Testimony from June 15, 1999

Prepared Testimony from Michael Durham, Sabre Group

Sabre is a global diversified information technology company, with two principal lines of business-
electronic travel distribution and information technology solutions. We are perhaps best known for our
groundbreaking computerized reservations system, or CRS, through which travel agents and others
electronically book over $70 billion of travel per year, representing almost one-third of worldwide air
travel. Sabre's twenty years of experience in electronic travel distribution, originally as an operating
division of American Airlines and now as a separate company, have ideally positioned us to participate
today on the cutting edge of electronic commerce. Our industry-leading online travel distribution web site,
Travelocity. corn, currently boasts over 6 million subscribers - and continues to set new booking and
membership records. Tomorrow, we look forward to demonstrating some of the exciting new
technologies we have indevelopment to enhance travel planning and purchasing for consumers and
businesses in the 21st century.

On the IT solutions side of our business, we are providing a full array of technology outsourcing services
to a growing number of airlines, including American Airlines, US Airways, Canadian Airlines, Gulf Air,
and Aerolineas Argentinas. We provide these airlines with strategic hardware and software solutions that
touch every portion of their businesses - from scheduling aircraft and crews, to pricing seats, from internal
reservations systems, to improving flight safety programs. These airlines are part of a growing roster of
carriers that are helping Sabre to establish its position as the company of choice to provide technology
solutions to the travel and transportation industries.

In short, like many companies in the high tech sector who have testified before this Committee, Sabre is
enjoying a booming demand for our products and services. Nevertheless, there are obstacles in the
marketplace that we must overcome if we are to continue our economic success. Congress should be
aware of these obstacles, and where appropriate, should fashion policies to knock them down. The key
common element of these obstacles can be summed up in one word - "access." Specifically, access to
skilled labor, access to online consumers and access to worldwide markets must be available for high
technology companies like Sabre to thrive. My testimony will take up each of these issues in turn.

Access to Skilled Labor
If the U.S. high technology and information services industry is the engine that is powering the U.S.
economy, then the people working in the high tech sector represent that engine's fuel. In recent years, the
demand for highly-skilled computer scientists, mathematicians, and industrial engineers who provide the
technical know-how to serve our customers has been nothing short of insatiable. Sabre's workforce
numbered 8000 at the end of 1997 - in 1998, we added more than 3000 people. The trend is continuing
this year. Approximately 80% of these new workers are information technology professionals. Our
business success depends on our ability to match skilled workers with our projects; our status as a
worldwide leader in travel and transportation technology hinges on our uninterrupted access to labor.
Unfortunately, on the supply side of the equation, the situation is grim. Even with our recent hiring, at any
time we continue to have several hundred open positions to fill. The supply and demand curves in the
high tech labor market not only do not intersect, they are not even trending toward each other. Last year
the Information Technology Association of America (ITAA) and the Virginia Polytechnic Institute
reported that nearly 350,000 IT positions within the U.S. remained vacant, and all indications are that the
number is rising.In the midst of this severe labor shortage, for the second year in a row we find ourselves
in mid-June staring into an empty barrel of H-lB visas, which, when available, enable us to bridge an
important part of the skilled worker gap. There is no replenishment of these visas in sight until the next
fiscal year begins in October. Even with the increase in the cap from 65,000 to 115,000 as a result of
Congressional action last year, the relentless demand for high tech workers has quickly eclipsed even the
higher number. Further, the current law's requirement that our industry must return to dramatically lower
levels of immigration within a few short years, ratcheting back to 65,000 H- 1B's by 2002, ignores the
reality of this situation. Unless something is done, the high tech worker shortage is going to become a
deepening crisis with potentially devastating impact on the U.S. economy.

I am mindful that hiring foreign workers on H-1B visas is not a long- term solution to the high tech
worker shortage. The government, educational institutions and industry must commit significant resources
to attract more U.S. workers and students into careers in the high tech sector. Senator Kent Conrad's
proposed IT Training Tax Credit is one excellent idea. Sabre spends approximately $9 million each year in
technical training and we are prepared to do more. We are also active participants in state and local efforts
to promote technical education in grade schools and colleges. As a member of the North Texas Science
and Technology Coalition, we work to bring corporations, governmental bodies and educational
institutions together to address these critical workforce issues. These long-term solutions must be pursued
vigorously, and we believe that it is our obligation to do our part. However, long-term solutions will not
solve the immediatecrisis. The supply and demand curves will likely take many years to intersect, and will
require a major shift in educational priorities, probably from the primary school level. Here is the reality:
for the high tech industry to compete and grow in this country, we must have access to foreign
professionals today.

We recruit from 30 U.S. universities and grant interviews to virtually all U.S. citizens who apply.
However, MIT reports that 49 percent of its graduate students in operations research and industrial
engineering and 52 percent of its graduate students in mathematics are foreign nationals. The U.S. opens
its technical universities to these foreign citizens, who receive the finest training in the world. And yet, the
foreign members of the Class of'99 are currently getting diplomas, handshakes and best wishes for the
careers they may pursue anywhere but here. They are now returning to foreign countries and bringing
their exceptional talent to new careers with foreign companies, where they will compete in the high
technology sector against U.S. companies because we have reached the immigration cap. This makes
absolutely no sense.

With each crippling hiring hiatus, U.S. high technology companies consider relocating some or all U.S.
operations abroad - Sabre included. Armed with our employee's minds and laptops, we know we will find
countries to welcome us (and our tax revenues) with open arms. This is not our first choice. We would
like to bring our next 3000 jobs to Texas, Oklahoma and other states where we might otherwise expand
our presence. U.S. companies compete in a highly competitive global economy, and ourcountry's rigid
immigration policies are forcing us to make very discomforting calculations about where we should go.
What should be done? One possibility is to raise the cap again, perhaps to 200,000, as Senator Phil
Gramm has recently suggested.

If political support could be mustered to do this in the aftermath of last year's debate, no doubt the high
tech community would be quite pleased. But if the will is not there, perhaps some new solutions to this
chronic problem should be considered.

For example, nearly half of Sabre's workers who come to us on the H-lB program have attained their
masters or Ph.D degrees. I believe such workers deserve enhanced priority or even a special classification
outside of the H-lB quota. It is hard to imagine a group less controversial, and more deserving of
admittance to our country, than those who bring extraordinary skills that will increase America's
competitiveness in the worldwide economy.

In exchange for such an exception, companies who hire such advanced- degree workers should be
prepared to do more to bring U.S. workers into the high tech field. This should not be done through
Department of Labor or other government programs funded through increased application fees. Instead,
companies should be allowed to spend funds directly on those internal and external training programs they
believe will help encourage U.S. citizens to pursue careers in high tech.This country should not chain itself
to an inflexible quota of foreign workers in the face of such critical, relentless demand, which, if satisfied,
will allow the U.S. economy, and particularly the high technology sector, to continue to soar. Those who
believe in a "field of dreams" - that is, by keeping foreigners out, U.S. citizens will come - are deluding
themselves. They ignore that the employment rate among U.S. citizens in the United States is currently at
a 30 year high. They ignore that insufficient numbers of U.S. citizens pursuing careers in technology are
rooted in the quality and emphasis of U.S. education from the primary school level. And they ignore that
even if high technology companies could find sufficient numbers of interested potential U.S. workers, the
time lag to get enough of them properly trained to fill our specialized jobs is too long. U.S. companies
need to hire people right now but the law says we cannot do so. This crisis needs to be revisited
immediately.

Access to Online Consumers
In order to understand this potential obstacle to our economic growth, it is first necessary to turn the clock
back and review the origins of the computerized reservation system industry in the mid-1970s. We believe
there are telling analogies between the early history of the CRS industry and the current circumstances of
the Internet, particularly with respect to how products and services are displayed for consumers. Learning
these lessons is important because the extent to which competition -- rather than concentration --
characterizes the Internet software market may well determine the success of the nation's widespread
transition to digital commerce.The original CRS's were developed essentially as marketing tools for the
airlines who owned them and who found themselves in the brutally competitive industry that emerged as a
result of deregulation of air transportation by the Congress. These first CRS's evolved gradually from
remote terminals connected to the owning carriers' internal reservations systems into full-fledged
information systems with the schedules and fares of most major airlines. As the functionality and
acceptance of these systems increased, and automation became a competitive necessity for travel agents,
the importance of these systems to airline distribution grew.

Ultimately, those carders who had not invested in automation found themselves at a competitive
disadvantage in at least three respects relative to the CRS owners. First, there was the issue of screen
preference or display bias, as it was pejoratively described. Many believed that even subtle forms of bias
in the display of information on the computer screen could have a dramatic effect on the purchasing
patterns of consumers. The Sabre system was designed to favor American's flights, Apollo was biased to
favor United's flights, and so on.

Our early entry into e-commerce taught us something about the virtual world that retailers in the physical
world had known for years -- that consumers buy what they see, and far more often than not, they buy
what they see first. This is why a breakfast cereal manufacturer fights for eye level shelf space in a
supermarket, an anchor department store positions itself between the parking lot and the other shops in a
mall, and abookseller tums the books it particularly wants to move off the shelves sideways. In the airline
industry, a study showed that more than 50% of travel agents selected the flight shown on the first line of
the computer screen, and more than 90% chose a flight from the first screen. By ensuring that their own
flights appeared on the first line (or the first screen) disproportionately often, industry observers believed
that CRS owners had the ability to shift a significant number of passengers and associated incremental
revenues to their own airlines.

Second, the owners of the systems were able to charge widely different access fees to airlines who were
reliant on the systems for distribution. Airlines that agreed in the early years to help the owning carriers
market the systems to travel agents were generally charged very low fees - as little as 25 cents a booking -
while carriers that came later to the scene paid as much as a dozen times more for the same service.
Third, those carders who were not CRS owners protested the control that the owners enjoyed over the
architecture of the systems, including the application program interfaces that exist between the system and
third-party hardware and software. These carriers complained that the proprietary nature of these systems
gave their owners the ability to determine not only the speed and frequency with which functional
enhancements were meted out to competitors but also the reliability of the transactions being performed in
the systems on those carriers.In 1984, the Civil Aeronautics Board, in consultation with the Department
of Justice, became concerned and adopted federal computer reservation system rules requiring neutral
displays, non- discriminatory pricing and disclosure of CRS technical standards.

Sabre's history thus demonstrates both the benefits -- and pitfalls -- of electronic commerce. This form of
distribution gives participating businesses highly valuable, and yet relatively inexpensive, access to millions
of consumers, while putting near-perfect product and price information in the hands of the customer. At
the same time, the history of electronic travel distribution should serve as a cautionary tale about the
power that arises from controlling the automated connection between the customer (or sales agent) and
retailers. In 1984, the largest CRS had a market share of 43%, yet in the eyes of those charged with
ensuring a competitive marketplace (during the Reagan Administration), it was deemed to be sufficient
power to compel government action.

Today's analogy is, of course, the computer operating system. Microsoft Corporation, which has about
95% of the world market for PC operating systems, has enormous market power. Regardless of how
Microsoft acquired its market power, the question for policy makers today is whether any one company
should be permitted to use a monopoly position to exert control over the interface between consumers and
the Internet, the place where most commerce will be conducted in the next century.
In many respects the CRS debate of the mid-1980's is applicable to today's debate over the PC operating
system monopoly. Microsoft's proprietary control over Windows and supporting licensing restrictions with
PC makers enable it to bias the screen to favor its own Internet content offerings. Its control over the
screen will allow it to establish access fees for placement in the Windows environment. As the owner of
the operating system, Microsoft can release according to its own schedule and terms the programming
interfaces that are needed for third party software applications. Biased screens, access fees for screen
placement and withheld programming interfaces were precisely the issues the CRS industry grappled with
15 years ago.

One aspect of the current debate of particular interest to content providers, such as Sabre, is known in the
industry as "the boot-up restriction." This is the component of the Windows licensing agreement that
forbids the PC maker from overriding the first screen that consumers see. We think it is important that
content providers be given the opportunity to negotiate for screen presence with a variety of vendors, in
particular the computer manufacturers, so that there is no single portal to the Internet, and no single set of
products featured on that portal. Microsoft is not "just a software company," as its executives are fond of
saying. Its Windows operating system software monopoly is the source of much of Microsoft's
extraordinary power, but Microsoft is now extending that monopoly into Internet content, and indeed into
virtually every aspect of the human experience. Microsoft sells, among other things, travel (Expedia), cars
(CarPoint), real estate (HomeAdvisor), news andinformation (MSNBC and Sidewalk), financial services
(Money Central), even encyclopedias (Encarta).

Microsoft is executing a strategy of using its monopoly position in Windows and its extraordinary cash
position to put its portal site, MSN.com, with its direct links to all of the content listed above, on or
directly behind the first screen of every computer, every television set top box, and every cellular phone
sold. Before having the opportunity to see anything or go anywhere else, the consumer will first be forced
to browse through the ubiquitous Microsoft company stores. This represents a significant future obstacle
to growth in electronic commerce and creates an issue worthy of our government's continued vigilance.

Access to Worldwide Markets
Foreign market access barriers are not unique to the high tech industry, but they pose a very significant
problem. Certain foreign businesses, often with the acquiescence or participation of their governments,
systematically seek to exclude competitive U.S. companies from their markets. While we operate in an
increasingly global marketplace, unfair protectionist policies and anti-competitive activity do continue to
thrive in many places around the world, and our country needs to be better prepared to respond. Our
CRS example is a sobering reminder of how far we still need to go.

The CRS industry was founded in the United States over twenty years ago, and has grown into a
worldwide electronic business with enormous potential for U.S. CRS's seeking to expand abroad.
However, the growth of this commerce for U.S. companiesremains unrealized in many places. U.S.
computer reservations systems have faced severe and persistent trade barriers in their efforts to establish
their foreign market presence. It is imperative that we have access to these markets to grow our business
the international sector is where we expect our greatest growth in electronic travel distribution to occur.
Several foreign air carriers and transportation providers, many wholly or partially owned by their
governments, have deliberately withheld fare and schedule information and other enhancements from
U.S. CRS's, while sharing such features with the foreign CRS's they own or market. Ira U.S. CRS does
not contain the best information about a foreign country's flag carrier and other major travel providers, it
will not be selected by travel agents. Likewise, when the European CRS is allowed exclusively to offer a
popular service such as electronic ticketing on the country's flag carrier, a foreign travel agent's choice of
CRS is made easy. Travel agents seek the best access to the information and services that their customers
use the most, and U.S. CRS's are unfairly handicapped in their effort to provide such access to their
potential foreign customers.

In countries where Sabre is allowed to compete on the merits of our system, we routinely capture a robust
market share; however, in some European countries, our shares are anemic or non-existent. The bitter
irony is that while U.S. CRS companies are being chronically discriminated against in Europe, and while
European regulators turn a blind eye, foreign airlines and the foreign CRS responsible for this
discrimination enjoy unfettered access to the U.S. market. What's more, they receive the full protection of
the U.S. Department of Transportation rules ensuring fair treatment of all airlines and CRS's.
These inequities have been the subject of several antitrust investigations conducted in the U.S. and
abroad. The United States Trade Representative has included computer reservation services in its listing
of Services Barriers in the National Trade Estimate Report. In addition to these measures, the key to
obtaining open foreign markets will be vigilance by the Department or Transportation and a willingness to
enforce new rules aimed at stopping discriminatory behavior. To that end, fifteen United States Senators
have written to DOT Secretary Slater urging the Department to adopt CRS rules that would allow all U.S.
marketed CRS's to cease displaying and ticketing a foreign carrier's flights, when the Department finds
that the carrier has engaged in unjust discrimination. They have noted that it is wrong that foreign carriers
and their CRS's can discriminate against U.S. companies abroad, and still receive the protection of the
U.S. rules as they market their flights and products in our country. This Committee's further support for
this position would be most helpful.

Chairman Mack, Vice Chairman Saxton, thank you again for the opportunity to share my views with the
Joint Economic Committee. Sabre looks forward to continuing to participate in your consideration of
the economic challenges and opportunities the high technology industry faces today and in the years to
come.