM’s membership has a clear and 

substantial interest in a U.S.-Japan relationship characterized by a two-way free flow of 

goods, services and investment. The NAM 

thus supports the ‘‘framework for a new economic partnership’’ between Japan and the 

United States. As part of this framework, it 

is appropriate that Japan has committed to 

implement policies ‘‘intended to achieve a 

highly significant reduction’’ in its persistent and large trade surplus with the 

United States. The framework addresses 

both structural imbalances between the U.S. 

and Japanese economies as well as those sectors of the Japanese economy where market 

forces have, in the past, clearly not been allowed to operate freely. 

The NAM recognizes the importance of 

successfully resolving the current bilateral 

automotive negotiations by ensuring significant and sustained market access and sales 

opportunities for foreign vehicles and parts 

in the Japanese market. The NAM thus supports the efforts of the U.S. and the Japanese 

Governments to reach speedy agreement to 

achieve such access. 

The NAM also urges the U.S. Government 

to reassert that the full implementation of 

all previously negotiated agreements with 

Japan in other sectors remains a priority objective. 

THE BUSINESS ROUNDTABLE, 

Washington, DC, April 13, 1995. 

Hon. MICHAEL KANTOR, 

Office of the U.S. Trade Representative, Washington, DC. 

DEAR AMBASSADOR KANTOR. As you know, 

The Business Roundtable has long been a 

major supporter of the efforts of the U.S. 

government to open foreign markets to 

international trade and investment. In this 

connection, U.S./Japan trade policy developments have been of particular concern to us. 

The difficulties that U.S. business has had 

in expanding its sales and investments in 

Japan have been a continuing frustration. 

While progress has been achieved in some 

sectors, such as semiconductors, other areas 

have seen insufficient improvements. 

In particular, the automotive sector has 

experienced significant difficulty penetrating the Japan market, and the trade imbalance in this sector alone represents nearly 60% of the total trade deficit between the 

U.S. and Japan. The Roundtable believes 

that a successful auto negotiation with the 

Japanese will have ramifications beyond 

Japan and could help to facilitate further 

market opening initiatives in other Asian 

countries. 

The purpose of this letter is not to provide 

you with the specifics of the auto sector 

trade problem faced by U.S. exporters; the 

U.S. auto and auto parts industries can do 

this far more effectively than we can. Rather, it is to underscore the importance of negotiations in this sector. We are also not the 

ones to advise you on the precise shape of a 

successful agreement on auto sector trade 

with Japan. That said, we believe that fundamental to any successful negotiation is the 

need for agreements to include a basis on 

which the results can be evaluated. Without 

an acceptable basis to gauge the impact of 

an auto sector trade agreement, there will be 

a significant risk that subsequent activities/ 

discussions to any agreement will devolve 

into continuous argument regarding implementation process rather than achieving actual results. 

We know that the auto sector negotiations 

with Japan have been, and will continue to 

be, difficult. For this reason, we think that 

it is important for you to know that The 

Business Roundtable fully supports the pursuit of U.S. rights under the rules of the 

World Trade Organization, aggressive use of 

U.S. trade laws and whatever other action 

may be necessary to achieve meaningful access to the Japanese market in this critical 

sector. 

In closing, thank you for your tireless efforts to open foreign markets to U.S. exports, and we encourage your continued resolve in these negotiations. 

Sincerely, 

JERRY R. JUNKINS, 

Chairman, President & CEO, Texas Instruments, Chairman, The Business 

Roundtable International Trade and 

Investment Task Force. 

AMERICAN FEDERATION OF LABOR

AND CONGRESS OF INDUSTRIAL ORGANIZATIONS

Washington, DC, April 18, 1995. 

Hon. MICKEY KANTOR, 

U.S. Trade Representatives, Washington, DC. 

DEAR AMBASSADOR KANTOR: I am writing to 

urge the Administration to continue its efforts to reach a results-oriented agreement 

with Japan on autos and auto parts. The discrimination and inequity present in the existing trading relationship can no longer be 

papered over. 

American workers in a wide range of industries and occupations would benefit from the 

reduction of the U.S. deficit in automotive 

trade with Japan and the elimination of discriminatory practices by Japanese companies directed at U.S. firms. Union members 

in the rubber, glass, steel, aluminum, textile, 

machine tool, chemical, electrical, electronics and other industries would directly 

benefit from increased access to the Japanese auto market for competitive American 

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S5964 CONGRESSIONAL RECORD— SENATE May 2, 1995 

products. Unionized workers in other industries, including entertainment, telecommunications, construction, aerospace, 

paper and even-more, would gain additional 

jobs if the Japanese market were truly open 

and discrimination against U.S. producers 

was ended. 

The AFL–CIO believes that international 

trade can benefit American workers, but 

that trade must be fair and equitable. That 

is not the case with U.S. auto trade with 

Japan today. During the past nine years, the 

U.S. deficit in auto trades with Japan nearly 

hit $300 billion. If that deficit could be reduced substantially, the Clinton Administration’s effort to establish equity in that trading relationship through the Framework negotiations could lead to the creation of many 

thousands of American jobs. We will judge 

the success of the Framework’s auto talks 

by their impact on the jobs of American 

workers, not by the quantity of words in any 

agreement. Under a good agreement, we expect the U.S. automotive trade deficit with 

Japan to decline rapidly. 

The commitment of the Clinton Administration to ‘‘result-oriented’’ negotiations 

must be fulfilled either through effective, 

verifiable agreements or reciprocal treatment of U.S. imports from Japan. If an acceptable agreement cannot be reached in the 

next few months, the U.S. must impose sanctions on imports from Japan that are commensurate with the damage to American 

workers caused by Japan’s barriers to U.S. 

products. It is time to demonstrate the Administration’s commitment to settling this 

long-running trade disaster. 

Sincerely, 

LANE KIRKLAND, 

President. 

ALUMINUM INDUSTRY SUPPORTS U.S.-JAPAN

NEGOTIATIONS

THE ALUMINUM ASSOCIATION STRONGLY

SUPPORTS MARKET ACCESS WITH JAPAN

WASHINGTON, D.C., April 13, 1995.—The Aluminum Association announced today its 

strong support for a swift and positive conclusion to the U.S.-Japan automotive trade 

negotiations. The aluminum industry, longtime advocates of free trade, urged the removal of barriers and the opening of Japan’s 

parts and vehicle market to foreign cars and 

parts. 

U.S. aluminum companies are historic 

free-traders. They produce 19 billion pounds 

of metal each year, making them the world’s 

largest aluminum industry. The U.S. aluminum market is the world’s largest, most 

sophisticated and most open, yet major barriers to market access in Japan remain. The 

aluminum industry strongly supports the 

U.S. Government’s efforts to remedy this 

persistent problem. 

The auto and auto parts industry and its 

unhindered access to Japanese markets and 

manufacturers is extremely important to our 

industry. In 1993, the aluminum industry 

shipped about 4.2 billion pounds of aluminum 

to the transportation market. This makes it 

the industry’s second largest market. 

Aluminum Association President David N. 

Parker, called for an effective, results-oriented agreement on the negotiations and remarked that the ‘‘talks mirror our industry’s long time efforts to achieve open markets for aluminum.’’

Aluminum represents over 200 pounds of an 

average vehicle, a growth of over 55 percent 

in the last decade. Aluminum plays a significant role in lightweighting both domestic 

and foreign vehicles. Industry experts expect 

its percentage of the average car to increase 

rapidly as demand for fuel efficient vehicles 

which retain size, safety, and environmental 

friendliness grows. Select cars have already 

shown that as much as 500–1,000 pounds of 

aluminum can be used successfully to 

achieve high performance or fuel efficiency. 

The Aluminum Association represents primary and secondary producers of aluminum, 

as well as semi-fabricated products. Member 

companies operate approximately 300 plants 

in 40 states. 

AISI ISSUES POLICY STATEMENT ON UNITED

STATES-JAPAN AUTO TALKS: STEEL GIVES

STRONG SUPPORT TO GOAL OF TIMELY AND

MEANINGFUL MARKET ACCESS IN JAPAN

WASHINGTON, D.C.—The American Iron and 

Steel Institute (AISI) today issued the following policy statement in strong support of 

U.S. government efforts to achieve a prompt, 

‘‘results-oriented’’ resolution of the U.S.- 

Japan bilateral automotive negotiations. 

‘‘Steel producers in North America have an 

important, direct stake in—and indeed, have 

contributed substantially to—the renewed 

competitiveness of North America’s auto industry in recent years. That was a main reason steel producers throughout North America strongly supported NAFTA—because we 

saw it benefiting our major customers in the 

North American auto industry. 

Given the auto industry’s continued importance to the North American economy (4.6 

percent of total U.S. GDP). AISI’s U.S., Canadian and Mexican member companies remain deeply concerned by North America’s 

large and persistent trade deficit with Japan 

in the automotive sector. 

The fact is, as competitive as the North 

American auto industry has become, it still 

requires free and open markets and fair and 

reciprocal market access worldwide to reap 

the full benefits of its restored status as a 

world class industry. Unfortunately, North 

America’s producers of motor vehicles and 

auto parts do not have such equality of market access currently with respect to Japan. 

It is therefore essential that the ongoing 

U.S.-Japan bilateral automotive negotiations produce a successful and timely resolution of this critical problem by achieving 

significant and sustained market access and 

sales opportunities in Japan for North American and other non-Japanese producers of vehicles and parts. Thus, AISI strongly supports the U.S. government’s ‘‘results-oriented’’ efforts to reach agreement as quickly 

as possible on meaningful market access in 

Japan for this vital North American industry. 

As part of the U.S.-Japan ‘‘framework 

agreement’’—under which the automotive 

talks are occurring—Japan has committed to 

implement policies ‘‘intended to achieve a 

highly significant reduction’’ in its trade 

surplus with the United States, which exceeded $65 billion last year. 

This enormous and unsustainable trade imbalance, two-thirds of which is in the automotive sector, requires prompt corrective 

action—by achieving measurable results in 

the auto sector as soon as possible, and ensuring full implementation of all previously 

negotiated agreements with Japan in other 

sectors.’’

STATEMENT OF THE AMERICAN TEXTILE MANUFACTURERS INSTITUTE ON UNITED STATESJAPAN AUTOMOBILE TRADE

The American Textile Manufacturers Institute (ATMI) strongly supports the Clinton 

administration’s efforts to open the Japanese market to U.S. automobile and automobile parts. ATMI is the national trade association for the domestic textile industry. 

ATMI member companies operate in more 

than 30 states and account for over 80 percent of all textile fibers consumed by U.S. 

mills. 

The American textile industry is a major 

supplier to the U.S. automobile industry. 

Textile goods produced for use in automobiles include not only upholstery and 

floor coverings, but sidewalls (the interior 

sides of cars), head linings (the interior roof 

material), hood linings (material on the underside of the hood), trunk linings, convertible tops and vinyl hardtops, tire reinforcement, hose fabric and transmission belts. In 

fact, the average truck contains 18 square 

yards of textile fabric, while the average car 

contains 29 square yards. 

In 1993, automobiles and trucks accounted 

for more than 1.2 billion square yards of fabric consumption in the United States, or 1.2 

billion pounds of fiber. By weight, this represents nearly 10 percent of the total fiber 

consumption in the U.S. Clearly, the auto industry is an important customer of the 

American textile industry. 

The opening of foreign markets to U.S. 

textile products and to items containing U.S. 

textile products is a vital part of our industry’s global competitiveness strategy. In this 

light, ATMI endorses the efforts of Ambassador Kantor to open Japan’s market to U.S. 

autos and auto parts and urges the administration to continue to seek adequate market 

access in the current negotiations with the 

government of Japan. 

NEARLY TWENTY INDUSTRIES JOIN IN CALL FOR

JAPAN GOVERNMENT TO OPEN CLOSED MARKETS TO U.S. PRODUCTS

WASHINGTON, D.C.—A diverse group of the 

nation’s largest industries joined together 

today to call on the Japanese government to 

open its market to reduce its record $66 billion merchandise trade surplus with the U.S. 

‘‘Japan’s chronic trade surplus is choking 

its economy and playing havoc with the 

world’s currency markets,’’ said Andrew H. 

Card, Jr., President and CEO of the American Automobile Manufacturers Association 

(AAMA). ‘‘After more than 25 years of footdragging, it’s time for the Japanese government to join with other industrialized nations to practice free trade in its own market.’’

Autos and auto parts accounted for $36.8 

billion of the U.S. trade deficit with Japan 

last year and is predicted to reach $39 billion 

in 1995. 

The latest round of U.S.-Japan trade negotiations is scheduled to conclude in Washington on Tuesday. 

Nearly twenty industry representatives—

from aluminum and steel producers to pharmaceutical manufacturers—joined Card in 

calling for greater access to Japan’s ‘‘sanctuary’’ markets. 

‘‘The whole world is watching the outcome 

of these negotiations. If Japan fails to undertake decisive reform to open its automotive 

sector, there are numerous developing economies waiting in the wings—China, Korea, Indonesia, Vietnam—which will be tempted to 

follow Japan’s sanctuary market as a model, 

rather than to adopt a free and open model 

which provides benefits to all participants in 

the world open-trading system,’’ Card said. 

Other groups joining AAMA at the press 

conference include the: Aluminum Association, American Electronics Association, 

American Forest and Paper Association, 

American Iron and Steel Institute, Automobile Parts and Accessories Association, 

Copper and Brass Fabricators Association, 

Pharmaceutical Research and Manufacturers 

of America, Association of Manufacturing 

Technology, International Insurance Council, Motor and Equipment Manufacturers Association, Specialty Equipment Manufacturers Association and the United Auto Workers 

Union. 

Other groups calling on Japan to open its 

markets include the: American Textile Manufacturers Institute, Joint automotive Supplier Government Action council, Motion 

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May 2, 1995 CONGRESSIONAL RECORD— SENATE S5965 

Picture Association of America, National Association of Manufacturers, National Glass 

Association and U.S.-Japan Business Council. 

During the press conference, Card pointed 

to a new report by the American Chamber of 

Commerce in Japan which outlines trade 

barriers across 35 industrial sectors. 

With regard to autos, the ACCJ report concluded that the Japanese manufacturers intend to continue discouraging dealers from 

franchise agreements with U.S. automakers. 

The ACCJ report recommends that the 

Japanese Government: Open Japan’s auto 

market; provide free access to Japanese dealers; simplify regulations and procedures; and 

open Japan’s parts market to foreign suppliers. 

AAMA is the trade association 

headquartered in Washington, D.C. whose 

members are Chrysler, Ford and General Motors. 

SEMICONDUCTOR INDUSTRY ASSOCIATION, 

San Jose, CA, April 19, 1995. 

Hon. MICHAEL KANTOR, 

U.S. Trade Representative, 

Washington, DC. 

Hon. RONALD H. BROWN, 

Secretary of Commerce, Department of Commerce, Washington, DC. 

DEAR AMBASSADOR KANTOR AND SECRETARY

BROWN: The Semiconductor Industry Association strongly supports your efforts to 

achieve a substantial measurable increase in 

imports into Japan’s automotive and automotive parts markets. These efforts are both 

necessary and appropriate. There can be no 

acceptable alternative to having outcomes in 

the Japanese market reflect the competitiveness of American auto and auto parts 

producers. This has not yet been allowed to 

occur. 

Your efforts serve not only the broad national interest but are of real economic interest to our industry as well. Semiconductors are a key component in modern automobiles, with applications including engine 

controllers, air bags, and antilock brakes. 

There is a direct impact on U.S. chip companies from both the very low levels of U.S. 

automobile exports to Japan and the reluctance of Japan automobile companies to use 

American components. 

In 1994 over $1.7 billion of semiconductors 

were used in American automobiles. This figure could have been substantially higher if it 

were not for the fact that of the 10 million 

vehicles produced by the three American 

firms in the U.S., only 33,000 were exported 

to Japan. 

U.S. firms have been working for years to 

increase their share of the $1.3 billion Japanese automotive chip market through the 

U.S.-Japan Semiconductor Agreement. The 

foreign automotive semiconductor share in 

Japan of about 10 percent, while much higher 

than five years ago, remains well below the 

dominant shares that U.S. firms have 

achieved in other world markets. The limited foreign penetration to Japan’s auto 

semiconductor market is also in contrast to 

the significant progress which is being made 

in a number of other electronics sectors in 

Japan. 

The implementation of market access 

agreements with Japan requires extraordinary efforts on the part of both American 

suppliers and Japanese purchasers, and by 

both governments, but the benefits can also 

be extraordinary. The U.S.-Japan Semiconductor Agreement has led to an additional 

$2.5 billion in annual U.S. sales in Japan and 

to unprecedented cooperation between American and Japanese companies and industries. 

While SIA intends to continue to work 

through the U.S.-Japan Semiconductor 

Agreement to further programs in semiconductor market access, an agreement on auto 

parts is fully complementary and very much 

in the interest of not only the U.S. economy, 

but of harmonious relations between the 

United States and Japan. 

We wish you well in this vital endeavor. A 

successful autos and auto parts agreements 

would promote the change in attitudes towards imported components that is required 

for success in increasing access to the Japanese market. SIA fully supports your efforts 

to quickly achieve an effective results-oriented agreement with the Government of 

Japan on auto and auto parts. 

Sincerely, 

A. A. PROCENSINI, 

President. 

AMERICAN FOREST & 

PAPER ASSOCIATION, 

Washington, DC, April 11, 1995. 

Hon. IRA SHAPIRO, 

General Counsel, Office of the U.S. Trade Representative, Washington, DC. 

DEAR IRA: The American Forest & Paper 

Association, on behalf of the U.S. forest 

products industry, is highly supportive of 

your efforts to open the Japanese market to 

U.S. suppliers of autos and auto parts. 

The long-standing problems of market access in this sector—including kieretsu relationships between auto producers and suppliers, denial of access to the producer-owner 

distribution network, and the use of government standards to exclude imports—are alltoo-familiar features of our own problems in 

penetrating the Japanese market. We believe 

that a comprehensive, negotiated solution to 

the auto/auto parts problems will have important implications for the resolution of 

similar problems in other sectors, such as 

ours, where the same pattern of exclusion is 

evident. 

At the same time, we believe that the firm 

stand which USTR has taken in these negotiations sends a very clear signal to the Government of Japan that the Administration 

will take the steps necessary to ensure compliance with existing agreements. With both 

the wood and paper agreements designated 

to a Super 301 watchlist, we anticipate that 

the result of your efforts in the auto sector 

will be to heighten Japanese awareness of 

the need to refocus its ‘‘encouragement’’ of 

imports in a direction which leads to concrete results. 

Sincerely, 

MAUREEN R. SMITH, 

Vice President, International. 

Mr. HOLLINGS. Madam President, 

let me commend our distinguished senior Senator, former leader and President pro tempore of the body. Senator 

BYRD’s words are music to this Senator’s ears, because in all of the almost 

5 months now of the so-called ‘‘contract,’’ not one word has been stated 

until Senator BYRD has spoken about 

competitive trade policy. 

That is exactly what we need. Right 

to the point, as the distinguished Senator has pointed out, the Japanese are 

subsidizing their sales—what we call 

‘‘loss leaders,’’ in the retail business. 

They subsidize and sell automobiles 

there for less than it costs them back 

in Japan. 

I could not get the updated figures 

right now to be accurate, but I remember over a year ago a Toyota Cressida 

that sells for $21,800 in Washington, DC, 

sells for $31,800 back in Tokyo. 

We had other comparable prices, and 

I would be glad to bring us up to date. 

The point is, in the year 1994 just 

passed, Business Week reported that, 

once again, Japan had taken over a 

larger share of the American domestic 

automobile market. Specifically, they 

had inched up another 1.2 percent in 

spite of the competitiveness and quality production of the American automobile industry. We have all been 

bragging. Detroit is finally putting out 

real cars, quality production, and we 

are now demanding, instead of foreign 

cars, American cars for a change. But 

with it all, Japan has still taken over 

more of the market. 

Five years ago, I had the vice presidents of Chrysler, Ford, and General 

Motors orchestrated almost to bring an 

antidumping case against Japan. While 

I had the agreement of Chrysler tentatively and Ford tentatively, General 

Motors bugged out. They said it was 

not good for business. They better 

wake up and understand what is good 

for business. 

Yes, our leader here is making a very 

cogent observation, but we will have to 

go back to another colleague of ours 

who adopted the expression, ‘‘Where’s 

the beef?’’ Our Vice President. 

We have been talking for years—

years on end. I testified 35 years ago 

with similar language about the textile 

industry. In 1980, 15 years ago, the deficit in the balance of textile trade of 

the entire European market with 

Japan was some $4 billion—not with 

just Japan but with the Pacific rim. We 

had a deficit, also, in the balance of 

textile trade of $4 billion. 

In the ensuing 15 years now the Europeans have shown they know how to 

deal with Japan. They do not have this 

weeping and wailing about fair trade 

and level the playing field and whining 

and crying and moaning and groaning—business is business. Through the 

enforcement of their antidumping laws, 

they have reduced it to less than $1 billion. And our deficit in the balance of 

textile trade has gone from $4 billion to 

$32 billion. Add in that $28 billion in 

textile manufacture, and we have millions of jobs. 

Politicians are running all over the 

Hill talking about jobs, jobs, create 

jobs, jobs, jobs. We are exporting them 

as fast as we possibly can. 

A fundamental is involved, Madam 

President. They use the Friedrich List 

or German model, which Alexander 

Hamilton initiated in the founding 

days of this Republic whereby the 

wealth of a nation is measured not by 

what it can buy but by what it can 

produce. The decisions are made on the 

basis of whether or not it strengthens 

the Japanese economy or weakens the 

Japanese economy. The Japanese use 

government, along with trade policies 

and private sector to take over—in this 

instance, market share. That is why 

year upon year, end upon end, we send 

over our trade representatives. They 

moan, they groan, they whine, they 

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S5966 CONGRESSIONAL RECORD— SENATE May 2, 1995 

cry. We continue to keep our markets 

open. 

The only time anybody made any 

progress at all was under the voluntary 

restraints agreement, and we slowed it 

down somewhat. However, we still have 

not really denied them access to our 

market. 

Adam Smith, free trade is strictly 

passe in the global competition. Forget 

it. Forget it. We have little Boy 

Scouts, and the Golden Rule, do unto 

others as they do unto you. That does 

not apply in global competition. 

I can say here and now we have to 

protect the economic backbone, the 

manufacturing capacity and capability 

of our Nation or, as Akio Morita said 

years ago, that power that loses its 

manufacturing power ceases to be a 

world power. 

That is the road that we are on in 

this country of ours. I am glad the distinguished Senator from West Virginia 

is emphasizing this. It is well stated, 

and I hope we can get an administration that will answer the question of 

our former Vice President Mondale, 

‘‘Where’s the beef?′′ 

If they begin to put in some beef like 

they did with China, then we can get 

an agreement like we did with China. If 

we put some beef behind the words of 

the distinguished leader from West Virginia, we will get a result. Business is 

business and it is not politics, and we 

have got to begin to understand that. 

One other item, and then I will yield, 

Madam President. It is a very, some 

might say, splendored thing, but the 

question of telecommunications, the 

information superhighway, is one of 

the most complex subjects or issues 

that we can possibly deal with. 

The problem is that everyone wants 

to deregulate and let market forces 

control. Certainly this Senator does, 

and all the Senators that I know of 

with respect to our Commerce Committee holding the particular hearings. 

The problem is we have a monopoly 

on the one hand and a responsibility 

for universal service on the other hand. 

With respect to universal service, 

Madam President, we do not want to 

make the same mistake we did with 

airlines whereas today, now, 85 percent 

of the medium- and small-sized towns 

and communities of America are subsidizing the 50 percent long hauls, and 

all the airlines have gone broke. 

Universal service is splendid, outstanding, wonderful communications 

from our seven Bell companies. The 

local service operators, we want to continue that universal service and require, thereby, on the one hand, everybody coming in to contribute to a universal service fund, and on the other, 

not allow our Bell companies to be 

cherrypicked and take off the good 

business, high-concentrated service, so 

to speak, and leave the rural and less 

populated areas for others to serve. 

That is one of the tasks in regulating 

service. Otherwise, we have to regulate 

the unbundling of the monopoly. The 

monopoly is there, and we know twofold: No. 1, that monopoly gets a 46 percent return on their guaranteed cash 

flow. Now, man, oh man, oh man. It did 

not come to my attention until just 

now. Later in the RECORD I will insert 

whereby the return of all investment 

to the leading industrial sectors of the 

United States of America—and now we 

will take long distance—the return 

they receive is 19 percent. The average 

is less than the 19 percent return on 

their investment. The highest of any in 

the United States of America are seven 

Southern Bell. They get a 46 percent 

return. 

Now, if I am president of a Bell company, why should I be pursuing the 

Congress to get over the business 

where I am getting a 46-percent return 

into a business that gets, say, 19 percent or lesser return? Business is business. 

I do not want my stockholders to 

lynch me and throw me out. So necessarily, I am not, although I talk pretty-like on the one hand about the superhighway and everything else like 

that, let the competition begin, I really 

do not care if we never pass a bill because I have a guaranteed cash flow of 

5.6 billion bucks. I keep Wall Street 

happy with that. I spend about $2.7 billion in upgrading the system. And I 

have $1.7 billion in my back pocket 

here—cash. I can go to any bank, not 

only in the United States, but into 

Tokyo or wherever, and with $1.7 billion cash in my back pocket, I can finance anything. 

So what I am saying in essence is 

that what we have to do is break up 

that monopoly. These monopolistic 

Bell companies, we intended for them 

to be monopolies. The law required it. 

But having given it to them, we know 

now, under the modified final judgment, they know how to get past every 

rule and every regulation. I found it 

out all during the 1960’s and 1970’s 

when, on the Communications Subcommittee, I worked with them. We 

tried our dead-level best to, by gosh, 

deregulate and open up AT&T and the 

Bell companies, and we could not do it. 

We had to finally do it with the Department of Justice, the Antitrust Division, and a consent decree. That 

modified final judgment is what finally 

did the trick, because we had 12 rulings 

and findings by the Federal Communications Commission and they kept 

appealing them. And even though we 

would find against them, nothing was 

enforced. This crowd knows how to use 

every word we write in the law and how 

to get around it and how to appeal it. 

And therein is another complexity. 

Now we have an astounding development. The astounding development is 

that with all the hearings and everything we have had, and how they have 

stonewalled us, we finally had, just 

about 3 weeks ago, Ameritech, a Bell 

company, along with the Justice Department, along with AT&T, the long 

distance carrier, along with the Consumer Federation of America, agreed 

to a consent order to open up competition up in the mid-Northern section of 

the United States of America. 

I could hardly believe my ears, but 

they agreed to it. In fact, the Bell companies have jumped all over their 

friend, Ameritech, and said, ‘‘Oh, no, 

no; this is not a precedent. This cannot 

be done. It is terrible. What did you do? 

You are a traitor,’’ and everything 

else. They have really been giving poor 

Ameritech a fit. 

Be that as it may, I have in my hand 

a memorandum of the U.S. Department 

of Justice ‘‘In Support of its Motion for 

a Modification of the Decree to Permit 

a Limited Trial of Interexchange Service by Ameritech.’’ This explains the 

complexities of all the requirements 

necessary in doing those two things, 

bringing about competition in the 

main; but the two things: Maintaining 

the universal service on the one hand, 

and unbundling a monopoly on the 

other. 

That is why some of these Senators 

can run around and say I want to build 

more deregulatory policy. That is political cover for saying I want you to 

give me a day certain. If they get a day 

certain and the monopoly is not broken 

up, then no one will enter the particular local exchange. The local exchange monopoly will be used to take 

over all the other competitive services 

and satellites, long distance, PCS, and 

all the rest of the communications, and 

you are going to end up with monopolistic conduct and not open competition. It is very, very complex. The best 

document I could possibly find is the 

one by our Assistant Attorney General, 

the Honorable Anne Bingaman, and her 

colleagues here, on behalf of the United 

States of America. 

I ask unanimous consent that this 

explanation of these complexities of 

this issue of deregulating communications and bringing about competition 

be printed in the RECORD at this particular point. 

There being no objection, the document was ordered to be printed in the 

RECORD, as follows: 

[In the United States District Court for the 

District of Columbia, Civil Action No. 82–

0192 (HHG)] 

UNITED STATES OF AMERICA, PLAINTIFF, v. 

WESTERN ELECTRIC COMPANY, INC., ET AL., 

AND AMERICAN TELEPHONE & TELEGRAPH

COMPANY, DEFENDANTS

MEMORANDUM OF THE UNITED STATES IN SUPPORT OF ITS MOTION FOR A MODIFICATION OF

THE DECREE TO PERMIT A LIMITED TRIAL OF

INTEREXCHANGE SERVICE BY AMERITECH

Anne K. Bingaman, Assistant Attorney 

General. 

Willard K. Tom, Counselor to the Assistant 

Attorney General. 

David S. Turetsky, Senior Counsel to the 

Assistant Attorney General. 

Jerry S. Fowler, Jr., Special Counsel to the 

Assistant Attorney General. 

Donald J. Russell, Chief, Telecommunications Task Force. 

The United States has moved for a modification of the Decree in this case to permit 

a limited trial of interexchange service by 

Ameritech. As explained in the Preliminary 

Memorandum filed with that motion, the 

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May 2, 1995 CONGRESSIONAL RECORD— SENATE S5967 

Footnotes at end of article. 

trial would begin only when Ameritech faces 

actual local exchange competition and there 

are substantial opportunities for more such 

competition; would be limited to certain geographic areas within the states of Illinois 

and Michigan; and could be terminated if 

Ameritech violates the order governing the 

trial or if it can no longer establish the absence of any substantial possibility that continuation of the trial would impede competition. The United States, Ameritech, and 

AT&T have stipulated that the proposed 

order filed with the motion is in the public 

interest and have consented to its entry 

under Section VII of the Decree. 

The Preliminary Memorandum outlined 

briefly the terms and conditions of the proposal. This Memorandum provides a more detailed explanation of the purpose, history, 

and structure of the proposed modification 

and the reasons why it should be approved. 

I. PURPOSE AND GENERAL STRUCTURE OF THE

PROPOSED MODIFICATION

The proposed modification is both more 

limited and more profound than most requests for removal or modification of the Decree’s line of business restrictions that have 

previously come before the Department of 

Justice and the Court: more limited because 

it proposes only a circumscribed trial of an 

otherwise prohibited service, not a permanent lifting of the restriction for some category of service; more profound because it 

would take affirmative steps toward understanding and achieving the conditions that 

might render unnecessary one of the most 

fundamental and important restrictions of 

the Decree. 

The proposal contemplates a three-stage 

process. First, the motion and proposed 

order present to the Court the rules under 

which the proposed trial would be conducted, 

and seek a determination that they are in 

the public interest. Second, before any interexchange service could actually begin, 

Ameritech would have to take certain steps 

to open local exchange service to competition, and the Department of Justice would 

have to determine that competitive conditions in the marketplace, in conjunction 

with the other safeguards in the order, ensure that there is no substantial possibility 

that commencement of the experiment could 

impede competition in interexchange service. (Proposed Order, TT 9–11.) Third, after 

interexchange service begins, Ameritech 

would be subject to certain post-entry safeguards, including all existing equal access 

requirements, and the Department would supervise the trial and could terminate it if 

conditions required. (Proposed Order, TT 15–

17.) The Court would retain discretion to 

take any necessary actions at any point, including review of any determinations made 

by the Department. (Proposed Order, T 51.) 

This three-stage process recognizes that 

the transition to competition in local exchange services will be complex. No set of 

conditions for promoting such competition 

could hope to address in advance the dozens 

of complicated implementation issues that 

will have to be resolved before meaningful 

competition is a practical reality, rather 

than merely a theoretical possibility. As 

local competition develops, and as industry 

and regulators gain experience with ensuring 

the competitiveness of markets that depend 

on access to local exchange services when 

the principal local exchange carrier is a participant in those markets, it may be possible 

to relax some of the post-entry restrictions, 

and the proposed order makes provision for 

such modification. (Proposed Order, T 17.) 

The process that the proposed modification 

would establish will help the Department, 

the Court, the telecommunications industry, 

and the public to gain practical experience 

and develop real marketplace facts about (1) 

the extent to which telecommunications 

markets can become fully competitive so 

that Decree restrictions might become unnecessary and (2) short of such fully competitive conditions, what combination of competition and safeguards might be sufficient 

to enable the Regional Bell Operating Companies (‘‘RBOCs’’) to enter the market for 

interexchange services without harming 

competition in that market—all in a setting 

that does not threaten substantial harm to 

competition in the interexchange market. 

Equally important, the Department believes 

that the same process will itself hasten the 

development of competition for local exchange services. It will encourage the states 

that are working to open up local exchange 

services to competition. And it will establish 

a mechanism to identify, understand, and address the many implementation issues that 

will arise in the transition to competition in 

local exchange markets. 

II. DEVELOPMENT OF THE PROPOSAL

A. Technological and competitive developments 

Technological changes in recent years 

have raised the possibility that the scope of 

the natural monopoly in local telephone 

service may be subject to erosion.1 For example, in many densely populated urban 

areas, Competitive Access Providers 

(‘‘CAPs’’) have laid their own fiber optic networks to serve large business customers. At 

present, those fiber networks are principally 

used to provide exchange access, either by 

supplying a direct link from the customer’s 

premises to the point of presence (‘‘POP’’) of 

the interexchange carrier (‘‘IXC’’), or by supplying only the transport from the central 

office or tandem switch of the local exchange 

carrier (‘‘LEC’’) to the IXC’s POP. Those 

same fiber networks, under the right circumstances, might be able to be used to provide ‘‘dialtone’’—i.e., local exchange service. 

Indeed, two CAPs—MFS and Teleport—have 

already obtained certificates from the Illinois Commerce Commission to operate as 

local exchange carriers in Chicago, and another CAP, U.S. Signal (formerly known as 

City Signal), has obtained such authority to 

serve Grand Rapids.2 Similarly, as cable television systems make greater use of fiber optics, those systems may also be able to provide both dialtone and access.3 Although 

competition from CAPs has just begun to develop (and competition from cable companies 

remains largely a theoretical possibility), 

these technological developments raise important questions about the possible future 

extent of such competition. 

B. Ameritech’s original proposal 

Based in part on these technological 

changes, Ameritech filed with the Department and circulated for public comment a 

waiver request under Section VIII(C) of the 

Decree, seeking complete removal of the 

interexchange prohibition, or in the alternative, a waiver of the prohibition to conduct statewide trials of interexchange service in one or more states. It premised that 

request partly on the notion that the technological changes described above, plus developments in Federal Communications Commission (‘‘FCC’’) regulatory tools and policies, were enough to constrain any possible 

anticompetitive conduct.4 At the heart of its 

request, however, was what it called its 

‘‘Customers First Plan’’—its proposal that it 

would take certain steps and seek certain 

state regulatory changes that would open up 

the local exchange to competition. 

To understand the significance of the steps 

outlined in the Customers First Plan, it 

helps to consider some of the principal barriers facing potential entrants into local exchange service. First, there are substantial 

legal barriers to entry in most markets. 

Until quite recently, the underlying assumption of telecommunications regulation was 

that local exchange service is a ‘‘natural monopoly’’ that should be provided by one entity, subject to government regulation. Thus, 

states strictly prohibited entry into local 

telephone service by competitors, often 

granting monopoly franchises to a single 

company in each market.5 Even where states 

have taken steps to end prohibitions on 

entry by competitors, potential entrants 

have sometimes had difficulty obtaining required certification from state regulators. 

Second, even as legal and regulatory barriers come down, a substantial barrier remains if entrants must replicate the entire 

network of the LEC in order to provide local 

exchange service. See United States v. Western 

Elec. Co., 673 F. Supp. 525, 544–45 (D.D.C. 1987) 

(‘‘The conditions that caused these monopolies to emerge in the first place . . . preclude 

any thought of a duplication of the local networks.’’), aff’d in relevant part, F.2d 283 (D.C. 

Cir.), cert. denied, 498 U.S. 911 (1990). 

Third, a fundamental characteristic of 

telephone markets—the existence of network 

externalities 6—requires that any entrant be 

able to offer its customers the ability to 

make calls to and receive calls from the incumbent’s customers. Because a large portion of the value of telephone service for a 

particular user depends on that user’s ability 

to contact other users, the incumbent’s ubiquity is an insurmountable barrier to competition, absent mechanisms for effective 

interconnection of networks. 

Ameritech’s original Customers First Plan 

had three basic components. First, 

Ameritech promised not to oppose certification of local exchange competitors and to 

waive any exclusive franchise rights it had 

‘‘if the interexchange restriction is removed, 

and if state and federal regulators adopt the 

other reforms proposed [by Ameritech].’’

Ameritech Memorandum in Support of Motions 

to Remove the Decree’s Interexchange Restriction (‘‘Ameritech’s Customers First Memo’’) at 

36 (filed with the Justice Department on Dec. 

7, 1993) [Appendix, Tab 6]. Second, Ameritech 

offered what it characterized as ‘‘unprecedented interconnection at the local level,’’

id. at 4, which would ‘‘enabl[e] [competitors] 

customers to originate and terminate calls 

on the same basis as Ameritech customers, 

without dialing access codes or waiting for a 

second dial tone,’’ id. at 37. Third, the Plan, 

Ameritech claimed, ‘‘thoroughly unbundle[d] 

Ameritech’s network for resale.’’ Id. at 38. 

This unbundling was designed to ‘‘enable 

competitors either to provide for themselves, 

or to procure from Ameritech, any facilities 

or functions they require, either one at a 

time or in any combination,’’ thus obviating 

the need for competitors to replicate 

Ameritech’s entire network. Id. 

In sum, Ameritech argued, the Customers 

First Plan ‘‘does away with legal barriers to 

entry by rejecting ‘first in the field’ regulation, and . . . tears down economic barriers 

to competition by allowing full interconnection and resale.’’ Id. at 40. 

C. Inadequacies of Ameritech’s original proposal 

The Customers First Plan as originally 

proposed represented an innovative and significant step in the right direction, because 

it acknowledged and sought to remove many 

of the barriers to local competition. But the 

Department recognized, and stressed in subsequent negotiations with Ameritech, that 

the plan neither resolved all the issues involved in breaking down those barriers, nor 

contained adequate safeguards against 

Ameritech’s impeding competition in the 

interexchange market before those barriers 

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S5968 CONGRESSIONAL RECORD— SENATE May 2, 1995 

were fully identified and eliminated. It thus 

fell short of Ameritech’s claims in numerous 

respects, of which the following are illustrative. 

To begin with, the original proposal assumed that local competition would automatically flow from eliminating the legal 

bar to such competition and from the theoretical availability of interconnection and 

unbundling. ‘‘No more needs to be done to 

enable and encourage competition for local 

exchange service.’’ Ameritech’s Customers First 

Memo at 40 [Appendix, Tab 6]. The Department concluded otherwise, however. The 

terms and conditions of interconnection and 

unbundling are critical. For example, 

Ameritech argued that its unbundling proposal obviated the need for competitors to 

replicate the ‘‘loop’’ that connects the subscriber’s premises to Ameritech’s central offices. With unbundling, such competitors 

could connect Ameritech loops to their own 

‘‘ports’’ (i.e., switches and other non-loop 

elements of local exchange service) by running trunks from their central offices to 

Ameritech’s central offices. But if loops are 

priced too high in relation to the retail price 

of the bundled local exchange service, it will 

be uneconomic for even the most efficient 

competitor to connect Ameritech loops to 

the competitor’s ports in order to offer service in competition with Ameritech. One 

therefore cannot simply assume that competition will occur; the Department must instead apply its traditional expertise, evaluating the competitive state of markets in 

light of actual market conditions and experience. 

Similarly, Ameritech argued that the network externality problem would be solved if 

Ameritech agreed to interconnect with other 

carriers, to terminate traffic originating 

from a competing carrier and destined for a 

customer on Ameritech’s network, and to 

send traffic to other carriers when 

Ameritech subscribers wished to call competitors’ subscribers. But the Department 

recognized that if Ameritech’s prices to terminate calls from subscribers of competing 

recognized that if Ameritech’s prices to terminate calls from subscribers of competing 

networks to called parties on Ameritech’s 

network are unreasonably high, competition 

could be seriously hindered. Indeed, in a decision rendered just last month, the Illinois 

Commerce Commission found that: 

‘‘. . . Illinois Bell’s proposal to charge new 

LECs tariffed switched access rates to complete local traffic on its network would result in a situation in which wholesale compensation rates would be above retail market 

rates for a wide variety of calls. In other 

words, carriers would pay more in terminating compensation to Illinois Bell than it 

currently receives in revenues from its local 

usage customers. . . . [S]everal witnessed 

independently demonstrated that in most 

cases Illinois Bell would charge a new LEC 

more in access charges than it would charge 

its own local residential or business customer for the entire usage service, making it 

impossible for a new LEC to establish a competitive price. . . .’’ 7

Implementation issues of this kind are inevitable, and no one knows for certain 

whether, or how soon, entry into the local 

market will occur on a significant scale. 

Every scenario for the emergency of competition assumes continuing dependence 

upon Ameritech, at least for interconnection 

and in many cases for loops and perhaps 

other network elements as well. This continuing dependence means that competition 

will involve complex business relationships 

and numerous pricing and technical issues, 

any one of which can make competition infeasible. The Department therefore concluded that Ameritech’s original proposal 

that it be granted interexchange authority 

simultaneous with the formal lifting of legal 

entry barriers and adoption of regulatory reforms permitting unbundling and interconnection was unrealistic. That proposal offered no assurance that consumers would actually have alternatives available to them 

upon the adoption of such reforms, or that 

competitors would be able to enter sufficiently quickly or pervasively to prevent 

anticompetitive conduct by Ameritech. The 

potential harm to competition was particularly great in light of Ameritech’s own argument that the ability to offer a full range of 

‘‘one-stop shopping’’ services confers a great 

competitive advantage. If true, giving 

Ameritech such ability at a time when competitors cannot realistically offer local exchange services would tend to extend 

Ameritech’s monopoly from local exchange 

services to the interexchange market. It is 

thus critical that actual marketplace conditions be examined to test the true economic 

feasibility of local competition before 

Ameritech is allowed to offer interexchange 

services. 

A second major flaw of the original proposal was its failure to address the issue of 

number portability. Customers are reluctant 

to switch to competing providers if it entails 

the inconvenience of losing their existing 

telephone numbers. For example, a Gallup 

poll of residential and business customers in 

1994 found that 40–50% of residential customers and 70–80% of business customers who 

otherwise would consider switching local 

telephone service providers if alternatives 

existed were unlikely to consider such a 

switch if they had to change telephone numbers in order to do so.8 The Department 

therefore concluded that number portability 

was an important issue that needed to be addressed if local competition were to play the 

role envisioned by Ameritech’s plan. 

Third, the original Customers First Plan 

did not address competitors’ access to poles, 

conduits, and rights of way. Entrants who 

wish to lay wire networks face formidable 

obstacles in obtaining rights of way, problems that the incumbents historically have 

avoided through use of public condemnation 

powers and that new entrants might be able 

to avoid by obtaining access to existing poles 

and conduits. Discussions between the Department and Ameritech led Ameritech to 

agree to make access available to the extent 

such access was in Ameritech’s control, so as 

to provide the best possible opportunity for 

the Ameritech trial to succeed. 

Fourth, the original Customers First Plan 

gave Ameritech excessive latitude to market 

its interexchange service through its local 

exchange operations—through which the 

overwhelming majority of existing customers get their local phone service and 

which is usually the first place that new customers call when they need to get phone 

service. The Department concluded that this 

latitude would have provided Ameritech’s 

interexchange business a tremendous advantage over other interexchange carriers, attributable only to its position as the monopoly provider of local exchange service. 

Fifth, although the original proposal would 

have prohibited Ameritech from using the 

Customer Proprietary Network Information 

(‘‘CPNT’’) gained in the course of providing 

access to competing interexchange carriers, 

it would have allowed Ameritech to use 

CPNI gained in providing local exchange and 

intraLATA toll service in marketing its own 

interexchange service. The Department concluded that this would give Ameritech a significant advantage based on its current position as the monopoly provider of local exchange service. 

Sixth, the original proposal did not require 

that Ameritech provide interexchange services through a subsidiary separate from its 

local operations. Although separate subsidiary requirements are imperfect instruments, the Department believes they will 

nonetheless be useful, both to regulators trying to ensure that Ameritech does not crosssubsidize or discriminate, and to the Department in supervising the trial and evaluating 

its results. 

Seventh, Ameritech’s original plan included departures from equal access. For example, it would have allowed Ameritech to 

put interexchange routing functions in its 

local switch for its own interexchange traffic 

but not for that of competing IXCs. The Department concluded that, in the absence of a 

truly competitive marketplace, this would 

make it virtually impossible to prevent 

cross-subsidization and discrimination. 

D. Revision of Ameritech’s proposal 

The proposed modification presented to 

this Court differs substantially from 

Ameritech’s original proposal, suffers from 

none of the deficiencies identified in that 

proposal, and offers far more procompetitive 

potential and far fewer anticompetitive risks 

than that proposal. It is the product of thousands of hours of work over the past year by 

the Department as well as by Ameritech, 

state regulators, potential competitive local 

exchange carriers, long distance carriers, 

consumer groups, and others who filed several rounds of public comment on several 

versions of the proposal and engaged in intensive discussions with the Department. 

The Assistant Attorney General for Antitrust participated directly in many of these 

discussions and in the crafting of language 

for the proposed order, reflecting her strong 

personal commitment to the purpose of the 

1982 Decree and to competition in telecommunications markets. thus, although 

Ameritech’s original proposal shares with 

the current proposal the important concept 

of taking steps to open the local exchange to 

competition as a predicate for removing the 

interexchange line of business restriction, 

the two proposals are otherwise far different. 

The current proposal is in every sense a joint 

product of the Department of Justice, 

Ameritech, and all of the parties that filed 

comments or participated in these discussions. The principles embodied in the current 

proposal have the support of AT&T, a decree 

party and major competitor in the interexchange market; Sprint, also a major interexchange competitor; CompTel, a trade association representing more than 150 competitive interexchange carriers and their suppliers; America’s Carriers Telecommunication Association (‘‘ACTA’’), a trade association of smaller interexchange carriers; 

MFS Communications, Time-Warner Communications, and Electric Lighwave, Inc., 

three providers of competing local exchange 

service in various parts of the country; the 

Association for Local Telecommunications 

Services, a trade association of competing 

providers of local exchange services; and the 

Consumer Federation of America and Consumers Union, two major consumer groups. 

III. DETAILED EXPLANATION OF THE COMPETITION-BASED CRITERIA AND SAFEGUARDS IN

THE PROPOSED MODIFICATION

At the heart of the proposed order is the 

premise that various steps are being taken 

by Ameritech and the state regulatory commissions in Illinois and Michigan, and that 

these steps will likely lead to competitive 

conditions that make it both safe and desirable to allow Ameritech, on a trial basis, to 

offer interexchange services in certain portions of those states (the ‘‘Trial Territory’’).9

Because those competitive conditions have 

not yet been achieved, the proposed order 

contemplates a multi-stage procedure, under 

which the actual trial of such services will 

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May 2, 1995 CONGRESSIONAL RECORD— SENATE S5969 

not begin until Ameritech presents facts 

from which the Department can determine 

that such competitive conditions do, in fact, 

exist. The process by which that determination is to be made is set forth in paragraphs 

9–11 of the proposed order. That process has 

two parts. First, Ameritech begins the process by certifying that certain required steps 

have, in fact, been taken to open local exchange service to competition, and by filing 

a compliance plan dealing with equal access, 

separate subsidiary provisions, and other 

post-entry safeguards. The Department will 

then investigate, take any necessary discovery, and make a determination, reviewable by the Court, as to whether there is sufficient competition and other sufficient assurances against harm to the interexchange 

market that the trial may safely begin. 

The proposed order also contains a number 

of post-entry safeguards and gives the Department the responsibility of supervising 

the course of the trial. If Ameritech violates 

the order or otherwise engages in anticompetitive conduct, the Department can require it to cease such conduct, ask the Court 

to impose civil fines, or terminate the trial. 

The required steps to foster local competition, the standard for the Department to determine that the interexchange trial should 

begin, the post-entry safeguards, and the Department’s supervisory responsibilities are 

described below. 

A. Steps to foster the emergence of local 

competition 

Paragraph 9 of the proposed order lists a 

number of developments with respect to 

local exchange competition that must occur 

before Ameritech can apply for authority to 

begin interexchange services. By design, the 

order does not specify in every detail the 

precise terms and conditions on which these 

developments must take place—matters that 

are in the purview of the state regulators, 

and with which the regulators in the two 

trial states are already grappling in their efforts to foster competition. There are many 

issues that remain to be resolved, and it is 

for the states and the market participants, 

not the Department, to resolve them. On the 

other hand, the way in which those issues 

are resolved may have an extremely significant effect on competitive conditions, as 

may a variety of other technical and economic factors, some of which may be beyond 

the control of the regulators. The Department’s traditional area of expertise, of 

course, is in evaluating the competitive 

structure and behavior of markets. Under 

the proposed order, therefore, the state regulators and the Department each discharge 

their traditional types of responsibilities: 

the states are already in the process of determining the terms and conditions under 

which the steps set forth in paragraph 9 will 

take place, and the Department, under paragraph 11 of the proposed order, will concern 

itself with the resulting competitive circumstances, and with whether those circumstances and other safeguards are sufficient to ensure that a trial of Ameritech 

interchange entry will not harm interexchange competition. 

The specific steps required by paragraph 9 

of the proposed order are as follows. 

I. Unbundling of loops and ports 

As discussed in Section II.B, unbundling of 

loops and ports is important to local competition because it obviates the need to replicate the LEC’s entire network of distribution facilities. Outside of dense downtown 

areas, a portion of that network—the loop 

connecting the customer premises to the 

main distribution frame in the central office—may well exhibit natural monopoly (or 

at best, duopoly) characteristics for some 

time to come. Unbundling is intended to address the natural monopoly problem, but 

whether it does so successfully or not depends heavily on the pricing of the 

unbundled loops and on other terms and conditions such as the speed and reliability of 

provisioning and repair. (See Section II.C.) 

The proposed order recognizes this dependence and deals with it through a collaboration between the Department and the appropriate state regulatory authorities, whereby 

each entity acts within its sphere of expertise. Thus, the state regulatory authorities 

will regulate the pricing of loops and ports.10

For Ameritech to be authorized to begin 

interexchange service, however, the Department will have to investigate and determine, 

among other things, that 

‘‘regulatory developments (including * * * 

the terms and conditions thereof) and market conditions offer substantial opportunities for additional local exchange competition. * * *’’

(Proposed Order, T 11(b)(ii).) Because the proposed order bases entry into interexchange 

service on an assessment of marketplace 

facts about competitive conditions at the 

time of decision, it is unnecessary to resolve 

the pricing issue—or most of the other myriad and perhaps unforeseeable implementation issues—in advance.11

2. IntraLATA toll dialing parity 

The Court recognized, at the time of the 

Decree, the importance of dialing parity to a 

competitive telecommunications marketplace. See United States v. Western Electric Co., 

552 F. Supp. 131, 197 (D.D.C. 1982), aff’d sub 

nom, Maryland v. United States, 460 U.S. 1001 

(1983). The proposed order requires that, before it applies to begin the interexchange 

trial, Ameritech must 

‘‘I have made the necessary technical, 

operational, administrative and other 

changes to implement dialing parity for 

intraLATA toll telecommunications no later 

than 21 days prior to the effective date of 

Ameritech’s authority . . . on terms approved by the appropriate state regulatory 

authority.’’

(Proposed Order, T 9(b).) Thus, to begin the 

application process, Ameritech must make 

the necessary changes to ensure that dialing 

parity can be implemented prior to 

Ameritech’s interexchange authority. Before 

the Department can approve commencement 

on the trial, it must ensure that Ameritech 

has taken the further step of having installed and tested the capability for providing such parity. (Proposed Order, T 11(d).) 

The Department can thus ensure that 

Ameritech annually implements dialing parity no later than the time it begins interexchange service.12

3. Resale of local exchange service 

Another prerequisite before Ameritech can 

file its application with the Department is 

that steps have been taken to allow non-facilities-based (i.e., resale) competition for all 

classes of service, including residential service. (Proposed Order, T 9(c).) 

Resale competition is not a replacement 

for facilities-based competition. Competition 

from exchange carriers that supply their own 

loops (e.g., cable systems) can help thwart 

discrimination in the pricing, provisioning, 

and maintenance of loop facilities, so long as 

adequate provisions are made to deal with 

the advantages that flow to the dominant 

carrier because of network externalities (i.e., 

the need to terminate calls on the dominant 

carrier’s system, number portability, access 

to signalling resources and database information, etc.). Competition from exchange 

carriers that supply their own switching facilities but use Ameritech loops (e.g., CAPs 

connecting their switches to Ameritech 

loops to extend the geographic area they can 

serve) are dependent upon the appropriate 

pricing, provisioning, and maintenance of 

loop facilities. If those conditions are right, 

however, they can prevent discrimination in 

the provision of network features and 

functionality, excessive charges for exchange 

access, and so on. Pure resale competition, 

by itself, does none of these things. It brings 

competition only to the marketing of local 

exchange services, and it requires extensive 

regulations to ensure that the prices, terms, 

and conditions under which Ameritech offers 

the underlying service make resale meaningful available. 

Nonetheless, resale competition is important for two reasons. First Ameritech will be 

able to offer interexchange services very 

quickly and easily once it has the authority 

to do so, by reselling such services just as 

hundreds of other companies resell interexchange services. The availability of commercially feasible resale opportunities is one 

way to ensure that interexchange carriers 

that are not in a position to enter local exchange service quickly and easily on a facilities basis will have opportunities similar to 

Ameritech’s to offer a full range of services. 

Second, the availability of resale will tend 

to reduce the barriers to facilities-based 

entry, because a company that already has a 

subscriber base as a reseller will be able to 

make investments in switches and other facilities with less risk. Just as unbundling of 

loops and ports makes it possible for competing exchange carriers to offer services 

outside the dense downtown areas where 

they can justify installing their own loops, 

so full resale of the entire local service 

(loops and ports) makes it possible to offer 

services before there is enough traffic to justify investment in a switch (or in trunks to 

connect more distant Ameritech central offices to an existing switch). Once a subscriber base is built, more investment may 

be justified. Such reductions in barriers to 

entry will enhance the prospects of the ultimate success of the trial. 

The requirement that there be adequate resale opportunities is thus directly tied to the 

requirement of paragraph 11 that competitive circumstances and the safeguards and 

supervisory provisions of the order ensure 

the absence of any substantial possibility 

that Ameritech could use its position in the 

local exchange market to harm competition 

in the interexchange market. The important 

point is that the ability of the interexchange 

market to function competitively not be 

harmed. 

As with the other provisions already discussed, it is left to the states whether nonfacilities-based competition should be 

achieved by directly reselling Ameritech 

bundled services, or by renting Ameritech 

loops and Ameritech ports on their separate 

pricing schedules and selling the combined 

package as a service, or both. 

4. Pole attachments and conduit space 

A fourth prerequisite is that Ameritech 

have implemented reasonable and nondiscriminatory arrangements for sharing of 

pole attachments and conduit space, and for 

competitors to secure access to entrance facilities, risers, and telephone closets, to the 

extent such arrangements are under the control of Ameritech. Inability to secure access 

to poles, conduits, entrance facilities, and so 

forth could be a significant barrier to a facilities-based competitor seeking to install 

its own loops. To the extent that this potential barrier is under Ameritech’s control, 

Ameritech promises, by its consent to the 

proposed order, to eliminate it, thereby encouraging the competition that could serve 

as a predicate for Ameritech’s entry into 

interexchange service. In many cases, of 

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S5970 CONGRESSIONAL RECORD— SENATE May 2, 1995 

course, such barriers may not be in 

Ameritech’s control. But whether they are 

or not, the ultimate question remains that 

set forth in paragraph 11: to what extent do 

competition, the potential for more competition, and the other provisions of the order 

constrain Ameritech’s exercise of market 

power to harm competition in the interexchange market? (See Section III.B.) 

5. Interconnection 

Effective interconnection arrangements 

are among the most critical issues for facilities-based competitors. As explained above 

(Section II.B), competitors must be able to 

offer their customers the ability to make 

calls to and receive calls from anybody else 

who owns a phone—most notably 

Ameritech’s customers. Without such interconnection, the competitor’s service essentially would be worthless. This basic need for 

interconnection gives rise to a host of complex issues, the resolution of which has important ramifications for competition. For 

example, arrangements must be made for 

networks to compensate each other for terminating calls that originate in another network. Unless properly structured, the reciprocal compensation arrangements can raise 

significant barriers to entry by potential 

local competitors. 

Likeswise, the interconnection arrangements must be on terms that permit local dialing parity, so that customers of 

Ameritech’s competitors can place local 

calls without suffering any inconvenience—

such as dialing extra digits—that is not imposed on Ameritech customers. Local competitors must also have adequate access to 

various services necessary to the provision of 

local exchange service, such as unbundled 

signalling and 611, 911, E911, call completion, 

and TRS relay services, as well as data necessary to provide 411 (directory assistance) 

service. 

The proposed order does not attempt to 

dictate the precise resolution of each of 

these issues. Some of these issues might be 

resolved among the carriers without intervention by state regulators. If the terms are 

acceptable to the competitive exchange carriers, the arrangements will satisfy paragraph 9(e).13 If the carriers cannot agree, regulatory approval will satisfy paragraph 9(e), 

because it would not further the public interest in competition to give each competitor a 

veto power over Ameritech’s ability to move 

forward with a trial.14 In either case, the ultimate question will be the competitive effects of the arrangements, which will necessarily be considered in connection with the 

assessment of competitive conditions required by paragraph 11 of the proposed order. 

6. Number portability 

As discussed above in Section II.C, an important element in local exchange competition is service provider number portability—

the ability of a subscriber to retain his telephone number when changing carriers. The 

proposed order distinguishes between two 

ways of achieving service provider number 

portability: true number portability and interim number portability. True number portability allows calls to be delivered directly 

to the subscriber’s new exchange carrier 

without having to route traffic through the 

old exchange carrier and retains the full 

range of functionality (e.g., delivery of information necessary to provide caller ID functions) that would have been available to the 

subscriber in the absence of a change in service provider. Such true number portability is 

likely to involve some form of database 

look-up: for example, an IXC delivering a 

call into the Chicago area would use the signalling network to consult a database, which 

would supply to the service provider the information necessary to deliver the call to 

the correct exchange carrier. 

In the absence of true number portability, 

a variety of means exist to provide number 

portability on an interim basis. An example 

is remote call-forwarding. A subscriber 

changing from Ameritech to a new exchange 

carrier would receive a new telephone number, the first three digits (‘‘NXX code’’) of 

which would be an NXX code assigned to the 

subscriber’s new carrier. If a caller dialed the 

subscriber’s old telephone number, the call 

would be routed to Ameritech’s switch, since 

the old number would contain an NXX code 

assigned to Ameritech. Ameritech’s switch 

would be programmed to complete the call 

by use of an additional circuit from its 

switch to the next exchange carrier’s switch. 

Such interim forms of number portability 

may suffer certain drawbacks, e.g., the loss 

of data necessary to provide certain functions, such as caller ID; transmission delays 

as a result of the additional switching that 

may impair suitability for data transmission; and inability of the new exchange 

carrier to collect the access charge for terminating an interexchange or intraLATA 

toll call.15

The proposed order requires Ameritech to 

implement true number portability in the 

Trial Territory, except that if it is unable to 

do so as of the date 120 days before the anticipated implementation of intraLATA dialing parity, it may rely on interim number 

portability if it explains satisfactorily why 

it cannot implement true number portability 

as of that date and sets forth a plan acceptable to the Department for achieving true 

number portability. 

Achievement of true number potability is 

not totally in the control of Ameritech. It 

will require cooperation from vendors of 

hardware and software, such as AT&T, as 

well as from other industry participants, 

such as IXCs, who will be delivering traffic 

destined for ported numbers. Ameritech has 

already issued a Request for Proposal for the 

technology and administrative services necessary to implement true number portability. The Illinois Commerce Commission 

has ordered an industry task force to be created, under the supervision of the Commission staff, to deal with the issue of number 

portability. ICC Order, supra note 7, at 110 

[Appendix, Tab 7]. This task force will hold 

workshops, at which industry participants 

can react to that RFP, propose alternative 

specifications, and attempt to arrive at a 

workable solution. The first of those workshops was held on April 21, 1995. 

As with many of the other steps in paragraph 9, the actual terms and conditions 

under which either true or interim number 

portability is offered are likely to have a 

major impact on whether there are substantial opportunities for other exchange carriers to compete. The proposed order requires that arrangements be made for allocating the costs of number portability that 

do not place an unreasonable burden upon 

competing exchange carriers, leaving to 

Ameritech, industry participants, and state 

regulators the task of working out the precise terms of such arrangements in the first 

instance. 

Separate from service provider number 

portability is the issue of location portability—the ability to retain the same telephone number at a different location within 

a geographic area. It is not particularly significant for competition that location portability be available. If it is available, however, competition could be adversely affected 

if Ameritech’s control over monopoly facilities allows it to offer such a feature while 

preventing its competitors from doing the 

same. The proposed order thus requires that, 

to the extent Ameritech is offering location 

portability to its own customers, and to the 

extent it is technically and practicably feasible, Ameritech make available to other exchange carriers, on nondiscriminatory terms 

and conditions, the capability to offer such 

portability. 

Nondiscrimination in this context would 

not mean that exchange carriers offering 

switching services in competition with 

Ameritech would necessarily be afforded access to features in Ameritech’s switch. To 

the extent that switching facilities are competitive, and location portability is a service 

offered through such facilities, competition 

should encourage all competitors to differentiate their services by offering new and better features. Nondiscrimination would mean, 

however, that Ameritech could not hinder 

competitors offering such services through 

discrimination in the terms in which they 

connected to Ameritech’s network or 

through other means. For example, if location portability is achieved through wiring 

changes at the central office rather than 

through software features in the switch, an 

exchange carrier competing with Ameritech 

by connecting its own switches to Ameritech 

loops would be placed at a significant disadvantage if Ameritech denied equal access 

to such wiring changes. Similarly, it would 

likely be discriminatory for Ameritech to 

refuse to offer to switchless resellers, (i.e., 

those using both Ameritech loops and 

Ameritech ports, including switching services) the same location portability features 

it offers to its own subscribers; since 

Ameritech facilities are handling the entire 

call, there is no apparent reason why the 

same features could not be made available. 

7. Number assignment 

Telephone numbers are the most fundamental means of interface between end users 

and the telephone network, as well as between one network and another. A competitive local telephone network must have fair 

and equal access to number resources as an 

essential element of developing telecommunications services and competing for 

customers. To ensure the competitively neutral administration of number resources, the 

proposed order requires Ameritech to have 

made reasonable efforts to transfer any duties it has in administering those resources 

to a neutral third party. (Proposed Order, 

T 9(h).) If its efforts to transfer its duties are 

not successful by the time Ameritech applies 

for authorization to provide interexchange 

service, it must explain in writing why they 

have not been successful and what further 

steps it plans to take, and must implement a 

nondiscriminatory procedure for assigning 

numbers. The efficacy of such arrangements 

will be considered by the Department in 

making its determination under paragraph 

11. 

B. Actual marketplace facts concerning the 

emergence of local competition 

1. Procedures for department approval 

Completion of the above steps would not 

result in immediate commencement of the 

trial of interexchange service. Instead, at 

that point Ameritech will apply to begin the 

trial if it believes competitive circumstances 

in the local market warrant. Ameritech will 

report to the Department that it has taken 

the required steps with respect to 

unbundling, intraLATA toll dialing parity, 

resale of local services, pole attachments 

and conduit space, interconnection, number 

portability, and nondiscriminatory number 

assignment. In addition, Ameritech must file 

a compliance plan.16 After Ameritech has 

filed both the report and compliance plan, 

the Department will have thirty days to determine whether it needs any additional information from Ameritech. Within sixty 

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May 2, 1995 CONGRESSIONAL RECORD— SENATE S5971 

days after Ameritech has substantially complied with the Department’s request for additional information or 120 days after the filing of both the report and the compliance 

plan, whichever is later, the Department will 

determine whether Ameritech may begin the 

trial. In making that decision, the Department will seek comments from the appropriate state regulatory authorities and interested persons. (Proposed Order, T 11(a).) It 

may also take any other action reasonably 

necessary to make its decision, including 

conducting third-party discovery. (Id., 

TT 11(a), 49.) 

2. Procedures for court review 

The Court may, in its discretion, review 

any decision of the Department, both with 

respect to commencement of the trial and 

otherwise. (Id., T 51.) If the Department approves commencement of the trial, such approval could not go into effect for at least 30 

days (Proposed Order, T 13), thus allowing a 

period of time during which interested persons could seek a temporary restraining 

order from the Court. The Court could then 

establish such schedule and procedures for 

such review as it deemed appropriate under 

the circumstances. If the Department does 

not approve commencement of the trial upon 

a particular application by Ameritech, 

Ameritech does not have a right of review 

within the structure of the proposed order. 

(Proposed Order, T 51.) It does, however, retain the right to seek Court action independent of the proposed order, under sections 

VII or VIII(C) of the Decree. (Id.). Ameritech 

is thus no worse off under the 

unreviewability provision than it would be in 

the absence of the proposed order. to avail 

itself of the benefits of the proposed order, 

however, it would have to work further toward creating conditions that meet the 

standard of paragraph 11 rather than involve 

the Court in reviewing the Department’s decision. This provision gives Ameritech a 

strong incentive to apply to begin the interexchange trial only when the test for doing 

so is actually met. The judicial system is 

thus spared the burden of premature applications that could otherwise lead to extensive 

judicial review, and Ameritech is given a 

reason to provide information to the Department as quickly as possible, even in advance 

of its application where appropriate. 

3. Substantive standard for department approval 

The substantive standard for commencing 

the trail of interexchange service is set out 

in paragraph 11(b) of the proposed order: 

‘‘To render an affirmative decision on 

Ameritech’s application, the Department 

must find that 

‘‘(i) actual competition (including facilitiesbased competition) in local exchange telecommunications exists in the Trial Territory, 

‘‘(ii) the conditions specified in paragraph 

9 have been substantially satisfied, and that 

regulatory developments (including but not 

limited to those developments set forth in 

Paragraph 9 and the terms and conditions 

thereof) and market conditions offer substantial opportunities for additional local exchange 

competition, as evidenced by, among other 

things, the increasing availability of local 

exchange telecommunications alternatives 

for such customers, 

‘‘(iii) the conditions described in (i) and (ii) 

above, together with regulatory protections, 

the Department’s right to terminate 

Ameritech’s interexchange telecommunications authority under Paragraph 16, the 

transport facilities restrictions of Paragraph 

19, the compliance plan, the limited geographic scope described in Exhibit A, and the 

other provisions of this Order, are sufficient 

to ensure that there is no substantial possibility that Ameritech could use its position in 

local exchange telecommunications to impede 

competition for the provision of interexchange 

telecommunications to business or residential 

customers in the Trial Territory.’’

(Proposed Order, T 11(b) (emphasis added).) 

Thus, the standard has three parts—actual 

competition, substantial opportunities for 

additional competition, and a determination 

that such competition and competitive opportunities, together with regulation, postentry safeguards, and the fact that 

Ameritech’s interexchange service would 

only be on a trial basis, make it safe and desirable to begin the trial. These three parts 

of the standard are related both to each 

other and to the ultimate objectives of the 

trial. 

For the trial to be an ultimate success, it 

will have to help prove or disprove one or 

both of two propositions: (1) the competitive 

steps outlined above produce enough actual 

competition and opportunities for additional 

competition to ensure by themselves that 

there is no substantial possibility Ameritech 

could engage in anticompetitive conduct affecting the interexchange market, or (2) 

some combination of actual competition and 

opportunities for additional competition, together with regulation and post-entry safeguards, is sufficient to ensure the absence of 

such possibility.17

Paragraph 11 does not require that either 

of these propositions be proved before the 

trial begins; indeed, the purpose of the trial 

is to test these propositions. At the same 

time, it is important to ensure that the trial 

itself does not result in harm to competition 

in the interexchange market. Many of the 

same factors—actual competition, opportunities for additional competition, and postentry safeguards—that would protect competition in the event permanent relief were 

appropriate will also serve to protect competition during the trial. Since the premise 

of the trial is that these factors will not be 

known to be sufficient at the beginning of 

the trial, however, the proposed order also 

provides for very close supervision by the 

Department, including a provision for the 

Department to terminate the trial if necessary. Before beginning the trial, the Department is to make a determination that 

all of these factors, including the provision 

for termination, together will be sufficient 

to negate any substantial possibility that 

Ameritech could use market power in the 

local market to harm competition in the 

interexchange market. 

The three parts that make up that judgment are discussed in greater detail below. 

Because they are so closely related, actual 

competition and substantial opportunities 

for potential competition are discussed together. 

a. Actual Competition and substantial 

opportunities for additional competition 

Competitive outcomes can generally be assured if there is a sufficient level of actual 

competition—multiple competitors actually 

producing and selling the good or service. 

Theoretically, some markets can produce 

competitive outcomes even if they do not 

contain multiple competitors actually producing and selling the good or service. One 

situation in which such outcomes may occur 

is where firms not currently producing or 

selling the relevant product in the relevant 

area would start doing so quickly, and without the expenditure of significant sunk 

costs, in response to a small but significant 

price increase. If these firms are sufficiently 

numerous that the incumbent firm cannot 

maintain prices above the competitive level, 

then the market will behave competitively. 

Cf. Department of Justice and Federal Trade 

Commission Horizontal Merger Guidelines, § 1.32 

(April 2, 1992) [hereinafter ‘‘1992 Merger 

Guidelines’’]. Such a market is said to be 

‘‘contestable.’’

It is hard to think of a market less likely 

to be ‘‘contestable’’ than local exchange 

service. Sunk costs in this industry are, in a 

word, gigantic. Perhaps recognizing this, 

Ameritech’s original waiver request was supported by an affidavit and a reply affidavit 

that spoke not of ‘‘contestability’’ but of 

something Ameritech’s expert called ‘‘effective’’ or ‘‘as-if’’ contestability. Affidavit of 

David J. Teece, T 41 (Nov. 29, 1993) (filed with 

the Department of Justice in support of 

Ameritech’s Original Proposal on Dec. 7, 

1993) [Appendix, Tab. 13]; Reply Affidavit of 

David J. Teece at 3–8 (Apr. 6, 1994) (filed with 

the Department of Justice on Apr. 12, 1994) 

[Appendix, Tab. 14]. By this he meant that 

Ameritech’s unbundling of loops and ports 

would allow competitors to treat those assets as if they were not sunk costs, freely entering and exiting the industry in response 

to competitive conditions by renting only 

what they needed at a given moment in time 

from Ameritech. 

Such an argument, however, is highly speculative. It assumes that state regulators will 

get the prices of those loops and ports exactly right, precisely duplicating the prices 

that would obtain in a competitive market. 

(See Section II.C.) It further assumes that 

Ameritech could not discriminate in the provisioning or maintenance of loops or ports or 

in the terms and conditions of interconnection, and that competitors will not incur 

substantial sunk costs in other elements of 

their operation. In short, on the current 

state of the record, the Department regards 

the suggestion that unbundling would make 

local telephone markets behave ‘‘as-if’’ they 

were contestable as both unproven and implausible. 

A market with only one firm could also behave competitively if longer-term entry (i.e., 

with sunk costs) into the market is so easy 

that the incumbent firm could not profitably 

behave anticompetitively (e.g., maintain a 

price above competitive levels or—more relevant here—use a monopoly position in that 

market to adversely affect competition in an 

adjacent market). For entry to be that easy, 

it would have to be ‘‘timely, likely, and sufficient in its magnitude, character and scope 

to deter or counteract the competitive effects of concern.’’ 1993 Merger Guidelines, § 3.0. 

Ameritech argues that unbundling, interconnection, and the other steps it is taking 

pursuant to state regulatory action and 

paragraph 9 of the proposed order will make 

entry that easy. 

As a practical matter, however, it is impossible to evaluate that argument in the abstract, without the existence of some actual 

competition to guide the way. Once there are 

significant actual competitors, one can begin 

to ask questions such as: 

How were those competitors able to enter? 

What certification and other regulatory requirements did they have to meet, and how 

long did it take? Is there any reason other 

competitors would not be able to do the 

same? 

Is the availability of such competing service expanding? Are competitors encountering 

significant barriers to such expansion? 

To what extent are competitors entering 

by renting loops from Ameritech as opposed 

to building their own loop plant, either for 

the whole of their local exchange business or 

as a way of extending the reach of their network? To the extent that competitors have 

to build some of their own facilities, how 

long does that take, and how many other 

competitors could do the same? 

Are competitors able to serve a wide range 

of customers throughout the Trial Territory, 

or are they limited to niche markets? 

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S5972 CONGRESSIONAL RECORD— SENATE May 2, 1995 

To the extent that not all customers have 

competitive alternatives available to them, 

could Ameritech discriminate against just 

those customers that have no alternatives, 

or would anticompetitive behavior against 

those customers necessarily cause it to lose 

so many other customers that Ameritech 

could not profitably persist in the anticompetitive behavior? 

The proposed order does not specifically 

state how much actual competition is necessary to satisfy paragraph 11(b). Nonetheless, the foregoing discussion suggests the 

implicit level: there must be enough actual 

competition to provide an empirical basis for 

answering these kinds of questions, and the 

answers must indicate that there are substantial additional opportunities for competition and that these opportunities will be 

sufficient, in combination with the safeguards and supervisory provisions of the 

order, to deter Ameritech from behaving 

anticompetitively. To provide such answers 

requires more than a single competitor serving niche markets but less than the level of 

actual competition that would suffice in and 

of itself to justify permanent removal of the 

interexchange restriction, without the safeguards and supervisory provisions that will 

accompany the trial (including the right of 

the Department to terminate the trial and 

the ability of the Court to review the Department’s determinations). 

The proposed order also emphasizes that 

there must be facilities-based competition in 

the Trial Territory. As discussed in Section 

III.A.3, resale competition is not a perfect 

substitute for facilities-based competition. 

Facilities-based competition can discipline a 

wide range of anticompetitive conduct that 

would be left untouched by resale. Thus, the 

Department will look closely at the extent of 

facilities-based competition in determining 

whether the standards of paragraph 11 are 

met. 

b. Determination that the state of the market 

safeguards, and supervisory provisions make 

it safe to begin the trial 

In addition to actual competition and ease 

of entry, the proposed order relies on supervisory provisions and post-entry safeguards, 

as more fully described in Section III.C. For 

example, the Department may terminate 

Ameritech’s interexchange authority if it no 

longer believes that there is no substantial 

possibility that continuation of the trial 

would impede competition. (Proposed Order, 

T 16.) To authorize commencement of the 

trial, then, the Department must determine 

that actual competition, substantial opportunities for additional competition, and 

these other supervisory provisions and safeguards are sufficient to ensure that going 

forward with the trial will not create any 

‘‘substantial possibility that ameritech 

could use its position in local exchange telecommunications to impede competition for 

the provision of interexchange telecommunications.’’ (Proposed order, T 11(b)(iii).) The 

assurance against harm to competition must 

protect both business and residential customers in the Trial Territory. (Id.) 

4. Other factors the department may consider 

The proposed order specifically highlights 

a number of additional factors that the Department may consider in making the determination under paragraph 11 to proceed with 

the trial. 

a. Certification, licensing, franchising, and 

similar requirements 

Implicit in the concept that there are substantial opportunities for additional local 

exchange competition is the premise that 

certification, licensing, franchising, and 

similar regulatory and legal requirements 

are not significantly impeding the development of such competition. State and local 

regulation serves important public policy objectives, such as protecting consumers from 

deception and ensuring that carriers have 

adequate financial backing. In states such as 

Illinois and Michigan, which have state policies favoring competition and in which there 

is already a recent history of granting certificates to competitors, it is the Department’s expectation that such requirements 

would be narrowly tailored to achieve such 

public policy objectives without impeding 

competition significantly. Nonetheless, this 

factor is specifically mentioned in the proposed order as an issue for the Department 

to consider, because state and local government policies can have a major and even decisive impact on whether and how fast competition will develop. 

b. Ordering, provisioning, and repair systems 

There are two different provisions in the 

proposed order dealing with electronic access 

to ordering, provisioning, and repair systems. First, if Ameritech wishes to make 

such systems available to the Ameritech 

interexchange subsidiary, it must offer such 

access, on nondiscriminatory terms and 

rates, to unaffiliated carriers. (Proposed 

Order, T 26.) Second, in making its decision 

under paragraph 11, the Department may 

take into account the extent to which 

Ameritech offers unaffiliated carriers access 

equivalent to that used in Ameritech’s local 

exchange operations (whether or not 

Ameritech’s interexchange subsidiary is 

given access). (Proposed Order, T 11(c)(ii).) 

The requirement in paragraph 26 is a matter of equal access—putting other carriers in 

a position equal to Ameritech’s interexchange subsidiary—and is absolute. The 

requirement in paragraph 11 is more 

judgmental. It recognizes that there could be 

technical reasons why it would not be practicable for Ameritech to provide access to 

certain systems to anyone outside 

Ameritech’s local exchange operations, including Ameritech’s interexchange subsidiary. At the same time, it recognizes that 

lack of such access could have a considerable 

impact on the prospects for local competition, and thus specifically provides for the 

Department to consider the issue and take it 

into account. 

C. Supervision and safeguards 

When the interexchange trial begins, there 

will be actual local exchange competition 

and substantial opportunities for additional 

such competition, but no firm assurance that 

the competitive state of the market will suffice by itself to thwart any anticompetitive 

conduct that Ameritech might attempt in 

the interexchange market. Therefore, the 

proposed order contains supervisory provisions and post-entry safeguards, designed for 

use during the trial, to supplement such 

competition and ensure that there is no substantial possibility that Ameritech could use 

market power in the local market to harm 

competition in the interexchange market 

during the trial. 

As competition develops, many of the postentry safeguards may become unnecessary to 

ensure the absence of any such substantial 

possibility, and the proposed order provides 

for their removal as appropriate. (Proposed 

Order, T 17.) The proposed order does not specifically provide for Ameritech’s interexchange authority to be made permanent 

and the Department’s supervisory role to be 

terminated, because Sections VII and VIII(C) 

of the Decree already establish the appropriate mechanism and standard for permanent relief. 

The Department is required to conduct a 

comprehensive review of all aspects of the 

trial within three years of Ameritech’s interexchange authority under the proposed 

order. (Proposed Order, T 18.) 

The specific supervisory provisions and 

safeguards are as follows: 

1. Terminability of the trial 

If Ameritech violates the order, or if the 

Department no longer believes that there is 

no substantial possibility that continuation 

of the trial would impede competition, 

Ameritech’s interexchange authority can be 

terminated (Proposed Order, T 16.), subject to 

review by the Court (Proposed Order, T 51.). 

This termination provision ensures that, 

even if the opportunities for local exchange 

competition at the start of the trial and 

other safeguards turn out not to be sufficient 

to prevent Ameritech from taking actions 

that harm competition in the interexchange 

market, any such harm will be short-lived 

and insubstantial. 

During the comment process, a number of 

commenters suggested that it would be difficult for the Department to exercise this authority. In response to these concerns, a provision was included in the proposed order to 

require Ameritech’s compliance plan to supply, prior to approval of its interexchange 

service, a credible plan for orderly withdrawal from the provision of interexchange 

telecommunications in the event 

Ameritech’s authority to offer interexchange 

telecommunications is discontinued. (Proposed Order, T 10(j).) Such a plan might include, for example, a procedure for balloting 

customers or for reverting them to their previous interexchange carrier. Moreover, the 

proposed order makes clear that financial 

hardship to Ameritech resulting from such 

discontinuance shall not be a ground for opposing such discontinuance. (Proposed Order, 

T 16.) 

2. Self-reporting 

The proposed order requires Ameritech to 

develop a plan for detecting and reporting 

violations of the order or of the compliance 

plan, and to report any such violations and 

any corrective action taken. (Proposed 

Order, TT 10)i), 15.) 

3. Orders to discontinue conduct 

If the Department determines (a) that 

Ameritech is violating any of the terms of 

the order, its compliance plan, or additional 

conditions imposed on Ameritech in connection with approval of its interexchange service, or (b) any other conduct by Ameritech 

may impede competition for interexchange 

telecommunications in the Trial Territory, 

the Department may require Ameritech to 

discontinue such violations or other conduct. 

Ameritech bears the burden of proof in resisting such a requirement. (Proposed Order, 

T 15.) 

4. Civil fines 

In the event of a violation by Ameritech, 

the proposed order gives the Department the 

authority to ask the Court to impose civil 

fines. (Id.) 

5. Limited geographic scope 

The proposed trial is limited initially to 

the portion of the Chicago LATA that is in 

the state of Illinois and to the Grand Rapids, 

Michigan, LATA. Focusing on the state of 

competitive conditions on a LATA-by-LATA 

basis ensures that the competitive analysis 

takes into account differences not just in 

state regulatory schemes, but also in demographic and other conditions. Chicago was 

chosen because there is widespread agreement that, of all the areas in the Ameritech 

service territory, the potential for competition—though still embryonic—is most advanced there. Grand Rapids was chosen because the first competing exchange carrier 

in Michigan, U.S. Signal (formerly known as 

City Signal), has been certified to serve a 

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May 2, 1995 CONGRESSIONAL RECORD— SENATE S5973 

portion of that territory and was the subject 

of a detailed interconnection order issued by 

the Michigan Public Service Commission. 

Thus, it seems appropriate for the Department to focus first on those two areas and to 

be prepared to act with respect to those 

areas within the period set forth in paragraph 11(a). 

The inclusion of these two areas in the 

Trial Territory does not mean that the trials 

in those two areas necessarily must proceed 

simultaneously. Competitive conditions in 

one of the areas may justify proceeding with 

an interexchange trial before such conditions 

have evolved in the other area. Further, explicit provision is made for expansion of the 

Trial Territory in those two states, and each 

area in the two states will stand on its own 

merits, governed by the standard in paragraph 11b).18 (See Proposed Order, T 17.) As 

with other determinations under the proposed order, the Court may, in its discretion, 

review any decision to expand the Trial Territory, (Id., T 51.) If the Department approves 

expansion, such expansion could not go into 

effect for at least 30 days (Proposed Order, 

T 17), thus allowing a period of time during 

which interested persons could seek a temporary restraining order from the Court. A 

decision by the Department not to expand 

the Trial Territory would also be reviewable. 

(See Proposed Order, T 51.) 

Most important, the designation of those 

two areas as comprising the initial Trial 

Territory, and of those two states as being 

eligible for expansion of the Trial Territory 

within the framework of the order, is not 

meant in any way to discourage the ongoing 

efforts of the other Ameritech states (Indiana, Ohio, and Wisconsin)—or similar efforts 

underway or that may arise in the states in 

which other RBOCs operate—to bring the 

benefits of local competition to the consumers in their states, completely independent of any interexchange entry by 

Ameritech in those states. Local competition promises benefits to consumers separate 

from any benefits they may get as a result of 

interexchange competition from Ameritech. 

Moreover, the development of such competition can only hasten the day when interexchange entry by Ameritech—or other 

RBOCs—will be appropriately granted under 

Section VII or VIII(C), wholly apart from the 

proposed order now before the Court. 

6. Types of services 

Paragraph 7 of the proposed order limits 

Ameritech to providing certain enumerated 

types of interexchange services that have a 

clear nexus to the Trial Territory, i.e., services as to which the fact that competition 

exists in the Trial Territory is relevant even 

if competition does not exist elsewhere in 

the country. Thus, for most switched services, as to which the interexchange carrier is 

selected by the party placing the call, 

Ameritech could provide interexchange service originating from the Trial Territory. 

(Proposed Order, T 7(a).) For services such as 

inbound 800 service, which is ordinarily carried by the interexchange carrier selected by 

the billed party at the terminating location, 

Ameritech could provide service terminating 

at subscribers’ locations in the Trial Territory. (Proposed Order, T 7(b).) Ameritech may 

also provide certain other types of services 

normally provided by interexchange carriers 

to their subscribers, such as calling card and 

private line services, with limitations to ensure an adequate nexus to the Trial Territory. (Proposed Order, TT 7(c)-(d).) There may 

also be other types of services that 

Ameritech may wish to offer in the future in 

order to stay competitive with the offerings 

of other IXCs. Because these services may 

not yet exist, it is difficult to enumerate 

them, much less to determine in advance 

whether any potential harm to competition 

is adequate addressed by the proposed order. 

Hence, a mechanism is provided to allow 

Ameritech to provide such services, subject 

to disapproval by the Department. (Proposed 

Order, T 7(e).) Under the provision, Ameritech 

would have to give at least 30 days notice of 

such services, and the Department, after soliciting comments from interested persons, 

could disapprove the offering of such services. A relatively short notification and objection period is provided because it is anticipated that this provision will principally 

be used to respond to competitive offerings 

in the marketplace; however, a decision not 

to disapprove the services would be without 

prejudice to later withdrawal of authority 

under paragraphs 15 or 16 of the order if necessary. 

7. Ownership of transport facilities 

Paragraph 19 of the proposed order provides that Ameritech shall not own any of 

the transport facilities used to provide interexchange telecommunications. Instead it 

must contract for such facilities for a term 

not to exceed five years. This safeguard 

serves two purposes: to the extent Ameritech 

has not made substantial investments in facilities in the ground, it makes it easier to 

terminate the trial; and it reduces 

Ameritech’s incentive to discriminate in 

favor of those facilities because it makes it 

harder for Ameritech to capture all of the 

benefits of such discrimination. 

8. Separate subsidiary requirements 

Paragraph 20 of the proposed order provides for the separation of the Ameritech 

subsidiary providing interexchange services 

from the Ameritech local exchange operations. The provisions generally track the 

more stringent approach taken by the Federal Communications Commission in its 

Computer Inquiry II proceedings and rules 

and in the requirement of separate subsidiaries for RBOC provision of commercial mobile radio services, rather than more lenient 

approaches relying on cost accounting instead of structural separation (such as the 

approach taken by the FCC in its Computer 

Inquiry III proceeding 19). The more stringent 

structural separation approach is more appropriate for a trial of interexchange services, at least in the early stages before competition is fully developed and before additional information about the need for separate subsidiary requirements is gained from 

the trial itself.20

9. Equal access provisions 

Under the proposed order, the equal access 

provisions of the Decree would remain in full 

force; the order would grant Ameritech only 

a temporary and limited modification of the 

line of business restriction of Section II(D)(1) 

of the Decree and would not relieve 

Ameritech of any other restrictions. (Proposed Order, T 4.) In addition, a number of 

provisions are added to adapt the equal access concept to a situation in which an 

Ameritech subsidiary is one of the interexchange carriers interconnecting with the 

Ameritech local exchange operations. These 

provisions deal with equality in the type, 

quality, and pricing of interconnection, exchange access, and local exchange telecommunications (TT 21, 25); technical information, standards, collocation, and other 

terms of interconnection (TT 22–24); availability of service order, maintenance, and 

other telecommunications support systems 

(T 26);21 billing services (T 27); location number 

portability (T 28); White Pages directory listings (T 29); and customer information (TT 30–

32).22

10. Marketing restrictions 

The marketing provisions of the order 

(TT 33–47) deal with two principal issues: (1) 

‘‘equal access’’-type obligations preventing 

Ameritech’s local exchange operations from 

assisting the Ameritech interexchange subsidiary in its marketing efforts, and (2) the 

circumstances under which Ameritech can 

make one-stop shopping arrangements (i.e., 

the ability of customers to get their local 

and long distance calling from one, full-service carrier) available to business and residential customers, respectively. The ‘‘equal access’’ obligations (TT 34, 36, 38–39, 44) embody 

the basic principles of existing obligations, 

with modifications to ensure that those principles will be effectuated when Ameritech 

competes in the provision of interexchange 

services. The provisions regarding one-stop 

shopping (TT 35, 41–43, 45–47) are intended to 

avoid giving an inappropriate competitive 

advantage to, or imposing an unfair handicap on, any carrier. The order would allow 

Ameritech to offer one-stop shopping to business or residential customers only when at 

least one other carrier is marketing services 

on a comparable basis.23

The proposed order does not set out specific conditions under which Ameritech can 

engage in ‘‘bundle-pricing’’ of its interexchange services with local exchange or 

intraLATA toll services (i.e., pricing whose 

availability is contingent upon the subscriber’s election of Ameritech for both such 

services). Whether such bundle-pricing is appropriate, and the types of conditions needed 

to prevent harm to competition in interexchange services, depends on the state of 

competition. The issue of ‘‘bundle-pricing’’

has therefore been made an element of 

Ameritech’s compliance plan (Proposed 

Order, TT 10(e)–(f)). Ameritech will tailor its 

proposal to the competitive circumstances 

then existing, and the Department will review it in light of those circumstances. 

11. Compliance plan 

The proposed order requires Ameritech to 

file a compliance plan prior to obtaining approval to begin its trial of interexchange 

services. (Proposed Order, T 10.) The compliance plan reinforces the separate subsidiary, 

equal access, and marketing provisions of 

the order by requiring Ameritech to spell out 

detailed plans for implementation of those 

requirements. (Proposed Order, TT 10(a)–(d), 

(g).) It also provides the mechanism for determining the appropriate market and other 

conditions for Ameritech’s offering of bundled pricing (TT 10(e)–(f)) and for the 

Ameritech interexchange subsidiary’s ownership, leasing, or control of any of the facilities it uses to provide local exchange telecommunications and exchange access services (T 10(h)). The compliance plan also will 

include procedures for Ameritech to detect 

and self-report violations of the order or the 

compliance plan (T 10(i)) and for Ameritech’s 

withdrawal from interexchange service 

should it be required to do so (T 10(j)). 

12. Other conditions 

Ameritech’s entry into interexchange services may also be conditioned on any other 

terms that may be appropriate to further the 

purposes of the order. (Proposed Order, 

T 11(e).) 

IV. THE PROPOSED MODIFICATION SHOULD BE

APPROVED BECAUSE IT IS IN THE PUBLIC INTEREST. 

A. The public interest standard applies to entry 

of the proposed modification 

In reviewing the proposed modification, 

the Court should apply the ‘‘public interest’’

standard. The motion was filed by the United 

States under section VII of the decree, and 

Ameritech and AT&T have joined the United 

States in stipulating to the proposed order. 

The Court of Appeals has held that a proposed modification satisfies the public interest test ‘‘so long as the resulting array of 

rights and obligations is within the zone of 

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S5974 CONGRESSIONAL RECORD— SENATE May 2, 1995 

settlements consonant with the public interest today.’’ United States v. Western Electric 

Co., 993 F.2d 1572, 1576 (D.C. Cir.) (quoting 

United States v. Western Electric Co., 900 F.2d 

283, 307 (D.C. Cir.), cert. denied, 498 U.S. 911 

(1990)) (emphasis in original), cert. denied, 114 

S. Ct. 487 (1993). The public interest test is 

‘‘flexible,’’ allowing the government to 

choose among various decree provisions that 

could further the public interest in competition. When the government and the party 

whose decree obligations are at issue agree 

on a decree modification proposal, as is the 

case here, 

‘‘the court’s function is not to determine 

whether the resulting array of rights and liabilities ‘‘is one that will best serve society,’’

but only to confirm that the resulting ‘‘settlement is ‘within the reaches of the public 

interest.’’’

993 F.2d at 1576 (citing and quoting 900 F.2d 

at 309; United States v. Bechtel Corp., 648 F.2d 

660, 666 (9th Cir.), cert. denied, 454 U.S. 1083 

(1981); and United States v. Gillette Co., 406 

F.Supp. 713, 716 (D. Mass. 1975)) (emphasis in 

original). Therefore, a court is to approve a 

consensual decree modification under the 

public interest standard unless ‘‘it has exceptional confidence that adverse antitrust consequences will result—perhaps akin to the 

confidence that would justify a court in 

overturning the predictive judgments of an 

administrative agency.’’ 993 F.2d at 1577. 

The Department welcomes this Court’s 

careful review of the proposed modification 

under this standard. We are confident that 

the text of the proposed order, the explanation that we are providing in this Memorandum, and the comments of other interested persons will give the Court ample reason for entering the proposed order. 

B. The proposed modification is in the public 

interest 

The proposed modification both avoids 

harm to competition in the interexchange 

market and yields affirmative benefits to 

competition. Accordingly, it is in the public 

interest and should be approved and entered 

by this Court. 

1. The proposed modification is structured to 

avoid harm to competition in the interexchange market 

Far from giving the Court ‘‘exceptional 

confidence that adverse antitrust consequences will result,’’ the proposed modification gives the Court ample assurance 

that no adverse consequences will occur. As 

this Memorandum has explained, the order 

we ask the Court to enter would permit only 

a limited trial of Ameritech provision of 

interexchange services, and even that trial 

could not begin until the Department (and 

the Court if it reviews the Department’s determination) is satisfied that local competition exists and will continue to develop in 

the Trial Territory. In addition, the interexchange services that the modification permits would remain subject to a variety of 

safeguards, including the power of the Court 

or the Department to terminate the trial at 

any time. 

The proposed order thus ensures that competition in the interexchange market will 

not be harmed by the modification—a fact 

underscored by AT&T’s stipulation that the 

proposed modification is in the public interest and by the support of Sprint, CompTel, 

and ACTA. 

2. The trial will provide affirmative benefits to 

competition 

Not only is the proposed order structured 

to prevent any harm to competition, but it 

also presents a valuable opportunity affirmatively to advance the public interest in competition. 

First, as a prerequisite to its offering of 

interexchange service pursuant to this modification, Ameritech must take specific actions to remove barriers to local competition, including those relating to terms of 

interconnection, unbundling of loops, dialing 

parity, and number portability. The proposed 

modification thus complements the efforts of 

the state regulatory commissions in the 

Ameritech region to lower such barriers, as 

reflected in the comments of the staff of the 

Michigan PSC on an earlier version of the 

proposal: 

‘‘[T]he Department of Justice (DOJ) and 

the court should move forward in a measured 

fashion to permit more competition in the 

telecommunications marketplace. That action, however[,] should be such that it recognizes the need to balance the interests of the 

Regional Bell Operating Companies (RBOC), 

their local and toll competitors, and residential and business customers in the telecommunications marketplace. That balance 

can be achieve through an approach which 

minimizes the potential for anticompetitive 

actions on the part of the RBOCs. This coupled with the coordination and recognition 

of appropriate State law and regulatory 

agency actions to remove barriers to entry 

to the State or local telecommunications 

markets should set the stage for a trial waiver of the interLATA restrictions currently in 

effect.’’—Michigan PSC Staff Comments on 

Draft Dated February 21, 1995 [Appendix, Tab 

16]. 

Second, the trail will yield important information about RBOC provision of interexchange services. The Department, the 

Court, all segments of the telecommunications industry, and the public will be able 

to observe and analyze the effects of the stipulated conditions, and related regulatory 

and technological developments, on competition in local and interchange telecommunications markets. We will learn much about 

whether local competition will develop to 

such an extent that harm to interchange 

competition can be avoided, with or without 

other safeguards. We will also enhance our 

understanding of the importance of factors 

such as call set-up and transmission delays 

resulting from interim forms of number portability, consumer demand for one-stop shopping, the terms and conditions of interconnection, and the pricing of network elements in the development of such competition. If competition is not sufficient to be 

self-policing, we may learn how difficult and 

costly it is to monitor and prevent discrimination and cross-subsidization. We will also 

learn about what kinds of safeguards are effective and/or necessary. 

No trial, or course, could provide all the 

answers. Nonetheless, this trial should substantially assist in determining whether and 

on what terms the Decree’s interexchange 

restriction should be retained, modified or 

removed. 

Third, the trial may yield important information about the possible benefits to interexchange competition from RBOC provision 

of interexchange services. The RBOCs have 

argued that the interexchange market, particularly for residential customers, is oligopolistic rather than competitive, and that 

RBOC entry will tend to disrupt that oligopolistic coordination, resulting in substantial 

benefits to consumers. While Ameritech has 

not yet presented sufficient evidence to substantiate this claim, actual experience may 

cast additional light on this argument. 

CONCLUSION

The carefully crafted details of the proposed order grew out of intensive work by 

the Department and extensive consultation 

and negotiation with interested persons. We 

do not expect all commenters to be satisfied; 

in an arena filled with competing private interests, we can be assured that some will 

claim that the balance has not been struck 

precisely right. The issue, however, is whether the Department ‘‘reasonably regard[s]’’

the modification ‘‘as advancing the public 

interest,’’ 993 F.2d at 1576. On that issue, the 

terms of the proposed order demonstrate, 

and we believe the comments of interested 

persons as a whole will confirm, that the 

proposed modification advances the public 

interest. The Court should therefore enter 

the proposed order and allow this important 

trial to proceed, subject to the preconditions, safeguards, and continuing review for which the order itself provides. 

Respectfully submitted, 

ANNE K. BINGAMAN, 

Assistant Attorney 

General. 

WILLARD K. TOM, 

Counselor to the Assistant Attorney 

General. 

DAVID S. TURETSKY, 

Senior Counsel to the 

Assistant Attorney 

General. 

JERRY S. FOWLER, Jr., 

Special Counsel to the 

Assistant Attorney 

General. 

DONALD J. RUSSELL, 

Chief, Telecommunications Task Force. 1See, e.g., MCI Corp., A Blueprint for Action: The 

Transition to Local Exchange Competition, Tab 1 at 1 

(March 1995) [Appendix, Tab 1]; William J. Baumol & 

J. Gregory Sidak, Toward Competition in Local Telephony 9 (1994); Affidavit of William J. Baumol at 5, 

submitted on behalf of AT&T as an attachment to 

AT&T’s Opposition to Ameritech’s Motions for ‘‘Permanent’’ and ‘‘Temporary’’ Waivers From the Interexchange Restrictions of the Decree (filed with the 

Department in opposition to Ameritech’s original 

proposal on February 15, 1994) [that opposition cited 

hereinafter as ‘‘AT&T Opposition to Original Proposal’’] [Appendix, Tab 2]. 2See Order, Dkt. No. 93–0409 (Ill. Commerce 

Comm’n, July 20, 1994) (MFS) [Appendix, Tab 3]; 

Order, Dkt. No. 94–0162 (Ill. Commerce Comm’n Sept. 

7, 1994) (Teleport) [Appendix, Tab 4]; In re City Signal, 

Inc., Application for a License to Provide Basic Local 

Exchange Service in the Grand Rapids Exchange, No. 

U–10555, 1994 Mich. PSC LEXIS 267 (Mich. Pub. Serv. 

Comm’n Oct. 12, 1994) [Appendix, Tab 5]. 3Teleport is planning to test the use of cable facilities owned by Tele-Communications, Inc., 

(‘‘TCI’’) to provide local exchange service to residential customers in the Chicago area. See Leslie 

Cauley, Tele-Communications, Motorola to Join 

Teleport for Venture in Chicago Area, Wall Street J., 

Oct. 12, 1994, at B5. Others are exploring similar possibilities. 4Specifically, Ameritech asserted that ‘‘industrywide developments . . . are themselves more than 

sufficient to warrant removal of the interexchange 

restriction.’’ Ameritech Memorandum in Support of 

Motions to Remove the Decree’s Interexchange Restriction at 3 (filed with the Department of Justice on 

Dec. 7, 1993) [Appendix, Tab 6]. The Department does 

not believe that the record is sufficient at this time 

to support this contention (either as to technological or regulatory developments), and does not 

base the present motion on any such contention. 5These prohibitions were also justified as a way to 

promote universal service, by requiring high-margin 

services to subsidize below-cost services and prohibiting new entrants from ‘‘cream skimming’’ those 

services. In recent years, progressive states have 

begun to explore alternative ways of ensuring universal service that would permit competition and 

allow consumers the benefit of the efficiencies and 

lower prices that competition brings. 6Positive network externalities characterize those 

‘‘products for which the utility that a user derives 

from consumption of the good increases with the 

number of our agents consuming the good. . . . 

[T]he utility that a given user derives from the good 

depends upon the number of other users who are in 

the same ‘network’ as he or she.’’ Michael L. Katz & 

Carl Shapiro, Network Externalities, Competition and 

Compatibility, 75 AM. Econ. Rev. 424 (1985). ‘‘The utility that a consumer derives from purchasing a telephone . . . clearly depends on the number of other 

households or businesses that have joined the telephone Network.’’ Id. 

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May 2, 1995 CONGRESSIONAL RECORD— SENATE S5975 7 In re Illinois Bell Telephone Company Proposed Introduction of a Trial of Ameritech’s Customers First 

Plan is Illinois, Dkt. No. 94–0096, slip op. at 97 (Ill. 

Commerce Comm’n, Apr. 7, 1995) [hereinafter ‘‘ICC 

order’’] [Appendix, Tab 7]. 8A Blueprint for Action, supra note 1, Tab 3 at 2 

[Appendix, Tab 1]. A similar telephone survey was 

conducted in January 1994, by First Market Research Corporation, for a study sponsored by AT&T, 

MCI, and CompTel. That survey found that in the 

absence of number portability, the number of respondents interested in changing to a cable TV company for local telephone service in response to a 20% 

discount fell from 32.8% to 22.6%. Corresponding figures for a 10% discount and for no discount were a 

drop from 18% to 12.6% and from 8.7% to zero, respectively. Economics & Technology, Inc, & Hatfield 

Associates, Inc., The Enduring Local Bottleneck 

108–10 (February 1994) [Appendix, Tab 8]. 9 Initially, the Trial Territory would consists of 

the portion of the Chicago LATA that is located in 

the state of Illinois and the Grand Rapids LATA in 

the state of Michigan. The two LATAs could begin 

their interexchange trials at different times, and the 

Trial Territory could have eventually be expanded 

to include other portions of those two states (but 

only those two states) if those portions met the 

competitive standards set out in the proposed order. 10 Regulatory consideration of such issues is already well underway in the trial states. In Michigan, 

the Michigan PSC adopted on an interim basis a 

pricing scheme for unbundled loops that was proposed by City Signal, a CAP which in 1994 was granted a license to provide local service in the Grand 

Rapids LATA. Under the interim scheme, Ameritech 

will charge City Signal $8 for a residential loop and 

$11 for a business loop. The Commission will further 

address these issues in an upcoming generic proceeding, to commence June 1, 1995, and to be completed no later than nine months thereafter. In the 

matter of the Application of City Signal, Inc., for an 

Order Establishing and Approving Interconnection Arrangements with Ameritech Michigan, Case No. U–

10647, at 85–95 (Mich. Pub. Serv. Comm’n, Feb. 23, 

1995) [hereinafter ‘‘City Signal Order’’] [Appendix, 

Tab 9]. 

In Illinois, the Illinois Commerce Commission 

heard extensive testimony on Ameritech’s proposed 

pricing of unbundled loops and ports, disapproved 

certain aspects of that pricing, and required that 

Ameritech file new tariffs to ensure that the sum of 

prices for unbundled network functions not exceed 

the price of bundled functions and to reduce and 

equalize the contribution that those prices would 

make to common costs. ICC Order, supra note 7, at 

60–61 [Appendix, Tab 7]. 

11The issue of ‘‘sub-loop unbundling’’ is dealt with 

in similar fashion. AT&T and others have contended 

that merely unbundling loops from ports does not go 

far enough. Instead, AT&T contends that local service should be unbundled into at least twelve basic 

network elements: distribution, concentration, feeding, end office switching, dedicated line transport, 

common transport, tandem switching, databases 

used in signaling, packet switching of signaling 

from the originating central office, packet switching 

of signaling at the destination, links from the packet switches to data processors and storage points, 

and operator services. Affidavit of Lawrence A. Sullivan, submitted by AT&T in its Opposition to Original Proposal, at 29–30 (filed with the Department of 

Justice on Feb. 15, 1994) [Appendix, Tab 10]. Advocates for this position argue, for example, that a 

provider of personal communications services 

(‘‘PCS’’) might be able to provide a witness connection from the home to a neighborhood node, and 

then use Ameritech facilities to get from the neighborhood node to the central office. Testimony of Dr. 

Mark T. Bryant on behalf of MCI before the Illinois 

Commerce Commission, at 10–11 (Dkt. No. 94–0048, 

Aug. 8, 1994) [Appendix, Tab 11]. Ameritech responds 

that such an approach could lead to the uneconomic 

stranding of significant amounts of its investment, 

to no real purpose since the facilities can be made 

available to competitors on a nondiscriminatory 

basis and since continued use of Ameritech facilities 

whose costs are already sunk would be in the interests of consumers. The proposed order does not require sub-loop unbundling, but makes clear that this 

resolution is without prejudice to the power of a 

state to require such further unbundling. (Proposed 

Order, T 1(m).) Moreover, it makes clear that the Department may consider the competitive effects of 

such unbundling (or lack thereof). (Id.). 12State law or regulatory requirements intended 

to benefit competition in the intraLATA toll market may require Ameritech to implement 

intraLATA toll dialing parity before Ameritech has 

met the conditions in T 11 of the proposed order. In 

that case, intraLATA toll dialing parity would come 

into effect before Ameritech commences interexchange service. 

13The proposed order does not displace state regulation, however. (See Proposed Order, T 3.) State regulators may choose to regulate arrangements even 

when consented to by the carriers involved. 

In allowing paragraph 9(e) to be satisfied by consent of the other exchange carriers, we recognize 

that unequal bargaining power may lead a competitive exchange carrier to agree to unsatisfactory 

terms. That is precisely why the provisions of paragraph 9 are not a checklist that will lead automatically to Ameritech’s entry into interexchange service. The ultimate issue will always be the competitive results of the negotiated arrangements, as tested against actual marketplace facts. (See Section 

III.B.) Thus, because the proposed order requires 

that the Department analyze market facts and assess competitive circumstances, the proposed order 

gives Ameritech the incentive to negotiate in good 

faith and arrive at a procompetitive agreement with 

competitive exchange carriers. 14Of course, the reasons advanced by a competing 

carrier as to why the proffered interconnection arrangements are inadequate may have a bearing on 

any assessment of competitive circumstances. 15See, e.g., A Blueprint for Action, supra note 1, Tab 

3 at 5–19 (discussing shortcomings of interim number 

portability) [Appendix, Tab 1]. 16The compliance plan, which deals principally 

with post-entry safeguards, is discussed in more detail in Section III.C, below. 17The Department is currently investigating 

claims that regulation and post-entry safeguards are 

sufficient to ensure that there is no substantial possibility that an RBOC could engage in anticompetitive conduct, without the market-opening measures 

contemplated in the proposed order, in connection 

with the Motion of Bell Atlantic Corporation, 

BellSouth Corporation, NYNEX Corporation, and 

Southwestern Bell Corporation to Vacate the Decree. (Bell Atlantic has since withdrawn from that 

motion.) Ameritech is not advancing that proposition at this time, however, and the proposed trial 

is not designed to test such claims. 18The staff of the Michigan PSC, in its comments 

on an earlier version of the proposal, urged the Department to include the Detroit and Lansing LATAs 

in the Trial Territory. Revised Comments of the 

Staff of the Michigan Public Service Commission 

(Mar. 22, 1995) [Appendix, Tab 15]. The Department 

does not believe this change to be appropriate, because it is too early to tell how widely different 

areas of the state will vary in the availability of 

competitive alternatives and the ability of such alternatives to guard against harm to competition in 

the interexchange market. We stress, however, that 

the modification provisions of the proposed order establish sufficient flexibility to deal appropriately 

with whatever competitive conditions should arise. 19The FCC’s order removing structural separation 

requirements was vacated and remanded by the 

Ninth Circuit. California v. FCC, 39 F.3d 919 (9th Cir. 

1994), cert. denied, 63 U.S.L.W. 3721 (U.S. April 3, 

1995). Further proceedings on remand are pending at 

the FCC. 20Even under the FCC’s Computer Inquiry II approach, certain kinds of services can be shared between the interexchange subsidiary and other affiliates. These are enumerated in T 20(g). To the extent 

that any such sharing is carried out in a way that 

harms competition, the Department and the Court 

retain the power to take corrective action under TT 

15–16, as well as to take that fact into account in 

evaluating the progress of the trail under T 18. 21The proposed order calls for ‘‘equivalent’’ rather 

than identical order, maintenance, and support systems, to account for the possibility that access to 

such systems may involve the use of different interfaces because of the different requirements of different carriers’ computer systems and because of 

Ameritech’s need to protect the security of its systems. The access must, however, be equivalently 

convenient; the provision would not be satisfied by 

providing electronic connections to Ameritech’s 

interexchange subsidiary but only fax machines to 

its competitors. 22 Among the restrictions on access to customer information is a provision that the Ameritech interexchange subsidiary may not have access to customer proprietary network information (‘‘CPNI’’) as 

defined by the FCC, except in the same manner that 

CPNI is available to unaffiliated carriers. This 

would mean, for example, that unlike the Ameritech 

local exchange operations, the Ameritech interexchange subsidiary would have to obtain the affirmative consent of the local exchange operations’

customers in order to get local and intraLATA toll 

usage patterns of those customers. At one point, 

Ameritech expressed concern that this restriction 

would put it at a marketing disadvantage compared 

to AT&T, which could target the marketing of onestop shopping services to its more lucrative interexchange customers, based on their long-distance 

usage patterns, which would be available to AT&T 

without such affirmative consent because they 

would relate to services as to which AT&T was the 

subscribers’ provider. Ameritech concluded, however, that it could overcome this disadvantage if it 

could start seeking such affirmative consent from 

Ameritech local exchange customers as soon as possible. Since nothing in the existing Decree would appear to prohibit the seeking of such consent before 

the trial begins or even before the proposed order is 

entered, so long as customers are not misled as to 

the actual extent of Ameritech’s authority to offer 

interexchange service, Ameritech withdrew this concern. 23 In some cases, such as the provision of interexchange and intraLATA toll services by the interexchange subsidiary (TT 41, 45) and the provision of 

Centrex service to business customers (T 43), the proposed order provides for the offering of such services 

immediately upon the commencement of 

Ameritech’s authority to offer interexchange telecommunications, because other carriers are already 

offering such services on a ‘‘one-stop-shopping’’

basis. 

The PRESIDING OFFICER. The Senator from North Dakota. 

Mr. DORGAN. Madam President, I 

ask unanimous consent that my remarks appear as in morning business. 

The PRESIDING OFFICER. Without 

objection, it is so ordered. 

f 

TRADE POLICY 

Mr. DORGAN. Madam President, I 

was very interested to hear the comments by Senator BYRD and Senator 

HOLLINGS today on the issue of trade. I 

think the three of us, with perhaps one 

or two others, are the only Members of 

the Senate who come and speak about 

the issue of trade. There is almost a 

conspiracy of silence in this Senate, in 

the entire Congress, and in this town, 

especially, on the issue of trade. 

U.S. TRADE POLICY

We have the largest trade deficit in 

human history in this country now. We 

have a lot of hand wringing about the 

fiscal policy deficits, and they are dangerous and troublesome. We must deal 

with them. But no one speaks about 

the trade deficit and what causes it and 

what it means for our country. I hope 

one day soon that will change, because 

today’s trade deficits will be repaid in 

the future with a lower standard of living in this country. We must get rid of 

these terrible, terrible trade deficits 

that are going to ruin this country’s 

future. 

Beginning on Friday this week, I am 

going to make about four presentations 

on the floor of the Senate over the period of the next couple of weeks, talking about the last 50 years. I want to 

start with post-Second World War 

trade strategy, which was really foreign policy, in which we were linked to 

other countries try to strengthen others around the world who had been suffering from the ravages of war. During 

that period of time, there was general 

expansion in world trade and general 

expansion of prosperity. Our allies 

prospered and so did we. We prospered 

in output. We saw higher wages. Our 

country generally, in the first 25 years, 

did well. 

You look at the last 25 years and you 

will see, even as others began to compete with us very aggressively, we 

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