December 19, 2001

 

 

Josephine Scarlett

Office of the Chief Counsel

National Telecommunications and Information Administration

Room 4713 HCHB

1401 Constitution Ave., NW

Washington, DC 20230

 

Re:      NTIA Request for Comment On Deployment Of Broadband Networks And Advanced Telecommunications Services

 

Dear Ms. Scarlett:

 

            Attached are the Association for Local Telecommunications Services’ (“ALTS’”) Comments in response to NTIA’s request for comment in the above-captioned proceeding.

 

 

                                                                        Sincerely,

 

                                                                                   

 

                                                                        Teresa K. Gaugler

                                                                       

 

 

 

 

 


 

ALTS RESPONSE TO

NTIA REQUEST FOR COMMENT ON DEPLOYMENT

OF BROADBAND NETWORKS AND

ADVANCED TELECOMMUNICATIONS SERVICES

           

            There has been widespread discussion among the telecommunications industry, regulatory agencies, the administration, and the Hill over the proper regulation of broadband facilities and the best way to encourage deployment of those facilities and advanced services to the American public.  The Association for Local Telecommunications Services (“ALTS”) is the leading trade association representing facilities-based competitive local exchange carriers (“CLECs”). ALTS submits these comments highlighting that the most efficient means to encourage broadband deployment is to promote facilities-based competition.

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 primary policy consideration in encouraging deployment of broadband facilities should be the promotion of facilities-based competition.  Competitive local exchange companies (“CLECs”) invested over $56 billion in constructing new broadband telecom networks since the passage of the Telecommunications Act of 1996.  The CLECs were  the first companies to introduce DSL into the marketplace, and developed many other innovative technologies based upon the unbundling rules set out to enforce the 1996 Act.  The best way to advance the deployment of broadband technologies is to enforce the current policies that promote facilities-based competition. 

ALTS believes that the amount of regulation should be tailored to the amount of competitive facilities in the marketplace.  For instance, regulation of facilities should be utilized to the extent necessary to prevent anti-competitive behavior and monopolization of the market by incumbent local exchange carriers (“ILECs”).  As facilities-based competition increases and ILECs no longer enjoy market power in the local telecom market, reducing regulatory oversight will be appropriate.  Until such competing facilities and services are fully available,  however, regulation and enforcement is necessary to ensure that competitors have access to the ILEC bottleneck facilities in order to provide competing services to consumers and promote the deployment of broadband technologies.

Competition policy should not favor one form of technology over another or one mode of broadband access over another.  Regulatory policies should not be aimed at selecting winners and losers in the marketplace, but should encourage competition among the broadest range of providers.  Most importantly, intra-modal competition between must be promoted regardless of the level of inter-modal competition between LECs, wireless providers, and cable modem providers.  For instance, DSL was first deployed by Covad by adding its own electronics to the copper loop provided by the ILEC.  A policy that focused only on inter-modal competition might have denied the American consumer the tremendous benefits of this technology.  Further, without intra-modal competition for DSL-based and other advanced services, the best one could hope for is a duopoly with ILECs and cable modem providers as the only providers of broadband services to residential customers.  The scenario would be even bleaker for small business customers, which have no access to cable modem facilities and will, therefore, be subject to the unregulated monopoly power of the ILECs.  Since competition is the best engine to drive broadband deployment, , the ILECs must continue to make available unbundled network elements to competitors.


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;” (2) how the definition should evolve over time; and (3) the policy implications of how the term is defined.

 

In interpreting Section 706 of the Telecommunications Act, the Federal Communications Commission (“FCC”) has defined “broadband” facilities as those capable of providing lines or wireless channels with information carrying capability in excess of 200 Kbps upstream and downstream.[1]  Because the FCC’s definition has been in place for several years and the industry is accustomed to its use and it has become the basis of reporting requirements, regulation, law and policy, it is appropriate to maintain this definition rather than reconsider the issue.  To revise the definition would likely lead to additional years of regulatory uncertainty which could disrupt business plans.

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?

 

Several recent surveys indicate that supply has grossly outpaced demand for broadband services.  For example, the National Telephone Cooperative Association (“NTCA”) recently released a survey of its members indicating that low take rates for broadband services may not justify expansion of those services to additional customers.[2]  Sixty percent of the customers of survey respondents have access to broadband services (200 kbps downstream) now and 69% are expected to have access by the end of 2002, yet only a small percentage of customers actually subscribe to broadband services today.[3]  According to the survey, 4% of customers with access to cable modem broadband, 3% of customers with access to DSL, and 2% of customers with access to wireless broadband subscribe to those services.[4]  Because most of NTCA’s members are rural telecom providers, this data indicates that supply is not a major concern in rural areas.  NTCA suggests that the major barriers to their members offering broadband services include long loop lengths, high cost of deployment, low demand, and lack of cost-effective equipment scaled for smaller companies.[5]

Two recent consumer surveys found similar results regarding the low demand for high-speed Internet access throughout the country.  The Information Technology Association of America (“ITAA”) released a white paper, stating that while the majority of Americans have access to broadband services, many are hesitant to subscribe to them.[6]  In a random survey of 1000 American voters, two-thirds had broadband availability but only one-fourth of those with availability subscribed to a broadband service.[7]  ITAA suggests that lack of content is the primary reason for the demand lag and highlights that the recent increases in prices for ILEC DSL services has further reduced demand for those services.[8]  As would be expected in a noncompetitive market, the ILECs increased their monthly rates for DSL services shortly after competitors began experiencing financial difficulties and declaring bankruptcy. This is clearly not the behavior of players in a competitive marketplace, but is classic monopolist behavior, raising prices after competitors have been driven from the market. 

Hart Research/The Winston Group separately surveyed 806 consumers and found 40% were uninterested in obtaining high-speed Internet access and 36% were interested but not at the current prices.[9]  Even after the interviewer explained some of the benefits of high-speed access, 59% of those surveyed still showed just some or very little interest in subscribing to the services.[10]  When asked what policies should be promoted regarding broadband deployment, 74% supported policies that would “[e]ncourage competition among various DSL companies in each market, even if it means DSL is not available in some hard-to-reach rural and inner-city areas” whereas only 25% supported “[a]llow[ing] one company to build and maintain all DSL networks in a region and have unregulated ability to set rates/conditions as long as it makes DSL available in all areas of the region, including hard-to-reach rural and inner-city areas.”[11]

These studies should lead regulators to conclude that a broader competition policy promoting facilities-based competition for all services should not be sacrificed for the sake of rapid broadband deployment to areas where consumers will not subscribe.  There is no benefit to artificially stimulating availability of broadband to consumers that have little or no interest in the services, while there is great risk in adopting policies that limit competition or competitive access to necessary facilities.  Competitive choice is optimal for consumers because it allows them to reap the benefits of lower prices and better quality services.

Moreover, even if a supply side deficit existed in the deployment of broadband, one of the reasons for this deficit is the anti-competitive behavior of the ILECs.  While the ILECs claim that regulatory obstacles impede their deployment of broadband facilities, it is more accurate that their own actions impede the deployment of competitive broadband services to consumers.  Thus, although they claim there is a supply shortage for retail broadband services, the real supply shortage results from their poor provisioning of wholesale services. 

The ILECs’ continued refusal to comply with the unbundling requirements of the Telecommunications Act and the inadequate enforcement of those provisions has contributed to the low rate of deployment of competitive broadband services.  ILECs have found every conceivable mechanism to preclude CLECs from reaching end-user customers by denying or otherwise slow-rolling and overcharging CLECs for interconnection and access to network elements.  Oftentimes, CLECs are simply denied access to broadband facilities, such as DS-1 or DSL-capable loops, which are necessary to reach end-user customers under the guise that the ILECs have “no facilities” available.  Too often, the ILEC modus operandi has been to inform the CLEC that it does not have facilities available for the CLEC to provide services to end-user customers, while, at the same time, the ILEC is already providing or marketing similar services to those very same customers, relying on these very same, allegedly nonexistent, facilities.  In the event that the ILEC does provide facilities to the CLEC, obtaining such facilities is typically an unnecessarily and painstakingly time-consuming, costly process.  For example, while ILECs are obligated by the Telecommunications Act to provide network elements to CLECs at cost-based rates, the ILECs will typically compel the CLEC to purchase such facilities as tariffed services, identical to the requested facilities but at significantly higher rates. 

In some areas, CLECs are thwarted from providing services because they cannot gain access to necessary loop facilities or to remote terminal facilities in order to collocate their equipment.  Where CLECs have deployed broadband facilities by collocating in an ILEC central office, they are in many cases unable to obtain line sharing or loop qualification data in order to market and provision their broadband services to customers.  Deployment of CLEC broadband services would greatly benefit from more strict enforcement of the FCC’s unbundling requirements.  The rare times that the ILECs are actually penalized for their intransigence or failure to abide by their market-opening obligations are simply treated as mere costs of doing business and a small price to pay to maintain monopoly control. In the end, these provisioning problems have forced many competitive carriers  to delay their roll-out of broadband services, or in some cases declare bankruptcy, rather than fulfill their plans to deploy their networks to provide broadband services.

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 best method to achieve “access for all” is to adopt and enforce policies that promote facilities-based competition and eliminate the ILEC market power.  Competitive providers were the driving forces behind the widespread deployment of advanced services and they will continue to drive the development of new technologies.  Fearing they would cannibalize their existing T-1 revenue stream, the ILECs delayed introduction of cheaper DSL technology, and made access to DS-1 loops, other facilities, and combinations of such facilities unnecessarily cumbersome at best, until CLECs began marketing DSL-based and other advanced services in earnest:[12]

Although DSL technology has been available since the 1980s, only recently did local telephone companies begin to offer DSL service to businesses and consumers seeking low-cost options for high-speed telecommunications. The incumbents’ decision finally to offer DSL service followed closely the emergence of competitive pressure from … the entry of new direct competitors attempting to use the local-competition provisions of the Telecommunications Act of 1996 to provide DSL over the incumbents’ facilities.[13]

 

Because the ILECs “were getting great rates from T-1 lines, and consumers were buying highly profitable second and third lines for their slow-motion modems and their fax machines, [they] kept cheaper DSL on the shelf for a decade.”[14]  By allowing the ILECs to maintain an unfettered monopoly, regulators can virtually assure a slowdown in broadband technological advancement.

Not only have CLECs offered diverse products to customers, but they also provide higher quality service to customers, especially Internet Service Providers (“ISPs”).  CLECs initiated allowing ISPs to collocate in their central offices, allowing ISPs to offer better services to more customers, and the entry of CLECs into markets has given “consumers greater choice, lower prices and faster access to new technologies.”[15]  The United States Internet Service Providers Association  (USISPA) recognized that ISPs have been poorly served by the ILECs and that “CLECs’ services and network facilities are far superior to comparable ILEC services and facilities prior to the enactment of the 1996 Telecommunications Act.”[16]

The history of emerging competition in the long distance market foreshadows the possibilities for local telecom competition. When MCI began offering competitive long distance services, it focused on the small business market where it could obtain margins that justified its business plan.  As its market share and revenues grew, it expanded its customer base to include residential customers. Even though MCI began by reselling some of AT&T’s long distance services, there are now several, competing facilities-based long distance networks.  Similarly, CLECs have typically begun establishing a footprint with mostly business customers.  Some CLECs have focused on serving residential customers at the outset, and many others intend to do so when it becomes more economically viable to do so.  There is no market failure for local service competition where CLECs now offer services primarily to business customers in dense population centers rather than to residential customers in more sparsely populated markets. 

A lesson may be learned from MCI’s success in the long distance market: competition spurs competition.  By continuing to promote facilities-based competition in the local market, regulators will spur additional innovation and competition.  For example, increasingly CLECs are adopting new technologies that allow the deployment of innovative products in the marketplace.  One new technology is voice over IP, which integrates voice and data communications over a single T-1.  This technology permits CLECs to deploy an always-on broadband connection to small business customers, thus, allowing them to use the same services used by big business users at affordable prices.  This is the type of innovation contemplated by the Telecommunications Act of 1996 and which CLECs are bringing to the market.

Universal service funds should not be used to subsidize broadband access to high cost or low-income areas.  As noted above, demand has not reached the level where broadband access should be considered a necessity for a majority of consumers.  Until a large percentage of consumers do subscribe to broadband services, they should not be subsidized by additional universal service funds.  However, to the extent that any policies or mechanisms are adopted or implemented to promote “universal access” to broadband technologies, any such policies or mechanisms should be implemented on the federal level and should be fully portable to competitive providers.

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?

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

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?

4.      What are the principal strengths and weaknesses of the FCC's total element long run incremental cost (TELRIC) methodology? What changes could be made to render TELRIC an effective deterrent to the exercise of market power and conducive to efficient infrastructure investment? Would it be possible to construct an alternative methodology that would not depend on cost information controlled by regulated firms?

 

The FCC’s TELRIC methodology is the proper pricing methodology for unbundled network elements as it provides flexibility for appropriately pricing all future elements.  Section 252(d)(1) of the Telecommunications Act provides for the prices for network elements to be “based on cost” and “include a reasonable profit.”  TELRIC allows the ILECs to recover their costs plus a reasonable profit if and when they choose to build fiber optic networks.  To the extent that build-out of new, more robust networks is a riskier economic proposition for them, TELRIC pricing guidelines may incorporate a higher cost of capital than that used to calculate the cost of traditional copper networks, compensating the ILECs for the riskier nature of the build-out.  Furthermore, because TELRIC is a forward-looking pricing methodology it may result in higher rates where the costs of deploying new fiber are greater than the costs of maintaining the old copper.

There is no reason to discard the FCC’s TELRIC methodology merely because the ILECs claim they need higher rates in order to deploy newer technologies.  The proper consideration is whether TELRIC allows ILECs to recover their costs and preserves their incentive to make future investments that are economically efficient.  The ILECs have never proven that the TELRIC formula produces prices below their costs, even though they have had many opportunities to attempt to do so in state cost proceedings.  In fact in oral arguments on the ILECs’ appeal of the TELRIC formula, the Supreme Court justices faulted the ILECs for never producing evidence that the state rates were below their costs.  Without more concrete proof that the FCC’s methodology is inaccurate, there should be no modification of the methodology.  Regulatory certainty is vital to the industry and maintaining TELRIC pricing principles is the best way to ensure certainty.

The alternate pricing scheme proposed by the ILECs would presume a standard of “commercially reasonable prices” for network elements.  However, in a market controlled by a provider with market power, there are no “commercially reasonable” rates because there is no competitive market to establish the rates.  Since competitors have no alternative to the last-mile facilities of the ILECs, they would have no negotiating leverage to bargain down the rates.  In fact, the antitrust laws are based on principle that rational owners of monopoly facilities will not charge economically efficient wholesale prices for the use of those monopoly facilities.  Thus, deregulating the ILECs’ UNE rates would give them the ability to raise prices high enough to price competitors out of the market and re-monopolize the market.  The ILECs’ claim that this could not occur is pure folly.

Moreover, merely deregulating the ILECs would not provide incentive for them to roll-out better broadband services to more consumers.  “Monopolies act predictably -- they reduce supply, raise prices, and have little incentive to invest in new technology.”[17]  The ILECs have already shown their propensity to behave like monopolists because they suffer no consequences.  As evidenced by their delay in offering DSL-based and other advanced services, they will protect their higher profit services at the expense of providing more cost-effective, more innovative and potentially better services to consumers.  Moreover, as shown by Verizon’s and SBC’s increase in DSL rates as their competitors went out of business, the ILECs are not interested in providing low-cost broadband options to consumers; they are motivated to obtain the highest monopoly profits.  If they are allowed to operate as an unregulated monopoly, that is just what they will do.

Furthermore, it is not sufficient for regulators to obtain promises of deployment from the ILECs because their history shows they will not follow through on those promises without guarantees of high returns on their investments.  The ILECs must take the same market risk as their competitors – that they may deploy facilities but be unable to obtain enough revenue to make that investment profitable.  Their competitors have no guarantee that they will be successful as they build their networks, and regulators should not protect the ILECs by adopting policies that ensure them monopoly returns on their investments. 

The ILECs have consistently made promises to regulators about deploying technologies in order to gain regulatory approval for mergers; however, they have consistently broken those promises.[18]  Based on statements in the ILECs’ annual reports, “[b]y 2001, over half of America's households should have been rewired with fiber optics; [however,] none of these statements proved to be true, even though state and federal laws were changed to give the Bells more money for construction.”[19]  For example, despite strong financial performance and a flexible regulatory framework in Pennsylvania, BA-PA (now Verizon) failed to increase investment in its network.[20] Additionally, SBC — the Bell company that now owns three of the original seven Bells —promised to compete in 30 additional major markets outside of its region within 30 months of the SBC-Ameritech merger.[21]  SBC claimed that it needed further capital from the merger with Ameritech in order to enter other local markets and compete against the other Bell Companies.  While the SBC-Ameritech merger was consummated in October 1999, SBC has yet to compete in those markets outside of its region.  Under the merger conditions placed on SBC by the FCC, it is liable for voluntary penalties for failure to enter the 30 out of region markets; however, SBC has not paid any penalties for its failure to compete.


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?

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?

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?

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?

4.   What regulations, if any, should apply to new broadband facilities and/or services to ensure a competitive marketplace?

 

Changing the regulatory framework for broadband services and facilities would have a dramatic impact on the regulation of non-broadband services and facilities.  At the outset, it is important to recognize that the transmission facilities used to provide broadband services are also used to provide voice services.  Any policies adopted to facilitate broadband deployment that minimize the regulation of facilities utilized for broadband services will necessarily affect competition for local voice services because facilities to provide those services cannot be separated from one another.  As the ILECs continue to maintain a monopoly over the local loop facilities, end offices and transport networks, they necessarily maintain monopoly power of local voice and data facilities to those end users.

While it is important to require ILECs to maintain copper facilities when they deploy next generation architectures, such as remote terminals and fiber facilities, it is insufficient merely to require that maintenance without mandating that they provide access to the new architecture to competitors on an unbundled basis.  Allowing ILECs to deploy remote terminals without providing unbundled access to competitors would permit the ILECs to block out competition to their customers served by remote terminals.  Those customers may have DSL-based services available to them through the remote terminal whereas they may be too distant from the central office to receive DSL-based services over the original copper facilities.  If competitors are restricted to using those original copper facilities, they will not be able to provide DSL-based services to those customers while the ILEC will be able to do so through the remote terminal without being subject to competition.  Moreover, if the ILEC is not using the traditional copper facilities to serve its customers, it will not have any incentive to maintain those facilities in good condition; therefore, the service quality may deteriorate, leaving CLECs with sub-par facilities with which to serve their customers.

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?

 

ALTS represents facilities-based carriers that have invested in deploying in their own fiber and facilities.  Even though these carriers provide services over some of their own facilities, they would be impaired without access to ILEC UNEs.  The ILECs currently provide the majority of high-capacity facilities, regardless of the number of competitors that have collocated in an ILEC central office or the number of fiber miles deployed.  There is no alternative provider of transport and loop facilities in many of the areas CLECs serve.  Even where third-party alternatives are available, they have not ubiquitously duplicated the ILEC network.  Self-provisioning is not economical in many cases, and with the current financial markets, carriers are finding it difficult to expand upon their own facilities, even if it were economical to do so.

The ILECs claim that businesses using high-capacity services are highly concentrated in limited geographic areas, arguing that carriers can make a targeted investment in deploying fiber networks to a select few buildings and thereby serve the universe of customers seeking high-capacity services. [22]  Disregarding the ILECs’ gross underestimation of the costs to deploy those fiber networks, the competitor comments in the BOC High-Capacity Loop proceeding at the FCC highlight the BOCs’ mischaracterization of users of high-capacity services.[23]  Varying types of customers in disparate geographic areas are served by high-capacity facilities, making it impossible for a competitor to make a small investment in deploying facilities and be able to serve all of customers needing service through those facilities.

The Telecommunications Act of 1996 provides for 3 modes of entry: total service resale; pure facilities based; or use of unbundled network elements of ILEC facilities. Congress contemplated that competitors would not build ubiquitous duplicate networks overnight, thus UNEs should continue to be available until the FCC determines they are no longer necessary according to its review under the statute.  The FCC recently initiated its “triennial” review of UNEs, where it will determine which elements the ILECs must continue to unbundle to competitors.  The record developed in that proceeding should be relied upon as the country’s broadband policy is formulated. 

It is vitally important that policies to promote facilities-based competition continue to focus on access to UNEs.  Chairman Powell has reiterated his commitment to promoting facilities-based competition by providers that utilized elements of the ILECs’ networks.[24]  In other words, the term ‘facilities-based competitor’ encompasses not only full facilities-based providers that utilize their own networks entirely, but also those providers that use a combination of their own facilities and those of the ILECs.[25]  The Chairman recently stated that he “fully support[s] the use of facilities and individual UNEs as means to promote local competition while simultaneously furthering the related goals of encouraging deregulation and innovation.”[26]  Commissioner Martin shared the Chairman’s view: “I reiterate my commitment to making sure that CLECs are able to obtain, in a reasonable and timely manner, those facilities of the ILECs that are truly essential.  No one expects CLECs to build entire networks from scratch overnight. Enabling CLECs to gain meaningful access to essential facilities controlled by ILECs thus remains crucial to promoting facilities-based competition.”[27]

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

 

See responses herein.

 

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?

 

The ILECs argue for blanket deregulation of their high-speed services by claiming that the cable modem providers’ high-speed, cable-modem service is not regulated, but this argument is extremely misleading.  In fact, the ILECs and the cable modem providers are regulated in very similar ways under existing law, based on their primary lines of business.  The cable modem providers’ primary business is providing video-programming service to consumers.  Under the must-carry rules, they must carry the television signals of their competitors, the broadcasters.  On the other hand, the ILECs’ primary business is to provide telecommunications services to consumers.  Under the Telecommunications Act, the ILECs must open their networks to their competitors, the CLECs.  In other words, both the cable modem providers and the ILECs are regulated in the provision of their basic services, video programming and local telephone services, respectively.   However, both provide high-speed Internet service on an unregulated basis, and both must make access to their facilities available to competitors.  Parity exists today. In fact, exempting the ILECs from opening their network to competitors would give them an unfair regulatory advantage over the cable modem providers.

Furthermore, exempting the ILECs from opening their markets to competitors would destroy the new entrepreneurial competitive telecom companies and, at best, leave consumers with just two choices – the ILEC or the cable modem provider.  This would create a duopoly, not widespread competition. For years, cellular telephone service was a duopoly, with just two providers in each market.   Prices were high, service quality was low, and the U.S. fell behind Europe in cellular usage.  After the FCC added 3 or 4 new PCS providers in each market, rates have fallen dramatically, digital technology was introduced, and mobile phones became much more popular.  Since ILECs have already shown their propensity to raise rates when the threat of competition is low, it is clear that they would continue to do so if they were able to legally block out competitive providers.  Furthermore, deregulating ILECs for broadband services would grant them a virtual monopoly in the non-residential market because business customers do not have access to cable modem providers. 

The ILECs continue to dominate the market for DSL-based services regardless of their position vis a vis the cable modem providers.  DSL lines in North America totaled over 4.7 million at the end of third quarter 2001, with ILECs accounting for 85% of the total, followed by CLECs with 14% and IXCs with about 1%.[28]  TeleChoice, Inc. estimated that residential cable modem providers have a 70-30 market share advantage over residential DSL providers.[29]  While the ILECs would point to this statistic as evidence that they need relaxed regulation on their DSL services and facilities, TeleChoice, Inc. does not include regulatory hurdles as one of the various reasons it cites to explain why cable broadband providers are succeeding over residential DSL providers.  TeleChoice, Inc. explains that cable providers can provision services faster than DSL providers, a day or two versus weeks for the ILECs to deploy DSL facilities.[30]  Moreover, cable modem providers offer a bundled service including voice, video and data with a lower packaged price for customers that subscribe to all services.[31]  Compare this to the ILECs strategy of raising its prices in the wake of bankruptcies of its competitors and one can see why there is an allure to cable modem broadband service over DSL service of the ILECs that has nothing to do with excess regulation of the ILECs’ DSL services:

For too long the Bells have focused on winning the battle with the IXCs, holding them out of the local market, while slowly fighting their way to offering long distance.  All this time they've treated residential broadband and the competition from MSOs like it was something they could turn to and win when the other fight was over.  Even over the past few months we've seen the huge effort they put behind trying to put the nail in the coffin of the IXCs with the Tauzin-Dingell bill, while at the same time their broadband businesses stumbled in the wake of ill-advised price hikes.  Their focus needs to change if they want to win in the residential market.[32]

 

When all providers have equal access to essential facilities, there may be less reason to maintain different regulatory structures between varying broadband network architectures.  However, that is not the state of the industry at this time.  Thus it is appropriate for providers to be regulated in different manners based on their level of market power.  The ILECs built their networks over decades with a monopoly profit guaranteed by the government, whereas the cable companies built their networks in the 1980’s using private capital with no guaranteed profit.  It is fair to open the ILECs’ networks to competition to compensate for the decades of government-regulated monopoly.

 

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.

 

State and municipal regulations regarding rights of way and franchise arrangements have greatly hindered the deployment of broadband technologies throughout the country.  Many parties enumerated examples of abuses by municipalities in response to the FCC’s Notice of Inquiry regarding the deployment of advanced services. [33]  By imposing unduly burdensome requirements on providers and delaying permitting processes, municipalities hold carriers hostage because they have monopoly control over the public rights of way.  In some areas carriers simply bypass municipalities rather than succumb to their unreasonable demands; therefore, some communities may never see competitive broadband service because of the unreasonable actions of their local governments.  Municipalities refuse to abide by FCC rules and court decisions, enacting similar or identical ordinances to those stricken down by the courts and imposing lengthy negotiation processes on carriers.  Many municipalities view their control over the public rights of way as a revenue generating opportunity, rather than an opportunity to recover the direct costs of managing the public rights of way. 

The Executive Branch should take a leadership role in convening forums and other discussions with the municipalities to encourage them to adopt pro-competitive policies.  There is a tremendous opportunity for this Administration to speed the deployment of broadband services through use of the bully pulpit and other mechanisms.  In so doing, ALTS suggests that the Administration adopt the following principles to encourage access to public rights of way and deployment of broadband facilities:

·        Access to public rights-of-way should be extended to all entities providing intrastate, interstate or international telecommunications or telecommunications services or deploying facilities to be used directly or indirectly in the provision of such services (“Providers”).

 

·        Government entities should act on a request for public rights-of-way access within a reasonable and fixed period of time from the date that the request for such access is submitted, or such request should be deemed approved. 

 

·        Fees charged for public rights-of-way access should reflect only the actual and direct costs incurred in managing the public rights-of-way and the amount of public rights-of-way actually used by the Provider.  In-kind contributions for access to public rights-of-way should not be allowed.

 

·        Consistent with the measures described herein and competitive neutrality, all Providers should be treated uniformly with respect to terms and conditions of access to public rights-of-way, including with respect to the application of cost-based fees.

 

·        Entities that do not have physical facilities in, require access to, or actually use the public rights-of-way, such as resellers and lessees of network elements from facilities-based Providers, should not be subject to public rights-of-way management practices or fees. 

 

·        Rights-of-way authorizations containing terms, qualification procedures, or other requirements unrelated to the actual management of the public rights-of-way are inappropriate. 

 

·        Industry-based criteria should be used to guide the development of any engineering standards involving the placement of Provider facilities and equipment.

 

·        Waivers of the right to challenge the lawfulness of particular governmental requirements as a condition of receiving public rights-of-way access should be invalid.  Providers should have the right to bring existing agreements, franchises, and permits into compliance with the law.

 

·        Providers should have a private right of action to challenge public rights-of-way management practices and fees, even to the extent such practices and fees do not rise to the level of prohibiting the Provider from providing service. 

 

·        The FCC should vigorously enforce existing law and use expedited procedures for resolving preemption petitions involving access to public rights-of-way.

 

 

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?

 

ALTS supports the comments filed in this proceeding by the Smart Building Policy Project (“SBPP”) regarding building access impediments and solutions.  Requiring the federal government to purchase local telecommunications services from at least two providers with distinct networks would help ensure the government maintains secure communication networks in an emergency and would spur competition.  Redundancy and diversity are crucial elements to protecting the ability of the federal government to remain in operation and communication with the public and others during a disaster or other emergency, and to increase the stability of our government’s networks.  Moreover, having multiple providers would help the federal government reap the benefits of continued competition and provide incentive on the part of the carriers to provide good service, favorable pricing and continued innovation and cooperation.  Additionally, where the federal government seeks to lease space from a private landlord, absent special circumstances, the federal government should do so only in buildings where any telecommunication provider(s) it or any other tenant selects can have physical access to the building promptly at fair rates and on reasonable and nondiscriminatory terms.  This requirement is vital to ensure that federal lease dollars are spent only in buildings where federal and other tenants have the right to choose multiple facilities-based telecommunications providers.  Ensuring that multiple companies will have a greater opportunity to provide local service and serve federal tenants is a way to promote and advance the goals of the Telecommunications Act of 1996 while at the same time providing a valuable benefit to the federal government in its capacity as a purchaser of telecommunications services.

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?

 

In most cases, enforcement of existing regulations and statutes are adequate to achieve the policy goals outlined herein.   By strengthening its enforcement of rules and ensuring the penalties are large enough to adequately compel compliance, the FCC could greatly aid deployment of competitive broadband services.  Additionally the FCC must resolve open proceedings that would (1) ensure CLEC access to next-generation loop architecture; (2) ensure CLEC access to necessary UNEs, including EELs; (3) establish performance metrics for special access and UNE provisioning; (4) ensure competitive access to residential and commercial multi-tenant dwellings; and (5) ensure public rights-of-way practices do not thwart competition by adopting clear guidelines and/or rules clarifying what municipal actions violate Section 253(a) and by establishing an expedited process for quickly resolving preemption petitions under Section 253.

Furthermore, there is no need to re-open the Telecommunications Act in order to address the issues raised herein because the FCC has the authority necessary to tackle most of policy proposals.  Regulatory certainty is important in the industry, and re-opening the Act would likely lead to years of litigation undermining any certainty that has been achieved.  Chairman Powell has requested from Congress that the FCC be granted authority to impose greater penalties for violations of the Telecommunications Act:

We recognized quickly that much of the authority that we had in this area was inadequate. The level of fines we could impose in many cases was paltry. For many large carriers the penalties could be absorbed as the cost of doing business. Moreover, pursuing an enforcement action often drains the resources (both time and money) of a small competitor, yet the statute affords no compensation for its losses or expenses.

In response, we called on Congress to dramatically increase the forfeiture amount allowed under the statute. Additionally, we have supported changes that would allow successful litigants to receive compensatory damages from the fines, as well as associated litigation expenses. I reiterate my call to Congress to pass legislation in this area and am encouraged by the response that we have had from key members, particularly, Congressman Fred Upton, the chair of the telecommunications subcommittee.[34]

 

Such legislation would be helpful in ensuring the ILECs are adequately fined for their misconduct so that they do not consider the fines merely a cost of doing business.  Moreover, the payment of fines should be awarded to the aggrieved party rather than to the U.S. Treasury.

            If additional legislation were enacted, it should clarify that (1) the Telecommunications Act does not supercede antitrust actions; (2) building access rules should apply to the federal government; and (3) rights-of-way management practices may be preempted if they are unreasonable or discriminatory.

 

                                                                        Respectfully Submitted

__________________________________________

Teresa K. Gaugler

Jonathan Askin

Association for Local Telecommunications Services

888 17th Street NW, Suite 900

Washington, DC 20006

 

 

 

December 19, 2001



[1] See 47 C.F.R. § 1.7001.

[2] NTCA 2001 Internet/Broadband Availability Survey Report, at 1, available at http://www.ntca.org/leg_reg/white/2001bb_survey.pdf (“NTCA Report”).

[3] NTCA Report at 3.

[4] Id.

[5] Id. at 8.

[6] ITAA, Building a Positive, Competitive Broadband Agenda, at 5, available at http://www.positivelybroadband.com (“ITAA White Paper”).

[7] Harris Miller, President ITAA, Building a Positive, Competitive Broadband Agenda, available at http://www.positivelybroadband.com (“ITAA Slideshow Presentation”).

[8] ITAA White Paper at 5.

[9] Hart Research/The Winston Group, High-Speed Take Rate Survey, conducted November 9-14, 2001, presentation available at http://www.voicesforchoices.com

[10] Id.

[11] Id.

[12] An ALTS Analysis: Local Competition and the New Economy, February 2001, at 4, available at http://www.alts.org/Filings/020201Analysis.pdf (“ALTS New Economy Analysis”).

[13] ALTS New Economy Analysis at 4 (citing Council of Economic Advisers, Economic Report of the President, February 1999, pp. 187-188, http://w3.access.gpo.gov/usbudget/fy2000/pdf/erp.pdf)

[14] James Glassman, Best Remedy for Recession? Break Up the Bells, December 10, 2001, available at http://www.techcentralstation.com/NewsDesk.asp?FormMode=MainTerminalArticles&ID=131

[15] See ALTS New Economy Analysis at 2.

[16] USISPA Press Release, USISPA Says Focus of Reciprocal Compensation Debate Should Be on Internet & Consumers, September 19, 2000, http://www.usispa.org/media/article7.html. USISPA is a coalition of independent Internet Service Providers (ISPs), ISP trade associations and competitive suppliers.

[17] James Glassman, Best Remedy for Recession? Break Up the Bells, December 10, 2001, available at http://www.techcentralstation.com/NewsDesk.asp?FormMode=MainTerminalArticles&ID=131

[18] Duane D. Freese, Who Do You Trust? Bush or the Bells?, December 13, 2001, available at http://www.techcentralstation.com/NewsDesk.asp?FormMode=PolicyTracksArticles&ID=146

[19] New Networks Institute, Tauzin-Dingell: Fact Sheet 1, The Bells' Broken Broadband Promises Cost Customers $58 Billion and Their Fiber-Optic Future, available at http://www.newnetworks.com/tauzinfactsheet1.htm; See also New Networks Institute, Tauzin-Dingell: Fact Sheet 2, Broken Broadband Promises of Verizon, (NYNEX, Bell Atlantic, etc.), available at http://www.newnetworks.com/tauzinfactsheet2.htm.

[20] Economics and Technology, Inc., Broken Promises, A Review of Bell Atlantic-Pennsylvania’s Performance Under Chapter 30 (rel. June 1998), at iii, (“Having made its ‘commitment’ and been granted its ‘alternative regulation’ reward, … Bell Atlantic-Pennsylvania … paid more attention to escaping from, rather than fulfilling, the terms of its promised upgrade.”).

[21] New Networks Institute, Tauzin-Dingell: Fact Sheet 5:  Liar, Liar, SBC's Pants on Fire ----Where's the Competition?, available at http://www.newnetworks.com/tauzinfactsheet5.htm.

[22] See In the Matter of Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, Joint Petition of BellSouth, SBC and Verizon for Elimination of Mandatory Unbundling of High-Capacity

Loops and Dedicated Transport; CC Docket No. 96-98.

[23] See ALTS Reply Comments, filed June 25, 2001, CC Docket No. 96-98.

[24] See Remarks of Michael K. Powell Chairman, Federal Communications Commission at the Association for Local Telecommunications Services, Crystal City, Virginia, November 30, 2001 (“Powell Speech at ALTS”).

[25] Id.

[26] Statement of Chairman Powell on Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers et al., CC Docket Nos. 01-339 et al.

[27] Statement of Commissioner Martin on Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers et al., CC Docket Nos. 01-339 et al.

[28] TeleChoice, Inc., North American DSL Market Reaches 4.7 Million, available at http://www.xdsl.com/content/tcarticles/wp112701.asp

[29] TeleChoice, Inc., It Ain't Over 'Til It's Over: But cable is running away with the race for the residential broadband market, available at http://www.xdsl.com/content/xdsltoday/tcperspective/CableIsKillingDSL.asp

[30] Id.

[31] Id.

[32] Id.

[33] See Comments, filed September 24, 2001, in CC Docket No. 98-146, by Metromedia Fiber Networks, Adelphia Business Solutions, Global Crossing, Qwest Communications, Global Photon, and Plano, TX.

[34] See Remarks of Michael K. Powell Chairman, Federal Communications Commission at the Association for Local Telecommunications Services, Crystal City, Virginia, November 30, 2001 (“Powell Speech at ALTS”).