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Computer technology and US communications law
Computer technology and US communications law
Philip S. Nyborg
Against
a
rulings
by
background the
munications author in
the
the issues
focuses
His
on the
Inquiry
of the
deliberations with
currently
USA.
the
Second FCC
of
and
the
US
to
the
respect
Communications
Consumer Reform
law
in
Congress
Com-
important
communications
Computer on
recent
Commission,
discusses
emerging discussion
of
Federal
Act.
In are
questions
conclusion,
key
suggested
for
in
consideration planning Congressional
proposed
a
study Office
the by of Technology
Assessment. The
author
Federation Societies, Washington,
is
with
the
of Information 2 100
L
DC 20037,
American Processing
Street,
NW,
USA.
This article is based on a presentation at the National Computer Conference, held in Dallas, Texas, on 13-l 6 June 1977, in a panel chaired by MS Susan Nycum on current legal issues in the information processing field.
It is important at the outset to point out the essentially economic forces operating in the telecommunications field. As computer and communications technologies converge, major new markets are emerging for digital services and equipment, particularly terminal devices. In the USA, much of the controversy before the Federal Communications Commission (FCC) and the Congress consists of potential suppliers (both regulated common carriers and nonregulated firms) vying for shares of this multibillion dollar market. The debate, however, is stated in terms of major public policy considerations, which are the ground rules set out by the Congress in the Communications Act of 1934. The outcome of this controversy will affect individuals in the information industry as both users and producers of the underlying technology. The telecommunications industry, like other public utilities, is one of the few exceptions in the US economy to the general concept reflected in our antitrust laws, that no firm shall possess monopolistic control over a particular market. Based upon so-called ‘natural monopoly’ conditions, the Communications Act of 1934 implements a policy under which monopoly structure of the communications field is permitted under government control. In the late 1960s and in the 1970s the FCC has permitted competition in the provision of certain services.’ In the early 1970s it permitted ‘specialized common carriers’ to own and operate transmission facilities. Such entities (for example MCI) generally operated to connect high-volume markets in data and voice communications.
FCC rulings ’ While before this period there were, of numerous Bell-affiliated or course, these independent common carriers, carriers generally divided the commarket geographically. munications Recent FCC rulings have permitted competition in the same geographical area, with the result that the user was given a choice of prospective vendors. 2 This was an effort to ensure that a monopoly communications carrier could not subsidize its data processing affiliate, thereby giving it an unfair advantage in a competitive market.
374
In this same period, the Commission made its ruling in the first ‘Computer Inquiry’. As early as 1966, it had become apparent that the convergence of computer and communications technologies raised important regulatory questions, primarily with respect to the potential offering of data processing services by common carriers, and the provision of communications services as part of the overall offering of a non-regulated data processing company. The Commission ruled in 197 1 that common carriers would be allowed to provide data processing services only through separate subsidiaries.2 Further, it held with respect to ‘hybrid services’3 that it would regulate
TELECOMMUNICATIONS
POLICY
December
1977
Computer technology and US communications law
only those which were essentially communications, exercising complete regulatory forbearance with respect to those which were primarily data processing. This first Computer Inquiry ruling had a unique impact on AT&T: as a result of a 1956 consent decree in which it agreed with the US Department of Justice not to enter the competitive data processing market, the common carrier was precluded from providing data processing services even through a separate subsidiary. In subsequent years, the Commission certified as common carriers certain entities which did not provide their own transmission facilities, notably PC1 and Telenet. These entities became known as ‘valueadded carriers’, a term which the FCC has recently abolished from its vocabulary, to reflect the fact that they purchased communications services from traditional common carriers, and augmented them in such a manner that they could profitably be sold to communications users. In July 1976 the Commission ruled in its Resale and Sharing docket* that there was no justification for restrictions on the resale of private line communication services, and that the resale market would therefore be open to all interested vendors who qualified before the FCC.5 This proceeding had substantial significance to the information industry, since many of the services involved in the resale market are of a digital nature. The Commission noted that proceedings . . . in recent years have manifested a substantial untapped, growing public need for non-voice communications which might be satisfied in part by entities which do not own their own transmission facilities. Moreover, there are entities desiring to provide a communications service which “adds value” to or “augments” the communication service provided by existing carriers; this “augmented service” may include voice as well as non-voice communications.6
3 ie those with both communications and data processing components. ‘In the Matter of Regulatory Policies Concerning Resale and Shared Use of Common Carrier Services and Facilities, (Docket No 20097). Report and Order, 60 FCC2d261.1976. 5 ‘Resale’ in this context refers to the purchase of communications services from common carriers and reoffering services (without necessarily these adding enhanced capabilities) for profit. 6 Op cit. Ref 4. ‘That is, it would not reach services previously known as ‘hybrid’ data processing. 8/n the Matter of Use of the Carterfone in Message Toll Telephone Device Service, (Dccket Nos 16942 and 17073). Decision, 13 FCC 2d 420, 1968.
TELECOMMUNICATIONS
The Resale and Sharing decision abandoned the term ‘value-added carrier’ in favour of a more general distinction between resale carriers (encompassing both those which add value and those which merely broker communications) and underlying carriers (those which provide basic transmission facilities). While continuing to require that underlying carriers provide data processing services only through arms-length subsidiaries, the Commission ruled that resale carriers, which offered no monopoly services to subsidize their data processing services, could be permitted to waive the requirement of a separate data processing subsidiary. While the FCC indicated that it would regulate resale carriers, although probably not as rigorously as underlying carriers, it was careful to point out that it would only regulate those entities where the service ultimately resold was ‘communications’. The inference, of course, is that the Resale and Sharing decision would not require regulation of a data processing service which involved only an incidental communications component.’ In parallel with these rulings the Commission has made an important series of decisions relating to terminal equipment. In 1968, the FCC ruled in its Carter-one decisions that customer-provided terminals might be connected to the common carrier network, although the decision was ultimately implemented through the use of connecting arrangements supplied by the common carrier.
POLICY
December
1977
375
Computer
technology
and US communications
lanl
Subsequently, in April 1976, the Commission further ruled that customers might supply their own connecting arrangements, provided that they complied with FCC requirements.9 The result of these decisions was to open the market to private manufacture of both terminal equipment and modems. A separate major controversy dealing with terminal equipment relates to AT&T’s 1976 tariff filing for the Dataspeed 40/4 terminal device, which the common carrier sought to offer in connection with voice grade or Dataphone Digital Service private line channels. At issue in this decision was whether the Dataspeed 40/4 was a ‘communications’ or ‘data processing’ device. While the FCC Common Carrier Bureau initially recommended that the Commission reject the filing, on the grounds that the 40/4 was a device ‘whose primary function, design, and marketing is as an integral part of a data processing service’,‘O the Commission ultimately ruled that the device was part of a service which it construed as primarily data communications;” as a result, AT&T was permitted to offer the service. FCC Chairman Richard Wiley characterized the case as a ‘close one’, and the Commission indicated that it would consider aspects of the issue in a separate proceeding, described below.
Problems of definition It need hardly
9 In the Matter of Proposals for New or Revised Classes of Interstate and Foreign Message Toll Telephone Service IMTSJ and bide Area. Telephone Service (WATSJ. (Docket No 195281, First Report and Order, 56 FCC 2d 593, 1975. ‘O In the Matter of American Telephone and Telegraph Company IA T& TJ, Revisions to Tariffs FCC Nos 260 and (Transmittal No 267 12449J. Memorandum Opinion and Order (FCC Mimeograph No 61760, released 3 March 1976). ” In the Matter of American Telephone and Telegraph Company (AT& TJ. Revisions to Tariffs FCC Nos 260 and 267 Relating to Dataspeed 40 (RI, (Transmittal No 124491, Memorandum Opinion and Order, 62 FCC 2d 2 1, 1977. l2 See James H. Carlisle and Thomas H. Martin. ‘US computer communications regulation - FCC defines its terms’, Telecommunications Policy, Vol 1, No 3, 1977, pp 254-255.
376
be said that a great deal has happened in the years subsequent to the first FCC Computer Inquiry. Hybrid systems have become increasingly prevalent, some as timesharing services, others as services which enhance the underlying transmission services provided by common carriers. Equally important, in terms of potential revenues, the terminal market (both special and general purpose) is expanding rapidly. Faced with this increasing market for ‘hybrid’ services as well as for hardware which arguably has both communications and data processing functions, the FCC in July 1976 instituted a new computer inquiry (which I will call ‘Computer Inquiry 11’)12to clarify the difficult regulatory issues involved. In this new proceeding, the Commission is again addressing the difficult task of defining ‘communications’ and ‘data processing’ in a mutually exclusive way. In very general terms, these definitions distinguish the regulated (or at least the boundaries of regulatory jurisdiction) from the unregulated. Stated from a rather narrower perspective, Computer Inquiry II appears to be an attempt to determine those uses of computers which are permissible by common carriers, as well as those which are prohibited. The definition proposed in Computer Inquiry II for data processing is: The
electronically
information
content,
transformed,
or (B)
automated or
processing
meaning,
where
of
the output
the
of
information
input
wherein:
(A)
the
is in
any
way
information
information
constitutes
a programmed
response to input information.
Thus, common carriers (except through separate subsidiaries) could not undertake arithmetic processing, word processing, or process control. Carriers could, however, use computers for network control and routing, and input/output processing. The proposed definition originally made specific reference to the use of a computer for the above functions; however, as a direct result
TELECOMMUNICATIONS
POLICY
December
1977
Computer
rechuologr
arzd US communications
law
of the Dataspeed 90 decision, the definition was modified to encompass functions which occur within terminal equipment as well. Very importantly, while the definition of ‘communications’ is discussed, the proposed rules in Computer Inquiry II define only ‘data processing’, with communications in effect having a residual definition of all activities which are not data processing under the proposed definition. In November 1976 the American Federation of Information Processing Societies (AFIPS) provided a Planning Conference on Computer Communications to the FCC,13 which was paradigmatic of the contribution which AFIPS, as a scientific and educational society, can make to the federal policy making process. In particular, the Conference, which was presented by a panel of leading experts in computer communications, addressed the technological component of the difficult issues faced by the Commission. With respect to the proposed definitions, the response of the Conference participants was clearly that no technical boundary could be drawn between computing communications. Computing involves comand munications, not only in present-day networks but necessarily to communicate between component parts of a single computer. Further, computers have become an integral part of many communications functionsI and, as illustrated during the Conference, their use in communications will continue to increase significantly. It is also clear, however, that the FCC must have a working definition of ‘communications’ in order to execute its statutory responsibilities. The impact of the Conference in this regard was to suggest that the adoption of a specific definition, at least one which is mutually exclusive from ‘data processing’, would be a policy decision rather than a technical determination. However, even if all communications and computing activity is divided into mutually exclusive and exhaustive categories for communications and data processing, there remains the very fundamental problem of the regulatory treatment of service offerings which are in part communications and in part data processing, that is ‘hybrid services’. We can continue to anticipate a substantial demand for hybrid services which will in turn stimulate the efforts of various entities, both private firms and common carriers, to provide such services. The FCC approach to this fundamental issue is left even more uncertain by a statement in the Nofice of Inquiry’” in Computer Inquiry II that the Commission intends to eliminate the ‘hybrid service’ category; one is left to question, for example, the intended regulatory treatment of a mixed data processing and communications offering which involved only an incidental degree of communications. There is a need for greater attention to this issue in the proceeding. 13See Philip S. Nyborg. ‘US computer communications regulation - Views of Telecommunicarions technical experts’, Policy, Vol 1, No 3, 1977. pp 255267. “For example, control of switching and allocation of transmission bandwidth. I5 In rhe Matter of Amendment of Section 62.702 of the Commission’s Rules and Regulations, (Docket No 208281. Notice of Inquiry and Proposed Rule Making, 61 FCC 2d 103.1976.
TELECOMMUNICATIONS
Consumer Communications Reform Act Throughout this period, of course, AT&T has been reacting to competition in private line services and the provision of terminal equipment by offering new services and rate structures. However, in the Spring of 1976 the common carrier took its case to the Congress in the form of the Consumer Communications Reform Act (CCRA). This legislation, which initially attracted the support of more than 200
POLICY
December
1977
377
Computer technology and US communications law
I6 See Richard E. Wiley, ‘The US communications consumer and monopoly The FCC position on the SUPPlY Telecomlegislation’, proposed munications Policy, Vol 1, No 2, 1977. pp 99-1 11; John D. deButts, ‘The US and FCC consumer communications position on the policies - The AT&T Telecomlegislation’, proposed munications Policy. Vol 1, No 2, 1977, pp 112-l 18: and Leland L. Johnson, ‘A review of the FCC and AT&T positions’. Telecommunications Policy. Vol 1, No 2. 1977, pp 119-124. to press, of going ” At the time Reorganization Plan No 1 of 1977 has proposed elimination of the OTP. and transfer of most of its functions to the Commerce Department; it appears that Congress will accede.
378
members of Congress, has been the subject of intense lobbying and controversy within the Congress itself.i6 While the legislation did not receive major action in the second session of the 94th Congress, it has been reintroduced in the present 95th Congress, although in this session its number of supporting sponsors has decreased to approximately 50. The CCRA is intended to reassert the monopoly status of AT&T in the communications field, to the exclusion of private non-regulated (or regulated) competitors. The present version has several key provisions. First, it would prevent the FCC from setting minimum rates for communications services; opponents have argued that such a provision would allow common carrier monopoly services to subsidize common carrier services subject to competition. Second, it would permit AT&T (contrary to existing antitrust law) to acquire other common carriers. Third, it would give the states, rather than the federal government, jurisdiction over interconnection of foreign devices to the common carrier network; opponents argue that this would probably reverse the FCC’s recent policies which permit interconnection of non-Bell equipment. Fourth, it would require companies wishing to compete with AT&T to offer proof that their proposed services would not cause telephone rate increases, and that their services would not impair the technical efficiency of the network; critics argue that this burden of proof would be almost impossible to meet. While prospects for passage of the CCRA are uncertain, the introduction of the legislation has caused a major focus of attention within the Congress on telecommunications issues. In late 1976, Representative Lionel Van Deerlin, Chairman of the House Interstate and Foreign Commerce Subcommittee on Communications, called for a ‘basement to attic’ revision of the Communications Act of 1934. Other members of Congress have concurred in the notion of a more comprehensive approach; supporters argue that the 1934 Act is outdated, having been written before the advent of television, let alone computers and satellites. Although the outcome of pressures for comprehensive review of the 1934 Act is also uncertain, one important result of the debate has been a set of ‘Options Papers’ prepared by the staff of the House Subcommittee on Communications. The ‘Options Papers’ have been described as a possible basis for a new communications act, and are required reading for anyone seriously following the issue. While the Congress is giving increasing attention to the telecommunications area, the trend seems to be the opposite in the Executive Branch. Many observers expect that the White House Office of Telecommunications Policy (OTP) will be eliminated in President Carter’s Reorganization Plan, which is expected in the near future.”
OTA planning study Returning to the Congressional side, the broad interest in telecommunications has also generated an important planning study within the Congressional Office of Technology Assessment, on telecommunications, computers and information policies. This planning study was initially proposed by Senator Kennedy, Chairman of the OTA Board, and was subsequently adopted by the Board in the form of a
TELECOMMUNICATIONS
POLICY
December
1977
Computer
technologv
and US communications
law
modified proposal by Senators Hollings and Magnuson. Under the modified proposal, the planning study would culminate in a report to the OTA Board, which could lead to a permanent OTA programme in this area. The establishment of a programme would be of major significance, since OTA has but seven existing programme areas in energy, food, health, materials, research and development, oceans and transportation. Table 1 : Key issues for consideration
in OTA technology assessment programme.
institutional process 1. What and structure is needed to formulate and maintain a coherent national information policy? ‘Information policy’ here is used broadly to include not only traditional communications, but areas such as mail, banking, electronic electronic privacy and freedom of information. An important aspect of this question is policy can be whether a coherent and through cooperation achieved coordination between existing agencies, in the absence of a broader policy institution. Such a broad policy does not increased regulatory imply itself intervention, and could in fact lead to decreased intervention. 2. What specific areas should be considered in the substance of a coherent information policy? Possible national areas include relationships between the federal government and private sector, rights of individual citizens, the technological innovation, encouraging economic effects including effects on labour and inflation, and sociological including social factors impact on structures. 3. How can national information policy deal with the uncertainty inherent in new technology? It is clear that federal policy remain flexible to deal with must developments in new technologies: the resulting uncertainty in however, inhibit an regulation federal may entrepreneurial firm’s ability to attract venture capital. 4. What policy should the federal government implement relating to rights in software and computer-readable information? It is clear that both software and data bases will become pervasive commodities in the information economy. The federal government has had difficulty with this area, partly because of the unique characteristics of software, and partly because of a lack of understanding ultimate implications of of the encompassing software within existing legal doctrine. The most important area, of commerce, in terms relates to computer programs and data bases which, while not constituting new inventions, represent a large proprietary investment by the firm which produced them.
TELECOMMUNICATIONS
5. Should the system of federal taxation consideration to the give special development of an information economy? While full-scale electronic mail and EFT large systems should not impose demands for transmission services on the nation’s telecommunications system (they are forecast to account for less than 7% of total transmission revenues ten years from now), the capital requirements for computer systems, software and terminal equipment are expected to be extremely high: to what extent should the the federal government encourage formation of such capital?
6. What should be the federal government’s role regarding private in information sector standards technology? There are important tradeoffs between operational compatibility and greater competition in the provision of technology subsystems on the one hand, and the fixed nature of standards on the other.
7. What is the appropriate US trade policy for information technology? Our leadership in computer technology plays a definite role in our international relations. Considerations which must be balanced the include national security, and potential benefits to the world community (including the USA) of non-defence applications of computer technology.
8. What process and institutional structure coherent is needed for regulation of communication those services where regulation is demonstrably necessary? This question concerns the family of areas in which communications in some form are regulated presently, including voice and data communications, the postal system, and electronic funds transfer. There are many important interrelationships between these areas; for example, long-distance telephone is a partial replacement for personal mail: EFTS and point of sale are partial replacements for business mail: electronic mail is similar to some services currently regulated as communications (for example, the Mailgram). There may be a need to consider this statutory framework comprehensively.
POLICY December
1977
9. As it becomes technically feasible to deliver a wide variety of services (including voice communications) over digital communications networks, how will the regulatory structure execute its responsibilities with respect to regulated services while at the same time refraining from inhibiting non-regulated services? 10. What economies of scale exist in telecommunications and information systems? This issue is fundamental in the communications field, since economies of scale play a major role in justification of regulatory intervention. 11. What is the proper federal policy relating to privacy and personal data in systems the private sector? In particular, what is the appropriate policy relating to privacy in electronic fund transfer systems? 12. What federal steps, if any, are necessary and appropriate to insure in data comprivacy and security munications7 This area has particular significance since, first, computers can scan and interpret non-encrypted data communications more effectively than voice communications, and, second, it appears likely that the US postal system is moving towards electronic mail. 13. In what areas and to what extent should the federal government ensure that new electronic services are universally available? 14. Should the federal government encourage the application of information technology to further specific national programmes? Possible examples would be in energy, education, and libraries. 15. What subsidies, if any, exist between the various types of services provided by domestic common carriers? What subsidies, if any, are desirable? By whom should they be determined? 16. Which technological trends have the greatest significance for the proposed assessment programme? technology Significant technologies, among others, are large-scale integration, software and switching devices control of terminals, digital technology, and new services and techniques relating to radio transmission (including satellite).
379
Computer technolog\~ and US communications
this ‘a Ultimately. panel included representation from the Association for Computing Machinery, the Association for Educational Data Systems, the American Institute of Aeronautics and the Data Processing Astronautics, the IEEE Management Association, Computer Society. the Institute of Internal Auditors, and the Society for Industrial and Applied Mathematics.
380
law
As its name implies, the Office of Technology Assessment is chartered to assist the Congress in anticipating and planning for major technological change. Thus, while it is inappropriate for AFIPS as a scientific and educational society to lobby for the passage or defeat of legislation such as the Consumer Communications Reform Act, the OTA study is viewed as a major opportunity for AFIPS to assist the Congress in a manner consistent with its scientific and educational purposes. Upon invitation, AFIPS participated in a working group convened by the OTA in May 1977 to identify issues appropriate for consideration in the course of the proposed technology assessment programme. For purposes of this working group, AFIPS was asked to prepare a proposed statement of issues (which was to be submitted along with similar statements from other working group participants), and it responded by organizing a panel of representatives from interested AFIPS Societies.1s Table 1 comprises a short review of these issues, and I stress that they are not statements of position but rather questions which should be considered by the OTA. These and other key issues are major components of future telecommunications and information policy. They cannot be resolved lightly, but their emergence as subjects for Congressional attention may well signal a new era in related national policy.
TELECOMMUNICATIONS
POLICY
December
1977
Philip S. Nyborg
Against
a
rulings
by
background the
munications author in
the
the issues
focuses
His
on the
Inquiry
of the
deliberations with
currently
USA.
the
Second FCC
of
and
the
US
to
the
respect
Communications
Consumer Reform
law
in
Congress
Com-
important
communications
Computer on
recent
Commission,
discusses
emerging discussion
of
Federal
Act.
In are
questions
conclusion,
key
suggested
for
in
consideration planning Congressional
proposed
a
study Office
the by of Technology
Assessment. The
author
Federation Societies, Washington,
is
with
the
of Information 2 100
L
DC 20037,
American Processing
Street,
NW,
USA.
This article is based on a presentation at the National Computer Conference, held in Dallas, Texas, on 13-l 6 June 1977, in a panel chaired by MS Susan Nycum on current legal issues in the information processing field.
It is important at the outset to point out the essentially economic forces operating in the telecommunications field. As computer and communications technologies converge, major new markets are emerging for digital services and equipment, particularly terminal devices. In the USA, much of the controversy before the Federal Communications Commission (FCC) and the Congress consists of potential suppliers (both regulated common carriers and nonregulated firms) vying for shares of this multibillion dollar market. The debate, however, is stated in terms of major public policy considerations, which are the ground rules set out by the Congress in the Communications Act of 1934. The outcome of this controversy will affect individuals in the information industry as both users and producers of the underlying technology. The telecommunications industry, like other public utilities, is one of the few exceptions in the US economy to the general concept reflected in our antitrust laws, that no firm shall possess monopolistic control over a particular market. Based upon so-called ‘natural monopoly’ conditions, the Communications Act of 1934 implements a policy under which monopoly structure of the communications field is permitted under government control. In the late 1960s and in the 1970s the FCC has permitted competition in the provision of certain services.’ In the early 1970s it permitted ‘specialized common carriers’ to own and operate transmission facilities. Such entities (for example MCI) generally operated to connect high-volume markets in data and voice communications.
FCC rulings ’ While before this period there were, of numerous Bell-affiliated or course, these independent common carriers, carriers generally divided the commarket geographically. munications Recent FCC rulings have permitted competition in the same geographical area, with the result that the user was given a choice of prospective vendors. 2 This was an effort to ensure that a monopoly communications carrier could not subsidize its data processing affiliate, thereby giving it an unfair advantage in a competitive market.
374
In this same period, the Commission made its ruling in the first ‘Computer Inquiry’. As early as 1966, it had become apparent that the convergence of computer and communications technologies raised important regulatory questions, primarily with respect to the potential offering of data processing services by common carriers, and the provision of communications services as part of the overall offering of a non-regulated data processing company. The Commission ruled in 197 1 that common carriers would be allowed to provide data processing services only through separate subsidiaries.2 Further, it held with respect to ‘hybrid services’3 that it would regulate
TELECOMMUNICATIONS
POLICY
December
1977
Computer technology and US communications law
only those which were essentially communications, exercising complete regulatory forbearance with respect to those which were primarily data processing. This first Computer Inquiry ruling had a unique impact on AT&T: as a result of a 1956 consent decree in which it agreed with the US Department of Justice not to enter the competitive data processing market, the common carrier was precluded from providing data processing services even through a separate subsidiary. In subsequent years, the Commission certified as common carriers certain entities which did not provide their own transmission facilities, notably PC1 and Telenet. These entities became known as ‘valueadded carriers’, a term which the FCC has recently abolished from its vocabulary, to reflect the fact that they purchased communications services from traditional common carriers, and augmented them in such a manner that they could profitably be sold to communications users. In July 1976 the Commission ruled in its Resale and Sharing docket* that there was no justification for restrictions on the resale of private line communication services, and that the resale market would therefore be open to all interested vendors who qualified before the FCC.5 This proceeding had substantial significance to the information industry, since many of the services involved in the resale market are of a digital nature. The Commission noted that proceedings . . . in recent years have manifested a substantial untapped, growing public need for non-voice communications which might be satisfied in part by entities which do not own their own transmission facilities. Moreover, there are entities desiring to provide a communications service which “adds value” to or “augments” the communication service provided by existing carriers; this “augmented service” may include voice as well as non-voice communications.6
3 ie those with both communications and data processing components. ‘In the Matter of Regulatory Policies Concerning Resale and Shared Use of Common Carrier Services and Facilities, (Docket No 20097). Report and Order, 60 FCC2d261.1976. 5 ‘Resale’ in this context refers to the purchase of communications services from common carriers and reoffering services (without necessarily these adding enhanced capabilities) for profit. 6 Op cit. Ref 4. ‘That is, it would not reach services previously known as ‘hybrid’ data processing. 8/n the Matter of Use of the Carterfone in Message Toll Telephone Device Service, (Dccket Nos 16942 and 17073). Decision, 13 FCC 2d 420, 1968.
TELECOMMUNICATIONS
The Resale and Sharing decision abandoned the term ‘value-added carrier’ in favour of a more general distinction between resale carriers (encompassing both those which add value and those which merely broker communications) and underlying carriers (those which provide basic transmission facilities). While continuing to require that underlying carriers provide data processing services only through arms-length subsidiaries, the Commission ruled that resale carriers, which offered no monopoly services to subsidize their data processing services, could be permitted to waive the requirement of a separate data processing subsidiary. While the FCC indicated that it would regulate resale carriers, although probably not as rigorously as underlying carriers, it was careful to point out that it would only regulate those entities where the service ultimately resold was ‘communications’. The inference, of course, is that the Resale and Sharing decision would not require regulation of a data processing service which involved only an incidental communications component.’ In parallel with these rulings the Commission has made an important series of decisions relating to terminal equipment. In 1968, the FCC ruled in its Carter-one decisions that customer-provided terminals might be connected to the common carrier network, although the decision was ultimately implemented through the use of connecting arrangements supplied by the common carrier.
POLICY
December
1977
375
Computer
technology
and US communications
lanl
Subsequently, in April 1976, the Commission further ruled that customers might supply their own connecting arrangements, provided that they complied with FCC requirements.9 The result of these decisions was to open the market to private manufacture of both terminal equipment and modems. A separate major controversy dealing with terminal equipment relates to AT&T’s 1976 tariff filing for the Dataspeed 40/4 terminal device, which the common carrier sought to offer in connection with voice grade or Dataphone Digital Service private line channels. At issue in this decision was whether the Dataspeed 40/4 was a ‘communications’ or ‘data processing’ device. While the FCC Common Carrier Bureau initially recommended that the Commission reject the filing, on the grounds that the 40/4 was a device ‘whose primary function, design, and marketing is as an integral part of a data processing service’,‘O the Commission ultimately ruled that the device was part of a service which it construed as primarily data communications;” as a result, AT&T was permitted to offer the service. FCC Chairman Richard Wiley characterized the case as a ‘close one’, and the Commission indicated that it would consider aspects of the issue in a separate proceeding, described below.
Problems of definition It need hardly
9 In the Matter of Proposals for New or Revised Classes of Interstate and Foreign Message Toll Telephone Service IMTSJ and bide Area. Telephone Service (WATSJ. (Docket No 195281, First Report and Order, 56 FCC 2d 593, 1975. ‘O In the Matter of American Telephone and Telegraph Company IA T& TJ, Revisions to Tariffs FCC Nos 260 and (Transmittal No 267 12449J. Memorandum Opinion and Order (FCC Mimeograph No 61760, released 3 March 1976). ” In the Matter of American Telephone and Telegraph Company (AT& TJ. Revisions to Tariffs FCC Nos 260 and 267 Relating to Dataspeed 40 (RI, (Transmittal No 124491, Memorandum Opinion and Order, 62 FCC 2d 2 1, 1977. l2 See James H. Carlisle and Thomas H. Martin. ‘US computer communications regulation - FCC defines its terms’, Telecommunications Policy, Vol 1, No 3, 1977, pp 254-255.
376
be said that a great deal has happened in the years subsequent to the first FCC Computer Inquiry. Hybrid systems have become increasingly prevalent, some as timesharing services, others as services which enhance the underlying transmission services provided by common carriers. Equally important, in terms of potential revenues, the terminal market (both special and general purpose) is expanding rapidly. Faced with this increasing market for ‘hybrid’ services as well as for hardware which arguably has both communications and data processing functions, the FCC in July 1976 instituted a new computer inquiry (which I will call ‘Computer Inquiry 11’)12to clarify the difficult regulatory issues involved. In this new proceeding, the Commission is again addressing the difficult task of defining ‘communications’ and ‘data processing’ in a mutually exclusive way. In very general terms, these definitions distinguish the regulated (or at least the boundaries of regulatory jurisdiction) from the unregulated. Stated from a rather narrower perspective, Computer Inquiry II appears to be an attempt to determine those uses of computers which are permissible by common carriers, as well as those which are prohibited. The definition proposed in Computer Inquiry II for data processing is: The
electronically
information
content,
transformed,
or (B)
automated or
processing
meaning,
where
of
the output
the
of
information
input
wherein:
(A)
the
is in
any
way
information
information
constitutes
a programmed
response to input information.
Thus, common carriers (except through separate subsidiaries) could not undertake arithmetic processing, word processing, or process control. Carriers could, however, use computers for network control and routing, and input/output processing. The proposed definition originally made specific reference to the use of a computer for the above functions; however, as a direct result
TELECOMMUNICATIONS
POLICY
December
1977
Computer
rechuologr
arzd US communications
law
of the Dataspeed 90 decision, the definition was modified to encompass functions which occur within terminal equipment as well. Very importantly, while the definition of ‘communications’ is discussed, the proposed rules in Computer Inquiry II define only ‘data processing’, with communications in effect having a residual definition of all activities which are not data processing under the proposed definition. In November 1976 the American Federation of Information Processing Societies (AFIPS) provided a Planning Conference on Computer Communications to the FCC,13 which was paradigmatic of the contribution which AFIPS, as a scientific and educational society, can make to the federal policy making process. In particular, the Conference, which was presented by a panel of leading experts in computer communications, addressed the technological component of the difficult issues faced by the Commission. With respect to the proposed definitions, the response of the Conference participants was clearly that no technical boundary could be drawn between computing communications. Computing involves comand munications, not only in present-day networks but necessarily to communicate between component parts of a single computer. Further, computers have become an integral part of many communications functionsI and, as illustrated during the Conference, their use in communications will continue to increase significantly. It is also clear, however, that the FCC must have a working definition of ‘communications’ in order to execute its statutory responsibilities. The impact of the Conference in this regard was to suggest that the adoption of a specific definition, at least one which is mutually exclusive from ‘data processing’, would be a policy decision rather than a technical determination. However, even if all communications and computing activity is divided into mutually exclusive and exhaustive categories for communications and data processing, there remains the very fundamental problem of the regulatory treatment of service offerings which are in part communications and in part data processing, that is ‘hybrid services’. We can continue to anticipate a substantial demand for hybrid services which will in turn stimulate the efforts of various entities, both private firms and common carriers, to provide such services. The FCC approach to this fundamental issue is left even more uncertain by a statement in the Nofice of Inquiry’” in Computer Inquiry II that the Commission intends to eliminate the ‘hybrid service’ category; one is left to question, for example, the intended regulatory treatment of a mixed data processing and communications offering which involved only an incidental degree of communications. There is a need for greater attention to this issue in the proceeding. 13See Philip S. Nyborg. ‘US computer communications regulation - Views of Telecommunicarions technical experts’, Policy, Vol 1, No 3, 1977. pp 255267. “For example, control of switching and allocation of transmission bandwidth. I5 In rhe Matter of Amendment of Section 62.702 of the Commission’s Rules and Regulations, (Docket No 208281. Notice of Inquiry and Proposed Rule Making, 61 FCC 2d 103.1976.
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Consumer Communications Reform Act Throughout this period, of course, AT&T has been reacting to competition in private line services and the provision of terminal equipment by offering new services and rate structures. However, in the Spring of 1976 the common carrier took its case to the Congress in the form of the Consumer Communications Reform Act (CCRA). This legislation, which initially attracted the support of more than 200
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I6 See Richard E. Wiley, ‘The US communications consumer and monopoly The FCC position on the SUPPlY Telecomlegislation’, proposed munications Policy, Vol 1, No 2, 1977. pp 99-1 11; John D. deButts, ‘The US and FCC consumer communications position on the policies - The AT&T Telecomlegislation’, proposed munications Policy. Vol 1, No 2, 1977, pp 112-l 18: and Leland L. Johnson, ‘A review of the FCC and AT&T positions’. Telecommunications Policy. Vol 1, No 2. 1977, pp 119-124. to press, of going ” At the time Reorganization Plan No 1 of 1977 has proposed elimination of the OTP. and transfer of most of its functions to the Commerce Department; it appears that Congress will accede.
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members of Congress, has been the subject of intense lobbying and controversy within the Congress itself.i6 While the legislation did not receive major action in the second session of the 94th Congress, it has been reintroduced in the present 95th Congress, although in this session its number of supporting sponsors has decreased to approximately 50. The CCRA is intended to reassert the monopoly status of AT&T in the communications field, to the exclusion of private non-regulated (or regulated) competitors. The present version has several key provisions. First, it would prevent the FCC from setting minimum rates for communications services; opponents have argued that such a provision would allow common carrier monopoly services to subsidize common carrier services subject to competition. Second, it would permit AT&T (contrary to existing antitrust law) to acquire other common carriers. Third, it would give the states, rather than the federal government, jurisdiction over interconnection of foreign devices to the common carrier network; opponents argue that this would probably reverse the FCC’s recent policies which permit interconnection of non-Bell equipment. Fourth, it would require companies wishing to compete with AT&T to offer proof that their proposed services would not cause telephone rate increases, and that their services would not impair the technical efficiency of the network; critics argue that this burden of proof would be almost impossible to meet. While prospects for passage of the CCRA are uncertain, the introduction of the legislation has caused a major focus of attention within the Congress on telecommunications issues. In late 1976, Representative Lionel Van Deerlin, Chairman of the House Interstate and Foreign Commerce Subcommittee on Communications, called for a ‘basement to attic’ revision of the Communications Act of 1934. Other members of Congress have concurred in the notion of a more comprehensive approach; supporters argue that the 1934 Act is outdated, having been written before the advent of television, let alone computers and satellites. Although the outcome of pressures for comprehensive review of the 1934 Act is also uncertain, one important result of the debate has been a set of ‘Options Papers’ prepared by the staff of the House Subcommittee on Communications. The ‘Options Papers’ have been described as a possible basis for a new communications act, and are required reading for anyone seriously following the issue. While the Congress is giving increasing attention to the telecommunications area, the trend seems to be the opposite in the Executive Branch. Many observers expect that the White House Office of Telecommunications Policy (OTP) will be eliminated in President Carter’s Reorganization Plan, which is expected in the near future.”
OTA planning study Returning to the Congressional side, the broad interest in telecommunications has also generated an important planning study within the Congressional Office of Technology Assessment, on telecommunications, computers and information policies. This planning study was initially proposed by Senator Kennedy, Chairman of the OTA Board, and was subsequently adopted by the Board in the form of a
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modified proposal by Senators Hollings and Magnuson. Under the modified proposal, the planning study would culminate in a report to the OTA Board, which could lead to a permanent OTA programme in this area. The establishment of a programme would be of major significance, since OTA has but seven existing programme areas in energy, food, health, materials, research and development, oceans and transportation. Table 1 : Key issues for consideration
in OTA technology assessment programme.
institutional process 1. What and structure is needed to formulate and maintain a coherent national information policy? ‘Information policy’ here is used broadly to include not only traditional communications, but areas such as mail, banking, electronic electronic privacy and freedom of information. An important aspect of this question is policy can be whether a coherent and through cooperation achieved coordination between existing agencies, in the absence of a broader policy institution. Such a broad policy does not increased regulatory imply itself intervention, and could in fact lead to decreased intervention. 2. What specific areas should be considered in the substance of a coherent information policy? Possible national areas include relationships between the federal government and private sector, rights of individual citizens, the technological innovation, encouraging economic effects including effects on labour and inflation, and sociological including social factors impact on structures. 3. How can national information policy deal with the uncertainty inherent in new technology? It is clear that federal policy remain flexible to deal with must developments in new technologies: the resulting uncertainty in however, inhibit an regulation federal may entrepreneurial firm’s ability to attract venture capital. 4. What policy should the federal government implement relating to rights in software and computer-readable information? It is clear that both software and data bases will become pervasive commodities in the information economy. The federal government has had difficulty with this area, partly because of the unique characteristics of software, and partly because of a lack of understanding ultimate implications of of the encompassing software within existing legal doctrine. The most important area, of commerce, in terms relates to computer programs and data bases which, while not constituting new inventions, represent a large proprietary investment by the firm which produced them.
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5. Should the system of federal taxation consideration to the give special development of an information economy? While full-scale electronic mail and EFT large systems should not impose demands for transmission services on the nation’s telecommunications system (they are forecast to account for less than 7% of total transmission revenues ten years from now), the capital requirements for computer systems, software and terminal equipment are expected to be extremely high: to what extent should the the federal government encourage formation of such capital?
6. What should be the federal government’s role regarding private in information sector standards technology? There are important tradeoffs between operational compatibility and greater competition in the provision of technology subsystems on the one hand, and the fixed nature of standards on the other.
7. What is the appropriate US trade policy for information technology? Our leadership in computer technology plays a definite role in our international relations. Considerations which must be balanced the include national security, and potential benefits to the world community (including the USA) of non-defence applications of computer technology.
8. What process and institutional structure coherent is needed for regulation of communication those services where regulation is demonstrably necessary? This question concerns the family of areas in which communications in some form are regulated presently, including voice and data communications, the postal system, and electronic funds transfer. There are many important interrelationships between these areas; for example, long-distance telephone is a partial replacement for personal mail: EFTS and point of sale are partial replacements for business mail: electronic mail is similar to some services currently regulated as communications (for example, the Mailgram). There may be a need to consider this statutory framework comprehensively.
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9. As it becomes technically feasible to deliver a wide variety of services (including voice communications) over digital communications networks, how will the regulatory structure execute its responsibilities with respect to regulated services while at the same time refraining from inhibiting non-regulated services? 10. What economies of scale exist in telecommunications and information systems? This issue is fundamental in the communications field, since economies of scale play a major role in justification of regulatory intervention. 11. What is the proper federal policy relating to privacy and personal data in systems the private sector? In particular, what is the appropriate policy relating to privacy in electronic fund transfer systems? 12. What federal steps, if any, are necessary and appropriate to insure in data comprivacy and security munications7 This area has particular significance since, first, computers can scan and interpret non-encrypted data communications more effectively than voice communications, and, second, it appears likely that the US postal system is moving towards electronic mail. 13. In what areas and to what extent should the federal government ensure that new electronic services are universally available? 14. Should the federal government encourage the application of information technology to further specific national programmes? Possible examples would be in energy, education, and libraries. 15. What subsidies, if any, exist between the various types of services provided by domestic common carriers? What subsidies, if any, are desirable? By whom should they be determined? 16. Which technological trends have the greatest significance for the proposed assessment programme? technology Significant technologies, among others, are large-scale integration, software and switching devices control of terminals, digital technology, and new services and techniques relating to radio transmission (including satellite).
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this ‘a Ultimately. panel included representation from the Association for Computing Machinery, the Association for Educational Data Systems, the American Institute of Aeronautics and the Data Processing Astronautics, the IEEE Management Association, Computer Society. the Institute of Internal Auditors, and the Society for Industrial and Applied Mathematics.
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As its name implies, the Office of Technology Assessment is chartered to assist the Congress in anticipating and planning for major technological change. Thus, while it is inappropriate for AFIPS as a scientific and educational society to lobby for the passage or defeat of legislation such as the Consumer Communications Reform Act, the OTA study is viewed as a major opportunity for AFIPS to assist the Congress in a manner consistent with its scientific and educational purposes. Upon invitation, AFIPS participated in a working group convened by the OTA in May 1977 to identify issues appropriate for consideration in the course of the proposed technology assessment programme. For purposes of this working group, AFIPS was asked to prepare a proposed statement of issues (which was to be submitted along with similar statements from other working group participants), and it responded by organizing a panel of representatives from interested AFIPS Societies.1s Table 1 comprises a short review of these issues, and I stress that they are not statements of position but rather questions which should be considered by the OTA. These and other key issues are major components of future telecommunications and information policy. They cannot be resolved lightly, but their emergence as subjects for Congressional attention may well signal a new era in related national policy.
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