House Holds Hearing on Online Business

(May 22, 1998)  The House Telecommunications Subcommittee held a hearing on Thursday about online business.  The hearing dealt with the methods by which electronic commerce is conducted, and public policy issues which affect e-commerce.

Rep. Billy Tauzin (R-LA) and Rep. Anna Eshoo (D-CA) used the hearing to promote their Electronic Commerce Enhancement Act (HR 2991).  "This bill has a great deal of support, and should be enacted into law this year," Tauzin said. "We are hopefully going to move this bill expeditiously in this Congress."

Rep. Anna Eshoo (D-CA) explained the bill:

"For us to get from where we are today to where the Internet can take us tomorrow and beyond, we need to lay a solid foundation to support the rapid growth of electronic commerce.  To help make this possible Chairman Tauzin and I have introduced HR 2991, the Electronic Commerce Enhancement Act, that will allow businesses and citizens to submit federal government forms over the Internet.  Just imagine if we could ... have any government forms filled in, signed, and instantly forwarded to the government."

"... until the government allows businesses to use their computer resources to escape the heavy burdens of government paperwork, doing business completely online would never become a reality.  The key, as this bill makes clear, is that people can sign their names over the Internet, that the signature can be legally valid, whether made with pen and ink, or with a few clicks on the keyboard."

Stratton Sclavos, of VeriSign Inc., testified regarding the importance of HR 2991:

"One of the things that we see as roadblocks to the adoption of e-commerce are in fact the notion that today we have technology standardization problems.  There are not a common set of views on all of the technologies that can be used here.  We have consumer confidence issues, and we have the issues around encryption policy.  So, we are particularly pleased with HR 2991's ability to push forward the technology standardization, around having government support these same standards as industry,    around the notion consumers being more confident in the federal government's supporting the same applications and security technology as the commercial sector ..."

Rep. Tauzin also argued that the Internet Tax Freedom Act and the Security and Freedom through Encryption Act (SAFE - HR 695) would further electronic commerce.

The witness panel was comprised of the following:

• Karl Salnoske, IBM Internet Division
• Madeline Mooney, VP Communications, Lycos
• Dorothea Palsho, President, Dow Jones Interactive Publishing
• Stratton Sclavos, President and CEO, VeriSign
• William McKiernan, Chairman, software.net Corp, and President & CEO, CyberSource Corp.
• Thomas Friedman, Vice Chairman, NetDox

IBM General Manager for Global Electronic Commerce, Karl Salnoske, testified at length about online business.  He first related several trends in e-commerce:

• "The ability through the Internet ... to openly interact.  That has opened up markets."
• "In industries that were formerly dominated by companies that are highly vertically integrated, electronic commerce and the Internet have opened up opportunities for new players to enter those businesses, and create virtual entities that take advantage of the core competencies of a variety of different companies that they can then knit together into a single virtual enterprise that can basically duplicate all of the scale and the benefits of these large vertical companies, but have much lower price and cost, and can deliver higher value to their buyers."  "From a customer perspective, they are dealing with one company, and they do not see the fact that there are actually five or six different companies."
• "Effective use of the Internet for supply chain management: better inventory management between suppliers and manufacturers, collaboration around design, just in time processes, and things like that."
• "The shift of power to the power, the availability of information about products, and the availability to easily shop from many different suppliers, has created a new power for the buyer.  We are seeing this a lot in the consumer space already.  We are certainly seeing brokerage fees coming down very significantly."
• "The interactive nature of the Internet, and the ability to target specific individuals is creating opportunities for companies to get to true one to one marketing."

Salnoske also discussed ways government policy can foster development of electronic commerce, including increasing bandwidth, building trust through security, encryption, privacy, and digital signatures, educating high tech workers, and allowing immigration of high tech workers.  He stated:

• There is a "need for adequate and cost effective bandwidth ... not just here in the U.S. but worldwide."
• "... create a secure and trusted environment around the Internet ... a place where not only consumers feel safe in doing business, but where businesses feel safe."   "That is going to require obviously good security, good cryptology available to companies and their customers around the world. ...  Privacy is going to be important. ...  The acceptance and the legal framework behind digital certificates and digital signatures is also important for establishing an environment of trust."
• "We need a skilled workforce if we are going to grow our high technology industries within the U.S. and expand our leadership in this space we have got to have availability of a workforce that has the right technical skills.  This ;has implications both on our education programs as well as our immigration policies."

Rep. Tauzin expressed concern that the expansion of electronic commerce might eliminate the jobs of many middlemen, salesmen, and distributors.  Salnoske testified to the contrary that e-commerce was creating new positions for middlemen.

Rep Thomas Sawyer (D-TN) was worried that the ease and anonymity of making credit card purchases over the Internet might lead to credit card abuse and increased numbers of personal bankruptcies.  However, witnesses argued that online credit card use is no different from offline use.

Rep. Eliot Engel (D-NY) expressed concern that the forthcoming merger of WorldCom and MCI would place 60% of Internet backbone capacity in one company's control.  Witnesses assiduously evaded answering or commenting upon Rep. Engel's questions.

Rep. Steve Largent (R-OK) asked questions regarding the effect of electronic commerce upon consumption based taxes and export restraints or trade sanctions.

Rep. Rick White (R-WA) stated that he thought there were three things that the government could work on to assist the development of e-commerce: encryption, copyright, and privacy.  Witnesses concurred that privacy was an important issue, but no witness supported government regulation of privacy on the Internet.  Instead, several witnesses advocated industry self-regulation.

Rep. Billy Tauzin (R-LA), Chairman of the Telecommunications Subcommittee of the House Commerce Committee, presided at the hearing.  Reps. Tauzin (R-LA), White (R-WA), Largent (R-OK), Eshoo (D-CA), and Sawyer (D-TN) participated in all or much of the hearing.  Reps. Bliley (R-VA), Oxley (R-OH), Shimkus (R-IL), Klug (R-WI), Markey (D-MA), Wynn (D-MD), and Engel (D-NY) also participated.