Legislation nearing final Senate action would dramatically shift some of the government's power to regulate the nation's telephone system from the Federal Communications Commission to military agencies, according to industry and government sources.
Although the legislation, designed to deregulate the phone industry, would not give the Pentagon a role in setting long-distance rates, the Defense Department powers could have an indirect effect on the quality and cost of telephone service.
The legislation would allow the president, on a Defense Department recommendation, to require any communications company to provide any services, facilities or equipment "to promote the national defense and security or the emergency preparedness of the nation." No state of emergency would have to be declared. Under current law such powers are generally reserved for wartime.
For example, defense officials could order limits on types of equipment companies could sell to consumers if they felt that equipment might harm the national American Telephone & Telegraph network.
The acting director of the Systems Evaluation Division of the Federal Emergency Management Agency, A.L. Henrichsen, warned in a confidential memo to the agency's general counsel that if the bill is enacted it would give the Defense Department "statutory authority to impose 'national security' requirements on the telecommmunications industry apparently without review except by the courts." FEMA is charged with handling the civilian response to major emergencies.
A number of communications experts suggest that the shift of power should be of concern on economic, policy and potentially even civil liberties grounds.
A stepped-up communications policy role for the Defense Department could undermine competition in the industry, a trend that has been fought by Pentagon officials for the past decade but that is intended to give consumers alternatives to AT&T for equipment and long-distance services. The Pentagon has a long history of close ties with the Bell System and has viewed competition as a threat to that relationship.
Some critics of the bill also argue that Congress should consider carefully whether it wants the military involved in decisions affecting the civilian communications network. Many civil liberties advocates say communications regulation should be a civilian, rather than a military, responsibility.
Yet the subject has received little scrutiny outside the government, and because the legislation is the subject of complex negotiations and intense lobbying, federal officials and most representatives of private telecommunications interests are reluctant to comment publicly.
But the views of one key policy maker are typical of those obtained from a dozen communications attorneys, lobbyists and federal officials. "There are significant provisions of the bill which are unduly favorable to the Department of Defense to the potential detriment of the ratepayers," he said. "It's like a hidden defense budget item. Clearly, there is too much of a shift of power to the Defense Department."
Henrichsen put it just as bluntly in his memo to the agency's general counsel, saying that language supplied to the Senate by the Department of Defense and National Communications System is "designed to give DoD/NCS a statutory basis for regulating telecommunications carriers on an equal footing with the Federal Communications Commission."
Kenneth Cox, vice president of MCI Communications Corp., a long-distance competitor of AT&T, and a former member of the FCC, said he is concerned not only because under the bill the Defense Department could order the withholding of information his company needs to hook up with the Bell System's local network, but also because of the department's expanded powers over the nation's communications system.
"I think it is quite clear that they have snuck in there some powers that are quite dangerous for us as a company and for the public at large," Cox said.
A top policy official in the Carter administration put it another way. "There is real potential for political abuse, nondisclosure of important information, and the potential for conflicting policies between the FCC and defense is enormous, disputes that will only wind up in the courts," he said.
The legislation, a revision of the Communications Act of 1934, is designed to deregulate parts of the industry and free AT&T from legal constraints to compete in unregulated communications markets.
Introduced by the Republican leadership of the Senate Commerce Committee, a panel chaired by Sen. Bob Packwood (R-Ore.), the bill,S. 898, was easily passed by the committee, 16 to 1, more than two months ago, with no debate on the defense sections. It may be considered on the Senate floor as soon as this week and has been expected to gain Senate approval.
Pentagon officials are trying to use the legislation to resolve acknowledged management and technological problems that plague the nation's defense and emergency communications system.
Earlier drafts of the bill were revised by Senate staff members to include legislative language sent to Packwood by the National Communications System, a small agency that is a confederation of seven government agencies that oversee defense communications systems.
AT&T competitors are especially concerned about provisions of the bill giving the secretaries of commerce, defense or state power to block public disclosure of construction or operation information submitted to the FCC on grounds that disclosure would be "detrimental to the national defense and security." The FCC could not release the information without approval of the president, who would be advised on the matter by the Pentagon.
This provision would have the potential of dramatically undercutting the ability of AT&T competitors to learn of technological changes in telephone equipment, information the companies need to hook their equipment or calls into the Bell System's local telephone network. MCI, for example, might face substantial difficulties in learning of changes in AT&T equipment that link the company's microwave network with the home telephone.
The bill also gives the Pentagon the ability to waive its provisions which bar direct dealings between AT&T's regulated telephone companies and any new separate AT&T subsidiary which would compete in an unregulated environment. "Defense could undermine the entire thrust of the legislation," said one policy expert.
The telecommunications policy issue is of enormous importance to the Defense Department. The department is responsible for overseeing the nation's multibillion-dollar defense communications needs, but there has been increasing criticism of that system's ability to withstand war or natural disaster.
Moreover, the department and AT&T have maintained a close working relationship, which the department says simplifies maintenance and expansion of government communications needs.
But critics of that relationship also note that AT&T provides without charge communications tasks worth millions of dollars for the Defense Department. The costs of those tasks are put into the rate base used by AT&T in applying for regulated rates, and then passed on to AT&T subscribers.
Officials have only reluctantly and recently publicly acknowledged that facet of the relationship. A May, 1981, National Communications System paper on the relationship notes that AT&T "has expended considerable effort" in protecting national defense capabilities.
"This was possible both through close cooperation and planning with the government as well as the ability to achieve payback for funds expanded through the 'rate base,' which in effect meant that all telephone users were underwriting these national defense measures," said the paper, which is a Justice Department exhibit in the antitrust case against AT&T.
Henrichsen's memo supports that contention and notes that "these special provisions have been estimated to involve upwards of several hundred million dollars in annual costs."
In addition, the Defense Department has pressed the Justice Department to abandon its seven-year-old antitrust suit against AT&T, arguing that the breakup of the company sought by the government would disrupt defense communications programs. In fact, defense representatives had sought to include language in the pending bill that would have expressed the "sense" of Congress as opposing the breakup sought by Justice, but that section was one of the few Pentagon proposals rejected by Commerce Committee aides.