Before the

~~DRAFT~~

Before the

National Telecommunications and Information Administration

Washington, D.C. 20230

In the Matter of

Request for Comments on Deployment of Broadband Networks and Advanced

Telecommunications

)

Docket No. 011109273-1273-01

COMMENTS OF CATENA NETWORKS, INC.

Catena Networks, Inc. (Catena”) is hereby responding to some of the questions raised by the National Telecommunications and Information Administration (“NTIA”) with regard to spurring the deployment of broadband telecommunications throughout the United States.[1] NTIA intends to use the information developed in this proceeding to assist the Administration in formulating policies for advanced communications and to aid NTIA in its support of eliminating obstacles to broadband deployment. Catena, as a manufacturer of integrated technologies that provide broadband capabilities over telephone lines, shares NTIA’s goal of making broadband capabilities available widely as quickly as possible. Catena thus responds to those questions raised in the Notice where its engineering expertise and experience in the marketplace can prove helpful.

I. Introduction

As a leading developer of advanced communications systems, Catena is well qualified to address some of the questions raised in the Notice. Catena is a privately-held corporation, headquartered in Redwood Shores, California, with its research and development operation in Kanata, Ontario, Canada. Catena was founded in December 1998 with a vision to create the New Access Architecture for the Converged Public Network and, in the process, make broadband access as ubiquitous as plain old telephone service (“POTS”).

Catena’s management and staff bring with them a wealth of experience. The Catena development team consists of some of the industry's top design and system engineers in the access technology field, with extensive experience in developing and deploying high-volume POTS, DSL, cable telephony, cable data and ISDN. Specifically, the team draws on an unparalleled record of delivering high-performance, cost-optimized systems for high-volume deployment—with more than 150 million lines of existing designs currently in service worldwide.

As the explosive growth in Internet usage continues to inundate today's telephone network, Catena believes its breakthrough innovations will help revolutionize the subscriber interface to the converging voice and data networks. Catena markets its products to service providers, including the incumbent local exchange carriers (“ILECs”) and the competitive local exchange carriers (“CLECs”), seeking the ability to transform their subscriber lines for the efficient delivery of broadband data and voice services. Carriers deploying Catena broadband systems will have the ability to carry out a line-by-line migration from today's circuit-switched network to the packet-based network of tomorrow, while retaining their reliable lifeline services. Several carriers have already begun to deploy Catena’s groundbreaking technology.

Catena now has available its CNX-5 Broadband ADSL system for upgrading Lucent SLC® Series 5 (“SLC-5”) Digital Loop Carrier systems. The CNX-5 technology allows carriers to provide customers served by SLC-5 remote terminals with both POTS and ADSL service on any copper pair, without reducing the number of available POTS lines. Catena’s product provides carriers with a fast, cost-effective and scaleable way to provide DSL services to the more than 20 million lines now served by SLC-5 remote terminals.

The CNX-5 system contains three elements: (1) the Catena Enhanced Channel Unit integrated linecard that provides two POTS and two DSL lines (which fits in the current SLC-5 two POTS linecard port); (2) the Catena Enhanced Channel Test Unit ATM multiplexer card for multiplexing and management of the DSL service (which fits in the current SLC-5 channel test unit and also provides that functionality); and (3) the CatenaView Element Management System (which provides provisioning and management functionality for the DSL service and integrates with upstream Operation Support Systems). In addition, Catena is developing its own broadband loop carrier remote terminal – the CN1000 – Broadband Loop Carrier. All of these Catena products are designed to accommodate the expected network convergence, where all traffic (voice and data) will travel through soft switches and be routed over packet-based networks. Thus, Catena is poised to help bring broadband capabilities throughout the country.

II. Responses to Questions in the Notice

Catena’s responses to the relevant questions in the Notice follow:

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.

Catena believes that the marketplace should drive broadband availability in the United States. Catena has approached the deployment of broadband from an engineering and economic perspective – can you develop technology using advanced, integrated circuitry and related software so that a telephone company can deploy POTS + DSL at the most economical cost? By doing so, you should be able to make broadband service as ubiquitous as telephone service. Catena believes that through its CNX-5 and CN-1000 products, it is on the path to meet ~~has met~~ that challenge. Indeed, our advertising slogan reflects that philosophy pithily – “Everyone wants Broadband™. Now, everyone can get it.”

Catena’s main concern is that regulation, intentionally or inadvertently, could adversely affect the carriers’ ability and incentive to deploy this technology. Thus, regulatory fiat, and not the marketplace, would be determining whether and how broadband service would become available. Ultimately it should be the consumer deciding whether he or she wants high-speed services, and they should be able to choose freely among the broadband offerings of telephone companies, cable companies, terrestrial wireless providers and satellite carriers.

A primary philosophy of allowing the marketplace to determine broadband deployment is not mutually exclusive with the other policy considerations mentioned in the Notice: access for all; facilities-based competition; minimal regulation; technological neutrality; intra-modal competition; and inter-modal competition. Indeed, these other policies generally complement a market-based policy, but the regulators should not allow them to take primacy over this bedrock principle.

With regard to “access for all,” Catena believes that broadband services can become widely available because the technology and economics can support ubiquitous deployment. To the extent there may be discrete, insular areas where the marketplace would not support broadband deployment (such as some rural areas), or there are particular users where it is critical to have broadband capabilities sooner than the marketplace would dictate (such as schools), then targeted subsidies may be appropriate. Any such subsidies should be technology neutral, however.

With regard to the other policies mentioned in the Notice – facilities-based competition; minimal regulation; technological neutrality; intra-modal competition; and inter-modal competition – all but intra-modal competition are fully consistent with the market-based philosophy supported by Catena. And while even intra-modal competition may be accommodated, at least to some degree, regulators must be wary because if they seek to boost such intra-modal competition (through artificially low pricing of the ILECS’ services and facilities, for example), then the incumbent carriers will have little or no incentive to deploy advanced technology. Thus, inter-modal competition will suffer, to the detriment of consumers.

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?

As a manufacturer, Catena does not have any direct contact with the broadband subscribers or potential subscribers, so that any information it would have with regard to subscriber numbers, growth rates, take rates and the like is generally through published industry sources. Catena does not believe it would be productive for it to furnish any such “second hand” information. However, Catena does have direct knowledge with regard to carriers’ purchases of its equipment, which is specifically designed to add broadband capabilities to the carriers’ remote terminals, and thus serves as a proxy for broadband deployment.

Catena’s direct experiences reflect some reluctance by the incumbent carriers to deploy such equipment in their remote terminals as a result of the current regulatory uncertainty with regard to the treatment of these investments. The potential threat of excessive unbundling and potentially below cost TELRIC pricing (imposed by either the FCC or State PUCs) has been a real deterrent to incumbent carrier broadband deployment in remote terminals. Thus, regulatory action (or inaction) has slowed the availability of telephone company provided broadband services.

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?

Catena believes that broadband accessibility should generally be driven by the marketplace, and that with new technologies, such accessibility will be widely available. For example, although it had been thought that xDSL services could not be provided to suburban and rural areas economically (due to the distances of the customers from the central offices and the low customer densities), Catena has developed its CNX-5 product that supports broadband services to suburban and rural customers served by legacy SLC-5 remote terminals.[2] Thus, technology innovations and marketplace forces can be counted on to make broadband access available nearly everywhere. To the extent there may still be some remote or insular areas where broadband access will not be supported, then targeted subsidies or incentive programs may be appropriate. Likewise, to the extent that the government may want to accelerate the availability of broadband services because of their ability to stimulate the economy, then broad-based incentives (such as tax credits) would be an appropriate policy. In any event, any targeted subsidies or broad-based incentives should be technology neutral so that they do not favor any particular medium (wireline, cable, satellite or terrestrial wireless).

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?

Catena’s experiences in marketing broadband technology to the incumbent carriers suggest very strongly that these regulatory requirements (and the uncertainty as to exactly what those requirements entail with regard to remote terminal deployment of integrated broadband equipment) have served to chill ILEC investment in such technology.

Are their investment disincentives attributable to the regulated rates for interconnection, unbundled network elements, and resold services?

Although each of these regulatory factors (as well as the uncertainty surrounding some of them) could be contributing to the chill in broadband investment by the incumbent carriers, Catena assumes that the regulatory pricing for unbundled network elements creates the strongest disincentive for new investment. The combination of hypothetical, incremental TELRIC pricing and the fiction of UNE-P (i.e., a service consisting of the reassembled “unbundled” elements) results in a “discount” for the “whole package” that is significantly greater than the “avoided costs” standard specified by Congress to apply to resale of the incumbent carriers’ end-to-end services. Such an artificial attempt to jumpstart intra-modal competition creates significant disincentives to investment in new broadband technologies by the incumbent carriers.

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?

It has been Catena’s experience that the uncertainty concerning the competitors’ use of the incumbents’ new investments and the price at which such use would be mandated has chilled broadband investment. The uncertainty surrounding the profitability of the incumbents’ broadband offerings -- which itself depends on their ability to compete with other broadband providers (including cable companies, satellite operators and terrestrial wireless carriers) – is greatly exacerbated because of the threat that non-facilities based competitors will be afforded use of any new investment at less than compensatory rates.

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?

From a strictly engineering perspective, Catena believes that there may be some complications with drawing a “regulatory dividing line” between legacy “non-broadband” facilities and new “broadband” facilities, insofar as there will be some sharing of facilities by the new and legacy systems. The degree of overlap depends on the particular technology being deployed to provide the broadband services. With respect to integrated technologies such as Catena’s CNX-5 product designed for deployment in the SLC-5 remote terminals, both voice and broadband data service are supported by a single line card that fits into the legacy remote terminal. The Catena CNX-5 system replaces individual line cards and the channel test card, but otherwise provides ~~additional~~ incremental broadband capabilities ~~without needing to replace~~while preserving the capacity and capabilities of the legacy remote terminal.

The Catena CN 1000 broadband loop system, like systems developed by other manufacturers, is designed for new installations or complete replacement of legacy remote terminals. Thus, in these deployments there is less sharing of the legacy equipment and the new equipment, but the new equipment provides both “old voice” and new broadband capabilities on an integrated basis. In addition, although the remote terminal electronics are completely replaced, even the new equipment will make use of some of the embedded plant or facilities (such as loops to the customer premises) in providing the end-to-end broadband service.

Thus, there is unlikely to be physically distinct legacy “non-broadband” facilities and new “broadband” facilities in many situations, so any “dividing line” would presumably require some sort of allocation process or other means of separating integrated technology. Alternatively, a bifurcated regulatory system that requires or creates strong incentives for deployment of entirely separate systems for voice and broadband services (to avoid excessive regulation) would deny consumers the significant economies of integrated technologies. Indeed, as Catena has explained elsewhere, there are customers and areas that will have access to DSL services only if integrated technologies like Catena’s are deployed.[3]

How should the broadband product market be defined? What policy initiatives would best promote intra-modal and inter-modal broadband competition?

Catena believes that the broadband product market should be defined to include all media for the delivery of high-speed data (i.e., above 200 kbps) services. DSL products offered over the incumbent carriers’ wireline networks, broadband cable modem service, satellite delivered broadband services and terrestrial wireless (both fixed and mobile) are all part of this marketplace. Catena also believes that competition within this broad marketplace is best promoted by applying minimal, equal regulation to all providers. Otherwise, there is significant risk that regulatory intervention will skew the marketplace outcomes to the detriment of the consumers and competitors.

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?

[1] ~~[CITE to Federal Register publication of Notice]~~ Request for Comments on Deployment of Broadband Networks and Advanced

Telecommunications, 66 Fed. Reg. 57941, November 19, 2001 (hereafter cited as “Notice”).

[2] Catena understands there are some 20 million lines currently served by the SLC-5 remote terminals in the United States.

[3] See, e.g., Comments of Catena in CC Docket No. 98-147, filed February 27, 2001, at pp 3-5.