all references to videotex, either in this Opinion or the September 10, 1987 Opinion, may be construed to include audiotex applications.
B. Electronic Directory Service
On September 10, 1987, the Court stated that it would not remove the prohibition against Regional Company provision of electronic "Yellow Pages" directory services because such removal would give the companies the incentive and ability to discriminate against competing providers of directory services and against competing providers of directory services and against the publishers of classified and other advertisements. Opinion, 673 F. Supp. at 596. On the other hand, the Court decided that the Regional Companies would be allowed to offer electronic "White Pages" directories with respect to which such an anticompetitive potential did not exist. Id. From those simple declarations several Regional Companies have parsed an invitation to engage in the broadest possible electronic directory services, some so broad as to subsume almost all distinctions between White and Yellow pages.
These Regional Companies have interpreted the Court's statements regarding electronic directories as vesting in them the authority to provide electronic directory services that list general product and business categories, the service or product providers under those categories, the names, telephone numbers, and addresses of these providers, as well as services that allow customers to search the directory through the use of any of those categories.
BellSouth would add to these assumed grants of authority the capability to search by geographic location, and it would provide hours of operation, alternative phone numbers, and similar information for business and government listings.
And Bell Atlantic carries these misinterpretations to their ultimate logical conclusion: it suggests that everything except display advertising could be provided under the rubric of "White Pages".
Section VIII(B) of the decree grants to the Regional Companies the authority to produce, publish, and distribute printed "Yellow Pages" directories. Yellow Pages are described therein as "directories which contain advertisements and which list general product and business categories, the service or product providers under these categories, and their names, telephone numbers, and addresses." As the above discussion indicates, some Regional Companies now expect to have the right to provide electronic directories of that same nature under the label of electronic "White Pages," although they are not permitted to produce electronic Yellow Pages under the decree itself. AT&T, 552 F. Supp. at 194. That attempted usurpation of authority was rejected once before, and it is now again rejected.
The provision of electronic "White Pages" directories encompasses only a listing of telephone subscribers, arranged in alphabetical order by name, with address and telephone number appended. No discrete directory of businesses, products, or services is allowed under the "White Pages" exception, nor is searching by any of those categories.
A reading of the draft orders and explanatory memoranda submitted on this particular issue indicates that some parties may have confused the Court's ruling in regard to the "White" and "Yellow Pages" directories with that on introductory information content as a gateway component. For example, U.S. West argues that electronic White Pages services should not be artificially restricted because "[a] purely alphabetical listing would not attract users to the gateway and would not serve to familiarize users with the use of information services."
Familiarization with information services is not the purpose of White Pages; that purpose is effected by gateway introductory information. The two types of services are completely unrelated in function and design: to be listed in electronic "White Pages" directories an individual or a business needs no more than a telephone number; by contrast, gateway introductory information serves as a guide only to those individuals and businesses who are information services providers accessible through the gateway.
The Court has endorsed the provision of welcoming pages and provider listings in the gateway context. Opinion, 673 F. Supp. at 594-95. In the Regional Companies' role as the providers of gateways to information services, they may list names, addresses, service and business categories, and other information which would assist the user in identifying a service provider, as long as such information is not offered in a way so as to discriminate among providers. The gateway should allow the customer without much difficulty to search the data base in any of these categories. This service does not, however, extend beyond the group of entities that provides services through the gateway; those who merely have a telephone and a telephone number are not in that category.
To the extent that use of the gateway can be made user friendly, the Regional Companies should be encouraged to assist novice and veteran users alike. Therefore, in addition to those items previously identified as appropriate introductory information content, the Regional Companies may provide a "help" capability and directions for navigating within their gateway. Information as to how to locate different providers, how to use the listing of providers, how to select an information service, how to exit the network, and the like would be appropriate subjects of a gateway "help" function.
Once again, however, this capability will be limited to information about using the gateway -- it will not extend to information about an individual service provider's own system.
The information service provider may of course make such assistance to navigation available to its subscribers as part of its menu, but that would be a function under its control, not that of the Regional Company.
C. Kiosk and Revenue Sharing
The Court has previously indicated that any type of consolidated billing system will be permitted as long as it does not provide for the sharing of revenue. Opinion, 673 F. Supp. at 594. Because the "kiosk" billing system used by the French Teletel, in which the telephone company bills the consumer on a flat-rate-per-service basis, appeared to be a form of revenue sharing, the Court indicated that it would preclude the Regional Companies from adopting a similar system. Opinion, 673 F. Supp. at 594 n.310. Subsequent to that determination, the Court has analyzed further the kiosk billing arrangement, and it has now become persuaded that it should rescind that categoric preclusion.
The French kiosk system appears to have been a key factor in the growth and expansion of Teletel by simplifying consumer access to and use of the network. Users pay for Teletel calls on their regular telephone bills, and the French telephone company in turn transfers a prearranged portion of the collected sums to remunerate the individual information service providers. These payments are based on traffic statistics: the more popular a service, the greater the service provider's income.
Because a simple, constant price is charged for a wide variety of services, consumers are encouraged to browse in the system. This facilitates their familiarity with the various information providers and increases the competitiveness of services offered. The French telephone company's only interest, as it relates to billing, is in collecting a flat fee for each time increment that the system is accessed by a particular consumer.
It is apparently largely because of the practical simplicity of the kiosk system that Teletel has become widely used in France.
Technically speaking, this type of billing arrangement involves a measure of revenue sharing; as service providers' revenue increases, the telephone company's income from the network rises. However, this cooperative arrangement benefits everyone -- service provider, gateway provider, and consumer alike -- by lowering administrative costs and establishing a uniform billing mechanism which can easily be understood by the novice user.
There is little, if any, offsetting potential for discriminatory behavior, since the network has no incentive to prefer one provider over another. In fact, the kiosk system is in many ways comparable to billing arrangements currently used by the Regional Companies for "976" services. In that market, telephone company charges are based on a percentage of the information provider's revenue.
The Court has not been apprised of any negative effects this arrangement has had on competition in the industry; and the French kiosk billing system, or any other billing mechanism which charges on a flat rate, per call, or per minute basis, would seem to fall in that same category.
Therefore, the Court will withdraw its prior conclusion that kiosk-type billing arrangements would necessarily involve harmful revenue sharing agreements, and it will allow the Regional Companies to bill on any basis, provided, of course, that the billing method is not discriminatory in any way.
D. Protocol Conversion
Businesses and consumers in this country are already using a broad and disparate array of computer terminals with a wide variety of operating characteristics. An effective gateway, to be fully useful, should be able to communicate readily with all these terminals, and it would therefore be advantageous if it were more sophisticated than the French model (which needs to communicate only with dumb terminals).
The Court has previously ratified the use of one particular type of protocol conversion, asynchronous-to-X.25 packet signals. However, it does not follow from the fact that this is the Teletel protocol conversion mechanism, as well as the most prevalently used conversion mode today, that the Regional Companies should be restricted to this technology. Other types of protocol conversion are in effect even now, each with a particular application. For example, a gateway which provides electronic mail would have to be able to convert individual users' protocols to X.400 protocols, the international standard for electronic mail;
rather than asynchronous protocols, are widely used by hospitals and state governments in data communication.
The Court has concluded that the correct approach to this question is one which allows flexibility for change and choice, and which encourages innovation. To the extent that protocol conversion methods exist or are developed other than asynchronous-to-X.25 which do not involve the manipulation of content, their use is permitted without further specific sanction from the Court.
E. Procedural Requirements
Many commenters argue that transmission of information services should be allowed only in tandem with tailored provisions of a procedural nature.
While the interests to be protected by such provisions are important, it is also true that the imposition of many new procedural requirements, willy-nilly, would seriously impair the development of a healthy and vigorous information services market. The Court is particularly reluctant to duplicate on the judicial level a vast and complex scheme of procedures where regulation exists on the federal and state regulatory commission levels having similar purposes.
This is not to say, however, that the objectives of the commenters, to the extent that they are substantial, cannot and should not be attained, either through the requested requirements or by alternative means.
Two issues predominate: discrimination and cross-subsidization.
The decree in its present form already sets out in general and broad terms restrictions against discriminatory behavior. Thus, section II(B) provides that "no [Regional Company] shall discriminate between AT&T and its affiliates and their products and services and other persons and their products and services in the . . . interconnection and use of the [Regional Company's] telecommunications service and facilities or in the charges for each element of service." See also § II(A). These restrictions will continue to govern the Regional Companies in their provision of information gateway services,
and the Court sees no reason to add yet another requirement of this nature to the safeguards already in place.
Moreover, the Federal Communications Commission is apparently establishing mechanisms to address both the discrimination issue and the issue of cross-subsidization. For example, in the Async/X.25 Proceedings and the Third Computer Inquiry, the FCC has established a number of competitive safeguards to govern the provision of enhanced information services -- including protocol conversion -- by the Regional Companies.
The efficacy of these safeguards is of course still uncertain. See Opinion, 673 F. Supp. at 576. The Court retains jurisdiction over this question, however, and if it appears that the Regional Companies are abusing the authority granted herein, and that FCC regulatory control is insufficient to curb violations, the Court will take the requisite enforcement action.
Today's ruling will allow the Regional Companies to strike out into new and uncharted waters. In an effort to grant sufficient flexibility to build a workable network, the Court has resisted tying the companies' entry into the field to a host of strict new procedural requirements. That approach may increase the potential for unfair practices; certainly it places initial responsibility for complying with the decree in the hands of the Regional Companies themselves.
In the exercise of the Court's continuing jurisdiction over the decree, however, as well as pursuant to the Department of Justice enforcement authority, Regional Company behavior in the information services field will be closely monitored. Should it become apparent that the flexibility granted herein is being abused, that local bottlenecks are being used to discriminate against competitors in the information services market, or that the information services are being subsidized by funds contributed by the ratepayers, the Court will take appropriate enforcement action. In fact, if the behavior of a particular Regional Company proves particularly egregious, the Court will not hesitate to rescind that violator's authority to engage in information transmission services altogether.
Voice Storage and Retrieval
Although not discussed in substance in the September 10, 1987 Opinion, Regional Company participation in the voice storage and retrieval market generated substantial debate in the most recent round of comments.
The positions taken on this issue, as on many others, are in diametric opposition to each other. A number of parties, including both the Regional Companies and others
see no barrier to entry into this market, arguing that no manipulation of content is involved in the service.
Other parties and intervenors postulate that, due to the Regional Company monopoly of the local switching services, a competitive market for the delivery of these services to consumers is likely to develop only if the Regional Companies remain prohibited
from providing them.
Yet other parties support Regional Company provision of certain storage and messaging capabilities, but only if limitations are clearly defined by the Court.
There are three quite distinct settings in which storage capabilities of the Regional Companies could be used in the information services market.
First, and most basic, is very short term storage. This transient storage and retrieval of information is an integral part of the transmission of communications and is currently being performed within the network in a variety of ways. Data is routinely stored each time a telephone call is made; the network stores the digits dialed by the calling party until a sufficient number of digits are input to allow direction of the call to its destination.
In the context of speed calling and call forwarding, storage of user-identified numbers occurs over time, not merely during the course of the transmission of a telephone call. Even the basic packet switching function, performed on an intra-LATA basis by Regional Companies, involves the breakdown of data or voice communications into small bits of information that are then collected and transmitted between nodes. These bits of data are subject to constant storage, error checking, and retransmission, as required for accurate transmission.
The information services gateway as contemplated by the September 10, 1987 Opinion will also necessarily require some storage capability to house the welcoming message, the Information Service Provider (ISP) directory, and information for the provision of billing services. At least at this elementary level, the Regional Companies must plainly be and will be permitted to engage in storage and retrieval functions.
Second, the Regional Companies might provide storage space in their gateways for databases created by others and lease that space to information service providers and end users. Making storage facilities available at the gateway level will make communication more efficient by moving information closer to the end user, thereby reducing transmission costs.
It is also possible that gateway storage would reduce entry costs to the information providers by obviating the need for their purchase of their own storage hardware.
This use of storage capabilities, while not technically necessary to an information infrastructure, would substantially assist in attracting to the system providers of information services, and it consequently would help to ensure that a "critical mass" of services would be available through the network. There is no significant potential for discriminatory behavior in this market, and this use of storage capabilities will also be permitted.
The third, and most encompassing use of storage capabilities would be in the provision of services such as voice messaging,
voice storage and retrieval (VSR),
and electronic mail.
Provision of these services would not involve the Regional Company in the generation or manipulation of information content
for provision to the public.
Although there is some dispute on this issue, the Court is persuaded that voice information services are likely to become much more affordable and much more widely used in this country
if the Regional Companies were permitted to provide storage to accommodate messages and other information until the intended recipient was ready to receive the transmission.
Objections to a wholesale Regional Company entry into markets requiring storage capabilities fall generally into two categories: first, that these are not functions "necessary" to a gateway, and for that reason were not contemplated by the September 10, 1987 Opinion; and second, that there has been no showing under section VIII(C) of the decree as to lack of competitive harm.
To the extent that objections to Regional Company entry into this market depend on a finding that storage is not a function "necessary" to the provision of transmission services, the argument succeeds in part and fails in part. As indicated supra, some amount of storage is necessary to any transmission activity over the local exchange network, be it in the context of information services or in routine telephone communication. These types of storage functions are therefore "necessary" to the gateway infrastructure in the narrowest sense of the word. It is, however, debatable whether the broader and more sophisticated storage functions briefly described above are necessary to transmission. Although the Regional Companies could transmit information without having the ability to perform these functions, the functions are certainly helpful to transmission.
In any event, however, whether or not the provision of such services is necessary to the performance of the functions of a transmission gateway, the Court may remove the restriction if it concludes that the section VIII(C) test has been met. In this regard, the opponents of Regional Company entry into the voice storage and retrieval markets contend that such entry would result in the displacement of independent firms.
It may safely be assumed that a large potential market exists for voice storage and retrieval services, far beyond the relatively meager market that is serviced by the existing providers. Entry of the Regional Companies into this market would be bound to enlarge it manifold, and new economic opportunities would be created for many new providers as well as for those who now supply the market. What has until now been a relatively quiescent market is likely to become a broad, vigorous, and competitive one. On the other hand, it may well be that the Regional Companies, not satisfied with the market share they are likely to acquire, would attempt also to drive out, or reduce the opportunities for, those who independently service that market, either as voice storage providers or as manufacturers or sellers of answering machines.
The issue as to the potential for anticompetitive activity is thus a close one; valid arguments can be made to support either outcome, and the Court is not convinced that a showing has been made to militate in either direction.
In the Court's opinion, several factors tip the balance in favor of Regional Company entry.
First. In view of the fact that the core violations that were the subject of proof during the AT&T trial did not involve this market at all, there is less reason to believe that Regional Company involvement in this industry will lead to anticompetitive behavior than would, for example, its involvement in long distance, provision of information content, or manufacture of telecommunications products.
Second. Due to the subtle competitive pressure exerted on this market by the presence of service bureaus, answering services, and particularly home answering machines, the ability to control prices and otherwise to operate monopolistically will be substantially diluted.
Answering machines are used by about ten percent of American households.
The consumer's choice between answering machines and Regional Company sponsored voice storage and retrieval will most likely be cost-sensitive -- should the price of automated services greatly exceed the amortized cost of an answering machine, few individuals are apt to subscribe. This economic impetus will, to a large extent, remove the ability of Regional Companies to raise prices unreasonably.
Third. In view of the largely inconclusive and speculative nature of the competitive considerations, other public policy factors should also be considered.
In this context, the public interest heavily tips the balance in favor of the requests of the Regional Companies.
The likelihood is that truly ubiquitous access to these services will not be had by the residential and small business consumer in the absence of Regional Company involvement.
Despite the emergence of several independent providers, the market for voice storage services, particularly for the occasional user, has not developed in this country to anywhere near its potential. As a practical matter, small and medium-sized businesses as well as consumers have to date had very limited opportunity to enjoy the benefits of these services, for reasons very much like those that explain the limited development of videotex itself in the United States. See Opinion, 673 F. Supp. at 590-91.
In-house voice information systems require large up-front investments that are cost-effective only when spread over a large number of users, and only large businesses are therefore willing to make this capital investment. Further, high start-up and operating costs have limited the emergence of individual service providers, and where such providers do exist, economic factors have generally required them to deploy large, centralized facilities that, in order to serve broad areas, depend upon expensive long-haul transmission capabilities. To minimize their transmission costs, existing providers of voice information services have, once again, focused their business on service to larger business users, especially those located near the provider's own facility.
More generally, consumer and small business awareness has been low, and the need for presubscription has kept potential users from joining the system.
Given these conditions and limitations, it is appropriate for the Court to take into account values in addition to those stemming exclusively from an environment free of anticompetitive activity. In this case, such values revolve largely around the interest of providers and potential consumers to attain the widest possible availability of voice storage and retrieval services to all segments of American society. As indicated, this objective can most readily be achieved by allowing Regional Company participation in the market for voice storage and retrieval type services. On this basis, and since the risk of anticompetitive activity is small, the Court will allow such participation. The Regional Companies will accordingly be authorized to enter the markets for voice storage and retrieval, voice messaging, and electronic mail.
For the reasons and on the bases described above, it is this 7th day of March, 1988
ORDERED that the decree entered herein on August 24, 1982, be and it is hereby amended by the addition of the following new subsection of section VIII:
K. Notwithstanding the provisions of section IV(J):
1. The separated BOCs shall be permitted to engage in the transmission of information as part of a gateway to an information service, but not in the generation or manipulation of the content of information. "Transmission" shall mean the performance of the following functions: data transmission, address translation, protocol conversion, billing management, and introductory information content.