The regional Bell telephone companies could get the right to manufacture telephone equipment for the first time as part of a solution for easing the U.S. trade deficit if a Republican trade bill introduced this week becomes law.
A clause tacked onto an omnibus trade bill introduced this week would essentially overturn a part of a Justice Department consent decree that restricted business activity of the regional Bell companies in the aftermath of the Bell System breakup.
"Basically, the provision provides the Bell companies the authority to engage in manufacturing of equipment," said Michael Johnson, chief of staff for House Minority Leader Robert H. Michel (R-Ill.), who introduced the legislation. "There is more competition in that field coming from Japan -- it's the same old story -- and the more American businesses we've got manufacturing for domestic sale, the better off we're going to be."
Currently, the consent decree bars the Bell telephone companies from providing long-distance service, manufacturing telephone equipment or providing information services such as data processing. At the time of the breakup, American Telephone & Telegraph Co. kept authority for providing those services, while regional companies were allowed to operate local telephone service.
The legislation would allow the companies to manufacture a wide variety of equipment, from complex network-switching to telephones. The companies would be required to manufacture equipment in the United States, but the goods would be marketed both domestically and abroad.
The question of whether lifting the restriction would hinder industry competition is a hot topic of debate in policy and industry circles.
"There is still a lot of potential for stifling of the development of the market" if the Bell companies are allowed to manufacture, said one FCC official. The Bell companies have also aggressively procured network equipment from a wide variety of competing manufacturers, to the benefit of American manufacturers and ultimately ratepayers, the official said. "Would this screw it up?" the official said.
Capitol Hill critics of the proposal also warned yesterday that the legislation could harm other efforts to enact trade legislation.
"This is a very, very controversial piece of domestic telecommunications legislation and raising it in this context could totally undermine the chances of telecommunications trade legislation being passed," said Rep. Timothy Wirth (D-Colo.), chairman of the House subcommittee on telecommunications, consumer protection and finance. Wirth has introduced his own bill on the topic.
In addition, some Justice Department officials say the action could hinder their antitrust effort and that competition may not have sufficiently evolved to allow the companies into manufacturing. The potential for use of a monopoly over the local telephone system in an anticompetitive way still exists, said one official.
"When a company controls access to the telephone network, and is also in the business of manufacturing, it can provide its manufacturing subsidiary with technical information in advance of its competitors," the official said.
Proponents of the trade bill are equally critical of the current restrictions on Bell companies.
"The companies have the capability to manufacture equipment for this or the international market," said Rep. Trent Lott (R-Miss.), a cosponsor of the bill. "It makes no sense for them to be prohibited from doing that, they would contribute to American jobs."
The Republican legislation would empower the Federal Communications Commission and the Commerce Department to allow the Bell companies to manufacture telecommunications equipment in the United States. The two agencies would have to make a decision by Sept. 1, 1986.
Before the manufacturing is permitted, the Bell companies would have to complete the process of providing "equal access" to all long-distance companies -- eliminating lengthy codes customers previously had to dial to reach AT&T's competitors. The companies also would have to make their local networks available to any businesses wishing to provide information services, such as data processing.
The Commerce Department has favored easing restrictions, such as domestic manufacturing, but not before the process of equal access is completed.
The omnibus bill has been introduced in four House committees and "the chances of it getting through the committee process are slim to none," said one committee staff member.
Neverthless, the issue of whether and when to relax phone company restrictions is increasingly being viewed as something that will not die on Capitol Hill.
"It's an issue that is not going to go away, mainly because it's so damn dumb," said Trott. "I can't understand for the life of me why we would prevent our companies from being allowed to compete."
"The administration is not ready for it to happen, the industry is not ready for it to happen and the Bell operating companies are doing well; there is no orphan case to be made," said one Capitol Hill source. Opposition from the industry is strong, the source added.
An AT&T spokesman said AT&T does not support changing the consent decree.
Al Kramer, general counsel to the North American Telecommunications Association, an industry group, said, "We've basically spent 15 years saying that vertical integration for the Bell System was anticompetitive and led to big problems."
Some of the companies are not so sure they want to enter a capital intensive business. "Some of the regional companies have talked about it, but we really don't know," said one official at a regional Bell company. "It's not something anybody has really thought about and I don't know that we would do it."