National Telecommunications and Information Administration
Washington, D.C. 20230
In the Matter of )
Notice, Request for Comments on ) Docket No. 011109273-1273-01
Deployment of Broadband Networks )
and Advanced Telecommunications ) RIN 0660-XX13
ORGANIZATION FOR THE PROMOTION AND
ADVANCEMENT OF SMALL TELECOMMUNICATIONS COMPANIES
The Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO) hereby submits these comments in response to the National Telecommunications and Information Administration’s (NTIA) Notice in the above-captioned proceeding. OPASTCO is a national trade association representing over 500 small telecommunications carriers serving rural areas of the United States. Its members, which include both commercial companies and cooperatives, together serve over 2.5 million customers in 42 states. All OPASTCO members are rural telephone companies as defined in the Telecommunications Act of 1996 (the Act, 1996 Act).
In addition to serving as incumbent local exchange carriers (ILECs), OPASTCO members provide a wide variety of telecommunications services in sparsely populated, high-cost communities. Half of OPASTCO members provide cable television, which can also be used to provide advanced services. Over 90 percent of members supply dial-up Internet access. Nearly two-thirds provide wireless service and almost one-third operate competitive local exchange carriers, some of which provide data services. Using a variety of delivery methods, nearly 60 percent of OPASTCO members provide broadband services, and many who do not yet offer broadband hope to do so within the next few years.
a. Small telephone companies face unique and challenging operating environments in the rural markets they serve
The characteristics of OPASTCO member companies and the communities they serve are vastly different from those experienced by larger companies and their customers. There are also numerous differences among rural carriers, including factors such as the scope of services offered, size, the geographic dispersion of customers and physical terrain. These unique circumstances often make rural carriers’ cost of providing both standard voice service and advanced services much higher.
For example, rural carriers serve only eight percent of the nation’s access lines, but these service areas are spread out over 38 percent of the nation’s land mass. The average OPASTCO member company serves approximately 6,500 access lines. In contrast, the average Regional Bell Operating Company (RBOC) serves approximately 40 million access lines. Nationally, the population density in areas served by rural carriers is only about 13 persons per square mile. This compares to a national average population density of 105 persons per square mile in areas served by non-rural carriers. These differences lead to wide gulfs between the abilities of large and small carriers to achieve economies of scale and scope.
Other characteristics that differentiate rural carriers from the RBOCs and other large carriers and make the provision of service more costly include:
· Higher local line costs due to longer lines and the remoteness of the areas that they serve.
· Higher unit costs for switching equipment due to smaller and more geographically dispersed subscriber populations that offer a limited volume of telephone traffic.
· Average income in rural service areas is twenty percent lower than in areas served by larger carriers.
· Higher proportion of residential versus business subscribers.
· Greater risk of upward residential rate pressure from the threat of bypass and new entrants. This is due to “cream skimming” by new entrants that target only the few high-volume business users within a rural area.
· Considerably smaller local calling areas, requiring a greater number of toll calls for subscribers.
Despite these challenges, small, rural carriers have made tremendous efforts to make advanced services available to consumers in rural communities wherever feasible.
II. Market forces, technological development and consumer choices – not regulation – should guide the definition and deployment of advanced services
a. The definition of “advanced telecommunications capability” should evolve based upon products and services that are available to consumers and viable in the marketplace
OPASTCO believes commercially viable technologies should be the driving force behind the evolution of any advanced services definition. In its most recent Notice of Inquiry (NOI) concerning the deployment of advanced telecommunications capability to all Americans, the Federal Communications Commission (FCC, Commission) expressed its preference to retain its earlier definition of “advanced services” as those capable of supporting speeds in excess of 200 kilobits per second (Kbps) both upstream and downstream, and “high-speed” services as data that travels at more than 200 Kbps in one direction. OPASTCO has previously stated that, based on technology readily available today, 200 Kbps is a relatively judicious benchmark. Small LECs that are able to provision advanced services based on digital subscriber line (DSL) technology should usually find this data rate to be reasonably achievable for a fair proportion of those subscribers who are located somewhat close to a central office. While OPASTCO believes that this definition is adequate at the current time, policymakers should consider technological and marketplace developments to be paramount determinants.
b. Universal access is a worthy goal; however, unfunded mandates must be avoided
Policymakers and small telecommunications carriers share a common goal of making advanced telecommunications capability available to rural subscribers as expeditiously as practical. Considering the present state of advanced services deployment nationwide, the diversity of conditions among rural carriers, as well as the economic, technical, and regulatory hurdles that must presently be overcome, deployment of broadband services within the rural areas served by small LECs is reasonable and timely. The marketplace is working and small LECs will continue to make advanced services available to ever-increasing numbers of rural consumers.
Should policymakers decide to require ubiquitous access to advanced services by a date certain, sufficient funding mechanisms would have to be made available. The National Exchange Carrier Association (NECA) has estimated that while 65 percent of the access lines served by the nation’s smallest carriers will be capable of delivering advanced services by 2002, it would cost $10.9 billion to upgrade all remaining lines. While some consumers could likely be served by wireless and other technologies, the relatively low number of subscribers would still make per-customer costs very high. An unfunded mandate would therefore be unachievable and detrimental to rural consumers.
c. Small, rural LECs are deploying broadband services in a reasonable and timely manner, to the extent that market forces, technological limitations, and existing regulations allow
Rural LECs are deploying advanced services when the combined factors of market forces, technological limitations, and existing regulations make it viable to do so. In addition to the challenges faced by large companies seeking to provide advanced services, rural LECs must also overcome unique hurdles noted above, such as lack of economies of scale, low population densities, difficult terrain, and other adverse conditions. However, rural LECs are dedicated to serving their communities’ needs in spite of these adversities.
As stated previously, approximately 60 percent of OPASTCO members provide access to broadband. The FCC has produced figures which, by themselves, demonstrate that deployment of high-speed and advanced services in sparsely populated areas is occurring in a reasonable and timely manner. Zip codes in “small towns” with at least one subscriber to high-speed services grew from 57 percent as of December 31, 1999, to 79 percent one year later. Locations that include tribal lands are among the most rural in the nation. Even here, the number of such places with customers subscribing to high-speed services increased from 44 percent to 67 percent during the same time period.
Furthermore, the data found in a statistical summary released by the FCC shows that the number of areas with the lowest population densities that have high-speed subscribers has nearly doubled in the past year. The percentage of zip codes in the least dense areas with at least one high-speed subscriber jumped from 18.7 percent in 1999 to 37.2 percent in 2000. In the second and third least densely populated locations, the increases were 23.9 percent to 44.5 percent and 27.9 percent to 54.3 percent, respectively.
Encouraging as these figures are, it is important to note that the progress made in rural areas is actually greater than the Commission’s figures are able to reflect. This is due to the Commission’s wholly appropriate concerns that it must avoid burdening small providers with additional reporting requirements. Considering that many small providers of advanced and high-speed services in rural areas are fortunately not subject to the heavy reporting requirements of the FCC’s Form 477, there is no doubt that the true level of deployment in these areas is higher than portrayed.
Other figures also demonstrate that robust deployment is occurring in rural carrier service areas. The NECA study referenced above indicates that 65 percent of the access lines served by carriers participating in the NECA pools (which tend to be the nation’s smallest carriers) will be capable of delivering broadband services by 2002. While universal access to broadband services is a worthy goal, it should not be compelled, especially while “take rates” remain low. It should also be remembered that consumer demand for telecommunications and/or advanced services can vary greatly from one rural area to the next. Compounding these challenges for small carriers is the inability to spread costs over urban population centers, and the lack of access to the vast capital resources which are enjoyed by large carriers. As a whole, these factors can hinder the ability of rural providers to dedicate greater resources to the deployment of new technologies generally, and broadband capacity more specifically.
III. Although requirements placed upon larger carriers are often not appropriate for rural ILECs, they are frequently subject to “one-size-fits-all” regulation
a. Interconnection, resale, unbundling, collocation and line sharing requirements discourage investment, especially in rural service areas
In the 1996 Act, Congress recognized that the market-opening provisions it adopted for large carriers would often be detrimental to the public interest in areas served by rural telephone companies. It therefore exempted rural carriers from the Act’s section 251(c) unbundling, resale, and collocation requirements. However, this rural exemption is not permanent. Upon receipt of a bona fide request for interconnection, services or network elements from a competitor, if a state commission determines that “such request is not unduly economically burdensome,” is “technically feasible,” and is otherwise “consistent” with certain universal service provisions of section 254, the exemption may be lifted. Once that exemption is lifted, current rules inappropriately sweep small, rural ILECs into the same regulatory regime as large ILECs.
Regulations that set charges for unbundled network elements (UNEs) and interconnection based upon total element long run incremental cost (TELRIC) make it increasingly difficult for rural carriers (as well as their investors and lenders) to justify investment in network upgrades, including those upgrades that can make advanced services more widely available. TELRIC is based on a hypothetical “fantasy” network, employing the most efficient technology from the ground up. It has no relationship to the cost that will actually be incurred by the LEC. In order for TELRIC to reflect costs, carriers would have to constantly upgrade their entire network from scratch whenever there is a technological advancement. Of course, no carrier follows such an irrational practice. Carriers build upon the network investments that have already been made. TELRIC does not recognize these prior investments, leading to below-cost UNE and interconnection prices that impedes investment in network facilities by both incumbents and competitors. Small carriers, lacking other, lower-cost service areas that might compensate for resulting losses, are even more disinclined than large carriers to invest in facilities that provide access to advanced services, if they must make such facilities available to other carriers at rates that are below cost. TELRIC is therefore wholly inappropriate for rural LECs.
Under current line sharing rules, ILECs bear all the cost and risk of broadband deployment, but may have to turn over its successes to new entrants that are not facilities-based. Like TELRIC pricing, line sharing also discourages investment by competitors and incumbents. First, it is easier and cheaper for new entrants to wait for an incumbent to succeed at broadband deployment than to take the risk and construct its own facilities. Secondly, in addition to the technical upgrades necessary for successful deployment of advanced services, line sharing requires ILECs to invest in support infrastructure such as billing systems, customer service and provisioning services. These upgrades pose a substantial, and in some cases insurmountable, burden to small, rural ILECs. Mandatory line sharing does not make sense in rural areas. Whether or not they retain their section 251(f) exemption, rural carriers should be exempt from line sharing requirements in order to encourage deployment of facilities-based advanced services to high-cost areas.
Similarly, the small size, limited resources and dispersed service areas of small ILECs make it inappropriate for them to be subject to the same collocation requirements as large carriers. Currently, in spite of their lack of staff, central office space and remote terminals, those rural carriers that are no longer subject to the section 251(f) exemption are required to cater to the collocation requests of new entrants (which are often much larger companies) in the same manner required of the nation’s largest ILECs. Rules regarding time limits to provision collocation requests, and the allocation of central office space and other facilities were designed based solely upon experiences with large ILECs and were indiscriminately applied to small ILECs as well. Rural ILECs, even those no longer covered under the section 251(f) exemption, should either be made exempt from such rules, or should be subject to different, appropriate timetables and other standards, as called for under the Regulatory Flexibility Act.
a. The Rural Exemption Enhancement Act would provide regulatory stability, encourage investment, and give state commissions more flexibility
OPASTCO supports the enactment of H.R. 3142, the “Rural Exemption Enhancement Act of 2001 (REEA),” introduced by Representative George Radanovich of California. This legislation would provide state commissions with additional flexibility when a new entrant requests the lifting of a rural exemption under section 251(f). Currently, when a rural telephone company’s rural exemption is terminated, it is terminated for both the carrier’s voice and advanced services. State commissions have only two choices when faced with such requests: to retain the exemption for both, or to lift it for both. The REEA would provide state commissions with a new option: to lift the exemption for voice services where appropriate, but retain it with regard to advanced services, until it is in the public interest to require the incumbent to provide UNEs, line sharing, and collocation to competitors wishing to sell advanced services. This would prevent the rural exemption, as it applies to advanced services, from being lifted prematurely and provide regulatory stability that is conducive to investment. The bill would in no way impede upon the authority of state commissions to discharge their responsibilities under section 251. Further, it would do nothing to hinder the entry into rural markets by cable, wireless or satellite providers of advanced services. 
b. The Independent Telecommunications Consumer Enhancement Act and Facilitating Access to Speedy Transmissions for Networks, E-commerce, and Telecommunications Act would provide relief from inappropriate “one-size-fits-all” regulation of small carriers
Despite the 1996 Act’s deregulatory aims, small carriers must contend with more regulation, paperwork and reporting requirements than ever. The costs of these requirements, however well-intentioned, are cumulative. The “Independent Telecommunications Consumer Enhancement Act of 2001,” H.R. 496, introduced by Representative Barbara Cubin of Wyoming, was passed by the House of Representatives on March 21, 2001. Similar legislation, the “Facilitating Access to Speedy Transmissions for Networks, E-Commerce, and Telecommunications Act of 2001 (FASTNET),” S. 1359, was introduced by Senator Conrad Burns of Montana. The bills would reduce the regulatory burdens imposed upon those telephone companies which serve fewer than two percent of the nation’s access lines (“two percent carriers”). The bills acknowledge that existing regulations and reporting requirements are tailored to the circumstances of large carriers, imposing disproportionate burdens on small and mid-sized companies. By providing regulatory relief for two percent carriers, the bills seek to increase the carriers’ ability to respond to marketplace conditions and accelerate their deployment of advanced services capacity.
The legislation would require the Commission to separately evaluate the burden that any proposed regulatory, compliance, or reporting requirements would have on small and mid-sized carriers. This would help the Commission to reduce incidents of inappropriate “one-size-fits-all” regulation. Small carriers would also be given additional pricing flexibility for their access rates upon competitive entry into their service area, thereby enabling them to respond to rapidly changing marketplace conditions.
c. Tax credits, low-cost loans, grants and improved depreciation rates would make deployment of advanced services in rural areas more achievable
Tax credits for deployment of advanced services would help to encourage network upgrades. Low-cost loans and grants would also facilitate deployment in high-cost areas.
In addition, accelerated depreciation rates would spur investment. Constant technological breakthroughs lead to fast obsolesce of equipment and software. Rapid depreciation of these expenses would provide small carriers and their lenders with greater confidence that they will be able to recover their capital investments, while encouraging plant upgrades.
d. Arbitrary caps on universal service support should be lifted
Universal service is funded through contributions from telecommunications carriers, not through general tax revenue. Yet due to “temporary” arbitrary limits placed upon the universal service fund since 1993, rural carriers have been denied nearly $500 million of non-government funding that should have been allocated to serving customers in high-cost areas. Obviously, since rural carriers must expend their limited resources to make up for this shortfall, there is that much less capital for them to invest in the deployment of advanced services. The Universal Service Support Act (S. 500/H.R. 1171), introduced respectively by Senator Conrad Burns of Montana and Representative Nathan Deal of Georgia, would correct this shortfall. Furthermore, because universal service is not funded by tax revenue, this important legislation would have no impact on the federal budget.
V. Wireless technology can deliver advanced services to rural consumers, but section 309(j) must be followed
In section 309(j) of the Communications Act of 1934, as amended, Congress specifically directed that rural telephone companies be among those ensured of access to spectrum licenses so that they may bring services to rural consumers without administrative delays. Yet for some time, OPASTCO and other rural advocates have expressed concern regarding the implementation of section 309(j). Too often, spectrum license rules do not give adequate regard to Congress’s directive regarding rural telephone companies. These lapses have had the effect of limiting the scope of services available to consumers in some rural areas, contrary to section 309(j).
The trend towards ever-larger areas for spectrum licenses, without effective provisions for rural carriers to access the smaller geographic areas where they currently offer service, thwarts the clear intent of 309(j). Even if provided with generous bidding credits, small carriers cannot hope to compete against large companies for licenses which span vast tracks of the nation. Large companies are rarely interested in serving sparsely populated markets, resulting in a lack of service for rural Americans. Small license areas, or rules which otherwise assure rural carriers access to spectrum suitable for deployment of advanced services, would be in keeping with both section 309(j) and section 706 of the Act.
In addition, smaller license areas can be coupled with combinatorial bidding rules to permit companies to effectively obtain regional licenses. This approach would allow large bidders to focus their bids on the specific, higher-density areas in which they prefer to offer service. This would prevent rural locations from being closed off to the small carriers that desire to deploy in sparsely populated areas. OPASTCO is gratified to note that the FCC recently decided to allocate 12 megahertz of spectrum in the Lower 700 MHz band on the basis of Metropolitan Statistical Areas (MSAs) and Rural Service Areas (RSAs), a return to the effective method that helped cellular service become available to rural consumers.
As Assistant Secretary of Commerce Nancy Victory recently stated:
[W]e should be mindful that the market might not always work as well or at the same pace in all areas, particularly in rural and certain urban areas. In developing policy, we need to be aware of the differing forces and needs in those areas. 
Rural carriers face operating conditions and market demands that are vastly different from those experienced by large carriers, as well as from each other. Consequently, there is no single all-encompassing solution that can ensure universal access to advanced services, and “one-size-fits-all” regulations must be avoided. However, there are a variety of policies, discussed above, which could be adopted to reduce barriers to the deployment of advanced services capacity by small carriers providing service to rural consumers.
THE ORGANIZATION FOR THE PROMOTION AND ADVANCEMENT OF SMALL
By: /s/ Stuart Polikoff By: /s/ Stephen Pastorkovich
Stuart Polikoff Stephen Pastorkovich
Director of Government Relations Business Development Director/Senior Policy Analyst
By: /s/ Jeffrey Smith
21 Dupont Circle, NW
Washington, DC 20036
December 19, 2001
 Notice, Request for Comments on Deployment of Broadband Networks and Advanced Telecommunications, Docket No. 011109273-1273-01, RIN 0660-XX13 (rel. November 14, 2001) (Notice).
 47 U.S.C. §153(37).
 Rural Task Force White Paper #2: The Rural Difference, p. 8 (http://www.wutc.wa.gov/rtf) (RTF). The RTF was an independent advisory panel appointed by the Federal – State Joint Board on Universal Service to provide guidance on universal service issues affecting rural telephone companies. The Task Force members represented state utility commissions, consumer advocates, long distance providers, competitive carriers, wireless carriers, the Department of Agriculture’s Rural Utilities Service, insular carriers, and rural incumbent telephone companies.
 Ibid., pp. 7-14.
 Third NOI Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, CC Docket No. 98-146, FCC 01-223 (rel. Aug. 10, 2001) para. 5 (citing First Report, 14 FCC Rcd at 2406) (3rd NOI).
 Notably, where it is technically and economically feasible to do so, rural carriers often use a variety of methods to extend the range of DSL-based services beyond the immediate vicinity of their central office. A number of small, rural carriers are therefore able to make advanced services available to nearly all of the customers in their service area.
 National Exchange Carrier Association, Rural Broadband Cost Study: Summary of Results (rel. June 21, 2000), p. 2 (NECA study).
 See OPASTCO comments in CC Docket No. 98-146 (fil. Sept. 14, 1998 (First NOI), March 20, 2000 (Second NOI), and September 24, 2001 Third NOI)).
 3rd NOI, para. 15.
 High-Speed Services for Internet Access: Subscribership as of December 31, 2000 (FCC’s Industry Analysis Division, rel. Aug. 10, 2001) (December 2000 Statistical Summary).
 Id., Table 10 (High-Speed Subscribership Ranked by Population Density).
 3rd NOI, para. 10. In fact, the current reporting requirements are already overly burdensome and often detract from the ability of small rural companies to deploy advanced services in rural areas; see OPASTCO comments in Local Competition and Broadband Reporting, CC Docket No. 99-301, FCC 01-19 (fil. March 19, 2001), pp. 3, 5-7. OPASTCO encourages its members to fill out Form 477 on a voluntary basis if their individual circumstances allow them to do so without detracting from their level of customer service.
 NECA study, p. 2.
 47 U.S.C. §251(f).
 47 U.S.C. §251(f)(1)(A).
 Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 and Interconnection between Local Exchange Carriers and Commercial Mobile Radio Service Providers, First Report and Order, CC Docket Nos. 96-98 and 95-185, FCC 96-325 (rel. Aug. 8, 1996), 11 FCC Rcd 15499.
 Implementation of Wireline Services Offering Advanced Telecommunications Capability, First Report and Order, CC Docket No. 98-147, FCC 99-48 (rel. Mar. 31, 1999), 14 FCC Rcd. 4770-4825, paras. 18-77. Line sharing refers to the practice of leasing only a part of the frequency signal a line is capable of transmitting. New entrants may seek to lease only a portion of a line’s capacity from an incumbent in order to reach the end-user, while the incumbent will continue to provide voice grade service on the same line.
 See Fourth Report and Order, CC Docket No. 98-147, FCC 01-204 (rel. Aug. 8, 2001), 16 FCC Rcd. 15443-15486, paras. 15-104. See also fn. 23, infra.
 5 U.S.C. §601 et seq.
 Under the rural exemption, nothing prevents a competitor from offering any facilities-based voice or advanced services. A number of OPASTCO members overbuild facilities in other ILECs’ territories in order to accomplish this.
 With an average service territory of 6,500 access lines and relatively low “take rates,” many markets served by OPASTCO members cannot yet economically sustain more than one provider of advanced services, whether or not the new entrant uses its own facilities.
 See comments of Blustem Telephone Co., et. al. in FCC’s CC Docket No. 00-229 (fil. Jan. 12, 2001), pp. 6-8, noting that despite the Commission’s “on-going commitment” to reduce burdensome reporting requirements, new obligations include (for example) the Numbering Resource Utilization/Forecast Report, the Telecommunications Reporting Worksheet, the Lifeline and Link Up Worksheet (which requires a Service Provider Identification Number obtained via a Service Provider Information Form), and new requirements regarding slamming and compliance with the Communications Assistance for Law Enforcement Act.
 Government entities, such as municipalities, which exploit their ownership of public rights of way and tax-free status in order to intrude upon the marketplace by providing services themselves, should not be eligible for low-cost loans or grants. Such entry further discourages private sector investment, depriving consumers of the service offerings of non-government companies.
 See NECA comments, Federal-State Joint Board on Universal Service, CC Docket No. 96-45, FCC 01-8 (fil. Feb. 26, 2001), p. 6.
 47 U.S.C. 309(j)(3)(A-B).
 See, OPASTCO joint comments, Promoting Efficient Use of Spectrum Through Elimination of Barriers to the Development of Secondary Markets, WT 00-230 (fil. Feb. 9, 2001). See also, comments filed in Amendment of the Commission’s Rules Regarding Installment Payment Financing for Personal Communications Services (PCS) Licensees, WT Docket 97-82, specifically: Joint Ex Parte Letter of the Rural Telecommunications Group (RTG), National Telephone Cooperative Association, OPASTCO, and the U.S. Small Business Administration’s Office of Advocacy to Chairman William Kennard (fil. Nov. 13, 2000); Joint RTG/OPASTCO Petition for Reconsideration (fil. Oct. 5, 2000); RTG/OPASTCO Reply Comments (fil. June 29, 2000); RTG/OPASTCO Comments (fil. June 22, 2000).
 See Commission News Release, FCC Reallocates And Adopts Service Rules For Television Channels 52-59 (rel. Dec. 12, 2001).
 Speech by Nancy J. Victory, Assistant Secretary for Communications and Information, U. S. Department of Commerce, to the Competition Policy Institute, Dec. 6, 2001: Removing Roadblocks to Broadband Deployment (http://www.ntia.doc.gov/ntiahome/speeches/2001/cpi_120601.htm).