Senate efforts to rewrite the nation's telecommunications laws drew sharp criticism from American Telephone & Telegraph Co.'s competitors yesterday as representatives of computer and long-distance-telephone firms attacked the pending legislation as too favorable to the interests of AT&T.
Testifying before the Senate Commerce Committee, William McGowan, chairman of MCI Communications Corp. said that the bill -- which revises regulation of the long-distance market and permits AT&T to offer dereglated services through a separate subsidiary -- does not adequately provide mechanisms for monitoring AT&T's behavior.
"In my opinion, no structural reform short of divestiture will put a stop to Bell's conduct," McGowan said, endorsing the Justice Department's goal of splitting AT&T at the close of the government's antitrust case against the Bell System.
"Separate subsidiaries are no solution," McGowan said. "AT&T already has two dozen subsidiaries, but that has not prevented anticompetitive conduct, but is rather the means by which AT&T's competitive practices are carried out."
In particular, McGowan and C. Gus Grant, vice president of Southern Pacific Communication Co., said they favor forcing AT&T to form a separate corporation to operate its long-distance network. Grant also suggested the committee should defer action on the legislation until the close of the government antitrust case.
AT&T divestiture seldom has been discussed in legislative arenas since a House proposal endorsing the concept was abandoned two years ago.But it was a topic of considerable discussion during the hearing as Sen. Ernest Hollings (D-S.C.), the former Senate communications subcommittee chairman, endorsed the proposal.
"Don't you think a clean separation is necessary?" Hollings asked at one point. "I'd like to have the divestiture," he said at another point. Hollings' statements surprised observers and contrasted with Commerce Secretary Malcolm Baldrige's testimony last week that the administration opposes divestiture despite continuing Justice Department efforts to ask a federal judge to order such a plan as relief in the antitrust case.
Joining calls for drawing such a distinct AT&T split were representatives of other competing industries, including Charles Johnson, chairman of General DataComm Industries Inc. and vice president of the Independent Data Communications Manufacturers Association.
"Without divestiture, AT&T will retain both the incentive and the opportunity to abuse its monopoly power in ways that advantage the offerings of AT&T's affiliated equipment manufacturer," Johnson said. "Moreover, divestiture will require far less regulatory supervision than will the use of less comprehensive structural approaches."
The problem of AT&T's structure -- perhaps the thorniest issue of debate over the legislation -- also was raised by Robert Hall, president of Satellite Business Systems, who said that controls in the legislation designed to prevent cross subsidies between AT&T and its unregulated affiliate are not strong enough.
Hall said mechanisms short of divestiture could solve the problem, most notably requiring that the new company be "fully separated" from AT&T and under the supervision of the Federal Communications Commission.
But Ian M. Ross, president of Bell Telephone Laboratories, said that separating the activities of his research operation along regulated and unregulated lines would be harmful and that the labs "must be kept intact."
If the labs "were prohibited from sharing these resources, duplication of such resources would be required," Ross said. "Such duplication would be punitively expensive -- if not impossible -- to achieve."
James Napier, president of Continental Telephone Corp., the third-largest independent telephone company, largely praised the bill, but said it does not go far enough in deregulating local service telephone companies. One section of the legislation divides state and federal regulation of telephone companies based on the firms' size.
"We would suggest that companies that own and operate primarily local distribution facilities should be excluded from federal regulation," Napier said.