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REGULATORY ISSUES
Pages 26-40

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From page 26...
... Electronic funds transfer systems, for example, are being noticeably shaped by the statutes and regulations governing services that depository institutions and credit grantors provide to individuals. Equally important is the interaction between technological innovation and information policy generally -- that is, between the processes by which technological advances are transformed into commercially available products and services and the bodies of law and interpretation that shape, directly, the way individuals and organizations in our society assemble, disseminate, and use information.
From page 27...
... As early as 1966, the Commission became aware that computing technology would play an increasingly central role in the operation of telephone and telegraph services, and that as a consequence many regulated common carriers would develop both a capacity and a desire to enter the growing market for commercially provided dataprocessing services. As the FCC repeatedly observed during its first formal inquiry into the subject: ...
From page 28...
... regulatory questions: should communications-linked data-processing services be defined as a common-carrier communications activity and therefore subject to the same general rules as telephone and telegraph services? should competition between data-processing firms and the established common carriers be encouraged, forbidden, or controlled?
From page 29...
... At first glance, formally separating the carrier's regulated business enterprises from their unregulated ones might seem like a painless way to alleviate much of the concern about anticompetitive practices, and, in 1970, the FCC did adopt a regulatory policy based on a concept of "maximum separation." The carriers were precluded from otherwise disposing "of any capacity on computer systems utilized...for the provision of common carrier communications services," and, in addition, the Commission stipulated that they might enter the commercial data-processing market only through separately incorporated affiliates.5 Nonetheless, as the Commission recognized, this was only a partial solution to a partially articulated policy dilemma. In principle "maximum separation" did little more than require the carriers to maintain two sets of accounts, one for their regulated communications services and one for their independent, and thus unregulated, data-processing services.
From page 30...
... To complicate matters further, the telegraph industry is itself in the course of shifting from conventional to computerbased message switching. Under such circumstances, how might the FCC decide, on technological grounds, that message switching in the telegraph context constitutes regulatable telecommunications, while elsewhere it may be properly classified as unregulated data-processing?
From page 31...
... Sensing this, and also being an early convert to the "regulatory reform" movement of the mid-1970's, the FCC, in 1976, launched a second inquiry into the technical and functional relationships between data processing and communications. Known as "Computer Inquiry II," the investigation has resulted in a recent Commission decision to abandon the hybrid services approach in favor of one that distinguishes between "basic transmission services," which the FCC will continue to regulate, and "enhanced services," which it proposes not to regulate.^ In its Final Decision announcing this new policy, the Commission defines a "basic transmission service" as
From page 32...
... that facilitate economical, reliable movement of information does not alter the nature of the basic service. Computer memory or storage, for example, may be used within the network to facilitate the transmission of information from origination to destination, provided that "the carrier's basic transmission network is not used as an information storage system."10 A "basic transmission service," in short, is one in which the communications carrier essentially offers a pure transmission capability over a communications path that is virtually transparent in terms of its interaction with customer supplied information.11 An "enhanced service," by contrast, is defined as one that uses the telecommunications network to accomplish something more than pure transmission.12 In the typical enhanced service, computer processing applications are used to act on the content, code, protocol, and other aspects of the subscriber's information.
From page 33...
... Each such subsidiary was required to maintain its own books, to have its own officers and operating personnel, and to use computer equipment and facilities separate from those used in providing regulated communications services.15 This degree of organizational separation was seen as a necessary safeguard if carriers were to be prevented from using revenues or other resources associated with their regulated communications operations to secure competitive advantages for their unregulated data processing ones. Now, however, the FCC has concluded that only carriers "under direct or common control of AT&T17 or GTE18 have the capacity to engage in such anticompetitive behavior."19 In the Commission's opinion, only those corporations possess the requisite combination of financial resources and dominant market position.
From page 34...
... One point of potential controversy is whether the Communications Act of 1934 allows the FCC to impose varying degrees of regulation on carriers providing the same type of service -- i.e., whether the maximum separation requirement can be applied selectively. Another is whether the Commission is statutorily required to regulate enhanced services -- i.e., whether it has the authority to choose not to do so.
From page 35...
... Today, for example, there is confusion whether electronic funds transfer and electronic message service will be under FCC regulatory jurisdiction or will be assigned to or shared with other agencies, such as the bank regulatory authorities and the U.S. Postal Service.
From page 36...
... Developing a capacity to articulate the implications of alternative policy proposals and to highlight and examine implicit policy assumptions should be particularly stressed. For example, recent history seems to suggest that regulatory policy should have as its central objectives (1)
From page 37...
... The prospect of interaction between regulatory objectives and other types of policy objectives might also be examined. If stimulating innovation is to be a central policy objective, are there, for instance, aspects of federal and state tax policy that will tend to keep the competitive marketplace from providing that stimulus?
From page 38...
... 5349. This ruling did not apply to AT&T, which by the terms of a 1956 Consent Decree has been permitted to engage only in those activities that involve the offering of a communications service or facility and are subject to public regulation.
From page 39...
... Thus an enhanced service may modify the transmitted bit stream to change it from the ASCII code to the EBCDIC code, which a basic service may not. "Protocols" govern the methods used for packaging the transmitted data in quanta, the rules for controlling the flow of information, and the format of headers and trailers surrounding the transmitted information and of separate control messages.
From page 40...
... In the FCC context, cross subsidization would typically involve the transfer of such resources from a regulated monopoly to an unregulated business enterprise run by the monopoly or one of its subsidiaries.


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