Federal Communications Commission
Washington, D.C. 20554
In the Matter of)
Deployment of Broadband Networks and )Docket No. 011109273-1273-01
Advanced Tele4communications Services)
Jeffry A. Brueggeman
William A. Brown
Gary L. Phillips
Paul K. Mancini
SBC COMMUNICATIONS INC.
1401 Eye Street, NW
Washington, DC 20005
(202) 326-8911 - Phone
(202) 408-8745 – Facsimile
Table of Contents
I.Executive Summary 1
III.Responses to Specific NTIA Questions 11
Question A 11
Question B 14
Question C 17
Question D 23
Question E 25
Question F 34
Question G 39
Question H 40
Question I 40
Question J 41
Question K 50
Question L 56
Question M 60
Question N 60
Attachment 3:Project Pronto Diagram
Federal Communications Commission
Washington, D.C. 20554
In the Matter of)
Deployment of Broadband Networks and )Docket No. 011109273-1273-01
Advanced Tele4communications Services)
SBC Communications, Inc. (SBC) hereby submits its comments in response to the Notice issued by the National Telecommunications and Information Administration (NTIA) on November 19, 2001 seeking comment on issues related to broadband deployment in the United States.SBC applauds NTIA’s initiative to gather information about the broadband market and to remove obstacles to broadband deployment.SBC also appreciates the opportunity to comment on the critical issue of how broadband deployment is affected by regulation and government policies.
Broadband deployment also will stimulate economic growth and improve national productivity.The telecommunications/technology sector of our economy has been hit particularly hard during the current recession.It has experienced the most bankruptcies and the most job losses of any sector in the economy by far.In a recent letter to U.S. Department of Commerce Secretary Donald L. Evans and others, a group of well-known economists called on the Administration, in light of the current economic slowdown, to take aggressive action to eliminate disincentives to broadband investment by accelerating deregulation as rapidly as possible.This call for deregulation was echoed by Scott Cleland, a leading industry analyst, who wrote that deregulation “remains the most effective, easiest and cheapest policy option to stimulate this critical and troubled sector of the economy.”Technology companies, including the Telecommunications Industry Association, Intel and Corning, also are urging the government to take immediate deregulatory measures with respect to broadband facilities and services.
While the current recession makes it all the more imperative to eliminate regulations that create economic barriers to investment in broadband infrastructure, regulatory reform would be warranted even in the absence of a recession.The current regulatory regime for broadband services makes no sense.It subjects one class of broadband providers – incumbent local exchange carriers (ILECs) – to burdensome and costly regulations and ongoing uncertainty as to the scope of their future regulatory burdens, while leaving all other broadband providers, including the largest players in the market, wholly unregulated.Moreover, it does so not because of any coherent public policy rationale, but by the reflexive extension of regulations designed for legacy voice networks to new investment and technologies in a highly competitive emerging market.It is a textbook example of “regulatory creep.”
The existing regulatory construct has a profound adverse impact on competition, efficiency, and investment.First, it skews the market by conferring significant cost and other advantages on ILEC competitors – advantages that are flatly inconsistent with the fundamental principle that consumers, not regulators, should pick winners and losers in the market.These advantages result in a sub-optimal allocation of societal resources.Second, it reduces ILEC incentives to invest in broadband facilities, resulting in less competition, lower productivity, fewer jobs, and fewer consumer benefits.
Broadband investment is inherently risky.As Michael K. Powell, Chairman of the Federal Communications Commission (FCC) recently observed, there are “many questions that remain as to what services consumers will value, and to what degree they will be willing to subscribe.”While no broadband provider should expect protection from those risks, the current regulatory regime heightens them significantly for SBC and other ILECs.Not only do they face the risk of increased costs and reduced revenues, but asymmetric regulation compromises the ILECs’ ability to price their broadband services on a competitive basis.The fact that, even apart from regulation, DSL service is more expensive and operationally difficult to deploy than cable modem service, only underscores the serious impact the current regime is having on ILEC broadband investment incentives.
In order to create a more rational broadband regulatory framework – one that promotes efficient investment by all participants in the market - the Administration should establish a comprehensive national broadband policy that applies to all providers and technology platforms.This policy should be based on the following three bedrock principles:
Regulators should take a “hands-off” approach to the broadband market. It is time to “unleash the broadband economy.”A hands-off approach to the broadband market will promote sustainable facilities-based competition, which in turn will lead to increased deployment, innovation, service competition, and consumer choice in the broadband market.
Broadband policy must be competitively and technologically neutral.The market for high-speed Internet access and other broadband services is characterized by intense competition among multiple technology platforms – including wireline telephone, cable, wireless and satellite.Any regulation of the broadband market must be competitively and technologically neutral for all providers in the critical areas of (i) competitive access to a provider’s broadband services, (ii) the right of competitors to use a provider’s broadband facilities, and (iii) the design and pricing of broadband services for consumers.
National broadband policy should provide regulatory certainty across all jurisdictions.Regulatory certainty is essential to encouraging providers to make the enormous investment that will be required if broadband services are to be widely available.This involves avoiding disparate and ever-changing state regulation of broadband services that will undermine federal policies.It also involves eliminating the threat of future broadband regulation at the federal and state level, which has a chilling effect on broadband investment.
There are at least two separate legal bases upon which the Administration could frame such a national broadband policy.First, the Administration should urge the FCC to declare that broadband networks and services fall under Title I of the Act, not Title II, irrespective of who provides them.The FCC has previously taken this step with respect to information services, and a similar analysis could apply to broadband services.Chairman Powell recently observed that “broadband is not some simple high-speed pipe, [but] a convergence, a fusing, of communications power, with computer power, with content.”As such, it falls squarely within the statutory definition of information services, which are subject to Title I, not Title II.
Second, the Administration should urge the FCC to exercise its forbearance authority under Section 10 of the Act with respect to broadband services.SBC already has asked the FCC to forbear from applying dominant carrier regulation to its provision of broadband services.But the FCC can and should go further.While Section 10 prohibits the FCC from forbearing from the requirements of Section 251(c) and 271 until those sections are “fully implemented,” they can and should conclude that Section 251(c) is fully implemented with respect to broadband facilities and services, given the significant competition that exists in the broadband market.
In 1999, the management of SBC made an important decision.The company would spend $6 billion over three years on a bold initiative to extend the availability of high-speed broadband services to residential consumers throughout its 13-state territory.SBC’s goal for “Project Pronto,” as it was called, was to provide broadband capability to about 80% of its local telephone customers, and ultimately to deliver broadband services to tens of millions of Americans (more than a quarter of the U.S. population).The plan was not without risk.In order to overcome the speed-and-distance limitations of DSL provided over copper loops, SBC would be deploying cutting edge Next Generation DLC (NGDLC) equipment in thousands of remote terminals located in residential neighborhoods.If it worked, however, SBC would almost double the number of its residential consumers with access to broadband services.
From the very beginning, SBC was forced to confront the realities of regulation in its design of Project Pronto.For example, like other telephone companies, SBC is prohibited from offering broadband services that are integrated with some type of content (e.g., music, streaming video) or computing power (e.g., data storage, protocol conversion) unless it artificially segregates the transmission component of its broadband services and makes that component available as a stand-alone offering.As a result, SBC could not maximize the efficiency of its network architecture, and it was forced to spend hundreds of millions of dollars on network enhancements that would give third-party carriers access to SBC’s stand-alone transmission services.
SBC’s management also had to confront a series of merger conditions that greatly complicated and substantially increased the cost of its broadband deployment.Most notably, SBC had been required to offer broadband services out of a structurally separate affiliate. To comply with this requirement, SBC was forced to devote considerable financial and personnel resources establishing the separate affiliate and implementing all of the operational support and other systems needed to conduct business on a stand-alone basis.In addition to being a hugely expensive proposition, the transition to provisioning all broadband services out of a separate affiliate was a complicated and distracting process that also hampered SBC in the broadband market.
The separate affiliate requirement also created a roadblock for the deployment of Project Pronto, which relies on equipment in the telephone company network to split off the voice and data traffic.Obtaining the necessary regulatory approval from the FCC interjected uncertainty and substantial delay in SBC’s deployment plans.After an exhaustive regulatory review process that took almost nine months, SBC obtained a limited waiver of the separate affiliate requirement for Project Pronto.In exchange, SBC committed to incurring additional costs to accommodate potential CLEC requests for collocation and to make its Project Pronto broadband service offering available to competitors at TELRIC prices.
No sooner had SBC begun deploying Project Pronto than additional regulatory issues arose.The FCC initiated a number of proceedings in which it sought comment on additional unbundling requirements for SBC’s broadband network.Suddenly, SBC’s management was faced with the real possibility that the cost of Project Pronto could increase by hundreds of millions of dollars and that competitive providers would be able to reap the benefits of the financial and technical risks assumed by SBC’s shareholders.
To make matters worse, the regulatory uncertainty created by the FCC began carrying over to the states.Slowly but surely, state commissions initiated their own proceedings to consider whether to impose unbundling requirements on the Project Pronto architecture.To date, 10 of the 13 states in SBC’s territory have initiated proceedings to consider such requirements, and the issue remains pending in nine of those states.In Illinois, SBC originally was ordered to unbundle virtually every aspect of Project Pronto – a requirement that effectively doubled the cost of SBC’s DSL deployment in Illinois and made it impossible for SBC even to recover the costs of Project Pronto in that state.While the original decision of the Illinois commission was subsequently revised, Project Pronto deployment was delayed for months and the proceeding is ongoing to this day, as are similar proceedings in eight other SBC states.
Faced with ever-increasing regulatory risk and uncertainty combined with a severe economic slowdown, SBC’s management made the difficult decision to reduce its aggressive deployment of Project Pronto.In October 2001, SBC announced that it would reduce capital spending by 20% next year and scale back its original deployment schedule for Project Pronto.SBC Chairman and CEO Edward E. Whitacre, Jr. explained the company’s decision in no uncertain terms: “Today’s regulatory rules and uncertainty artificially increase costs, affect how we invest capital and how we market our products and services. . . .No responsible company could justify deploying broadband capabilities and investing in broadband networks in the face of this uncertain environment.”
In addition to Project Pronto, SBC has begun working on plans to overcome the speed-and-distance limitations of copper by utilizing a broadband passive optical network (BPON) architecture that would bring fiber optic facilities directly to the customer’s premises.This initiative also has sparked the interest of regulators, and SBC is gravely concerned that BPON also could be targeted for burdensome regulatory requirements at some point.SBC is now carefully weighing regulatory risks as it considers whether and on what scale to deploy BPON in its broadband network.
At the time SBC’s management announced its Project Pronto initiative, the four largest cable television companies – AOL Time Warner, AT&T, Comcast and Cox – all were in the process of deploying cable modem services on a widespread basis.In fact, cable modem service already had a significant head start over DSL service in the broadband market.By the end of 1999, there were 1.4 million cable modem lines in services, compared to only about 370,000 DSL lines in service nationwide.
Like SBC, a cable television company had to consider the business risk of making a significant investment in upgrading its cable network and deploying cable modem service.One thing it has not had to worry much about though, was regulation.Unlike the incumbent telephone companies, regulators have elected to take a “hands-off” approach to broadband services provided by cable television companies.Therefore, a cable company has had total flexibility to design its broadband network and package its broadband services in the most cost-effective and customer-friendly manner; it has not been required to artificially segregate the transmission component of its broadband services.A cable company has had exclusive use of its broadband network and been able to use its network solely for delivering broadband services to its own customers; it has not been subject to costly and inefficient unbundling requirements, and it has not had to give competitors access to its facilities.A cable company has had complete freedom to set its prices for broadband services; it has not been subject to any federal or state pricing requirements.A cable company has been able to subsidize the build out of its broadband network with cable television revenues; it has not been subject to structural separation, affiliate or cost allocation requirements, or price regulation.In short, a cable company has been free design its broadband services and to conduct its broadband business as any other company would in a competitive market.
The concept of being subject to the type of requirements that apply to SBC is so foreign to the cable companies that they cannot even conceive of how broadband services could be offered in such an environment.As AT&T Chairman and CEO C. Michael Armstrong stated, “No company will invest billions of dollars to become a facilities-based broadband services provider if competitors who have not invested a penny of capital nor taken an ounce of risk can come along and get a free ride on the investments and risks of others.”
Given the gross regulatory disparity, it should come as no surprise that cable modem service has continued to dominate the broadband market.Cable modem providers have twice as many subscribers as DSL providers and their market share has been widening, not narrowing, in the past year.Yet cable companies enjoy the advantages of a preferential hands-off regulatory approach, whereas ILEC broadband deployment is subject to costly and inefficient regulation.There is no justification for this regulatory disparity.Asymmetrical regulation of any kind distorts competition, but it is utterly indefensible when the regulatory disparity favors the largest provider in the market and handicaps the smaller providers.The current regulatory framework is impeding broadband deployment and reducing competition in the market, which has the effect of reducing the availability of broadband services and raising prices for consumers.Thus, the establishment of a more rational broadband policy should be a top priority of this Administration.
The following are SBC’s responses to the specific questions posed by NTIA.
A.What should be the primary policy considerations in formulating broadband policy for the country?Please discuss the relative importance of the following: access for all; facilities-based competition; minimal regulation; technological neutrality; intra-modal competition; inter-modal competition; and any other policy consideration.
The ultimate objective of the Administration’s broadband policy should be to create a regulatory environment that will unleash market forces that will drive the widespread deployment of broadband infrastructure and services.Broadband services bring valuable new services to consumers and advance a number of worthy goals (such as improving the quality of education and increasing economic opportunity for more Americans), but also stimulate economic growth and improve national productivity.It is for these reasons that Congress enacted Section 706 of the Telecommunications Act of 1996, which directs federal and state regulators to utilize measures such as regulatory forbearance to eliminate regulations that impede broadband deployment.
Unfortunately, much of the federal and state policymaking to date actually has impeded broadband deployment.As discussed further below, in the absence of an overarching regulatory framework for broadband services and facilities, regulators have reflexively extended rules that were designed for the legacy circuit-switched voice network to ILEC broadband investment.The effect of such ad hoc regulatory action has been to stifle broadband investment and distort competition by bestowing artificial regulatory advantages on certain competitors in the market.
A new national broadband policy is needed that will stimulate investment in broadband networks and services by unleashing facilities-based competition and the power of the market.The following principles should guide the Administration’s development of this national broadband policy:
Regulators should take a “hands-off” approach to the broadband market.Broadband investment is inherently risky.It requires technological innovation, an enormous amount of capital investment and an ongoing commitment of financial and personnel resources in pursuit of an uncertain return on investment.While it should not be the role of government to insulate broadband providers from these risks, neither should the government add to them with costly and burdensome regulatory requirements.As Chairman Powell recognized, regulators must guard against “regulatory creep” that discourages investment and stifles innovation in broadband, resulting in numerous unintended consequences.An obvious example of the type of regulation that discourages broadband deployment are unbundling requirements, which significantly increase the cost of broadband deployment and deprive providers of the flexibility to design and deploy broadband networks and service offerings in the most efficient way possible based on the dictates of the market.But virtually all government regulation imposes some costs, and the government must very carefully weigh the costs when it imposes such regulation.Consumers are the ultimate losers when government regulation impedes broadband deployment.
Broadband policy must be competitively and technologically neutral.The market for high-speed Internet access and other broadband services is highly competitive with competing technology platforms – including telephone, cable wireless and satellite providers.As Chairman Powell stated, definitional battles should not define the regulatory treatment of broadband services, nor should broadband deployment be treated as a “one wire” problem that is limited to the telephone network.Disparate regulation of the broadband market distorts competition, deprives consumers of choice and restricts innovation.Therefore, any regulation of the broadband market must be competitively and technologically neutral for all providers, regardless of the platforms they have deployed.
Should some form of regulation be deemed necessary, competitively neutral regulation across competing platforms is critical in three primary areas.First, any network access requirement, whether it is “click through” access or direct access to a broadband circuit, must mean the same thing and result in the same requirements for competing broadband networks.Second, all broadband providers should be free of any requirement to allow competitors to utilize their broadband platform components or capabilities.Requirements that allow competitors to co-opt ILEC broadband networks and obtain a risk-free ride on their investment have the effect of deterring investment and significantly disadvantaging ILECs in the broadband market.Third, all broadband providers must have the same flexibility to design and package their broadband services to consumers.There is no justification for requiring telephone companies to artificially segregate the transmission component of broadband services without imposing a similar requirement on cable modem providers.
National broadband policy should provide regulatory certainty across all jurisdictions.Regulatory certainty is essential to encouraging providers to make the enormous investment that will be required if broadband services are to be widely available.This involves avoiding disparate state regulation of broadband services that undermines federal policies.It also involves eliminating the threat of future broadband regulation at the federal and state level, which has a chilling effect on broadband investment.
Establishment of a uniform broadband policy is critically important – without a cohesive national policy it will not be possible to achieve the goal of widespread broadband deployment.SBC and others are expending billions of dollars and overcoming significant technological and operational challenges to bring the benefits of broadband to consumers.With the economy in a recession, it is even more difficult for companies to assume the risk of making an enormous investment in broadband infrastructure in order to produce a reasonable return on investment in the long term.One of the easiest and most effective ways for regulators to encourage broadband deployment is to remove regulatory obstacles to such deployment and unleash the powerful effects of market-based competition.
B.How should broadband services be defined?Please discuss.
1.what criteria should be used to determine whether a facility or service has sufficient transmission capacity to be classified as "broadband;"
SBC proposes that the definition of “broadband services” (also known as advanced services) include high-speed transmission capacity that is at least 200 kbps in one direction.As discussed below in response to Question J, consistent with longstanding precedent with respect to defining markets, the broadband services market must include all services that are “reasonably interchangeable” from the consumer’s perspective.Narrowband services, which provide limited transmission capacity sufficient for traditional voice service, are clearly not interchangeable with broadband services, which provide high-speed transmission capacity capable of delivering a host of new services and applications that involve the exchange of large amounts of information.The FCC, the Department of Justice (DOJ) and the Federal Trade FCC (FTC) have all reached this conclusion.
In the First Advanced Services Report, the FCC defined broadband as transmission capacity of at least 200 kbps in both the upstream and downstream directions.SBC believes this definition is overly restrictive.While it is true that broadband services may provide the capability for two-way high-speed transmissions, this does not compel a requirement that broadband services must be high speed in both directions.Customers have individualized needs that sometimes will involve variable upstream and downstream transmission capacity, depending on the service application.For example, residential high-speed Internet access users typically download content off of the web, but do not originate large amounts of information.These consumers have no need for expensive symmetrical high-speed connections and often will prefer a service, such as SBC’s ADSL service, that provides asymmetrical downstream and upstream transmission capacity at a more affordable price.
Moreover, the FCC’s definition excludes satellite broadband services, even though these services unquestionably are part of the broadband landscape.Satellite providers have experienced rapid growth since launching two-way Internet access in late 2000, and the Yankee Group predicts that satellite broadband will reach 300,000 residential subscribers in the U.S. by the end of this year and will grow to 4.5 million subscribers by the end of 2005.Thus, SBC supports an expansive definition of broadband that encompasses the full range of services and technologies that are part of the product market.
2.how the definition should evolve over time; and
While regulators always must ensure that regulations are adapted to technological and market changes, the goal of any formative broadband policy should be to define broadband so as to minimize the need for ongoing adjustments.Fundamental to NTIA’s inquiry is the recognized need to provide regulatory certainty.Regulatory certainty is not provided if the parameters of broadband are so narrowly construed as to be outdated by the time the policy is established.Policy makers should consider the wisdom behind the Computer Inquiries proceeding, where the “enhanced services” category was very broadly defined such that twenty years later it still has relevance in the market place and in the regulatory framework (i.e., the statutory definition of “information service”).
The same approach is required for broadband if there is to be regulatory certainty and removal of the regulatory chilling effect on investment and technology deployment.History suggests that a prudent starting point would be to adopt a definition of broadband that is sufficiently broad as to have lasting relevance.Any other approach would severely limit the effect of any broadband policy determinations, require continued intervention in the marketplace, create regulatory uncertainty and inhibit broadband investment.
As noted above, the definition of broadband services must include all “reasonably interchangeable” services, regardless of technology and transmission medium.By adopting a definition of broadband that is competitively and technologically neutral, regulators can ensure that their definition remains relevant in a rapidly evolving marketplace.This also will help to ensure that the regulations adopted for the broadband market do not distort competition.In addition, a definition of broadband that is service-based and not technology-based will provide much-needed regulatory certainty that will promote facilities-based competition and help to ensure fair and equal regulation of competitors.
3.the policy implications of how the term is defined.
A uniform definition of broadband is essential to implementing a coherent and effective national broadband policy.The fundamental problem with the existing regulatory framework is that it is asymmetrical.Providers of competing and functionally equivalent broadband services are subject to vastly different regulations based solely on their regulatory status in other product markets.The solution is straightforward.Regulators must adopt a clear definition of broadband and then implement a uniform framework of policies and regulations for all broadband providers, regardless of their technology or transmission medium.
C.Several studies indicate that the rate of deployment of broadband services is equal to or greater than the deployment rates for other technologies.What is the current status of (1) supply and (2) demand of broadband services in the United States?When addressing supply, please discuss current deployment rates and any regulatory policies impeding supply.When addressing demand, please discuss both actual take rates and any evidence of unserved demand.Please also address potential underlying causes of low subscribership rates, such as current economic conditions, price, cost-structure, impediments to the development of broadband content, or any other factor.To what extent has the growth in competition for broadband and other services been slowed by the existing rates and rate structures for regulated telecommunications services?
It is important to put the question of broadband supply and demand into the proper context for this inquiry.There is little disagreement that broadband deployment is good for the economy and national competitiveness.The fundamental purpose of NTIA’s inquiry is to identify regulatory impediments to broadband deployment and develop a national policy that will result in increased broadband investment.Accordingly, the question is not whether there is sufficient broadband deployment by some objective standard, but what steps regulators and policymakers can take to encourage companies such as SBC to invest billions of dollars in broadband infrastructure.Thus, the most notable aspect of current supply and demand figures for broadband services is how the regulatory disparity between DSL service and cable modem service is reflected in the marketplace.
Supply.SBC currently is able to offer DSL service to only a little more than half of its customers.Nationally, fewer than half of all U.S. households have access to DSL service.There are a number of reasons for this relatively low penetration rate.In addition to the enormous cost of DSL deployment, there are some significant technological constraints – DSL cannot reach customers whose copper loops exceed 18,000 feet from the service point.In order to overcome these constraints and extend the availability of DSL, SBC must deploy expensive new technologies, such as those used in Project Pronto, that further increase the cost of DSL deployment.But regulation and the threat of regulation have dampened ILEC incentives to make the significant investment needed to overcome the distance limitations of copper.
In contrast, cable modem service, which is not subject to any regulation, is far more widely available.The National Cable and Television Association reported in September 2001 that 83 percent of all U.S. households passed by cable would be upgraded for cable modem service by the end of 2001.This is consistent with a recent analyst report issued by the Yankee Group, which found that as of year-end 2001, two thirds of all U.S. households will have access to cable modem service and that, by year-end 2002, 77 percent of U.S. households would have access to cable modem service.Another report, issued jointly by JP Morgan and McKinsey & Co., found even higher addressability: 74 percent of U.S. households at the end of 2000, and an estimated 82 percent at the end of 2001.A more recent report projects that by the end of 2002, 95.2 million homes (or about 90% of homes passed by cable) will have access to cable modem service.
Although cable operators face their own constraints due to their service architecture, they enjoy an inherent cost advantage over DSL service.For example, an analysis by J.P. Morgan and McKinsey & Company concludes that DSL providers face incremental costs of $792 per customer, while cable modem providers face an incremental cost of only $468.That same study concludes that the average cost per customer of a large ILEC undertaking a massive DSL deployment is currently $86 per month per customer.That cost, they conclude, will decline by 2005 to $38 per month per customer.In contrast, the average, per-customer cost of providing cable modem service is estimated to be $55, declining by 2005 to $30.At no point during the next four years is the average cost of providing DSL service less than the average cost of providing cable modem service.To the contrary, the costs of cable modem providers remain substantially lower throughout the period.Thus, the Yankee Group has predicted that “cable modem prices are likely to remain cheaper than DSL prices for comparable service levels due mainly to the low service provision costs on the part of MSOs.”
The regulatory costs that are imposed on ILEC deployment of DSL service merely add to the cost advantage enjoyed by cable modem providers.As discussed further below, ILECs are not allowed to design and offer their broadband services as an efficient integrated offering.Rather, they must artificially segregate the transmission component of their broadband services and offer it on a stand-alone basis.Further, ILECs must absorb all of the inefficiencies and direct costs created by the imposition of unbundling requirements on their broadband services.Ironically, the most significant inefficiencies and costs are those associated with the unbundling requirements that have been proposed for SBC’s most expensive DSL architectures.
Demand.At present, cable modem service far outpaces DSL service in the market.According to a recent FCC subscribership report, there were fewer than 2 million residential DSL lines in service, but more than 3.5 million cable modem lines in service nationwide as of December 2000.By the end of the second quarter of 2001, cable modem providers had expanded their lead in the market and had at least 5.5 million cable modem lines in service nationwide compared to 2.5 million residential DSL lines in service.
Numerous analyst reports confirm, not only that cable modem service is outpacing DSL service, but also that cable has been widening its lead in recent months.Morgan Stanley Dean Witter, Telecom Trend Tracker, Aug. 17, 2001, estimates that cable operators added 779,000 subscribers during the second quarter of 2001, compared with 432,000 new DSL subscribers.A Telecom Research Group study found similar evidence of this trend.It should come as no surprise, therefore, that a number of analysts predict that cable will exploit its first mover advantage to keep its lead through the middle of the decade.Douglas Shapiro of Banc of America Securities sees cable modems ending up in 18.8 million homes by 2005, compared with 13.9 million DSL installations.And the Yankee Group predicts that cable modems will hold an even wider advantage over DSL – 15.7 million to 10.5 million – in 2005.
At this time, satellite technology still accounts for a relatively small share of the broadband Internet access market, although it is ubiquitously available and growing rapidly.The Strategis Group predicts that the number of U.S. satellite subscribers will grow to more than four million by 2005.Satellite broadband services are likely to be most successful in areas in which cable service is not available, because consumers in those areas are likely to use DBS service for video and be the most receptive to satellite-based Internet access.
Overall, the “take” rate for broadband services is extremely sensitive to price.SBC has firsthand experience with these high demand elasticities in the mass market for broadband services.Earlier this year, SBC was forced to increase its ADSL price by $10 in part because of the enormous expenses incurred to comply with various regulatory requirements, such as the costs of creating and maintaining a structurally separate data affiliate, providing larger remote terminals to accommodate potential CLEC collocation requests and providing competitors with access to its broadband network.Following this price increase, SBC experienced a drop in the growth rate for its DSL service, and it lost market share to its cable modem competitors, which merely confirms that the price elasticities of demand for broadband services are high.
Recognition of these demand elasticities must inform broadband policymaking.If there is to be widespread use of broadband services, they must be priced at a level consumers are willing to pay.And if ILECs are to deploy broadband services that offer a competitive alternative to cable modem services (i.e., a second wire) they must be able to price their services competitively.To the extent disparate regulations make this impossible, such regulations are self defeating and only serve to impede broadband deployment and reduce competition in the market.
Apart from price, there are a number of factors that affect demand for broadband services in the mass market.Obviously, the need for computer equipment is one limiting factor on the take rate for broadband services purchased by residential consumers.Another is that computers require some degree of technical sophistication that some residential consumers may lack.As discussed below, these factors suggest that it would not be appropriate to establish a specific broadband availability requirement at this time.
D.Should government adopt as a goal "access for all" to broadband service?What would be the costs of such a goal?What policy initiatives, if any, should be considered to achieve that goal?Are there areas or persons that are unlikely to be served through marketplace forces?
The most appropriate role for government in the broadband arena is to allow the market to work.There is ample evidence of the many benefits of broadband technologies.These benefits cannot drive broadband deployment unless government gets out of the way.The government needs to have faith in our free market system.If the benefits of broadband are as significant as most believe, the market will drive deployment; if they are not, then the market will not drive such deployment.Either way, the government should not interfere.
At this point in time, the government is interfering.Costly regulation and the threat of additional regulation are sapping ILECs of the incentive they otherwise would have in a free market system to deploy broadband facilities and services on a widespread basis.Rather than focusing on deployment mandates or a “take rate” target, the government’s first response should be to unleash market forces and eliminate regulatory obstacles to investment.Later on, it can always assess whether there are any areas of market failure and take targeted corrective action.
In Section 706 of the 1996 Act, Congress directed federal and state regulators to encourage the deployment of broadband services through regulatory forbearance and other measures that “remove barriers to infrastructure investment.”SBC has repeatedly called for quick and decisive action to establish a comprehensive national policy for all broadband service providers that eliminates regulatory barriers to investment.In addition, SBC recently filed a petition asking the FCC to confirm that it is non-dominant in the provision of broadband services and to forbear from applying dominant carrier regulation to SBC’s provision of broadband services.There is no justification for continuing to impose disparate regulations on ILEC broadband services that discourage investment and penalize otherwise efficient technologies.Consistent with congressional intent, widespread broadband deployment should be achieved by reducing regulation and allowing the market to drive the deployment of broadband services.
It would be premature and inadvisable to subsidize broadband deployment with universal service funding.As Chairman Powell has recognized, the nation should commit to achieving universal availability of broadband in a way that lets the market develop and preserves consumer choice.Therefore, adoption rates should not necessarily drive government responses.Further, Chairman Powell has recognized that universal service objectives should be promoted in economically sound ways.The universal service goals of ubiquity and affordability should be advanced in a manner that does not “dampen competitive opportunity.”Thus, before the government risks distorting the market by including broadband services in federal universal service mechanisms, it should eliminate burdensome regulations that stifle ILEC investment and innovation in broadband services.
Moreover, there are various factors that affect subscribership levels for broadband services.For example, whereas telephones are very inexpensive, computers are not.Further, whereas telephones require no technical knowledge or ability, computers require some degree of technical sophistication and, therefore, may be intimidating to many residential customers.In fact, recent Census Bureau data indicate that only about half of American households (51%) currently own a computer.Therefore, many residential customers do not even have the capability of utilizing high-speed Internet access services from their homes, and those customers who have such capability tend to have higher incomes.
E.Do the interconnection, unbundling, and resale requirements of the Telecommunications Act of 1996 reduce incumbent local exchange carriers' (ILECs') incentives to invest in broadband facilities and services?
To the extent these obligations are extended to ILEC broadband facilities and services, it unquestionably will have a negative impact on investment incentives.The magnitude of that impact depends upon the particular requirements, but it must be emphasized that any requirement that applies to ILECs and not their broadband competitors distorts competition and dampens ILEC investment incentives.ILECs cannot justify the enormous costs of making broadband services widely available if they cannot price their services on a competitive basis with cable modem and other providers of similar services.Significantly, as noted in response to Question C above, it is already widely recognized that even without the additional costs of burdensome regulations, DSL service is more expensive and technically difficult to deploy than cable modem service.Moreover, cable telephone companies, the largest providers in the broadband market, are deregulated and thus are free to subsidize cable modem deployment with increases in basic cable television services.In contrast, ILECs are uniquely burdened with strict cost accounting, cost allocation and price cap regulation of their telephone services, which prevents them from financing their broadband deployment through higher prices for telephone services.For these reasons, regulations that exacerbate the cost effectiveness of DSL service as compared to cable modem service inevitably have a severe chilling effect on ILEC plans to invest billions of dollars in broadband facilities and services.
SBC already has been forced to incur significant costs and inefficiencies as a result of asymmetrical regulatory requirements that are imposed on its broadband network, including its Project Pronto architecture.For example, SBC was required to configure Project Pronto in such a way that the transmission component of its broadband service can be made available to its competitors. That required SBC to install Optical Concentration Devices (OCDs) that are significantly more expensive than would otherwise have been required.These OCD costs added nearly $240 million to SBC’s Project Pronto deployment on the scale originally envisioned.SBC also spent $25-50 million to increase the size of remote terminals to accommodate potential CLEC collocation requests.Even worse, SBC faces the threat of additional federal and state unbundling requirements that could double the cost of SBC’s Project Pronto deployment, effectively pricing SBC’s DSL service out of the market.A more detailed discussion of the cost impact that unbundling requirements would have on Project Pronto is attached hereto as Attachment 1.
In addition to the direct costs of unbundling requirements, unbundling imposes considerable network design and management costs.SBC has designed Project Pronto to deliver efficiently mass-market DSL services to residential consumers who live too far from a central office to receive DSL over a standard copper loop.This is accomplished by deploying a NGDLC system that, at a high level, moves the “DSLAM” functionality from the central office to a remote terminal location that is closer to the customer’s premises.Diagrams illustrating the Project Pronto architecture are attached hereto as Attachment 2 and 3.
Allowing CLECs to obtain unbundled access to the Project Pronto architecture would make it impossible for SBC to efficiently design and construct its broadband network.For example, if SBC were required to allow a CLEC to “collocate” a line card, the CLEC could quickly consume the limited number of ports available in the NGDLC, even if it served only a few customers.As a result, SBC would be limited in its ability to serve other customers with the same equipment.The only way for SBC to avoid this outcome would be to over-design its network.SBC experienced a similar problem when it was forced to build larger remote terminals than would otherwise have been necessary and deploy more expensive OCDs in order to accommodate competitive access.But this over-building forces SBC to bear the risk that CLEC demand for unbundled access to its network may not materialize, which is precisely what happened with remote terminal collocation.It also forces SBC to incur the up-front costs of implementing costly OSS enhancements to provision unbundling arrangements that may never be requested.
Further, due to the nature of the NGDLC equipment, there is a limited amount of bandwidth that is available to transport data between the remote terminal and the central office.Each type of service provided over the Project Pronto architecture allocates and utilizes this limited shared bandwidth in a different manner.Therefore, if CLECs were allowed to “collocate” their own line card in SBC’s equipment or otherwise exercise control over this limited bandwidth, a CLEC could reduce or even eliminate all of the available bandwidth in providing its own services.In particular, a CLEC that targeted business customers could offer dedicated capacity using a mechanism such as constant bit rate service or a permanent virtual path.This would quickly consume the available bandwidth in SBC’s broadband network, which has been designed to provide shared capacity for mass-market (primarily residential) DSL consumers.The impact of this forced bandwidth reallocation is shown in Attachment 1.Thus, the end result would be to (i) reduce the availability of broadband services (ii) impair the quality of service available to small businesses and residential consumers due to the fact that constant bit rate services take precedent over other levels of service; (iii) drive up the price of DSL service to recover the additional capital and facilities costs; and (iv) reduce the availability of DSL service.
As these examples illustrate, burdensome unbundling requirements produce a sub-optimal allocation of resources that has a negative effect on both the supply and demand of broadband services.On the supply side, ILECs will not deploy innovative broadband architectures if regulators impose or threaten to impose unbundling requirements that destroy the economic viability of the service.This will have the effect of reducing the availability of broadband services and allowing cable modem providers to expand their lead in the market.On the demand side, costly unbundling requirements will be passed on to end users in the form of higher prices for broadband services.Not only will the price of DSL increase, but cable modem providers also will be able to raise their prices in response to the higher cost of DSL.In effect, DSL prices that are inflated for regulatory costs will become the price umbrella for other broadband services in the market.
1.Are there investment disincentives attributable to the regulated rates for interconnection, unbundled network elements, and resold services?
The below-cost rates that have been imposed for interconnection, UNEs and resale undoubtedly create a disincentive to broadband investment.This applies to ILECs that must bear the cost of providing unbundled access to their broadband networks and share the rewards of their investment, as well as CLECs that can lease facilities cheaper than it would cost to invest in their own networks.As discussed further below, the FCC’s TELRIC methodology does not allow ILECs to recover the direct costs associated with interconnection, UNEs and resale because it is based on the costs of a hypothetical optimally efficient network.However, no forward-looking cost methodology would compensate ILECs for all of the residual costs created by government regulation, such as the costs of implementing unbundling requirements and stranded facilities and bandwidth.Nor would ILECs receive compensation for the inefficiencies and loss of network control that result from applying unbundling requirements to broadband networks.Thus, pricing reform for interconnection UNEs and resale would have a positive effect on broadband investment, but would by no means eliminate the significant investment disincentives created by applying these legacy regulations to broadband services.
2.To what extent are those disincentives due to ILECs' uncertainties about their ability to recover the added network costs needed to accommodate potential requests from competitors?What is the magnitude of those additional costs?What mechanisms could be used to share the risks of those costs efficiently and equitably among ILECs, competitors, or users?
The most effective way equitably to allocate the risks of broadband investment is to deregulate broadband facilities and services, and allow the market to drive investment decisions.Broadband competitors either will invest in their own technologies and facilities or reach mutually agreeable commercial terms to lease various components or services from another provider.Data CLECs can invest in fiber optic facilities and remote terminals just as SBC is now doing (and as CLECs have done with respect to DSLAMs collocated in SBC’s central offices), but they have no incentive to do so if regulation gives them a risk-free free ride on SBC’s facilities and investment.Just as a cable modem provider is free to design its broadband network and services in the most efficient manner without regard for unbundling and access requirements, telephone companies should be given the same freedom with respect to their broadband network and services.It is important to remember that if regulators accede to CLEC demands and make it economically irresponsible to invest, then broadband investment will dry up and there will be no viable alternative to cable modem providers.
3.To what extent are the returns on ILECs' investments in new infrastructure uncertain?Is the uncertainty of gaining an adequate return on each infrastructure improvement (attributable in part to other firms' ability to use those facilities to offer competing services) significant enough to deter investment?
As five years of experience have shown, the primary weakness of the FCC’s TELRIC methodology is that it depresses investment on the part of both incumbents and new entrants.The defects of TELRIC, which limits cost recovery to the forward-looking costs of a hypothetical optimally efficient network, have been well documented in the context of the circuit-switched voice network.TELRIC, by its very nature, does not allow ILECs to recover a return on the actual capital costs that have been incurred.From an ILEC’s perspective, TELRIC creates a massive risk that capital investment will not be recovered because technological developments and industry-wide cost trends will reduce the value of such investment.The fact that TELRIC requires regulators to speculate about the costs of a hypothetical network that does not exist and to micromanage the ILECs’ prices only serves to heighten that risk.
But TELRIC also deters investment by new entrant CLECs.Because the cost of a leased facility under TELRIC is, by definition, the cost of an optimally efficient competitor deploying a state-of-the-art network, no CLEC can deploy its own facilities on a more cost-effective basis.Rather, TELRIC is necessarily the cheapest alternative available.While TELRIC allows CLECs without their own facilities to enter the market quickly, its effect is anti-competitive.CLECs that would consider deploying their own facilities will be deterred from doing so because the competitive arena is crowded with other CLECs that have not deployed facilities of their own.
The harmful effects of TELRIC would be amplified if it were applied to broadband networks.First, investments in broadband facilities and services are inherently risky, which means that they require a substantially higher cost of capital than investments in the legacy circuit-switched voice network.Not only does TELRIC fail to reflect this higher cost of capital, but, as noted above, it also adds to the inherent risk of broadband investments.Second, predictions about broadband facilities and services are even more difficult to make than predictions about the circuit-switched network.As a result, the arbitrary effects of TELRIC will be magnified if it is applied to broadband.It is impossible to believe that regulators will be able to make accurate predictions about technological advancements, fill factors, depreciation lives and other aspects of TELRIC in the fast-changing broadband market.Third, in a competitive environment where there are multiple facilities-based competitors, requiring one competitor to assume the risks and costs of TELRIC reduces overall competition in the market.Therefore, instead of promoting facilities-based competition, TELRIC would weaken it.
There is no modification that could be made to TELRIC that would render it appropriate for the broadband market.The problem is that TELRIC requires regulators to prescribe the outcome that competition will produce, rather than allowing the outcome to be produced by the competitive process.In other words, TELRIC would lead to ongoing regulation and micro-management of the broadband market that is the antithesis of the market-based environment that will stimulate broadband investment and deployment.Neither TELRIC nor any other regulatory mechanism is needed to deter an exercise of market power in the broadband market, so long as the national broadband policy preserves and fosters the intense competition in the market that already exists today.
F.Some have suggested that a regulatory dividing line should be drawn between legacy "non-broadband" facilities and/or services and new "broadband" facilities and/or services. Is this a feasible approach?If so, how would it work?
The market has created a clear distinction between narrowband and broadband services that must be reflected in regulatory policy.It should be noted that, as a practical matter, this question only has relevance to ILECs because there is no relevant legacy regulation of other competing broadband platforms.The need for a dividing line between regulation of the legacy circuit-switched voice network and regulation of new broadband services and facilities must be considered in the context of the incredible complexities of common carrier regulation that have built up over the years.Subjecting one competitor in the broadband market to the legal, infrastructure and operational complexities of the common carrier scheme of regulation would be untenable and harmful to competition for the reasons discussed in response to the previous question.Therefore, it is critical that regulators establish a clear line of demarcation that leaves all competitors in the broadband market free of this regulatory baggage.
There simply is no comparison between the market conditions and industry structure that existed when many of the rules for the legacy circuit-switched voice network were adopted and the competitive environment that exists in the current broadband market.Many of these rules were tailored to address a market that was dominated by one entity (i.e., AT&T and the pre-divesture Bell companies) that was vertically integrated in all aspects of telecommunications.The vertically integrated characteristics of the Bell companies included the research and development capabilities of Bell Labs, control over network engineering and design, control over technology introduction, control over manufacturing of network components through Western Electric, and control over customer premises equipment attached to the telecommunications network.This vertical integration, coupled with a dominant position in the market for voice services, led to extensive regulation of the Bell companies’ prices and operations.
Things are completely different in the broadband market.First and foremost, there are multiple platforms for the delivery of broadband services.Indeed, ILECs are not even the largest providers of such services.In the mass market, the ILECs’ market share is dwarfed by their cable modem competitors.In the large business market, the ILECs’ market share lags far behind that of AT&T, WorldCom and Sprint, which collectively account for about 70% of the market for ATM and frame relay services.Thus, it does not make any sense to extend regulations created for monopoly narrowband voice services to these competitive broadband services, particularly if this would result in one broadband competitor being singled out for disparate regulation.
A separate regulatory regime for broadband is eminently feasible.As the FCC has recognized, broadband services are provisioned using different equipment and facilities than circuit-switched voice services.Packet switches and other broadband facilities are an overlay to the legacy circuit-switched network, not part of the monopoly previously enjoyed by the Bell companies.From the beginning, all carriers and service providers have had access to the same vendors of broadband network equipment and components as the ILECs.In fact, vendors have consistently sought to maximize their market-growth potential by developing products and service for all providers.Not only are providers unrestricted in their access to technology from multiple competing vendors, but ILECs also are required to disclose in advance any changes to the legacy circuit-switched network that would affect the ability of competing network providers to interconnect with the network.By retaining this requirement, regulators can ensure that all competing providers of broadband services have adequate access to and use of the capabilities of the legacy circuit-switched voice network.
Technology also is available that would allow an ILEC to deploy fiber facilities that are capable of delivering broadband services directly to a customer’s premises.In these circumstances, the ILEC’s broadband network is once again entirely distinguishable from the legacy circuit-switched voice network.Once again, a competitor is at least as capable as an ILEC of deploying new fiber facilities and probably more so, given that it probably will not have extensive sunk investment in circuit-switched facilities.
Establishing a regulatory demarcation point is key to giving ILECs the incentive to invest in new technology platforms and broadband capabilities on the same basis as any other platform provider.This includes the ability to design and deploy efficient networks and service offerings.By limiting the scope of traditional common carrier regulation to the legacy circuit-switched voice network, regulators can address issues such as competitive access to broadband networks in a consistent and competitively neutral manner.
1.What effects would changes in the regulatory structure for broadband services and facilities have on regulation and competition with respect to voice telephone and other non-broadband services?
Changes in the regulatory structure for broadband services need not have any effect on the regulation of voice telephone and other non-broadband services.Circuit-switched voice and other narrowband services would remain subject to their existing regulatory requirements to the extent appropriate.
2.If ILECs deploy broadband services using a mixture of new and old facilities, will competitors be able to use the older shared facilities that they previously had access to?
SBC’s Project Pronto architecture is an overlay network that uses “new” broadband facilities located at a remote terminal to deliver broadband services to consumers using the “old” copper loop facilities between the remote terminal and the customer premises.SBC has established a process that allows any competitor that wants to invest in similar “new” broadband facilities to access the “old” copper loop facilities at the remote terminal.In addition, a competitor has the ability to utilize the copper loop between the central office and the customer’s premises, even though SBC may no longer be using the entire facility.
3.If ILECs deploy broadband facilities to replace portions of their existing copper plant, will the displaced copper plant give competitors a viable opportunity to offer alternative services?What would be the annual costs to the ILEC (or to a purchaser of the displaced copper plant) of a continuing obligation to maintain that plant?
As a practical matter, widespread retirement of copper plan is highly unlikely due to the fact that ILECs have tens of millions of customers that still rely on the copper plant for their services.Moreover, retirement of copper plant is nothing new – it has existed for decades as facilities degrade with time.That said, there are situations in which an ILEC determines it no longer can maintain copper plan on an economic basis.These situations should be resolved through negotiations between ILECs and CLECs.
If it were deemed necessary, standardized procedures could be considered whereby an ILEC would provide advance notice to competitive providers that might be affected by copper plan retirement and give them an opportunity to assume the ongoing responsibility and control of such facilities.There is, however, no precedent for any mandatory requirement for an ILEC to maintain facilities for which it would be uneconomic to do so.
4.What regulations, if any, should apply to new broadband facilities and/or services to ensure a competitive marketplace?
SBC does not believe there are any regulations that should apply to the highly competitive broadband market, so long as all broadband providers are given the freedom to compete effectively.Further, any regulations that are applied to new broadband facilities and service must be applied consistently to all broadband providers.If NTIA believes any regulation of the broadband market is necessary, such regulation should be designed to have a minimally intrusive effect.For example, any requirement giving competitors access to broadband networks should be limited to a non-intrusive method of access that will not create undue costs and inefficiencies on broadband deployment the way that a physical unbundling requirement would.
G.To what extent have competitive firms deployed their own (a) transport, (b) switching, and (c) loop facilities?Are those investments limited to particular areas of the country or to particular portions of communities and metropolitan areas?What market characteristics must exist for competitors to make facilities-based investments?Do competitors have the ability to deploy their facilities in ways that minimize costs and facilitate efficient network design?
There has been extensive deployment of competitive switches, transport and high capacity loops throughout many areas of the nation.Earlier this year, SBC, Verizon and BellSouth filed a joint petition to eliminate the mandatory unbundling of high-capacity loops and dedicated transport based on the extensive competitive deployment that has occurred.The petition was supported by a Fact Repot documenting extensive competition for high-capacity loops and transport that exists.There also has been significant deployment of competitive switches.For purposes of NTIA’s inquiry, however, circuit switches are irrelevant, since they generally are not used in the provision of broadband services.With respect to packet switches, which are used to provide broadband services, as discussed below in response to Question J, the FCC has consistently recognized that packet switching constitutes a distinct and highly competitive market.SBC will be updating the record on facilities-based deployment of transport, high-capacity loops and switches in the FCC’s upcoming UNE triennial review proceeding.
In a competitive market, investment decisions will be made on expectations of risk and return.The more that regulation creates uncertainty, the riskier the investment.Likewise, the more that regulation creates additional costs, the lower the expected return on investment.In other words, there is a direct cause-and-effect relationship between regulation and investment.Even worse, the current policy of disparate regulation of broadband services provides ILEC broadband competitors with a significant advantage in the marketplace by giving them a much greater ability to minimize costs and design their networks efficiently.In response to Question K below, SBC provides a detailed list of the many artificial advantages enjoyed by cable modem providers as a result of regulation.
It is important for regulators to remember that there are significant risks associated with investments in new broadband facilities and technologies, even apart from regulatory uncertainty.Service providers often have to get ahead of demand and, in the case of broadband, ahead of content providers to build facilities and install new technologies for the future.There are risks associated with these investments.SBC’s stockholders, not its customers, bear the burden of this risk.To take such risks, however, there must be some reasonable expectation that the investments will pay off.It is not reasonable to assume that companies like SBC will invest in such facilities and technologies if they are required to unbundle them and make them available to competitors at or below cost.This is especially true in a competitive market where the main competitor -- cable modems providers – have already gained the lion’s share of the market and yet are not similarly constrained by regulation.
H.What cable companies are currently conducting trials to evaluate giving multiple Internet service providers access to broadband cable modem services?Describe the terms and conditions of ISP access in such trials.What technical, administrative, and operational considerations must be addressed to accommodate multiple ISP access?How can cable firms manage the increased traffic load on their shared distribution systems caused by multiple ISPs?
This question is not applicable to SBC.
I. What problems have companies experienced in deploying broadband services via wireless and satellite?What regulatory changes would facilitate further growth in such services? Is available spectrum adequate or inadequate?What additional spectrum allocations, if any, are needed?
This question is not applicable to SBC.
The market for broadband services, also referred to as advanced services, should be defined as high-speed transmission capacity that is integrated with content or some other functionality of an information service.These services are capable of delivering high-speed Internet access and other bandwidth-hungry applications that cannot be provided over the narrowband voice network.The term “broadband” does not refer to a particular technology – telephone, cable, wireless and satellite are all competing technologies for delivering broadband services.A regulatory framework that encourages facilities-based competition and applies consistently to competing broadband providers will promote vigorous intra-modal and inter-modal competition in the broadband market.
The standard test for defining a product market is the Merger Guidelines established by the DOJ.Under those guidelines, product markets are defined primarily with reference to demand cross-elasticities.Specifically, two services are deemed to be in the same product market if a small, but non-transitory price increase, by a monopoly provider of one of these services would cause enough buyers to shift their purchases to the second service as to render the increase unprofitable.Because quantitative evidence of demand cross-elasticities between two services is often unavailable, however, courts and the FCC have generally relied on qualitative evidence designed to elicit whether two services are “reasonably interchangeable” in their use.
The FCC has consistently recognized that broadband services are not reasonably interchangeable with narrowband services and hence comprise a discrete product market.The FCC first made this determination shortly after ILECs began providing high-speed packet switching services, in the early 1990s.The FCC recognized at that time that, because packet switching services were provided over brand new networks, these services should be regulated differently than services provided over the legacy circuit-switched telephone network.Accordingly, the FCC held that packet-switched services should be excluded from the price-cap regulation that the FCC adopted for traditional ILEC services.The FCC also concluded that ILECs should not be required to file detailed cost-support information for “packet-switched services” given that “[t]he packet switching services market is . . . highly competitive.”It likewise justified the decision not to investigate an ILEC’s packet-switching rates on the fact that the ILEC was “a new entrant in the packet switching market, which is currently dominated by a relatively small number of well-established service providers.”
Until very recently, broadband services were provided exclusively to business customers.In the late 1990s, however, several new technologies were introduced that enabled broadband services to be provided to mass-market consumers for the first time.These new broadband services were designed primarily for broadband Internet access service.Consistent with its earlier determinations, the FCC found that the provision of these new broadband services should also be treated as a distinct relevant product market.The FCC based this determination on the fact that (i) these new services include features unavailable over conventional narrowband networks, such as access to high-bandwidth content and “always on” connections; (ii) there are “high consumer costs involved in switching to high-speed platforms” compared to traditional services; and (iii) “[p]reliminary quantitative studies indicate that narrowband and high-speed access services occupy separate markets.”
The FCC’s consistent holding that broadband services are not reasonably interchangeable with other services is obviously correct.Consumers use broadband services for very different purposes than other services, particularly those provided over the circuit-switched telephone network.Consumers use broadband services primarily for high-speed data transmission.Although it has recently become possible to provide virtually real time voice communications over packet switching networks, customers still overwhelmingly use these networks for transmitting stored data.In contrast, the vast majority of revenue generated on circuit-switched networks still comes from the provision of voice services.
The significant disparity in the way customers use broadband services and circuit-switching services reflects the fact that these services are provided using different network architectures with very different underlying technologies.As the FCC has recognized, packet switching networks are much more efficient than circuit switching networks for carrying data traffic: “In contrast to circuit-switched networks, packet-switched networks do not require that a dedicated end-to-end transmission path (or circuit) be opened for each transmission.Rather, each router calculates the best routing for a packet at a particular moment, given current traffic patterns, and sends the packet to the next router through a process known as ‘dynamic routing.’”Moreover, packet switching networks have other desirable features for data transmission – including highly developed error correction capabilities and rapid connect times – that typically are unavailable with circuit switching networks.
Within the broadband market, there appear to be two relevant submarkets:(i) the provision of broadband services for use by mass-market customers, and (ii) the provision of broadband services for use by medium and large business customers.In the case of broadband services provided for use by mass-market consumers, these services are used almost exclusively for a single application:high-speed access to an Internet service provider’s point of presence.There are at least four different platforms used to offer this service: DSL, cable modem, satellite, and fixed wireless.
There is broad consensus that broadband services for mass-market use belong to a discrete product market.The Department of Justice, the Federal Trade Commission, and academicians have all previously so concluded, and so too has the FCC.For example, in the First Advanced Services Report, the FCC stated:
We see the potential for [the consumer broadband] market to accommodate different technologies such as DSL, cable modems, utility fiber to the home, satellite and terrestrial radio. The fact that different companies are using different technologies to bring broadband to residential consumers and that each existing broadband technology has advantages and disadvantages as a means of delivery to millions of customers opens the possibility of intermodal competition, like that between trucks, trains, boats and planes in transportation.
Likewise, in its 2000 Report to Congress on the status of competition in the market for video programming, it stated: “[A]lthough wireless and satellite broadband technologies continue to be deployed, telephone company DSL technologies remain the most significant competitors to Internet over cable.”And in the AOL/Time Warner Merger Order,the FCC concluded that high-speed Internet access services constitute the relevant product market in determining the effects of the proposed merger on the public interest.The FCC also observed that “[t]he main competitor to cable in the market for residential high-speed Internet services is currently DSL.”
The consensus among the FCC, DOJ, FTC, and academicians that broadband services for the mass market represent a discrete product market – and that DSL and cable modem services are both part of that same product market – is also shared by the industry analysts who study that market.They have issued a blizzard of reports during the past two years on the “battle for broadband customers” among cable operators, telephone companies, satellite, and fixed wireless providers.Indeed, cable companies themselves have argued that cable modem service is part of a larger broadband market that includes DSL, satellite and fixed wireless services.
The universally shared view - that broadband services for the mass market are all part of a single product market - is correct.There is no question that these services are “reasonably interchangeable.”
·First, from a functional standpoint, they are substantially similar.All of them offer the features that, surveys show, consumers value the most in broadband services:the ability to surf the web more quickly and efficiently; access to services and features that require high bandwidth; an “always-on” connection; and the ability to access the Internet and use their telephone at the same time.
The key to promoting inter-modal competition in the broadband market is regulation that is competitively neutral across competing broadband platforms.As Chairman Powell stated, definitional battles should not define the regulatory treatment of broadband services, nor should broadband deployment be treated as a “one wire” problem that is limited to the telephone network.Disparate regulation of the broadband market will distort inter-modal competition, deprive consumers of choice and restrict innovation.Therefore, any regulation of the broadband market must be competitively and technologically neutral for all providers, regardless of the platforms they have deployed.
Broadband policy also should be designed to encourage sustainable facilities-based intra-modal competition.The lesson of the past five years is that attempts to artificially promote competitive entry through a regulatory model based on artificially discounted resale and excessive and uneconomical unbundling requirements will not succeed.Such requirements do not promote investment, either by incumbents or new entrants, and are having a disastrous impact on high-tech manufacturing and software industries.Having learned that painful lesson in the context of the circuit-switched voice network, regulators should be particularly loath to extend these requirements to the broadband market, which is highly competitive and vital to the growth of the economy.Instead, the national broadband policy should reflect the fact that broadband is an emerging market that is developing on a competitive basis without regulatory intervention.A hands-off approach to the broadband market will promote sustainable facilities-based competition, which in turn will lead to increased deployment, innovation, service competition, and consumer choice in the broadband market.
K.Would it be appropriate to establish a single regulatory regime for all broadband services?Are there differences in particular broadband network architectures (e.g., differences between cable television networks and traditional telephone networks) that warrant regulatory differences?What would be the essential elements of a unified broadband regulatory regime?
It is not only appropriate, but also essential that a single regulatory regime be established for all broadband services.As SBC explained in response to Questions C and J above, there is a single product market for broadband services that is highly competitive and involves competing facilities-based providers utilizing different technologies and platforms.In the current regulatory environment, however, the regulation of broadband services is based almost entirely on the historical classification of the individual service provider.As a result, vastly different rules apply to competitors in the same product market.A new uniform regulatory framework for broadband is needed that is consistent and reflects the fact that broadband constitutes a discrete product market that is distinct from the circuit-switched telephone and cable television markets.
The need for consistent regulation is particularly evident where, as is the case here, the market is nascent and developing on a competitive basis.A regulatory framework that promotes the broadband competition that already exists offers the greatest potential for product and service innovation and increased consumer choice.The result will be vibrant facilities-based broadband competition across different technology platforms and industry sectors, including cable, wireline telephony, wireless, and satellite.For all practical purposes, three of these broadband platforms already operate under a uniform regulatory framework, with no regulation of service offerings or of network architecture and use of broadband capabilities.As a result, three of the four types of broadband providers are unconstrained in their ability to invest in broadband infrastructure and deploy technology in the most cost-efficient manner, driven only by the forces of a competitive market.Thus, a uniform hands-off regulatory regime already exists for three of the four major broadband platforms, and the issue is really how to extend that uniformity to the wireline telephony platform.
Throughout its comments, SBC has documented the costs and inefficiencies created by regulation of its broadband services and facilities.The disparity of the current regulatory framework is readily apparent when one compares the regulatory obstacles that have impeded SBC’s attempt to deploy broadband services to the mass market with the absence of regulatory obstacles that would impede the deployment of broadband services provided by cable television companies, SBC’s primary broadband competitor.Below is a list of some of the artificial advantages enjoyed by cable television companies:
Broadband Network Design.All wireline telephone companies, including SBC, operate under design constraints that affect broadband deployment.They must design their broadband network so as to offer a “pure transmission” capability to competing ISPs, which means they cannot take advantage of software and chip integration technology to incorporate information processing capabilities in an efficient manner into its broadband network.This restricts service design and product innovation.
Cable modem service does not operate under this design constraint for the simple reason that regulators have not required cable television companies to isolate the “pure transmission” telecommunications component of their bundled broadband services.At most, some cable television companies have agreed to provide “click through” access to competing ISPs.
SBC and other ILECs also are required incur additional costs of providing an open broadband network so competitors can resell ILEC broadband services and provision their own broadband services.For example, instead of deploying a simple router in the central office that costs about $50,000 per office, SBC has had to deploy a device costing in excess of $250,000, thereby adding potentially hundreds of millions of dollars increased infrastructure costs to Project Pronto.In addition, SBC is required to provide space for potential CLEC collocation requests at remote terminals.As a result, SBC has had to spend almost $30 million to date for larger remote terminals, despite a complete lack of interest by CLECs.SBC also is faced with potentially hundreds of million of dollars in increased costs to provide new forms of network interconnection, such as cross connects at remote terminals.
Cable television companies are not subject to any of these requirements.They have been free to design their broadband network to maximize efficiencies and take full advantage of the integration of broadband services.As discussed further below, there is no technical distinction between ILEC broadband networks and cable modem networks that justifies this disparate regulatory treatment.
Broadband Network Use.SBC and other ILECs are required to unbundle spectrum for use by competitive broadband providers.They also face the potential threat of being forced – by either federal or state regulators – to unbundle all of the features, functions, and capabilities of their new broadband networks.As previously discussed, these requirements would impose enormous costs on ILEC broadband deployment and allow competitors to effectively co-opt ILEC broadband networks.A competitor would be able to obtain access to the components of SBC’s Project Pronto through line card collocation and other means, and offer a business service that would quickly use up the limited bandwidth that is available.In effect, the business-oriented marketing plans of competitors would take priority over SBC’s plans to provide residential consumers with broadband services and impair its ability to ensure quality of service for its own customers.
Broadband Services.SBC and other ILECs are restricted in the design and packaging of their broadband services to consumers.The transmission component of their broadband services is price regulated and subject to a tariffing requirement, as well as strict accounting and cost allocation rules.ILEC also are required to provide advance notice as to the geographic location of their broadband investment (e.g., six-months’ advance notice for Pronto remote terminal deployment), which allows competitors such as cable modem providers to pre-market their broadband service to ILEC customers.
Cable television companies are not subject to any federal or state regulation of their broadband services.They have total flexibility to design and package their services in the manner that is most desirable to consumers.The prices for their broadband services are not regulated, and they are not subject to any regulatory cost accounting or cost allocation rules, even though their broadband network is used for both cable television service and broadband service.As a result, cable television companies are free to cross-subsidize their services by lowering the price of cable modem service and increasing the price of cable television service.The bottom line is that a large cable television company, such as AOL Time Warner, AT&T, Comcast or Cox is totally unconstrained by regulation on an enterprise level with respect to its broadband investment, network design and use, and the design, packaging, and pricing of broadband service offerings.
There is a real danger that the regulatory disparities are so significant as to render ILEC broadband services for the mass market uneconomic compared to cable modem service.In addition to service and pricing restrictions, SBC is being threatened with increased infrastructure and operational costs that would preclude it from deploying a broadband network on a cost-effective basis that is price competitive with cable.In fact, these additional infrastructure and operational costs could double the price SBC would have to charge for its mass-market broadband service.Thus, it should not be surprising that SBC recently announced it has scaled back its aggressive plans to bring broadband to the mass market.
SBC believes it is highly doubtful that regulators and policymakers will impose the types of regulatory burdens and associated costs that ILECs bear on cable modem providers and other competing platforms in the broadband market.Therefore, the question is whether it makes sense to single out the ILECs’ broadband investment for disparate regulatory treatment.The answer to this question must be no, it does not.Instead, a uniform regulatory framework is needed that applies consistently to all competing broadband providers.Until such a regulatory regime is in place, government policy will not promote facilities-based competition or be neutral in picking winners and losers in the broadband market.
There is no technical distinction between cable television networks and LEC broadband networks that makes unbundling requirements feasible for the ILECs and not for cable television companies.Both cable modem services and ILEC broadband services utilize shared network architectures, the capacity and use of which must be managed across all users.Moreover, there are no technical impediments to requiring cable television companies to comply with unbundling requirements that apply to ILECs.Indeed, the cable industry association has admitted that it is “possible to assign each ISP its own channel.”Of course, the cable industry complains about the lack of network management control that would result from such an unbundling requirement, but that is the type of burden that ILECs are forced to bear.To the extent cable television companies oppose unbundling requirements on the grounds that the cable network is a “shared” network, that is precisely the issue that ILECs face with respect to their shared broadband networks.
Clearly, there is no technical reason why the cable modem platform cannot be subject to access and unbundling requirements to the same extent as ILEC broadband platform.It is just a question of spending more money to achieve that result.As SBC has indicated, there are significant costs associated with access and unbundling that ultimately must be passed on to consumers in the form of higher rates for broadband services.Policymakers cannot reasonably expect there to be robust investment and competition between cable modem service and ILEC broadband service if the ILEC broadband network is saddled with these additional costs and cable modem networks are not.The only solution that will produce a broadband market with sustainable facilities-based competition is to establish a uniform regulatory framework for all broadband providers.
Regarding the essential elements of a uniform broadband regulatory regime, SBC does not believe any regulation is essential in the nascent and highly competitive broadband market.However, if regulators and policymakers decide otherwise, any regulatory requirements must be competitively and technologically neutral with respect to the increased infrastructure and operational costs that are imposed on broadband competitors, and the flexibility that all broadband competitors have to design and offer services to consumers.
L.Are there local issues affecting broadband deployment that should be addressed by federal policies?Please provide specific information or examples regarding these problems.Should fees for rights of way and street access reflect costs in addition to the direct administrative costs to the municipalities affected?To what extent do state laws and regulations limit municipalities' ability to establish nondiscriminatory charges for carriers' use of public rights-of-way?Please discuss the most appropriate relationship between federal, state, and local governments to ensure minimal regulation while removing disincentives or barriers to broadband deployment.
States, but more particularly local governments, have continued to place barriers in the way of accessing the public rights-of-way (ROW) in violation of Section 253 and the intent of Congress to open the markets to competition.Often local government requirements violate state law as well.The examples are widespread and affect ILECs and CLECs alike.These violations include the following:
a.The enactment of local telecommunications regulatory ordinances that create a third tier of regulation, duplicating state commission jurisdiction.While these ordinances vary from jurisdiction to jurisdiction, the more egregious ones seek to regulate telephone companies through franchises/licenses/permits, including the right to grant or deny the franchise pursuant to the city's own criteria for deciding whether the company can operate (e.g., reviewing financial, technical and legal qualifications to operate, types of services to be provided, five-year business and construction plans, providing cities with all public filings with the FCC or other agencies, providing cities with lists of names/address of all persons with whom the telephone company has an agreement to use its facilities, submitting to audits of technical systems data).These ordinances go far beyond the local government’s regulatory authority to manage the time, place, and manner of construction in the ROW.
b.Almost universally, local and state governments are trying to charge profit-making fees for the use of the ROW, whether through the enactment of ordinances or through the methods mentioned below.Fees have taken the form of a percentage of gross revenues, percentage of construction costs, dollars-per-linear-foot fees, dollars-per-square-foot fees, and negotiated fees.Cities are taking the view that the ROW is a business asset of theirs and, although they struggle a bit with assessing the value of the ROW, inevitably they are looking for the so-called “fair market value” of the ROW as a proprietary business asset.
c.Local governments delay processing construction permits that amount to an effective denial of the right to access the ROW.Cities may enact a moratorium on permits, “sit” on permits or simply not issue permits while they serially ask for additional information.These tactics often are used as leverage to negotiate revenue-generating fees.Telephone companies with significant build-out requirements feel forced to negotiate fee arrangements so they can move forward and begin offering service.
d.Some cities refuse to issue permits unless the telephone company negotiates a ROW agreement with revenue-generating fees.Rather than enact an ordinance, which is easier to challenge legally, cities have resorted to this method of regulation.These agreements have terms/conditions and fees that are burdensome and go beyond the city's authority to manage the ROW.Cities also include as a term an express waiver of any legal challenge to the agreement to protect themselves from a lawsuit.
In California, there is pending state legislation that would take away a state-granted franchise to use the ROW without charge that has been on the books for 100 years and would allow state and local governments to negotiate fees and other terms and conditions.This would only strengthen and legitimize the efforts by local governments in California to abuse their police powers over the ROW.
Local governments are entitled to cost-based fees that compensate them for out-of-pocket expenses directly associated with permitting and inspecting the activities of providers in the public ROW.This clearly includes the administrative costs associated with permitting and inspecting activities in the public ROW.In theory, SBC also could support other costs that arise from street degradation (i.e., trench cut fees).The problem is that there is little agreement among the experts as to whether a properly restored trench actually degrades the normal life of the street and whether cities are incurring actual costs above permitting and inspecting as a result of the activities of the telephone companies in the public ROW.SBC’s experience has been that the cities’ own street activities — public water and storm drainage — are both more frequent and more damaging.In any event, at present, trench cut fees are not based on actual costs; they are based upon the theoretical assumption that trenches degrade the ROW and that the city would have to pave more frequently.Based on these unsubstantiated assumptions, the municipalities create cost models that “support” high fees — SBC has seen these fees range from $12 to $17 per linear foot (one mile of trenching would equal between $63,360 to $89,760 for a permit).
Moreover, the reality is that local governments are strapped for funds, and it is often politically untenable for them to raise taxes.Consequently, they seek to place “stealth” taxes on the telephone industry by means of these alleged fees.Naturally, these taxes are passed along to the public, when possible, either as fees or as increased charges resulting from the cost of doing business.As part of public policy, Congress has been loathe to tax goods and services sold on the Internet.State and local governments should not be allowed in the guise of ROW fees to foil this public policy by imposing stealth taxes on the broadband industry — especially as the telephone industry is already carrying more than its fair share of the tax burden.These stealth taxes are just another impediment to making broadband services affordable to more people.
When it comes to access to and fees paid for ROW activities, providers of broadband services should be treated in a non-discriminatory manner.SBC supports a cost-based fee that seeks to compensate the cities for out-of-pocket expenses directly associated with permitting and inspecting the activities of the providers in the public ROW.Today, the most common basis for imposing different ROW charges is the nature of the provider — primarily, cable companies are treated differently than telephone companies.Even within provider groups, however, there are opportunities for discriminatory treatment or results.For example, ILECs have substantial copper plant in the ROW, which benefits CLECs both directly and indirectly.Nevertheless, the charges associated with ROW “fees” are often not borne in a non-discriminatory manner by the companies because there is no mechanism to apportion the fees paid by ILECs to cities for the ROW activities that benefit the CLECs.
M.Are there impediments to federal lands and buildings that thwart broadband deployment?Please provide specific data.What changes, if any, may be necessary to give service providers greater access to federal property?
SBC does not have any specific data or proposed changes that are responsive to this question.
N.With respect to any proposed regulatory changes suggested in response to the above questions, can those changes be made under existing authority or is legislation required?
The FCC clearly has the authority to implement a uniform regulatory framework for broadband services that is competitively and technologically neutralThere is nothing in the statute that compels disparate regulation of competing broadband providers based on their technology platform or historical classification.To the contrary, the Communications Act treats all functionally similar services identically.SBC has been pursuing federal legislation to resolve longstanding regulatory issues that have thus far not been decided by the FCC and to avoid the threat of additional regulation of its broadband services.A definitive national regulatory policy for broadband services, however, could go a long way toward eliminating the need for such regulation.As SBC demonstrates below, there are at least two separate legal bases upon which the FCC could frame a uniform regulatory framework for broadband.
Title I Regulation.One option for achieving a uniform regulatory framework for broadband services is to regulate them under Title I of the Communications Act.Chairman Powell recently noted that “broadband is not some simple high-speed pipe, [but] a convergence, a fusing, of communications power, with computer power, with content.”As such, it falls squarely within the statutory definition of “information services,” which are subject to Title I, not Title II.It is significant that a number of cable operators have conceded that cable modem service is an information service, which means the FCC can regulate it under Title I.
Title I gives the FCC authority over interstate communications generally, as distinct from the specific regulatory requirements that apply to wireline common carrier services under Title II.An important benefit of regulating all broadband services under Title I is that the FCC will not be constrained by the particular requirements of Title II and will not have to use the cumbersome process of removing unnecessary regulations through its forbearance authority.Rather, the FCC can adopt only those regulations that are necessary and appropriate for this unique market.Thus, regulating all broadband services under Title I would allow the FCC to establish a new uniform regulatory framework for these functionally equivalent services.
The establishment of a Title I regulatory framework would not be a novel approach.Three decades ago, the FCC made the decision to remove computer services that incorporate data processing and similar functionalities from the scope of Title II regulation and apply Title I regulation instead.In the various Computer Inquiries proceedings, the FCC recognized that the nascent market for computer-based information services would benefit from a deregulatory approach that promoted open competition and technological innovation.These same policy justifications support adopting a “hands off” approach to the nascent broadband market to stimulate its development free of the baggage of intrusive government regulation.
In order to regulate all broadband facilities and services under Title I, the FCC must make one important rule modification.Specifically, it must eliminate the Computer II requirement that all telephone companies, including ILECs, CLECs and IXCs, must artificially segregate the transmission component of information services (which were referred to as enhanced services at that time) and offer them on a stand-alone basis.This requirement is unnecessary and incompatible with the broadband services market.At the time the Computer II requirements were adopted, traditional information services (e.g., dial-up Internet access, voice mail) were completely dependent on the circuit-switched telephone network and the network was under the exclusive control of the Bell companies.Accordingly, there was a good reason to require that the Bell companies provide the transmission component of their information services on a stand-alone basis.
There simply is no comparison between the information services market at the time of Computer III and the broadband services market.Competing broadband providers are not at all dependent on the circuit-switched voice network or the ILEC’s broadband network.To the contrary, cable modem providers and others have deployed their own technology platforms by which broadband services are delivered.Far from being a monopoly provider of transmission capacity, ILECs are a distant second in the broadband market to cable modem providers.In these competitive market conditions, all participants – telephone companies, cable companies, wireless and satellite providers – should be free to compete in the broadband market without being forced to deploy their service in an inefficient manner.
By proceeding under Title I, regulators can design a uniform regulatory frameworktailored specifically for the broadband services market.A central principle of this regulatory framework should be that it is arbitrary and inefficient to require that one category of broadband provider must artificially segregate their service into a pure transmission component.Therefore, all broadband providers should be allowed to combine high-speed transmission capacity with the functionalities of an information service in the most efficient manner possible to create a finished broadband service.Such a uniform regulatory framework will promote more rapid broadband deployment and spur innovation and the development of new services for consumers.
Another key component of a Title I regulatory framework is uniform federal regulation.Just as the FCC preempted inconsistent state regulation of information services in the Computer Inquiries, federal preemption is appropriate and necessary for broadband services.There is no point in establishing a federal regulatory regime if states are free to impose burdensome requirements on broadband facilities and services that undermine national policy objectives.As SBC has experienced firsthand, a balkanized regulatory regime where providers may be subject to vastly different rules for their broadband services depending on the particular state commission significantly increases the risk and uncertainty associated with broadband deployment.Thus, the FCC should preempt states from imposing unbundling requirements on broadband networks or applying any other regulations to broadband services that are inconsistent with national broadband policy.
There are some broadband services that are currently offered as telecommunications services and do not meet the definition of an information service.For example, carriers provide ATM and frame relay transmission services to business customers for high-speed voice and data transport.However, SBC believes this is largely a result of the regulatory requirement that all telephone companies artificially segregate transmission capacity that is used to provide a broadband service and offer it on a stand-alone basis.In the absence of such a requirement, carriers would not focus on providing “fat, fast pipes” to its business customers, but would focus on unleashing the full potential of packet-switched services by managing, storing and manipulating information for its customers.Much of the growth of the market will be in “value add” services that offer information management services for business customers, rather than just traditional information delivery services.
To the extent a telephone company or any other broadband provider elected to offer the high-capacity transmission component of broadband services on a stand-alone basis, regulators have several options. Given that other providers of broadband services, including cable operators, are not subject to common carriage requirements, the FCC could simply conclude that it is inappropriate and unnecessary to impose such obligations on ILECs.Indeed, there is precedent for allowing non-dominant providers in a competitive market to avoid Title II regulation by operating as a “private carrier”, rather than a common carrier.The elimination of common carriage requirements would provide a second, independent basis for re-classifying ILEC broadband services under Title I of the Act.In the alternative, regulators could apply minimal Title II regulation to broadband transmission services, as discussed further below.
Declaring that broadband services fall under Title I does not mean they would be completely deregulated.To the contrary, the FCC would retain the authority to adopt any regulations that it deems necessary for broadband service providers.In order to eliminate the regulatory costs and uncertainty that have hindered broadband deployment to date, any regulation of broadband services should be minimal and applied uniformly to all competing providers.The FCC should rely primarily, if not exclusively, on market forces to drive the deployment of broadband and dictate the services and prices that are offered in the market.This regulatory model has been extremely successful in the wireless market, where there is a bare minimum of FCC regulation with occasional enforcement action to address specific problems.If there is a particular concern about how the broadband market is working, the FCC could rely on non-intrusive requirements such as commercial resale arrangements or “point and click” access requirements.
Title II Regulation.The FCC also can adopt a uniform regulatory framework for the transmission component of broadband services under Title II.However, any such Title II regulations should be applied to the underlying telecommunications component of cable modem high-speed Internet service to the same extent they apply to the underlying telecommunications component of DSL high-speed Internet access.The fact that the legacy circuit-switched telephone network and the cable television network are subject to different regulatory regimes does not justify disparate treatment of competing broadband transmission services.As Chairman Powell has recognized, definitional battles should not determine broadband regulation – it is the service being provided that matters, not the historical classification of the service provider.
In order to achieve consistent regulation of broadband transmission services, the FCC can exercise its forbearance authority under Section 10 of the Act with respect to broadband services.SBC has already asked the FCC to forbear from applying dominant carrier regulation (e.g., pricing and tariff requirements) to its provision of broadband services.The FCC has initiated a proceeding to obtain public comment on SBC’s petition and consider the broader issue of whether all ILECs should be declared non-dominant in the broadband services market.The record established by SBC’s petition will clearly support a finding that the market is highly competitive and that non-dominant treatment of ILEC-provided broadband transmission services is warranted.
But the FCC can and should go further.Based on SBC’s experience with the costs and delays of unbundling requirements, it is critical that the FCC establish a clear federal policy that does not extend unbundling and related requirements to equipment that is used in the provisioning of broadband services.Section 706 expressly references the exercise of the FCC’s forbearance authority as one of the mechanisms that should be used to promote the deployment of broadband services, and there is more than sufficient market evidence to support a grant of forbearance.
While Section 10 prohibits the FCC from forbearing from the requirements of Sections 251(c) and 271 until those sections are “fully implemented,” the FCC has never addressed what the term “fully implemented” means.The FCC could conclude that Section 251(c) is fully implemented with respect to a particular network element if the services for which that network element are used are sufficiently competitive.Clearly, the broadband market is sufficiently competitive to support a finding that Section 251(c) has been fully implemented for broadband facilities and services.
In the alternative, the FCC could make a determination that it is not in the public interest to require the unbundling of equipment used to provide broadband transmission services.That was the basis for the FCC’s decision not to require the unbundling of packet switches in 1999.Nothing has changed in the market to warrant reconsideration of that decision, and it is logical to extend the decision to any related equipment that is used to provide broadband transmission services.A determination not to extend unbundling requirements to broadband equipment is further supported by the fact that competitive providers are not impaired by their inability to obtain unbundled access to broadband transmission equipment.
/s/ Jeffry A. Brueggeman
Jeffry A. Brueggeman
William A. Brown
Gary L. Phillips
Paul K. Mancini
SBC COMMUNICATIONS INC.
1401 Eye Street, NW
Washington, DC 20005
(202) 326-8911 - Phone
(202) 408-8745 – Facsimile
December 19, 2001
I, Daniel Wang, do hereby certify that on this 19th Day of December, a copy of the foregoing Comments was served by hand delivery and by email delivery to the parties listed below.
/s/ Daniel Wang
Office of the Chief Counsel
Room 4713 HCHB
1401 Constitution Ave., NW
Washington, DC 20230