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RESPONSE TO PROF. HAUSMAN'S CRITICISMS
In its previous evaluations, as well as this one, the Department has relied on the Affidavit(1) and Supplemental Affidavit(2) of Prof. Marius Schwartz in support of its standard for evaluation and consideration of the public interest entry criterion of section 271 of the 1996 Act. The Supplemental Affidavit, and the Department's South Carolina Evaluation at 48-50 (attached to this Evaluation as Exhibit 5), address issues that other economic experts have raised regarding Prof. Schwartz's original analysis in his Affidavit, and explain why that analysis remains valid. Only one of BellSouth's economic experts, Prof. Hausman, has attempted to respond to Prof. Schwartz's Supplemental Affidavit in any detail.(3) Most of his arguments have already been addressed by Prof. Schwartz and other experts, while others are simply unclear. For example, Prof. Hausman seems to think that Prof. Schwartz should change his position on the cost-benefit tradeoff of requiring local market opening before BOC interLATA entry in the wake of the Eighth Circuit's recent decision on the Commission's local competition rules. But nothing in the Eighth Circuit's decision affects the validity of Prof. Schwartz's observation that prematurely granting BOC interLATA entry before the process of opening local markets is completed would likely encourage further delays that would "substantially impede the development of local competition." Schwartz Supp. Aff. ¶ 58. Not only would this create a clear harm to local consumers in the short term, but over the longer term, as Prof. Schwartz points out, "if local competition fails to develop exchange access alternatives, then BOC interLATA entry is likely, over time, to pose a growing threat to the ability of IXCs to compete, since IXCs' access needs will change over time and preventing discrimination in the establishment of new access arrangements is considerably harder than preventing the degradation of established arrangements." Schwartz Supp. Aff. ¶ 70 (citation omitted); see also id. ¶ 11.(4)
The more specific criticisms that Prof. Hausman directs at Prof. Schwartz's analysis are generally mistaken, and in a number of instances self-contradicting. For example:
1. Affidavit of Marius Schwartz, ("Schwartz Aff."), attached to this Evaluation as Ex. 1.
2. Supplemental Affidavit of Marius Schwartz, ("Schwartz Supp. Aff."), attached to this Evaluation as Ex. 2.
3. Reply Declaration of Prof. Jerry A. Hausman ("Hausman South Carolina Reply Decl."), attached to Reply Brief in Support of Application by BellSouth for Provision of In-Region, InterLATA Services in South Carolina, In re: Application of BellSouth Corporation, BellSouth Telecommunications, Inc., and BellSouth Long Distance, Inc., for Provision of In-Region, InterLATA Services in South Carolina, CC Docket No. 97-208 (Nov. 14, 1997) ("BellSouth South Carolina Reply Brief") as App. Tab 2.
4. Prof. Hausman continues to characterize inaccurately what Prof. Schwartz has said about competitive effects in long distance markets. Compare Schwartz Supp. Aff. ¶ 70 n.22, with Hausman South Carolina Reply Decl. ¶ 6 & n.3, and Declaration of Jerry A. Hausman ¶ 41 ("Hausman Louisiana Decl."), attached to Brief in Support of Application by BellSouth for Provision of In-Region InterLATA Services in Louisiana, CC Docket No. 67-231 (Nov. 6, 1997) ("BellSouth Louisiana Brief") as App. A, Vol. 1, Tab 5, which Prof. Hausman has not changed from his submission in South Carolina.
5. Hausman South Carolina Reply Decl. ¶ 31.
6. Hausman Louisiana Decl. ¶¶ 24-25.
7. The Consumer Federation of America, in its reply comments on BellSouth's interLATA entry application in South Carolina, has actually compared in quantitative terms the potential benefits of greater competition in local and long distance markets, building on the analysis by Prof. Schwartz. The CFA has estimated that while excess profits that might be returned to consumers from greater competition in long distance markets amount to $0-2 billion annually, excess profits that could be returned to consumers from greater competition in all local markets amount to $8-12 billion annually. Reply Comments of the Consumer Federation of America, In re: Application of BellSouth Corporation, BellSouth Telecommunications, Inc., and BellSouth Long Distance, Inc., for Provision of InRegion, InterLATA Service in South Carolina, CC Docket No. 97-208 at Table 1 and App. A (Nov. 14, 1997).
8. Hausman Louisiana Decl. ¶¶ 14, 20.
9. Hausman South Carolina Reply Decl. ¶ 36.
10. Hausman Louisiana Decl. ¶ 25.
11. Hausman South Carolina Reply Decl. ¶¶ 31-32; Hausman Louisiana Decl. ¶ 25.
12. Hausman South Carolina Reply Decl. ¶ 34.
13. Hausman South Carolina Reply Decl. ¶ 34; Hausman Louisiana Decl. ¶¶ 25, 42.
14. Hausman South Carolina Reply Decl. ¶ 37.
15. Hausman South Carolina Reply Decl. ¶¶ 38 n.26, 39.
16. Hausman South Carolina Reply Decl. ¶ 11.
17. Hausman South Carolina Reply Decl. ¶ 35 n.22.
18. Moreover, in the U.K. development of competition has been overseen by a single regulatory authority with comprehensive nationwide jurisdiction, in contrast with the U.S., where the resolution of fundamental issues of implementation, which is still underway, has taken place in the context of a far more complex federal system.
19. United States v. MCI Communications Corp and BT Forty Eight Company, Civil Action No. 94-1317 (TFH), Memorandum of the United States in Support of Modification of the Final Judgment, at 5-6 (D.D.C. filed July 7, 1997).
20. Substantial prices decreases have occurred for many services in local markets in the U.K. between 1991 and 1996, after local competition began to emerge, and the weighted average of BT's local and long distance prices overall has been going down over the period since local competition began, whereas before such local competition existed in 1984-1991 and BT faced competition only in long distance markets, BT's weighted average of price changes as an integrated provider of services in local and long distance markets was increasing. OFTEL, Pricing of Telecommunications Services from 1997, Annexes to the Consultative Documents, Issued by the Director General of Telecommunications, Annex B, Trends in prices and quality of service, at 6, Table B2(a), attached to this Evaluation as Exhibit 8 (showing net cumulative increase in weighted average of BT local and long distance prices of +14.2% between 1984, when long distance competition began, and 1991, when the U.K. changed its duopoly policy and began authorizing local competition by cable providers, and net cumulative decrease in weighted average of BT local and long distance prices of -15.4% between 1991 and 1996).
21. Department of Trade and Industry, Competition and Choice: Telecommunications Policy for the 1990s, at iii-iv (Mar. 1991) (concluding that the opening of all telecommunications markets in the U.K. to competition would lead to more choice of services, a wider range of services, and a more rapid decline in prices than would have otherwise occurred).
22. Hausman Louisiana Decl. ¶ 27; Hausman South Carolina Reply Decl. ¶ 35.
23. Compare the long distance prices, in US dollar equivalents, that Prof. Hausman cites of 12.2 cents per minute for BC Tel in British Columbia, and 10-11.5 cents per minute for Telus in Alberta, Hausman Louisiana Decl. ¶ 27, to the rates that can already be obtained in the U.S. under various pricing plans of 12 cents per minute from MCI, 10 cents from AT&T and Sprint, and 9 cents per minute from LCI. Schwartz Supp. Aff. ¶ 85 n.38. Prof. Hausman's limited comparisons of a few Canadian carriers' rates with those of U.S. carriers under some pricing plans and periods cannot yield any supportable conclusions as to the relative overall competitiveness of U.S. and Canadian long distance markets.
24. In 1996, average billed revenue per interstate direct dialed domestic minute in the U.S. was 11.57 cents, inclusive of access charges. Federal Communications Commission, Telecommunications Industry Revenue: TRS Fund Worksheet Data at Figure 5 (Nov. 1997).