be $100 million per region. To support the FBI's requirements, AIN would need to be deployed universally, which is not currently being contemplated.

To satisfy these lingering doubts, the bill must provide a reasonableness standard and not guarantee absolute compliance with law enforcement's requirements. Good faith efforts to comply should be sufficient to find a company in compliance with the Act.

In this regard, it must include economic feasibility as well as law enforcement needs in determining compliance. Again, the Sectional Summary accompanying the bill includes a discussion of economic reasonableness in describing the bill's intent. This language needs to be placed in the legislation itself.

The relative costs and benefits of the bill's requirements placed on all companies must also be a factor in determining compliance. Otherwise, ubiquitous deployment of all "publicly available" capabilities would appear to be required by the bill.

REASONABLENESS AND TIMELY ACTION

The Act states that companies must comply with the capabilities requirements only if: "(i) alternative technologies or capabilities or the facilities of another carrier are not reasonably available*** and (ii) compliance with the requirements of this chapter is reasonably achievable through the application of available technology *** or would have been achievable if timely action had been taken." (emphasis added.)

As discussed above, the term "reasonably achievable" leaves much to the imagination, especially without specific reference to economic feasibility or cost-effective deployment considerations. Moreover, what "timely action" should have been taken? There simply is too much ambiguity for determining whether this provision could permit a court retroactively to order a company to withdraw or ban deployment of services or technologies at some time in the future.

Both of these terms need clarification before any company will feel safe investing the considerable money and resources needed to deploy new technologies and services.

RESPONSIBILITY OF MANUFACTURERS

USTA believes that the legislation now requires full cooperation and compliance of manufacturers with the requirements of the Act. Without shared responsibility, it would be possible for a carrier to face a court injunction against deploying a new technology or service when a manufacturer fails to provide it with the necessary capabilities which may be technologically or economically achievable, just not available.

INTERNATIONAL COMPETITIVENESS

In this global marketplace, what we do in the United States immediately affects market opportunities elsewhere in the world. Barriers to technology or service development here can Significantly affect the competitiveness of American companies visa-vis their international competitors.

This legislation effectively forces foreign companies to develop the same surveillance capabilities as AT&T. To the extent that the United States creates unique or expensive requirements for suppliers, it could limit technology alternatives available to American consumers or create offshore opportunities for American companies.

Similarly, what if only one company can develop the capabilities required by the Act? Will carriers be forced to purchase and deploy that company's equipment, regardless of the countless other factors that go into such multi-million dollar deci

sions?

3. Cost reimbursement

The FBI has estimated (in a "classified" analysis) that the government's costs in reimbursing industry for developing and deploying the modifications necessary to existing facilities to bring them into compliance with law enforcement requirements will be $500 million.

Communications Daily, in an August 4, 1994 article, noted it had obtained the FBI's confidential cost/benefits analysis which demonstrated several flaws. For example, the "FBI figures didn't include cost of upgrading or maintaining switch software and didn't account for new technologies, such as PCS. Nor did it factor in costs that cable companies would have to pay when they began to provide telephone services." In testimony earlier this year before the House and Senate Judiciary subcommittees, USTA noted that the estimated cost of effecting software changes for call for

warding alone could be as much as $1.8 billion. One large USTA member has estimated that it would cost over $200 million to modify its call forwarding features to accommodate government requirements in this bill. And BellSouth requested a vendor's "inquiry-level" estimate for complying with the FBI's requirements on its wireline business only. The estimate: $138 million to $247 million.

Additional estimates can be made by looking at similar recent network upgrades made to accommodate government requirements to provide equal access to all com*munications carriers. Two of USTA's members each estimate spending $250 million in this regard. Further, an August 5, 1994 Communications Daily article notes that the FCC has estimated that implementing another government mandate for enabling customers to chose their long distance carrier automatically from pay phoneswill cost $1.8 billion.

In short, $500 million, as far as we can tell, will not even come close to the mark. USTA's principal concern with this legislation, therefore, is what happens when, or if, the $500 million fails to cover the costs of complying with the government's requirements.

"GOLDPLATING"

The record for government cost reimbursement for existing law enforcement activities does not give cause for great comfort with industry members, either. One USTA member company, with only moderate law enforcement obligations, spends $3.7 million a year accommodating over 100,000 law enforcement subpoenas, many of which require boxes of documentation.

These expenditures of time and personnel are borne by the company alone, without government reimbursement, even though the company frequently requests compensation for its efforts.

One can only presume that obligations are only a fraction of those imposed on such companies where law enforcement activity is more concentrated.

And, perhaps because there is no mechanism that limits government's "free" access to any information it wants, its demands for customer information have been increasing dramatically on an annual basis.

In fact, in June of this year, at least one of USTA's large company members received a subpoena from the Drug Enforcement Agency requesting "the identity of published and unlisted [presumably meaning nonpublished numbers] residential and business telephones ✶✶✶ by area code, and telephone number, together with first name, last name (company name), address, city and state for all published and unlisted residential and business telephones in the service area **** (See attachment.)

Besides the sheer audacity of this request, and its obvious implications regarding privacy and security of innocent American citizens, there naturally was no offer to compensate the company for complying with the Agency's demands, despite the fact that commercially available data bases (purged of nonpublished numbers) exist on the market today.

There must be a mechanism for preventing the government from making excessive demands, when a more modest and less expensive solution may satisfy most of the government's objectives.

THE OPPORTUNITY COSTS OF SURVEILLANCE REQUIREMENTS

It should be noted that whatever costs are being discussed, they represent time, effort, investment, research, and implementation of capabilities to meet government demands. There is no market incentive or cost recovery involved in developing such capability. That is, companies do not benefit from installing surveillance capabilities. (In fact, there are market disincentives if one takes into account the fact that companies are being required to build the ability to compromise security into their networks.)

To the extent that such time and investment is dedicated to meeting law enforcement's surveillance demands, and not developing advances in network enhancements for the improvement of private and commercial communications capabilities, then this Act has to be measured in terms of its opportunity costs; i.e., resources lost or diverted from other pursuits.

This is not to say that there are not significant societal benefits to meeting law enforcement demands. But the relative social benefits of law enforcement objectives need to be weighed against the costs of compliance.

FOUR (OR SIX) YEAR COMPLIANCE DEADLINE

Coming up with new features is no easy feat. Developing standards alone takes time, human effort and resources, and money. Even then, standards are only the beginning of a continuum which can last for years before eventually resulting in the deployment of new features or services in a manner that ensures their interoperability with existing network facilities.

To illustrate, after standards are developed, the following steps must be taken:

1) Develop technical requirements or specifications-to 24 months;

2) Solicit industry input and finalize the requirements-6 to 12 months);

3) Vendor implementation-9 to 24 months

4) Trial and testing to determine actual viability and interoperability with existing network facilities and features;

5) Deployment (subject to cost/benefit analysis and funding availability);

6) Operation and maintenance.

Much of this process is not within the control of telephone companies, particularly as more and more services and features are a function of central office switching equipment.

It is clear to USTA members that there is both insufficient funding and quite possibly unreasonable time requirements in this legislation to cover the substantial costs and efforts needed to comply with the Act even within the first four years following its enactment.

COSTS AFTER FOUR YEARS

It is not reasonable to assume that costs will, as alleged by the FBI, be merely "de minimis" after four years.

Costs associated with developing and deploying new features simply are not "de minimis." As with the development of any feature, it takes time and money to meet additional requirements, particularly requirements as complex as those being posed by the FBI. And to the extent that this legislation develops a market for noncovered communications providers in a competitive environment, these costs will discriminate against carriers and their customers and investors.

In other words, there is and will be a continuing need to develop new standards as new technologies are introduced and features, functions and other applications are built around the new technology platforms.

An additional safeguard needs to be added to the bill to prevent the government from seeking modifications it could not obtain during the first four years (of six, if an extension is granted) after enactment.

The legislation commits the government to paying for increased capacity costs indefinitely. This provision should apply to capability compliance costs, as well, and should include the costs of operating and maintaining these government-imposed capabilities.

A SURVEILLANCE BUDGET: "PAY-AS-YOU-GO"

If it is only for the first four years that the government is given its $500 million authorization, then nothing in the bill prevents the government from asking a company in the fifth year after enactment to modify its facilities to comply with the Act's requirements.

To prevent retroactive application of the requirements, the legislation should clarify that the government cannot come back to a company in the fifth year, or later, and demand compliance for that which it could not afford, or did not properly plan for during the first four years.

What is needed is a means to prevent government from making unlimited demands at the expense of the American consumer. In short, government needs cost containment incentives.

This can be accomplished by strictly limiting law enforcement demands to the amount ($500 million) authorized in this Act. Companies should be found in compliance with the Act if the government fails to reimburse them. In other words, the requirements of the Act should not attach to the company, its customers and its shareholders.

The $500 million authorized for the government's implementation of the Act thereby would become a "surveillance budget" under which law enforcement would be forced to develop appropriate priorities and reasonable requirements. If, in fact, the government's estimated cost of compliance is $500 million, then it should be able

to accomplish all of its objectives within this budget. If, however, $500 million is too small an amount, then the government will need to determine where and how best to spend its budget.

There are several advantages to this approach. First, it prevents "goldplating." Law enforcement will have to concentrate its efforts where they are needed most, rather than ask for ubiquitous capability deployment where there may be little or no need. Pay-as-you-go will force the government either to limit its spending requests or modify its technical requirements.

Second, consumers will not be burdened from attempts to pass through significant costs associated with unreimbursed government requirements. This becomes even more problematic in the changing regulatory environment facing telephone companies today. The introduction of competition into telecommunications markets undermines a carrier's ability to recover nonmarket costs such as surveillance costsfrom its customers.

Third, small companies will be disproportionately affected by the costs of complying with this Act. Most USTA members can ill-afford million dollar fixes (that may be considered under the Act as "reasonable") for building capabilities that may never be used.

Fourth, USTA noted in its testimony earlier this year that a poll conducted by Yankelovich Partners in March and reported in Time Magazine found that "twothirds of Americans said that it was more important to protect privacy of phone calls than to preserve the ability of the police to conduct wiretaps." By limiting government surveillance appropriated funds, Americans will know as a matter of public record exactly how much the government is spending on surveillance activities. This "pay-as-you-go" solution should be applied to all capabilities and capacity requirements after four years following enactment, as well.

REIMBURSEMENT PROCEDURES

Companies need assurance the government will pay for what it demands. This legislation gives the FCC authority to settle any disputes that may arise in debating "reasonable costs" to be reimbursed by the government. But the timing of payment remains in question. The Act should ensure that companies need not comply until or unless they are paid.

This bill also contains a provision granting the Attorney General authority "to establish any procedures and regulations deemed necessary to effectuate timely and cost-efficient reimbursement ***"At least two USTA member companies are victims of nonpayment of long-outstanding bills.

USTA recommends adding language to this provision that ensures a process by which industry has an opportunity to effect these regulations, and that requires issuance of such regulations in a timely manner.

WHY SHOULD THE GOVERNMENT PAY?

Some argue that the government has no obligation to compensate private industry at all for meeting social obligations.

First, as noted above, there is no consumer advantage or market value to building surveillance capabilities into telecommunications equipment. Reimbursement is not paying for some corporate benefit. It is paying for the government's law enforcement requirements, a legitimate taxpayer expense.

Second, as noted above, imposing significant cost obligations on companies of vastly different sizes and financial capabilities would impose substantially disproportionate economic burdens.

Third, because the bill as introduced fails to treat all telecommunications service providers equally, failure to compensate those companies covered by the bill will cause substantial competitive advantages for those companies not obligated to comply with and pay for law enforcement requirements.

Fourth, as aforementioned, failure to compensate for government surveillance activities effectively hides the government's expenditures from public scrutiny. Finally, a government obligation to pay for what it demands, under strict budgetary constraints, prevents it from "goldplating" its demands.

THE AUSTRALIA EXAMPLE

With the introduction in 1991 of competition in its telecommunications market, the Australian government granted to carriers the right to charge for assistance they provide to police authorities.

The government's decision was based on the following factors:

1) When Telecom Australia was a government monopoly, charging for surveillance meant the government in effect was charging itself for surveillance

costs.

2) With the introduction of competition, the government considered it unfair to the shareholders of those companies that they should bear the costs of government requirements.

3) Because of the size discrepancy between Telecom Australia and the new entrants, the government also considered it unfair to impose a higher relative cost on smaller companies.

4) The government determined costs should be visible to the public so that an assessment can be made about whether the costs of a particular service or facility are worth the benefit derived from those services or facilities.

5) Police authorities had been accused of having no incentive for efficiency or cost containment.

Accordingly, the federal government determined that the most "economically efficient" and "socially beneficial" means of dealing with police authority requests for intercept facilities was to ensure "full transparency," and the general body of taxpayers carried the costs of those facilities through the budgets of the police authorities.

The government also prohibited the introduction of new technologies which were not capable of interception. This prohibition caused significant negative effects on product development in that nation's telecommunications system. For example, with overloaded analogue mobile telephone capacity, the government was anxious to develop and deploy new GSM-based mobile technology. However, the new technology was untappable.

Consequently, the government authorized the carriers to deploy the new GSM networks, while requiring them to work "double time" to develop an interception capability.

Meanwhile, the Minister of Communications initiated a review to investigate concerns of law enforcement authorities about their obligation to reimburse carriers. The review reaffirmed the basic principles outlined above that the costs of intercept facilities should be borne by the taxpayers. The government also recommended that equipment providers be brought "into the loop" to give realistic and reasonable estimates for needed technology.

1. Scope

USTA RECOMMENDS THE FOLLOWING CHANGES TO THIS LEGISLATION

The bill should cover all telecommunications services, rather than "carriers." Reference to a functional definition of "local exchange carriers" in House-passed H.R. 3636 is given in the Sectional Summary accompanying the bill. This definition should be made part of the legislative language. Any transmission or switching of electronic communications to unaffiliated parties for hire is a telecommunications service.

2. Reasonableness

Ensure that good faith efforts to comply with the requirements of the Act are sufficient grounds for compliance.

Put into the legislative language the Sectional Summary discussion of economically feasibility as a criterion of compliance.

Delete reference to "timely action" that should have been taken. Alternatively, the bill must state that a good faith effort to develop economically and technologically achievable standards that are intended to satisfy law enforcement requirements is sufficient to allow deployment of technologies or services that may not contain surveillance capabilities.

Add a provision which requires reasonable law enforcement demands which may be "achievable" but have little likelihood of being required.

3. Costs

Establish "pay-as-you-go" provision which ensures that the government has only that which is appropriated for purposes of this Act with which to modify existing network facilities. Companies not reimbursed under such appropriated funds shall be found in compliance with the Act.

Expand reimbursement authority after four years to include reimbursement for capabilities as well as capacity requirements. Provide same stipulation that modifications companies not reimbursed shall be in compliance with the Act.