[Congressional Record Volume 144, Number 42 (Friday, April 3, 1998)]
[Senate]
[Pages S3227-S3228]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           THE ALARM INDUSTRY

 Mr. HARKIN. Mr. President, just over two years ago I stood on 
this floor as the Senate voted overwhelmingly in support of a historic 
rewrite of the 1934 telecommunications act. We were told at that time 
that the act would bring the benefits of competition in local telephone 
exchange service--better service and lower prices for the American 
consumer.
  One part of that legislation in which I had a personal interest were 
the provisions concerning the burglar and fire alarm industry--a highly 
competitive industry still dominated by small businesses. Many of us, 
both in the House and the Senate, feared that allowing the Regional 
Bells to enter the market prior to real competition in the local 
telephone exchanges would result in the Bells using their business 
monopolies and vast financial resources to drive small alarm dealers 
out of business.
  That is why Congress adopted a five year transitional waiting period 
before the Bells could enter the alarm monitoring business. The bill 
made an exception for Ameritech.
  The Ameritech exception was included because Ameritech had already 
purchased two large alarm companies--before the bill was passed. 
However, these acquisitions were quite controversial because they were 
made during a time when all of the Bells had agreed not to enter this 
line of business until the legislative rules had been established. Only 
Ameritech broke that understanding. Nonetheless, the Congress felt it 
was better to grandfather those acquisitions rather than to force a 
divestiture.
  However, in order to insure that we were not granting a five year 
competitive advantage to Ameritech over the other Bells, who had kept 
their pledge not to enter the business, we specifically prohibited 
further growth by acquisition during the five year transition period. 
We, in effect, told Ameritech that it could stay in the alarm 
monitoring business, but that its growth would be restricted to direct 
marketing to customers.
  And, to make our intentions crystal clear, several Senators, 
including then Majority Leader Bob Dole, engaged in a floor colloquy on 
the subject when the bill was being considered. At one point I said:

        There is one issue which deserves some additional 
     clarification. The bill and the report language clearly 
     prohibit any Bell company already in the industry from 
     purchasing another alarm company for 5 years from date of 
     enactment. However, it is not entirely clear whether such a 
     Bell could circumvent the prohibition by purchasing the 
     underlying customer accounts and assets of an alarm company, 
     but not the company itself. It was my understanding that the 
     conferees intended to prohibit for 5 years the acquisition of 
     other alarm companies in any form, including the purchases of 
     customer accounts and assets.

  The two managers of the bill, Commerce Committee Chairman Pressler

[[Page S3228]]

and Ranking member Hollings, both agreed on the record that my 
understanding was correct.
  Despite that clarification in the formal proceedings, Ameritech 
disregarded Congressional intent. Soon after passage of the bill, 
Ameritech went out and purchased the customer accounts and assets of 
Circuit City's alarm monitoring division.
  When the alarm industry challenged Ameritech's action, a divided FCC 
Committee supported Ameritech. For reasons I don't understand, all the 
commissioners--except for Susan Ness in a vehement dissent--said that 
purchasing the customer accounts and assets was permissible so long as 
Ameritech did not purchase any of the stock.
  This opened the flood gate. During the next 16 months, Ameritech 
purchased over 550,000 customers by acquiring the assets and customer 
accounts of: Republic Industries alarm division, the 7th largest 
company in the alarm industry; Rollins, the 10th largest company in the 
industry; Masada, the 20th largest company in the industry; Central 
Control and Alarm, the 40th largest company in the industry; and 
Norman, the 46th largest company in the industry.
  This acquisition binge was exactly what Congress wanted to avoid when 
it created the five year transitional waiting period. The industry's 
fears of market domination by those companies which control the local 
telephone exchanges--the alarm industry's lifeline--have proven to be 
justified.
  In the late 1980's and early 1990's, just before Congress embarked on 
its effort to transform the telecommunications industry, there were 
approximately 13,000 alarm companies in this country employing over 
120,000 workers. By 1997, that number had dropped dramatically to 
10,750 companies and 90,000 workers--according to an industry source, 
Freeman & Associates.
  At the same time, there was significant consolidation among the top 
100 alarm companies. Most industry experts agree that several top 100 
companies have concluded that they would have to consolidate to compete 
with the rapidly expanding Ameritech. This hastened the demise of many 
small alarm companies, driven out of business by having to compete with 
the new giants in the industry, especially Ameritech.
  At the same time that small companies were being driven out of 
business, there have been dramatic layoffs in the companies Ameritech 
acquired. Just last year, Ameritech's SecurityLink alarm division 
announced layoffs of over 1,500 workers out of a workforce of 8,000.
  One example of this can be found in Lancaster, Pennsylvania. About 20 
years ago, my friend Patrick Egan started his own small alarm company, 
Commonwealth Security Systems, Inc. He built his company into a 
significant regional player with 11 offices and a central monitoring 
station in Lancaster. He employed over 200 people in Lancaster alone.
  In January of 1997, believing that he had won the battle against 
Ameritech purchasing alarm monitoring companies, Patrick sold his 
business to Republic Industries. He sold with the understanding that 
all of his employees would be retained, monitoring would continue in 
Lancaster, and he would remain on as President of Republic Industries' 
Mid-Atlantic operations. During the short period Republic owned 
Commonwealth Security Systems, they significantly expanded operations 
and doubled the size of its workforce from 200 to 400.
  However, thirty four weeks later, Ameritech's SecurityLink came in 
and purchased all the customer accounts and assets of Republic's alarm 
division. That day, Ameritech chose to let Patrick go. Then, it 
proceeded to layoff nearly 100 of the Lancaster-based employees. More 
layoffs are expected as SecurityLink eliminates its Lancaster 
monitoring station as well as 22 others across North America. Not only 
are jobs lost, but also the industry is convinced that safety is 
compromised.
  Last December 30, however, the United States Court of Appeals for the 
District of Columbia Circuit stepped in and vacated the FCC's ruling 
that precipitated the buying binge in the first place.
  In its ruling, the Court said, ``When the purported (by the 
Commission) `plain meaning' of a statute's word or phrase happens to 
render the statue senseless, we encountering ambiguity rather than 
clarity. . . So [it is] here.'' The Court continued: ``The Commission's 
interpretation means that although Section 275 (a) (2) precluded 
Ameritech from acquiring even one share of Circuit City's stock, 
Ameritech was free to acquire the company's entire alarm monitoring 
services division--lock, stock, and barrel. We asked the Commission 
counsel at oral argument what possible rationale Congress could have 
had in mind if this is what it intended.'' The FCC's counsel has not 
provided a cogent answer to the court's question.
  I share the court's confusion. I know what we meant when we adopted 
Section 275 and Ameritech certainly knew what we meant. But that did 
not stop Ameritech's management. It has been their intention all along 
to push as far and as hard as they could while they had their unique 
advantage over the other Bells. They would hope that either the FCC or 
the courts would sustain their position. They have deep financial 
pockets which they have relied upon in the hope that they could drive 
the alarm industry into submission.
  But that's not going to happen. The Court has signaled that an 
interpretation of Section 275 which circumvents the prohibition on 
purchases by specifying the method of purchase does not adhere with 
what Congress intended. The Court has directed the FCC to issue an 
interpretation of Section 275 which makes sense. It is my hope that the 
Commission in its next ruling will send a clear and unambiguous message 
to Ameritech that it must cease and desist from flaunting the law and 
should be ordered to divest itself of any customer accounts or assets 
it acquired after the passage of the Telecommunications Act of 1996.
  Congress clearly intended to prohibit Ameritech from acquiring all or 
any part of an alarm monitoring company in any form. It's time for 
Ameritech to realize that. The only way they will, though, is if the 
FCC forces them to follow the law.

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