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March 7, 1988

United States of America, Plaintiff,
Western Electric Company, Inc., et al., Defendants

Harold H. Greene, United States District Judge.

The opinion of the court was delivered by: GREENE


Under the terms of the decree, *fn1" the Regional Companies are prohibited from providing "information services." AT&T, 552 F. Supp. at 227. An information service is defined as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing or making available information which may be conveyed via telecommunications." Id. at 229. On September 10, 1987, the Court stated that it was prepared to exempt from the information services restriction the transmission of information generated by others, and it invited the parties and intervenors to submit proposed orders and memoranda detailing with particularity the necessary ingredients of an information transmission system. United States v. Western Electric Co., Inc., 673 F. Supp. 525, 597 (D.D.C. 1987) (hereinafter referred to as "Opinion, 673 F. Supp."). A total of some 59 organizations and individuals have filed comments, a number of them several documents (including responses, replies, and the like).

 As the Court has had occasion to indicate before, unlike the interexchange and manufacturing issues, which are largely open and shut, the information services questions are closer and more debatable. After carefully considering the matter once again, the Court, for the reasons elaborated on below, has made the following decisions, based upon competitive considerations and upon issues of public policy relating to the economic and social benefits that may be derived from a substantial expansion of information services.

 First, the Regional Companies will be permitted to engage in the transmission of information, but the generation of information content, one of the core ingredients of the decree growing out of the AT&T case, will continue to be prohibited. Second, for the present, the transmission system to be used will be that delineated in the Court's September 10, 1987 Opinion; however, the Regional Companies may freely develop and use differing applications of that system. Third, the Regional Companies will be allowed to employ alternative transmission systems as and when they are able to propose methodology that will in practice preserve the content-transmission dichotomy. Fourth, the Regional Companies will be permitted to enter the voice storage and retrieval markets.

 In brief, the Court's decision combines the grant of wide flexibility to the Regional Companies with respect to transmission systems and voice storage applications, with a continued prohibition on the generation and manipulation of information content. It is the Court's expectation that this easing of the information services restriction will avoid anticompetitive effects, and that it will at the same time bring this nation closer to the enjoyment of the full benefits of the information age.


 Need for Retention of the Restriction on the Provision of Information Content

 In the consideration of the papers filed with the Court, it is useful, first of all, to consider, most broadly (1) what it is that the Regional Companies must continue to be prohibited from doing and why, and (2) what segment of the information services market may now be opened to them.

 The comments from several Regional Companies indicate that they may not have adequately understood the reasons for the line of business restrictions in the decree. Arguments are advanced again and again that, if only the companies were allowed to enter the markets forbidden to them under the decree, they would be able to innovate unlike independent corporations in the same markets, and that they would be able to improve America's foreign trade position, competing vigorously and effectively with foreign manufacturers and other providers. There are two major reasons why these recurring arguments are not well taken.

 At the most elementary level, the Regional Company contentions are irrelevant: the decree provides in so many words that the restrictions *fn2" "shall not be removed unless any particular Regional Company makes a showing . . .. that there is no substantial possibility that it could use its monopoly power to impede competition in the market it seeks to enter." Section VIII(C) of the decree.

 In the context of the triennial review of the decree, *fn3" the Regional Companies supported the Department of Justice motion for, inter alia, a complete removal of the restriction on the provision of information services, without distinction between content and transmission. The Court found, however, that the Regional Companies continue to possess bottleneck control over the local exchange facilities, *fn4" and that information services are especially vulnerable to even slight manipulation and discrimination by the entity providing transmission. Opinion, 673 F. Supp. at 562-67. Because the requirements of section VIII(C) had not been met, the Court concluded that the restriction on the sale by the Regional Companies of information content must be maintained. Id. at 567. The situation is thus unchanged and, inasmuch as the Regional Companies are unable to make the requisite section VIII(C) showing, they continue as a matter of law to be bound by the section II(D)(1) restriction.

  In any event, it is wholly unlikely that the removal of the restrictions would lead to a flowering of research and of more and better competition with foreign producers.

 In the first place, the Regional Companies have no experience with the generation of information. The production of and changes in the form of information are the province of hundreds of professions, occupations, and trades, from book publishers to stock market analysts to the providers of theater and music admission tickets. Those involved in these businesses possess the necessary expertise; the Regional Companies do not. It would be absurd to lift the restriction on the provision of information content based on the theory that the Regional Companies know more about and are better able to capitalize on these businesses than those who have made these endeavors their lives' work.

 Furthermore, the Regional Companies are not needed in these aspects of American business; they could flourish therein only if they used their telecommunication monopolies to disadvantage competitors in these markets; and their participation therein merely because they are in the business of transmission would be an aberration. *fn5"

 Furthermore, an entry of the Regional Companies into the content-generation markets would be positively harmful. Experience has shown that there is less innovation and hence less effective competition with products manufactured abroad when the significant players in the American market are monopolists than when the participants are free of monopoly pressure and thus have the incentive that exists, in a market characterized by vigorous and broad competition, to lower price and to offer better products. *fn6"

 The American economic system proceeds on the basis of the assumption -- closely related to the assumption underlying our political system -- that competition is far more likely to lead to the production of more and better products and their distribution to consumers at affordable prices than a market dominated by a monopoly, whether governmental or corporate. In fact, as the Court has previously noted, *fn7" more new and innovative telephone products have appeared on the shelves of this country's retailers in the four years since divestiture than in the preceding twenty. It is ironic that, at the very time that several of America's opponents -- e.g., the Soviet Union and the Peoples Republic of China -- have finally learned and have begun to implement the lesson that competition is superior to monopoly, *fn8" some of the largest American corporations *fn9" have been successful in persuading the Department of Justice that a return to monopoly, their monopoly, is in the public interest.

 In brief, even if the legal barrier of section II(D)(1) of the decree were not crystal clear, there would be no warrant for a removal of the restriction on the provision by the Regional Companies of the content of information services, one of the core restrictions of the decree. That restriction will accordingly remain.


 Removal of the Restriction on Information Transmission

 In its analysis of the restriction on information services, the Court recognized last fall that substantially different considerations govern Regional Company entry into the transmissions aspect of information services, also known as information gateway services, *fn10" than would their participation in the market for the compilation, origination, or manipulation of information. Opinion, 673 F. Supp. at 587-97. The potential for anticompetitive behavior by the Regional Companies with respect to transmission only is very much limited, if only because, in the absence of their participation in the generation or manipulation of content, these companies have little incentive for discrimination against competitors in the information market.

 Moreover, broad public policies in addition to those stemming from antitrust law favor the elimination of the restriction on transmission. *fn11" The Court has previously found that the efficient, rapid, and inexpensive dissemination of specific information as called for by individuals in all segments of the population will benefit the nation and its economy. Opinion, 673 F. Supp. at 589-90. The Court now reaffirms and underlines that finding.

 The videotex *fn12" industry, which has the potential for furnishing wide varieties of information, as needed or wanted, to large segments of the population, has grown only slowly. This is so particularly with respect to the home videotex market. The fact is that, unlike in some foreign countries, consumer-oriented videotex services on a substantial scale remain largely in the future in the United States. Opinion, 673 F. Supp. at 587-88. *fn13"

 Yet if consumer-oriented videotex services were made available on a large scale, the economic and social welfare of the American people could be substantially advanced. It is difficult to overestimate the significance of this potential. Information services, as the experience of existing domestic providers and with the foreign systems has shown, can come in an amazing scope and variety. *fn14" If developed to their full potential, these services could in some ways revolutionize American intellectual, social, cultural, and economic life.

 In a practical sense, the pervasive services network necessary to create a large and vigorous nationwide market is unlikely to develop without the participation of the Regional Companies. *fn15" Because of their presence everywhere and their relationship with every user of the telephone, only these companies would be able to furnish the necessary infrastructure components for the distribution of efficient videotex services on an integrated basis; at a minimum they could furnish these components more easily and at less cost than other potential suppliers. Opinion, 673 F. Supp. at 591.

 To be sure, some of the requisite services can be and currently are being provided through the customer premises equipment market, *fn16" and through existing independent videotex suppliers. What is missing, however, is the easy access, both for the providers of information services and for consumers, to a vast, pervasive system that only the local telephone companies, operating in every state of the Union, can readily supply. It is only on that basis that the mass market can be created that will allow information services to become available and used on a truly national basis. *fn17"

 Beyond that, while entry of the Regional Companies into information gateway services entails some risk to fair competition, such entry, by a group of companies which collectively serve practically every business and household in the country, may actually lead to an increase in competition, as awareness of the services and their potential grows, and as the customer base becomes much more widespread.

 Having weighed the wide benefits potentially accruing to the American economy and its consumers against the narrow likelihood of monopolistic behavior on the part of the Regional Companies were they to be permitted to enter *fn18" the transmission market, the Court concluded on September 10, 1987, that a limited relaxation of the information services restriction was warranted. It is on this basis that the Court announced its intention to modify the decree pursuant to section VIII(C) so as to permit the Regional Companies to compete for the provision of transmission facilities to the information services industry, and that it invited comments from interested parties and intervenors with respect to modes of implementation. Opinion, 673 F. Supp. at 597. Having received and considered these comments, the Court sees no reason to alter its view on the fundamental question at issue.

 The Court was and is an enthusiastic supporter of large-scale information services for the benefit particularly of individual consumers and small businesses. Members of these groups will be able to partake of these revolutionary new services only if a mass market therefor is established, while vast commercial enterprises generally have access to such services now.

 The decree in this case has been responsible for a number of favorable developments: long distance rates have dropped substantially; *fn19" the price of telephone equipment has similarly been reduced; *fn20" innovations in telephone equipment available to the average person have appeared on retail shelves in astounding numbers and configurations; *fn21" and although the Regional Companies, which retain their local monopolies, initially raised local rates, that increase appears to have been largely halted during the current year.

 Now would appear to be the time for adding to the achievements built on the competitive market established by the decree a system of broad-based, efficient, reasonably-priced information services available to all who want them. On this basis, the Court will rescind the restriction on the provision of information services in section II(D)(1) of the decree insofar as the transmission of such services is concerned. What remains to be discussed are the specific applications of this decision.


 The Teletel System

 In its September 10, 1987 Opinion, the Court relied heavily upon the description of the services provided by Teletel, the French videotex system, in reaching conclusions about the feasibility and the likely structure of information services in the United States. This was so largely because the French system was and is the best known, the most widespread, and the one technologically most advanced, at least on a large scale basis. Moreover, Teletel had been supported by various parties to this litigation as an example of the technological benefits the Regional Companies could supply if the decree restrictions were relaxed. U.S. West especially *fn22" called the Minitel network "the model upon which we would build" the American system. *fn23" That company also repeatedly touted the French experience as representing the cutting edge of the Information Age. *fn24"

 However, the French experience is merely one of the possible permutations that a coherent information services network in this country might take. In the first place, the United States is not France. This country, unlike France, has a healthy and growing personal computer market with which direct interaction will be possible. Also, there has been here some movement into the information services field by non-telephone enterprises. *fn25" Most importantly, the French government's subsidization of millions of "dumb" terminals *fn26" would be difficult to duplicate in this country either on a government-subsidy or a telephone company-subsidy basis. *fn27"

 It is obvious from this discussion that here the most effective method of interconnection between the information providers, through the Regional Companies, to the consumers could turn out to be different, at least in theory and in the longer run, from that employed in France, and so could the infrastructure.

 Additionally, advances in the communications and computer fields are said to have occurred since the unveiling of the French system, and further and broader advances are likely to occur in the future. On that basis, too, the existing Teletel system should not be cast in concrete as the sole option available to United States providers of transmission services.


 Other Alternatives

 It was with these considerations in mind that the Court requested the parties to make further submissions following the issuance of the September 10, 1987 Opinion, and it was on that basis that it expected to receive detailed contentions and recommendations both of a legal and a technical nature concerning the requirements of an effective infrastructure for the transmission of information services. Unfortunately, the response was disappointing.

 In the first place, the Regional Companies by and large emphasized their determination to have the Court reconsider its September 10, 1987 ruling against removal of the entire restriction on information services, including content. A reprise of that controversy was clearly not the purpose of the post-September round of briefs and, to the extent that this concentration on what had by then become a moot subject consumed space and energy, it was of assistance neither to the authors of the submissions nor to the Court. *fn28"

  Beyond that, the Regional Companies repeatedly expressed their need and desire for flexibility with regard to their construction of an infrastructure, and some of the companies' submissions begin and end with such a plea. Even memoranda which do provide details, however, do not demonstrate that the flexible authority sought therein would preclude the generation or manipulation of the content of information -- the key issue in view of the Court's previous rulings. *fn29" For obvious reasons, the Court may not, consistently with its obligations under the decree, rely for such preclusion on so important a subject on Regional Company self-restraint. *fn30" Authorizing language with technologically amorphous descriptions of what will actually be done constitutes the equivalent of a carte blanche to depart from transmission into content, and such a departure, as indicated, cannot be approved. *fn31"

 Having received no submissions that could be regarded as acceptable alternatives to the system tentatively approved last fall, the Court could have decided not to conduct any further inquiry of its own but simply to rest on its existing decision: to permit the use of the Teletel system as described on September 10, 1987, without exploration of other alternatives. However, as pointed out above, it is the Court's belief that information services have a very large potential value for the American public. In view of that consideration, and in view of the possibility that the transmission of such services could be achieved, either now or in the future, by means more advanced, more economical, or both, than those described on September 10, 1987, the Court decided to consider the various other alternatives that appear to exist.

 A. Prohibition of Content Generation

 One means of achieving the Court's objective of encouraging the broadest flowering of technology for the transmission of information would be simply to prohibit the generation and manipulation of the content of information, without further definition or explanation. This would authorize the Regional Companies to engage in transmission activities, again without bounds or boundaries, and it would leave completely open the means to be used for in the exercise of the transmission function. This, however, would be impractical for two interrelated reasons.

 In the first place, such broad, and unbridled prohibitions and authorizations would almost inevitably lead to an incessant involvement of the Court with the industry. Either the Regional Companies would be flooding the Court with requests for construction of the decree prior to entering fields that could legitimately be regarded as being close to the line between transmission and content, *fn32" or the companies' competitors or potential competitors would be inundating the Court with requests for enforcement or sanctions based upon their perception that the Regional Companies had crossed the line from the permitted to the prohibited.

 An alternative to that scenario, and one that likewise cannot be excluded based on past performance, would see the Regional Companies simply resolving all reasonable and unreasonable doubts in their own favor, *fn33" and entering the content-based information services market on a wholesale basis, leaving it to the Department of Justice and to the Court to initiate and pursue the enforcement actions necessary to rein these companies into what the decree actually allows. This kind of approach would thus have the perverse effect of substantially increasing rather than decreasing detailed judicial involvement with the telecommunications industry -- an obviously undesirable development.

 In short, while a simple prohibition on content generation, with an equally simple authorization to engage in transmission, would have the virtue of making the Court's task easier today, for the long run it would sow the seeds of enormous difficulties and disputes, harmful to the parties, to the Court, and to the industry.

 B. Electronic Publishing

 A somewhat similar approach -- one that was suggested by a number of parties, including some Regional Companies *fn34" -- would be to make the decree's electronic publishing definition the benchmark of information content. Electronic publishing is defined in section VIII(D) of the decree as:


the provision of any information which AT&T or its affiliates has, or has caused to be, originated, authored, compiled, collected, or edited, or in which it has a direct or indirect financial or proprietary interest, and which is disseminated to an unaffiliated person through some electronic means. *fn35"

 The suggestion is made that the information services restriction of section II(D)(1) be amended to provide that only the activities encompassed under section VIII(D) remain prohibited. In the eyes of some commentators, this definitional approach will "avoid[] dragging the Court into the endless task of listing the technical capabilities needed for an effective gateway." *fn36" These commentators also emphasize the rapid pace of market and technological change in the industry, and they suggest that unless this method of proceeding is adopted, the Court will be inundated with requests for rulings on a function-to-function basis.

 There is some merit to this argument. Simplicity is always a virtue, especially in a case as complex as this. Beyond that, the Court has no desire, nor reason, to become the arbiter of disputes over the merits of the details of particular technologies, nor does it have an interest in establishing a waiver process that would delay the implementation of advances in infrastructure technology.

 However, while the proposed definition is simple, it is also inexact and underinclusive. "Electronic publishing" is not all that must continue to be prohibited to the Regional Companies, for information content is a wider concept than that. For example, if a Regional Company were prohibited only from entering the electronic publishing business, it could validly offer such services as timesharing, credit checking, and electronic mail, although each of these services involves the generation or manipulation of content and for that reason should remain prohibited to the Regional Companies under any general restriction on content. *fn37" Thus, wholesale adoption of the electronic publishing definition does not constitute an appropriate alternative any more than does the straight prohibition on content.

 Moreover, the electronic publishing proposal suffers from the same vice as that discussed under Subpart A, supra -- it leaves too large a scope for interpretation and hence evasion. It is the Court's experience that, regardless of the level at which a line is drawn between the permissible and the impermissible, the Regional Companies will challenge that line, and either turn to the Court for a ruling or enter the field and await enforcement proceedings, if any. The electronic publishing alternative is therefore rejected.

 C. Detailed Approvals

 For obvious reasons, the Court will not establish a procedure that would avoid altogether the adoption of a definition either of transmission of information or of information content. The adoption of this alternative would require the Regional Companies to apply to the Court, again and again, for a function-by-function approval of relevant technology as such technology may occur to a Regional Company and as its installation may seem to be called for.

 Such an approach would be a certain prescription for paralysis in the information services market. No responsible company would venture to expend capital on the design and installation of a technology if permission for proceeding with various facets was entirely uncertain but had to be applied for and secured some time in the future. Such a micromanagement approach by the Court would also be undesirable from the point of view of the Court and from that of certainty and stability in the industry as a whole.


 Permitted and Prohibited Transmission Services

 Having found unsatisfactory the various alternatives discussed supra, the Court will now describe what it is the Regional Companies may and may not do under the newly liberalized information services restriction on the basis of the fundamental decisions made herein.

 First. To the extent that the Court has already determined in the September 10, 1987 Opinion that the employment of various infrastructure components is necessary to an effective information gateway, see Opinion, 673 F. Supp. at 592-95, these components are conclusively presumed to constitute transmission functions that the Regional Companies will be hereafter permitted to perform. No useful purpose would be served by repeating in this Opinion the parameters of these components or functions, *fn38" and the Court hereby adopts their description in the September 10, 1987 Opinion, as modified in Part VI, infra.

 Second. The Regional Companies are being granted flexibility also to develop applications of these five components that differ in technology or detail from the Teletel system or the Court's September 10, 1987 description. However, such latitude is only permitted to the extent that (1) all specific restrictions and conditions laid down in the September 10, 1987 Opinion and this Opinion as to scope of the particular categories are observed; (2) no application of these categories involves entry into content-based functions; and (3) the services provided via these five categories of gateway functions are restricted to the transmission of information generated by others.

 Third. At the other end of the spectrum, a categoric restriction is being maintained on those aspects of information services that are plainly content-based. These are, at a minimum, the kinds of services that are described in the decree as electronic publishing, *fn39" see Part IV-B, supra, but they extend, of course, beyond that. See slip op. at pp. 28-29, supra.40

 Fourth. It may be that the function of transmitting information without infringing on the content prohibition can be achieved by means of a system or systems using components other than those listed above. The Regional Companies have not suggested any such system or systems thus far, *fn41" and there is thus nothing before the Court in that regard. However, should such entirely new means to transmit information services without trenching on content be proposed in the future, the Court will consider such proposals sympathetically, in line with its general view of the importance to the public of advanced, broadly-available information services, and its general approach to refrain from straightjacketing the fledgling information services industry by imposing an unnecessarily rigid structure *fn42" through which it must develop. *fn43" Such proposals must of course respect the no-content prohibition, and they should not merely constitute rearguments of issues previously rejected by this Court.


 Components of Transmission System

 As indicated supra, the Court is authorizing use by the Regional Companies of a system for the transmission of information generated by others that consists of the five components referred to in the September 10, 1987 Opinion, either in their present form or as appropriately modified. In this part of the Opinion, the Court discusses various questions that have been briefed by the parties regarding the configuration of these components, as well as several ancillary issues.

 A. Audiotex and Videotex

 In its September 10, 1987 Opinion, the Court focused its analysis of transmission functions on those currently performed by Teletel, since it was that system which had been touted by various Regional Companies as the model through which the United States could enter the Information Age. The French system, however, is limited to videotex -- it does not offer the wide range of services that would be available through the complimentary audiotex format. *fn44" The Court sees no reason to create a competitive imbalance between voice and other services, and for that reason it will permit the Regional Companies to engage in the transmission of audiotex on the same basis as they may transmit videotex.

 Audiotex services are available through ordinary touchtone telephones, and they therefore have the potential to become the largest and fastest growing segment of the information services market. To date, the widespread application of audiotex has been largely limited to time-of-day information and "976" services, *fn45" but expansion of the technical infrastructure could spur a radical transformation in that industry. Many of the services cited in the September 10, 1987 Opinion as ripe for provision over the information services network can easily be provided via vehicles other than videotex, *fn46" vehicles that may be equally valuable to a broad range of consumers, if not more so. *fn47"

 Consistent with the goal of making "possible the transmission, on a massive scale, of information services originated by others, directly to the ultimate consumer," Opinion, 673 F. Supp. at 603, then, the Court will make no distinction between videotex and audiotex with respect to Regional Company involvement in the transmission of information services. *fn48" Any and 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. *fn49" 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. *fn50" 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". *fn51"

 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. *fn52"

 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." *fn53" 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. *fn54" 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. *fn55" 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. *fn56"

 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. *fn57" It is apparently largely because of the practical simplicity of the kiosk system that Teletel has become widely used in France. *fn58"

 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. *fn59" 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. *fn60" 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; *fn61" similarly, synchronous, *fn62" rather than asynchronous protocols, are widely used by hospitals and state governments in data communication. *fn63"

 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. *fn64"

 E. Procedural Requirements

 Many commenters argue that transmission of information services should be allowed only in tandem with tailored provisions of a procedural nature. *fn65" 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. *fn66" 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 ยง II(A). These restrictions will continue to govern the Regional Companies in their provision of information gateway services, *fn67" 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. *fn68" 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. *fn69"


  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. *fn70"

  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 *fn71" see no barrier to entry into this market, arguing that no manipulation of content is involved in the service. *fn72" 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 *fn73" from providing them. *fn74" Yet other parties support Regional Company provision of certain storage and messaging capabilities, but only if limitations are clearly defined by the Court. *fn75"

  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. *fn76" 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. *fn77"

  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. *fn78" 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. *fn79"

  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, *fn80" voice storage and retrieval (VSR), *fn81" and electronic mail. *fn82" Provision of these services would not involve the Regional Company in the generation or manipulation of information content *fn83" for provision to the public. *fn84"

  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 *fn85" 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. *fn86"

  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. *fn87"

  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. *fn88"

  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. *fn89" 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. *fn90" 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. *fn91" 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. *fn92" 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. *fn93"



  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.


2. The separated BOCs shall be permitted to engage in voice storage and retrieval services, including voice messaging and electronic mail services.


3. In the performance of the services authorized herein, no BOC shall discriminate between and among providers of information or against other providers of information services or of voice storage and retrieval services.

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