Before the

National Telecommunications and Information Administration

Washington, D.C. 20230

 

 

In the Matter of:                                                       

                                                                                    )          

Request for Comments on Deployment of             )            Docket No. 011109273-1273-01

Broadband Networks and Advanced                                 )

Telecommunications                                                     )          

                                   

 

 

 

Comments of Covad Communications Company

 

Covad Communications Company hereby respectfully submits its comments in response to the above-captioned notice. Covad,A as the nation’s largest independent provider of broadband DSL services, Covad is clearly particularly concerned with the wireline aspects of a broadband policy. The questions asked by NTIA in this inquiry suggest that the Administration is searching for a foundation for its nascent broadband policy.  As Covad sets out in these comments, the foundation of that policy should be competition – the market-opening provisions of the Telecommunications Act of 1996 (1996 Act) are working, and consumers have benefited from an explosion of broadband service offerings since 1996 because of that competition. 

Founded shortly after passage of the 1996 Act, Covad has quickly grown to over 360,000 broadband subscribers in nearly fifty metropolitan areas. Covad is a facilities-based provider, having invested hundreds of millions of dollars and deployed a nationwide broadband network that reaches nearly half the homes and businesses in the country.  In order to reach its customers, Covad leases unbundled network elements (UNEs) pursuant to section 251(c)(3) of the 1996 Act.  Specifically, Covad obtains unbundled access to the last mile of the nation’s established telecommunications network by leasing loops, linesharing, and interoffice transport from the incumbent telephone companies.  Roughly half of our Covad’s subscribers are residential users. And unlike our incumbent telephone companiescompetitors, we Covad offers types of DSL-based services especially tailored to small business, providing this bandwidth-hungry market with an option for an affordable high-speed connection.

Like other new entrants to the local telecommunications marketplace, Covad suffered during the recent economic downturn and the harsh new realities of the capital markets. We watched as CLEC after CLEC ceased to operate or was acquired by a larger company. HoweverCovad is on the cusp of emerging successfully from a debt reorganization proceeding and now has raised sufficient capital to posses a fully fundd  its business plan.[1] We look forward to working with the NTIA on broadband policy issues, and will limit these comments to those areas most relevant to Covad.   Proving the economic viability of the competitive telecommunications sector has been one challenge successfully met by Covad:  proving the policy viability of that sector is the challenge now facing the NTIA. 

Since the founding of Covad, and in reality since passage of the 1996 Act, the four Bell Operating Companies (BOCs) repeatedly mounted attempts to change the Act and prevent CLECs like Covad from leasing certain parts of the local phone network. Today, at both the FCC and on Capitol Hill, efforts are underway to rewrite the 1996 Act and ultimately undermine the pro-competitive environment that Congress envisioned. Covad respectfully submits that the Administration cannot support the dismantling of competition, and instead should resist the efforts to eliminate competition, as the FCC and now Congress have done.  

Question 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.

 

One need only look to the past to see what the primary consideration in formulating a broadband policy ought to be: competition. A policy environment that promotes competition whenever and wherever possible will drive both technological innovation and infrastructure deployment.  As a simple principle of economics, a monopoly has no incentive to innovate, and no incentive to create new products that may lower prices to consumers.  Indeed, a monopoly has incentive only to promote barriers to entry and to increase monopoly profits.  Why would a monopoly voluntarily cede market share by deploying new products that might give rise to competitive entry?  It would not do so, and would seek instead to bar competitors from offering consumers a choice of services that would erode the monopolist’s market share.

Such economically rationale behavior is behind the regulatory agenda of the BOCs.  Rather than spending their capital on deploying new and innovative services, the BOCs have, in recent years, devoted hundreds of millions of dollars to a campaign with one primary goal: scaling back the 1996 Act and limiting competition wherever possible.  Rather than embrace the wholesale market opportunity created by the 1996 Act[2], the BOCs have sought to eliminate competitive entry. 

Covad strongly believes that competition, not monopoly, is responsible for the broadband deployment that has exploded since the passage of the 1996 Act.  As set out below, monopoly telephone companies that had broadband technology on their shelves did not begin deploying such services until competitors forced their hands.  That nearly 10% of Americans actually subscribe to broadband services today and that at least half the country has access to such services when they wish to subscribe is a testament to the benefit of competition.[3]

One of the most objective means of gauging the pace of broadband deployment is to compare it with the adoption rate of other innovative technologies.  For example, the pace of adoption of Consider first the introduction and deployment of cellular phone technologies was initially glacial, due to a regulatory duopoly that had no incentive to compete on price. When a that stagnant duopoly in service providers gave way to vibrant competitive marketplace with numerous players, prices dropped, innovation increased, and infrastructure investment occurred at a rapid pace.

The adoption rate of broadband is also impressive when measured against other new technologies. The roughly 10% adoption rate of residential broadband virtually mirrors the adoption rate of DBS Satellite TV service upon its introduction. After five years, DBS penetration also stood at roughly 10%.[4] Further, the adoption rate of residential broadband is much greater than the initial penetration rates of other “new” technologies. As the Federal Communications Commission noted in its first Section 706 Advanced Services report, both the color television and the cellular phone demonstrated slow initial penetration rates upon introduction.[5]   These dynamic new technologies, like broadband, were not instantly accepted by consumers, who needed to be convinced that it was worth their while to purchase something they had never seen before, and didn’t know they needed.  So too with broadband.

A Morgan Stanley Dean Witter study predicts that by 2005, 93% of U.S. homes will be passed by cable modem service, and a full 80% will be passed by DSL service.[6]  The Morgan study assumes that the current regulatory structure will remain intact. The fact that – according to current estimates - nearly 10 years out from the introduction of competition, almost every home in America will be able to purchase a broadband service is perhaps the greatest testament to pro-competitive public policies.  

Considering the slow adoption rate of disruptive technologies in the past, the 10% subscription rate of broadband services is remarkable.  Broadband services were not deployed in earnest until mid-1999, and a ten percent take rate of such services after only two years is nothing short of an explosion.  The reason for such success is simple: consumer demand for broadband services is high, and the rush to meet that demand exists because of the ability of a wide variety of competitors to offer service to consumers. This is the hallmark of the Consider next the vast success of the pro-competitive policies of the Telecommunications Act of 1996 (the “Act”)1996 Act.  The Act help usher in the broadband era in which we now live.   

Additionally, broadband is being deployed in rural areas that are not served by the BOCs. The National Telephone Cooperative Association, the organization composed of the nation’s true rural telephone companies, recently reported that 60% of rural customers can order a basic broadband service, though only 3-4% choose to do so.[7] The NTCA study proves again that there is no crisis in the deployment of broadband. Clearly, the services are available. And at least in these areas, customers are just not yet convinced that the value proposition is worth it.

Once competition was introduced into the local telecommunications market, broadband deployment increased significantly, including deployment for the first time by the incumbent telephone companies. But the telephone companies did not deploy DSL services until competitors began to do so; indeed, Covad was one of the first companies in America the country toof offer DSL on a commercial basis. In fact, we believe that the existence of wireline competitors like Covad has been a key factor in driving broadband deployment across the entire industry. In support of that belief we offer tThe following DSL deployment statistics strongly support that theory:

 

 

 

            Carrier

Year-end 1998

Year-end 1999

Year-end 2000

3Q 2001

Verizon

N/A

N/A

540,000

975,000

Bell Atlantic

 

30,000

N/A

 

GTE

 

57,000

N/A

 

Qwest

N/A

N/A

255,000

391,000

USWest

 

110,000

N/A

 

SBC

 

169,000

767,000

1.2M

BellSouth

 

20,000

215,000

463,000

Covad

 

57,000

274,000

346,000

Northpoint

 

23,500

110,000

 

Rhythms

 

12,500

67,000

 

Other CLECs

 

12,000

56,918

 

Yearly Total

Roughly 38,000

491,000

2.3 Million

3.4 Million

Compiled using analyst estimates and industry press releases

             

The incumbent telephone companies will likely argue in this proceeding that there was no consumer demand for broadband services prior to 1996 because the commercial use of the Internet had not yet created such demand.  This chicken and egg argument is difficult to resolve, but the fundamental economic motivator of the telephone companies is not.  Prior to the deployment of DSL, businesses seeking broadband services had one choice T-1 services from the phone company.  Cable companies do not generally reach businesses, and even where they do, the shared bandwidth nature of cable modem services is inadequate in both speed and security to address business-class service needs.  Telephone company T-1 services, priced in the pre-1996 market at upwards of a thousand dollars a month, were in heavy demand because they were the only option for businesses.  These businesses were not surfing the Internet they relied on T-1 services for their data needs irrespective of the development of the public Internet.  The advent of competition, and the deployment by Covad of business-class DSL services costing a fraction of telephone company T-1 prices, offered businesses higher-speed services at lower prices. Despite the invention of DSL technology in the 1980s, telephone companies did not deploy DSL services until competitors began to eat away at the lucrative T-1 revenue.

The significance of this history for the instant proceeding is the risk of return to the pre-1996 broadband marketplace.  The telephone companies argue before regulators and legislators that they have no incentive to deploy new broadband services because unbundling obligations chill any investment incentive they would otherwise have.  To uncover the facial invalidity of that argument, NTIA need only look to the pre-1996 broadband deployment of those same companies.  With DSL technology available to deploy, and business demand for broadband data services high, did the telephone companies deploy DSL, a lower price, higher-bandwidth service than T-1 services?  No.  Despite the lack of investment disincentives, the telephone companies did not deploy DSL, because they had no competitive pressure to do so, and thus did not wish to voluntarily reduce their monopoly profits.  Only when Covad and others began eroding that lucrative T-1 profit stream by offering consumers DSL services at lower prices did the telephone companies themselves begin deploying DSL.  Today, demand is high, and competitors are meeting that demand with lower-priced, innovative services.  The telephone companies are claiming that their unbundling obligations are deterring their willingness to address that demand, but the recent explosion in BOC DSL deployment tells a different story.  Incentive comes from meeting a market demand in this case, the demand for broadband services.

While promoting competition between service delivery platforms is important, Covad clearly demonstrates the utility in promoting competition over the public telephone network.  The Administration should not promote or adopt policies that focus solely on inter-modal competition. In particular, adopting policies that focus on competition between cable companies and telephone companies will not spur broadband deployment. Consider the attached chart.[8]  In 1996 and 1997, Time Warner Cable, Adelphia, MediaOne, and Cablevision all rolled out broadband in Bell Atlantic’s (now Verizon) service territory. Did the telephone company respond to this competition by deploying its own broadband?  No. In fact, Bell Atlantic did not even announce the availability of DSL until mid-1998. In the meantime, CLEC after CLEC began turning up service in the Northeast. And when Bell Atlantic finally deployed DSL, it initially focused on Washington, D.C., a market where CLECs also operated.

Clearly, the advent of competition from cable is not enough of an incentive for the phone company to deploy. It is only competition from DSL providers, offering services similar to the BOCs that compete directly with the BOCs, that provide enough incentive for the BOCs to deploy. While competition between service platforms is obviously important, it is not enough to get the job done.  The fundamental question before the Administration is this:  more competitors, or fewer competitors?  Which provides more benefits to the American people seeking broadband services?  Covad submits that the answer is clear:  more competitors means more innovation, better service, and lower prices for consumers.  Fewer competitors means less innovation, poorer service, and higher prices.  The Administration should remember the lessons learned from the duopoly days of wireless cellular service, where prices remained high, innovation low, and service poor while the duopoly remained in place.  When regulators took steps to further open the wireless market to competition beyond merely two players – innovation exploded, prices plummeted, and wireless subscribership exploded.  Those positive developments benefited consumers only after the wireless spectrum was opened to a wide variety of new entrants.  The same is true of wireline broadband services.  The variety of innovative broadband services priced at market rates is a result of the wide variety of providers that offer service to consumers.  The Administration should be wary of BOC claims that a broadband duopoly – cable modem and BOC providers dividing up the market alone – is the model that will best serve consumers.  Like the wireless experiment, a duopoly in the broadband marketplace will stifle innovation and harm consumers.

Question 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?

           

Covad does not believe – and finds little evidence to support – the notion that the unbundling and interconnection requirements of the Telecommunications Act are a disincentive for the ILECs to deploy new facilities. As we all know, theThe statute requires competitors to pay rates that equal the ILEC’s “cost” plus a “reasonable profit” for accessing the public telephone network.[9] Thus, the ILECs are ensured of recovering their investment, plus a “reasonable profit.” The problem, to the extent one exists, can therefore not be one of interconnection and unbundling.The basic BOC argument is that their incentive to deploy broadband services disappears when such network investment must be (1) shared with competitors (2) at a price that does not ensure a reasonable return based on the investment risk of deploying new services.

            First, the BOCs argue that they lose investment incentive if they must share “new” facilities with competitors.  The telephone companies appear to concede the need to unbundle legacy network facilities i.e. those in the ground on February 8, 1996, when the Telecommunications Act became law – but they argue that any new network facilities deployed after such date should not be subject to unbundling. 

At a more basic level, the BOC argument that new facilities should not be subject to unbundling raises an obvious question: did Congress intend, in passing the 1996 Act, to subject only legacy facilities to unbundling, and exempt any new construction from such rules?  The answer is clearly no. There is nothing in the language of the 1996 Act to support such an argument.  Congress did not limit unbundling to only what was in the ground on the date of enactment, and the 1996 Act and its legislative history are devoid of such language.  Indeed, the best evidence of that fact is the legislative pursuit by the BOCs of changes to the Act to support the exemption of new facilities from unbundling.  Had Congress already done so, the BOCs would not bother utilizing their resources in Washington in pursuit of an unnecessary legislative fix.

If the BOCs were truly concerned simply about the price they were able to recover from requesting carriers, that issue could be easily addressed by the BOCs in the existing statutory environment.  Section 252 of the Act requires state commission to conduct pricing proceedings to determine the price that the telephone companies may charge for each unbundled network element.  Each state is required to determine the “cost” of a particular facility, and also required to apply the TELRIC methodology when seeking that cost. Covad’s position has routinely been that the cost the ILEC proves to the state should be the cost the ILEC is allowed to charge. The argument that TELRIC will prohibit the ILECs from recovering their costs of building new facilities is, at this stage, simply a guess on their part.  Rather than seek to adjust the prices they can charge competitors for “new” loops, the BOCs have chosen to pursue eliminating the unbundling obligation entirely.  For example, H.R. 1542 (the primary BOC-backed legislation concerning broadband deployment) does not address the pricing provisions of the 1996 Act at all.  If the BOCs were sincere in their advocacy that they are deterred from investing in broadband capabilities because they cannot recover their costs sufficiently from competitors, it would seem likely that the BOCs would seek a legislative fix that included pricing protection.  Instead, the BOCs seek only to eliminate the unbundling obligation entirely.

            To the extent that the telephone companies do quarrel with the methodology by which state commissions set prices for network elements, that quarrel is squarely before the Supreme Court.  In AT&T v. Iowa Utilities Board et al[10], incumbent telephone companies are pressing their claim that existing pricing rules – including the so-called TELRIC methodology – are confiscatory and do not permit incumbents to recover their costs.  The proper venue for that argument is the courts, and then should any remand ensue, the FCC.  The existing processes currently in motion, and those after the Supreme Court decision, will resolve these pricing arguments.  To the extent the incumbent LECs have a more immediate need for relief from the existing pricing scheme, they should be petitioning the state commissions for an adjusted cost of capital (permitted under the TELRIC methodology) to take account of the costs of new investment.  Again, rather than pursuing this logical course, the BOCs have chosen instead to attack the underlying unbundling obligations and seek to eliminate them entirely.  If the Administration supports that effort, it risks creating a new digital divide in America.  If the BOCs are granted the unbundling relief they seek, all Americans who have the misfortune to live in homes served by loops that are mixed copper and fiber will have only one broadband provider:  the BOC.  At the same time, consumers served by all-copper loops will have a wide variety of broadband service offerings to choose from.  The new digital divide – between consumers lucky enough to be served over home run copper and those who are not – will be the unintended consequence of accepting the BOC calls for “deregulation.”The ILECs have taken their unhappiness with TELRIC to the Supreme Court, and a decision is expected in the Spring. Further, the Federal Communications Commission (FCC) has considered this in the past, and affirmed the validity of TELRIC. Of course, the ILECs are free to petition the FCC to review TELRIC again. Covad therefore believes that if a problem exists with TELRIC, it is being dealt with in the appropriate forum.

            Whatever the result of the TELRIC fights, Covad firmly believes in the importance of unbundling and interconnection to furthering the goal of competition. . Covad is buoyed by the support ofIndeed, FCC Chairman Michael Powell recently reaffirmed the FCC’s dedication to the unbundling rules that are so crucial to the development of facilities-based competition, who said recently at a convention for the Association for Local Telecommunications Services (ALTS):

“I am guided by a strong belief in facilities-based competition. I have consistently expressed my view that facilities providers…are the key to robust

competition. Facilities-based competitors offer the promise of more substantial and enduring investment in local markets. They are less dependent on incumbent carriers;

which means less regulatory morass, fewer ways for the incumbent to frustrate competitive entry, and greater product and cost differentiation.

 

You should understand that when I speak of facilities-based providers we mean [ALTS member companies], not just full facilities providers like cable companies. I recognize that access to the loop, critical network elements, and collocations remain important.”[11] 

 

Covad appreciates and supports Chairman Powell’s understanding of the importance of unbundling and interconnection, and believes that the Chairman is correct. The importance of unbundling in promoting competition should not be lost in the arguments over pricing methodologies. Access to the last mile will always be necessary for vibrant competition.

Question 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?

           

Covad and other competitive LECs operate by leasing the last mile of the phone network. The last mile is the bottleneck facility of local telecommunications, and the focus of the core market-opening provisions of the 1996 Act. Congress in 1996 correctly recognized that no carrier or company would be able to duplicate the last mile, and that it was in fact illogical and duplicative to do so. Therefore, Congress established the unbundling scheme to allow competitors access to the portions of the phone network that simply could not be duplicated.  Given the technical and economic impossibility of duplicating the last mile, the unbundling provisions of the 1996 Act provide a logical means of ensuring competitive access to all homes and businesses in the country.  That logic applies equally to loops made of copper, a mix of copper and fiber, or any other material.

When it comes to the last mile, attempting to distinguish between “old wires” and “new wires” is not only irrelevant, it would be virtually impossible from a competitive perspective.

For example, incumbent telephone companies are required to unbundle their operations support systems (OSS), the computer systems that enable competitors (and the telephone companies themselves) to garner the information necessary to place orders and deploy service to customers.  If a telephone company modifies its software to add new features, or update existing features, and such changes are implemented after 1996, does the telephone company alone get to utilize those features?  Clearly not – they are still a part of the legacy bottleneck OSS that competitors must access in order to interconnect with the telephone company and offer service to consumers.  A tragic example of the fallacy of the BOCs’ argument exists in New York City. 

Following the terrorist acts of September 11, Verizon’s central office at 140 West Street in lower Manhattan was destroyed.  Verizon spent weeks replacing the loops, switches, and other network facilities that were damaged or destroyed.  By replacing such facilities, does Verizon now get to claim that all customers served out of the 140 West Street central office are inaccessible, because unbundling obligations no longer apply to those “new” loops?  Of course not.  The mere fact that Verizon undertook to construct “new” facilities after the 1996 Act passed does not mean that competitors have no need to access such bottleneck facilities.

The same is true of “new” construction that the BOCs seek to undertake voluntarily. When a telephone company upgrades a piece of its bottleneck network, like a local loop, it does not change the fundamental nature of that bottleneck facility.  In other words, the justification for requiring the unbundling of that local loop does not disappear simply because the BOC changed the material that the loop is made of (from, for example, all copper to a mix of copper and fiber).  Rather, the loop is still a bottleneck facility, and competitors still need access to that facility in order to compete with the BOC.  Much as an upgrade to software does not obviate the need to unbundle OSS, an upgrade to a transmission facility does not eliminate the need to unbundle local loops.

The notion that competitors would be able to operate successfully by using only the legacy facilities is also unsound.  Relegating competitors to an all-copper phone line rather than allowing them to access the copper/fiber phone line is the equivalent of not allowing access to any phone line. First, DSL is a distance-sensitive technology, and only works over copper. The residential form of DSL can be delivered over copper lines that are up to about 18,000 feet long. Any home that has a copper phone line longer than that is generally unable to purchase residential DSL. The main driver behind the deployment of fiber/copper phone lines is the prospect of being able to offer these out-of-reach customers very high-speed DSL connections. The new architecture uses fiber to push the broadband equipment closer to the home, and therefore shorten the copper phone line. At the outset, though, the new hybrid fiber/copper loop is still the loop – it is still the bottleneck last-mile facility.  If competitors were unable to access that loop, they would be unable to offer any service to those customers, and the BOC would have a monopoly once again over the local loop.

Being walled-off from certain neighborhoods, as such a policy accomplishes, would significantly impact the entire competitive industry.  For example, Covad employs a wholesale business model by acting as a provider of telecommunications services to commercial Internet Service Providers (ISPs) like Earthlink and Speakeasy.  The ISPs order DSL lines from Covad, and Covad in turn works with the BOC to order and install the lines. ISPs like Earthlink also buy DSL directly from the BOCs, and Covad competes with the BOC for Earthlink’s business. If competitors were unable to access any customer served by a “new” fiber/copper phone line, the BOCs would enjoy a clear advantage in network scope and service. ISPs would be more inclined to sign contracts with the BOC because the BOC enjoys access to all customers, and not just some.  Because ISPs do not provide telecommunications services, but instead rely on telecommunications providers for such services, the BOC would become the gatekeeper to broadband services for any area where a “new” line exists.  Competitive LECs and ISPs would be shut out of the broadband picture.

Finally, as discussed above, the main focus of the 1996 Act was the unbundling of the last mile so any company or carrier did not have to duplicate the last mile. The Administration must draw a clear policy distinction between the retail services of the incumbent telephone companies and their wholesale obligations.  That is, the telephone companies are subject to unbundling obligations because they control the bottleneck last-mile facilities.  The existence of other retail competitors, regardless of platform, is not relevant to the issues of the wholesale obligations to unbundle that bottleneck network.  That cable modems or other broadband providers exist and offer service to consumers has no relevance to the issue of whether competition should continue – or be shut off and returned to a monopoly – over the nation’s telecommunications network. 

The Administration should also be wary of the red herring argument of the BOCs that the lack of unbundling obligations on cable modems should lead regulators to “level the playing field” by lifting unbundling obligations on the telephone network.  The fact that Congress opened the monopoly Bell network to competition by imposing unbundling obligations on bottleneck facilities has nothing to do with the cable networks, which were built without a government-grant of monopoly and without protection from competition and a guaranteed rate of return.  Rather than challenge the logic of that market-opening congressional action, the BOCs seek to confuse the issue by claiming that unbundling should only be eliminated as to “data services” or “broadband” services.  But there is no such limitation in the 1996 Act (hence the reason that the BOCs are pursuing legislative changes), and the Administration should not support such a policy change.  Simply put, the last-mile unbundling obligations apply to transmission facilities, not retail services.  Those unbundling obligations in no way restrict the ability of BOCs to offer retail DSL services, and indeed as set out in the chart above they are doing so with great success.  Thus, Congress wisely made the unbundling obligations technology-neutral, anticipating correctly that competitive LECs would make wide use of local loops and other UNEs to offer the greatest possible variety of innovative services.  Covad and others did just that, by using unbundled loops to offer broadband data services that were previously unavailable to consumers.   Now, in the face of that competition, the BOCs are seeking to roll back the unbundling obligation by barring competitive LECs from using local loops to offer broadband services.  In support of that effort to squelch competition, the BOCs claim that the cable companies are unfairly exempt from unbundling obligation.  The simple fact is that, despite this red herring argument, Congress has spoken on the issue – the BOCs’ network are no longer a monopoly.  The Administration should resist BOC efforts to reestablish that monopoly to the detriment of the nation’s consumers.

Conclusion

What should the Administration’s broadband policy look like?  Covad submits that the blueprint for that policy is already in place.  Congress acted in 1996 to end a century of monopoly and open up the telecommunications network to competition.  In just five short years, consumers in America have enjoyed the rapid deployment of a wide variety of innovative services at market prices – and in particular, broadband services that are available today to more than half the country.  The nation’s broadband policy is competition, and competition is working to bring broadband services to a nation that saw 0% broadband penetration only a few short years ago.  That competition is vital to the continued growth and expansion of broadband services.  It ensures a wide variety of service providers, rather than monopoly or duopoly providers.  It ensures innovation, where absent competition there is none.  Most importantly, it ensures that the nation’s economy benefits from a multitude of service providers, equipment manufacturers, content providers, and the thousands of companies, employing hundreds of thousands of Americans, that exist because of competition.  The 1996 Act is working, and any moves to step back from the competition that the 1996 Act has produced could bring a rapid halt to the broadband deployment revolution that the Act sparked.

 

 

 

 

 

 

Respectfully submitted,

/s/ Jason Oxman

Jason D. Oxman

Assistant General Counsel

 

Timothy Powderly

Senior Policy Advisor

 

Covad Communications Company

600 14th Street, N.W.

Suite 750

Washington, D.C. 20005

202-220-0400 (voice)

202-220-0401 (fax)



[1] See  Covad Expected to Exit Bankruptcy December 20 as Court Confirms Reorganization Plan,” Press Release dated Dec. 13, 2001, available at http://www.covad.com/companyinfo/pressreleases/pr_2001/121301_press.shtml

[2] For example, every retail customer that Covad serves is connected to Covad's network via an unbundled local loop.  Covad pays a monthly recurring charge for the loop to the incumbent LEC.  Thus, for every retail customer the incumbent LEC loses, it gains a wholesale customer and garners a recurring revenue stream from its competitor.  There is no other business that allows -- indeed, mandates -- such an incredibly fortuitous business arrangement.  Yet despite this revenue windfall, the BOCs still seek to limit their unbundling obligations to the obvious detriment of their wholesale business.  This suggests that their true motivation is a remonopolization of the network.

[3] eMarketer, “US Household Broadband Penetration, 2000-2004” Econtent, September 2001.

[4] Bass, Frank M. “DirectTV: A Case History of Forecasting.” Accessed at http://www.utdallas.edu/~mzjb/.

[5] Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, CC Docket No. 98-146, Report, 14 FCC Rcd 2398 (1999)

[6] Morgan Stanley, “The Sequel: Open Access Is Better.” June 29, 2001

[7] NTCA 2001 Internet/Broadband Availability Survey Report, December 2001. Available online at http://www.ntca.org/leg_reg/white/2001bb_survey.pdf

[8] http://www.competitivebroadband.org/1041/

[9] 47 U.S.C. 252(d)(1) provides that rates shall be “based on the cost of providing the interconnection or network element, and… may include a reasonable profit.”

[10] AT&T Corp. v. Iowa Utilities Bd., 531 U.S. 1124, 121 S.Ct. 878 (U.S. Jan. 22, 001)

.

[11] Remarks of Chairman Michael Powell before the Assosciation of Local Telecommunications Services (ALTS) conference, November 30, 2001, available online at http://www.fcc.gov/Speeches/Powell/2001/spmkp111.html