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[Congressional Record Volume 141, Number 71 (Tuesday, May 2, 1995)]
[Senate]
[Pages S5961-S5975]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

                      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, 
[[Page S5962]]  which prohibits unfair trade practices has, according 
to the 1995 Foreign Trade Barriers report, a ``weak and ineffective'' 
enforcement history. The 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 export-industry 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 States-Japan 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.
       [[Page S5963]] International Insurance Council.
       Joint Automotive Supplier Government Action Council.
       Motion Picture Association.
       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 
                     States-Japan 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 
     [[Page S5964]]  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 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, long-time 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 
                     States-Japan 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 foot-dragging, 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 
     [[Page S5965]]  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 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 all-too-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 
[[Page S5966]]  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 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.
       [[Page S5967]] 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 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, para.para.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, para.para.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, para.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, para.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.
     Footnotes at end of article.
                    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 
     [[Page S5968]]  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 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 cross-subsidize 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 
     [[Page S5969]]  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 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, para. 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, para.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, 
     para.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, para.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 non-facilities-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 
     [[Page S5970]]  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 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, para.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, 
     [[Page S5971]]  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 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, para.11(a).) It may 
     also take any other action reasonably necessary to make its 
     decision, including conducting third-party discovery. (Id., 
     para.para.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., para.51.) If the Department 
     approves commencement of the trial, such approval could not 
     go into effect for at least 30 days (Proposed Order, 
     para.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, 
     para.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 facilities-based 
     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, para.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, post-entry 
     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 post-entry 
     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, Sec. 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, para. 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, Sec. 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 
     [[Page S5972]]  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?
       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, para.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, para.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, para. 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, para. 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 post-entry 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, para.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, para.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, para.16.), subject to review by the Court 
     (Proposed Order, para.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, para.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, 
     para.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, para.para.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, para.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 
     [[Page S5973]]  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 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, para.17.) As with 
     other determinations under the proposed order, the Court may, 
     in its discretion, review any decision to expand the Trial 
     Territory, (Id., para.51.) If the Department approves 
     expansion, such expansion could not go into effect for at 
     least 30 days (Proposed Order, para.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, para.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, para.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, para.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, para.para.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, para.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, para.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 (para.para.21, 25); technical information, 
     standards, collocation, and other terms of interconnection 
     (para.para.22-24); availability of service order, 
     maintenance, and other telecommunications support systems 
     (para.26);\21\ billing services (para.27); location number 
     portability (para.28); White Pages directory listings 
     (para.29); and customer information (para.para.30-32).\22\
     10. Marketing restrictions
       The marketing provisions of the order (para.para.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 (para.para.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 
     (para.para.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, para.para.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, para.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, para.para.10(a)-(d), 
     (g).) It also provides the mechanism for determining the 
     appropriate market and other conditions for Ameritech's 
     offering of bundled pricing (para.para.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 
     (para.10(h)). The compliance plan also will include 
     procedures for Ameritech to detect and self-report violations 
     of the order or the compliance plan (para.10(i)) and for 
     Ameritech's withdrawal from interexchange service should it 
     be required to do so (para.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, 
     para.11(e).)
[[Page S5974]] 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 
     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.
     \1\See, 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].
     \2\See 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].
     \3\Teleport 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.
     \4\Specifically, Ameritech asserted that ``industry-wide 
     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.
     \5\These 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 
     [[Page S5975]] 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.
     \6\Positive 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.
     \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].
     \8\A 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].
     \11\The 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, para.1(m).) 
     Moreover, it makes clear that the Department may consider the 
     competitive effects of such unbundling (or lack thereof). 
     (Id.).
     \12\State 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 para.11 of the proposed 
     order. In that case, intraLATA toll dialing parity would come 
     into effect before Ameritech commences interexchange service.
     \13\The proposed order does not displace state regulation, 
     however. (See Proposed Order, para. 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.
     \14\Of 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.
     \15\See, e.g., A Blueprint for Action, supra note 1, Tab 3 at 
     5-19 (discussing shortcomings of interim number portability) 
     [Appendix, Tab 1].
     \16\The compliance plan, which deals principally with post-
     entry safeguards, is discussed in more detail in Section 
     III.C, below.
     \17\The 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.
     \18\The 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.
     \19\The 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.
     \20\Even 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 para. 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 para.para. 15-16, as well as to take that fact 
     into account in evaluating the progress of the trail under 
     para. 18.
     \21\The 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 one-stop 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 
     (para.para. 41, 45) and the provision of Centrex service to 
     business customers (para. 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.

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