National Telecommunications and Information Administration
U.S. Department of Commerce
“Deployment of Broadband Networks
and Advanced Telecommunications”
By Its Attorneys
Stephen L. Earnest
Richard M. Sbaratta
675 West Peachtree Street, N.E.
Atlanta, GA 30375
Dated: December 19, 2001
U.S. Department of Commerce
COMMENTS OF BELLSOUTH CORPORATION
BellSouth Corporation, for itself and its wholly owned affiliated companies (collectively “BellSouth”), submits the following comments in response to the National Telecommunications and Information Administration’s (“NTIA”) Request for Comments on Deployment of Broadband Networks and Advanced Telecommunications (“Notice”).Additionally, BellSouth has attached to these comments, as Exhibit 1, a paper prepared by Dr. Robert G. Harris, Professor Emeritus and Former Chair of the Business and Public Policy Group at the Haas School of Business, University of California at Berkeley, and a Director at LECG, LLC, that specifically address several of the questions asked by the NTIA in its Notice (“Harris Paper”).
Yet, deployment continues to struggle.Why?Because regulatory policies concerning broadband have not been adopted to ensure widespread deployment; instead, existing policies have been based on segmenting the market along arbitrary regulatory lines.Accordingly, a national broadband policy should be developed to ensure that deployment does not continue to be stifled by antiquated and one-sided regulatory policies.Economic growth demands that regulation be scaled back and that the free, unfettered operation of the market be embraced.To foster growth and broadband deployment, a level playing field must be established for all broadband competitors regardless of the mode used to provide the broadband services.Immediate corrective action is needed to eliminate the competitive disparities that exist because of regulation placed on incumbent local exchange carriers (“ILECs”) as opposed to other broadband providers.This not only includes rolling back current ILEC regulation but also abandoning current discussions of further regulatory requirements on broadband.
The regulatory policies implemented thus far ignore the fact that competition among broadband providers crosses different provisioning modes.Broadband services, however, constitute a new, highly competitive market.For example, ILECs have deployed services that extend high-bandwidth capability to the home and business.This deployment includes both fiber facilities and digital services over copper loops in the form of digital subscriber line (“DSL”) services.Satellite operators currently offer nationwide high-speed Internet access.Cable companies continue to upgrade their ubiquitous cable networks and are offering consumers high-speed cable modems.Competitive local exchange carriers (“CLECs”) continue to provide high-speed data services using their extensive fiber networks or by purchasing unbundled network elements from ILECs, and installing their own DSL equipment.Terrestrial wireless technologies also are being deployed to provide broadband capability in a number of spectrum bands such as 24 and 38 GHz.Other terrestrial wireless providers, including local multipoint distribution service (“LMDS”) providers, multipoint distribution service (“MDS”) providers and even digital television broadcasters, are fast becoming full-fledged providers of broadband.For competitive assessment purposes, these many solutions for advanced telecommunications capability over the “final mile” form a broadband market that is highly competitive.But, not all competitors stand on an equal footing.Asymmetrical in regulation shackle telephone companies and protect other broadband providers from the full scope of competitive market forces.Competitive inequities present in the current regulatory paradigm will not allow full competitive growth to continue as it should.Although numerous providers have jumpstarted deployment of broadband, regulatory inequities among competitors have and will continue to impede competitive growth in the future.
Currently, policies affecting broadband are a mish-mash of incongruent rules and requirements depending on the media over which the broadband is delivered. These imbalanced policies equate to policy makers favoring other forms of broadband technology over those provided by ILECs.Moreover, in an untenable attempt to further prop up non-ILEC competitors, the Federal Communications Commission (“FCC” or “Commission”) presently has several policy matters before it that, if adopted, would create more barriers to investment in broadband by the ILECs.
Because broadband crosses conventional industry and regulatory lines, market participants currently face disparate levels of regulation, but for no rational reason.As the Commission has already acknowledged, no entrant dominates the broadband market, thus no class of competitors should be subject to arduous regulation designed to protect against an abuse of market power.An ILEC’s ownership of local exchange facilities awards it no significant competitive advantage in providing broadband, particularly as its local exchange facilities are subject to mandatory unbundling and resale obligations.In fact, the cable industry, not the ILECs, enjoys the greatest share of the broadband access market, and long-distance carriers have a clear advantage in the broadband networking services market.Indeed, the Commission recently acknowledged that cable modems grew to 3.3 million lines by December 31, 2000 as compared to 1.6 million ADSL lines.Cable modem dominance will likely continue as it has in past years.Subjecting ILECs – or any broadband suppliers, for that matter – to cumbersome regulatory requirements for broadband is unnecessary and only thwarts their full participation in the market, inhibits their incentive to develop innovative service offerings, encumbers their ability to respond to shifting market conditions, and ultimately delays widescale deployment and increases the cost of broadband for consumers.
A comparison of the regulations placed on ILECs as compared to cable modem providers, the leading provider of broadband services, best illustrates the unfair regulatory burdens shouldered by the ILECs.The economic similarities of ILECs and cable companies are significant.The services that ILECs and cable modem providers are marketing are both directed toward the mass market.Each has an existing customer base and an existing network.Both are new entrants into the broadband market and therefore neither is dominant, even though cable modem providers have a clear lead on the number of customers.Both have made large investments in their networks and have considerable resources to devote to deployment.
With these striking similarities one would assume that these entities would be allowed to compete on a level regulatory playing field.Nothing could be further from the truth, however.The regulatory disparities are stark and overwhelming.ILECs are prohibited from providing broadband across a LATA boundary; cable modem providers are not.The LATA boundary is an anachronistic concept that has no meaning in advanced telecommunications.It was developed in a world dominated by voice traffic over a public, circuit-switched network.Broadband was not even a twinkle in an engineer’s eye.At the dawn of the 21st century, it is irrational for broadband policy to be constrained by an outdated 20th century fiction.
Moreover, many ILEC services are subject to price regulation.ILECs must file tariffs with the Commission to establish the rates, terms and conditions under which they deal with their customers; cable modem providers do not.ILECs must, under certain circumstances, unbundle their network for competitors to use to provide broadband; cable modem providers bear no such obligation.ILECs must allow competitors to collocate on their premises; again, cable modem providers bear no such obligation.ILECs must allow access to the loop facilities on a shared basis with their competitors; cable modem providers do not.Many of these same regulatory inconsistencies exist between ILECs and other broadband providers as well.Indeed, it is clear that regulation is favoring certain technology and providers over others and in the process leading to a potentially large inefficiency in the market’s allocation of resources.
All of these hodgepodge policies and regulations regarding broadband lead to one inevitable conclusion – uncertainty in the market.And, uncertainty is strangling the market of much needed investment dollars and application providers.
Uncertainty and an ever-increasing probability of greater regulation has stagnated investment dollars from pouring into the market.Moreover, this lack of investment dollars has an already risky application provider market completely on edge.These two ingredients have further aggravated the “chicken and egg” problem that exists in the broadband market today.Some speculate that the widespread deployment of broadband will not occur unless and until application providers develop “killer apps” that will run effectively only over broadband.Only then will consumers be motivated to obtain broadband, which in turn will motivate full deployment.Others speculate that application providers will have no incentive to spend the investment dollars necessary to chase after the next great application until a ready broadband mass market is available to receive it.Regardless of which theory is correct, there can be no doubt that the uncertainty that exists in the market has only exacerbated the problem, and it will not get better until this uncertainty is removed.
It is not an oversimplification of the problem to state that the answer to removing regulatory uncertainty in the market begins with policy makers realizing and embracing the unmistakable facts that broadband is a competitive market with multiple providers and none of these providers should face differing regulatory treatment.Accepting and embracing these facts will produce policies that strengthen broadband deployment by allowing the market, not regulators, to determine winners and losers.Unless these facts are acknowledged,retreading broadband through the same old regulatory models may change the wrapping but not the contents of the package.Moreover, embracing these facts will shift thinking about broadband and produce a new regulatory paradigm – one with a deregulatory focus – that will allow for the explosion of broadband growth.
The NTIA is asking the right questions to meet this end.For example, determining the definition of broadband is pivotal to all other discussion surrounding broadband’s future.While this may seem obvious, various Commission policies, discussed briefly above and more thoroughly below, demonstrate unwillingness to accept and apply a universal definition of broadband to all providers.While many may debate the proper definition of broadband, one thing should be certain, once the definition is established it must be the same for all entities.It is beyond explanation that two entities can provide the exact same high-speed Internet access to a retail customer with the only difference being the type of facilities used to deliver the service, yet each are treated exponentially different by regulators.When entities provide services defined as broadband, whatever that definition ultimately ends up being, then they must be treated the same.Anything else establishes favoritism toward one provider, which perpetuates market uncertainty.
The Commission, through its current forbearance and other statutory authority, can cut much of the Gordian knot that has been created in the broadband market by poor regulatory policies.The NTIA should therefore encourage the Commission to take these steps.Decreased regulation could be completed immediately and would be a very positive first step.In addition to this, however, the NTIA should also recognize that state regulation can pose an impediment to broadband regulation.Accordingly, the NTIA should work toward an overall goal of eliminating any form of unnecessary regulation.This goal may ultimately require a legislative approach.
II.The NTIA Must Understand the Negative Impact the Commission’s Regulatory Policies have had on the Broadband Market
As briefly summarized above, a wide range of competitors is deploying a variety of broadband technologies.This deployment is occurring in backbone as well as last mile facilities.Moreover, while deployment is obviously taking place faster in more densely populated areas, the market is carrying broadband capabilities to rural areas as well.Of course, competition among the various providers and full benefit to consumers would be occurring even faster and competition would be even greater among service providers if some competitors were not hobbled by more stringent regulatory burdens and obligations.Furthermore, the disincentives created by existing regulation and future regulatory uncertainty inhibits the deployment of new and innovative services that could be made available to consumers.With these issues in mind, BellSouth limits its comments to what can be done under the current legislative and regulatory environment to remove obstacles from broadband deployment while the Harris Paper, in response to the NTIA questions, fully explains how current regulatory policies have impeded broadband deployment in the past and demonstrates the absolute detrimental effect that such polices, if left unchecked, will have on future broadband expansion.
Future deployment of broadband will best occur through equal competition among broadband providers.Competition, however, requires that the Commission act neutrally and treat all competitors alike.As discussed previously, asymmetric regulation will impede ILEC deployment of ADSL, and other broadband capabilities, while other providers are unencumbered by regulatory constraints in their deployment of broadband facilities and services.For example, BellSouth is a leading provider of DSL technology.With a long history of serving residential, rural and small business customers, BellSouth and other ILECs are well-positioned to provide such broadband services to all of these customer segments.But providing widescale broadband capability is a considerable feat, even for an ILEC.It requires developing technologies, retrofitting loops or laying new networks, investing in costly new equipment and training service personnel.With these tasks accomplished, an ILEC is still handicapped in deploying broadband by pricing, tariffing and other regulatory requirements, in addition to interLATA restrictions that bar the BOCs from providing advanced end-to-end networking services such as frame relay and ATM across LATA boundaries.
If those regulatory constraints weren’t enough, the Commission currently has initiated dockets that contemplate further broadband unbundling requirements, including packet switching.Although the Commission initially determined that such unbundling was unnecessary, the Commission currently is reviewing this decision in other proceedings.The existing regulatory requirements have limited broadband growth; further unbundling would cripple ILEC broadband deployment.
The NTIA must therefore realize the effects unbundling has on investment and innovation in broadband.There are important differences between the effects of unbundling elements used to provide traditional voice telecommunications services and the effects of unbundling new investment used to provide broadband.The risk associated with high technology deployment is greater than that required to deliver traditional services.This technology is rapidly evolving and equipment can quickly become obsolete.Additionally, ILECs face stiff competition from other broadband providers.
In fact, the Commission has even acknowledged that “investments in facilities used to provide service to nascent markets are inherently more risky than investments in well established markets.Customer demand for advanced services is also more difficult to predict accurately than is the demand for well established services . . . .”An important part of the Commission’s reasoning to not unbundle broadband equipment in the past, even though traditional services equipment had been unbundled, was to avoid stifling competition and to encourage innovation.This fact remains all the more relevant today.
Clearly, current regulatory policies coupled with the threat of even more unfavorable regulation is having a chilling effect on ILECs’ incentives to invest in broadband technologies.Moreover, such policies also negatively affect CLEC investment in their own facilities.CLECs will not have any incentive to invest in equipment to provide broadband if they can ride the backs of, and shift investment risks to, the ILECs.If the investment disincentives of the existing, as well as possible additional, broadband polices continue, new investment in broadband facilities will be eschewed.
Indeed, BellSouth is currently contemplating an investment decision that it will abandon if the Commission imposes further regulations on broadband deployment.BellSouth has steadily deployed DSL capability in many areas within its region.Much of that deployment, however, occurred in areas that included adequate space to locate new equipment and required the least amount of re-engineering of the network.For example, placing a digital subscriber line access multiplexer (“DSLAM”), a piece of equipment necessary to provide DSL, in a central office is more deployment-friendly because space concerns are not usually a problem.Conversely, deployment of a DSLAM in a remote terminal is significantly more challenging.Typically, such deployment requires that a new environmentally protected cabinet be installed to house the DSLAM.BellSouth has deployed remote terminal DSLAMs in some cases.In other instances, the cost of such an investment or limited easement space at the remote terminal makes deployment cost prohibitive.Many of these areas, however, have the opportunity to be served by competitors such as cable modem providers or wireless providers.If BellSouth wants to compete for such customers, an integrated network option must be used.
BellSouth is working with a vendor to develop an integrated solution.This solution uses line cards that can be installed in many of BellSouth’s DLC systems, within the remote terminal, that will allow the DSL service to be provided over the DLC from the customer’s premises to the serving wire center.The biggest potential advantage of an integrated DSL solution relative to an overlay solution, i.e., remote DSLAM,is that capital can scale much more directly with service penetration.A remote DSLAM requires dedicated real estate and its own environmental and power infrastructure.A significant capital outlay is necessary before a single line of DSL can be provisioned.An integrated solution can reduce the initial investment to less than $10,000.Although this cost advantage can be significantly diminished by higher line card costs, at low take rates and in small-scale deployments it offers a significant advantage in capital efficiency.
With the implementation of this integrated solution, DSL service could potentially be provided to over 4,300,000 lines that are served by remote terminals.Many of these remote terminal systems are located in rural areas and serve fewer than 100 customers each.Based on BellSouth’s business analysis, an integrated solution would yield little margin, but, assuming no new regulatory burdens are placed on ILECs, BellSouth plans to expend significant resources to operationalize this integrated solution in BellSouth's serving area.The plan is to deploy it in many locations where overlays will not work, particularly in rural locations where it would be BellSouth’s only viable means of competing with other broadband providers.This plan, if implemented, would expand overall broadband coverage to as much as 80% of BellSouth’s subscriber base.Much of the increase would be in the more rural parts of BellSouth’s territory.As stated, the business case predicts slim margins assuming the current regulatory environment.Under this environment BellSouth is not required to unbundle line cards or packet switching, nor is it required to collocate a competitor’s line cards within its DLC system.Required unbundling of line cards or packet switching or collocation of line cards, at TELRIC pricing, would strain these margins beyond viability.In such an instance BellSouth would simply abort further deployment of the integrated solution.
The Commission has stabilized the traditional local services market by providing clarity to the elements that are subject to unbundling, e.g., traditional loops, sub-loops, ports and switching, etc.Policies that eliminate regulation and allow an already competitive market to control would likewise bring stability to the broadband market by determining with equal clarity that investment in new broadband technology will not be unbundled.This will give all carriers the confidence to deploy new technology to make broadband available to more end-users.This confidence will stimulate investment and result in more Americans having access to broadband.
This could be accomplished by the Commission using its forbearance authority to relieve ILECs of regulatory requirements affecting broadband.Pursuant to Section 10 of the Telecommunications Act of 1996, the Commission has authority to forbear from any regulation (1) that is not necessary to ensure that charges, practices, classifications, or regulations by, for, or in connection with a carrier or service are just and reasonable; (2) enforcement of the regulation is not necessary for the protection of consumers; and (3) forbearance is in the public interest.The only limitation beyond this analysis is that the Commission cannot forbear from applying the requirements of § 251(c) or § 271 until ithas determined that the requirements of those sections have been fully implemented.
Clearly, the above analysis would apply to most Title II regulation affecting broadband, specifically, but not limited to,§§ 201, 202, 203 (including all tariffing requirements), 251 (excluding §251(c)), 252, 272, and rate regulation.The NTIA should push the Commission for such forbearance.Moreover, the NTIA should urge the Commission to use the necessary and impair analysis of § 251(d) to find that broadband UNEs are not necessary.This should, at a minimum, include removing Line Sharing and Line Splitting UNEs.Implementation of these changes will go a long way toward equalizing competition in the broadband market.
Policies necessary to assure that broadband achieves its true potential, however, will require several steps.The Commission’s actions only apply to interstate services.Broadband is typically thought of in terms of Internet access, which is an interstate service.Broadband will expand beyond Internet access and include services that are intrastate in nature.The same issues discussed in these comments surrounding the negative impacts that federal regulation has had on interstate services apply in kind to state regulation.Accordingly, the NTIA should also encourage states to take a deregulatory approach to broadband.While BellSouth is hopeful that such encouragement will lead to a market policy toward broadband, it believes that at the end of the day a legislative solution will be necessary.
The NTIA should work toward policies that will incent rapid growth in advanced telecommunications capabilities.Rapid growth is needed to fuel the growth of the Internet and its positive impact on the economy.Such policies will be best achieved by competition in the market and not past regulatory models.The NTIA should be bold in doing all it can to let fairly matched providers compete going forward on equal terms.
By its Attorneys
Stephen L. EarnestRichard M. Sbaratta
Suite 4300675 West Peachtree Street, N. E.Atlanta, Georgia30375(404) 335-0711
Date:December 19, 2001
CERTIFICATE OF SERVICE
I do hereby certify that I have this 19th day of December 2001 served a copy of the foregoing COMMENTS OF BELLSOUTH CORPORATION by Hand Delivery, or Electronic Mail addressed as follows:
+ Josephine Scarlett
Office of the Chief Counsel
National Telecommunications and Information Administration
Room 4713 HCHB
1401 Constitution Avenue, NW
Washington, DC 20230
+ via Hand Delivery
* via Electronic Mail