Senior Vice President
100 Lake Street
Dallas, PA 18612
December 19, 2001
Office of the Chief Counsel
National Telecommunications and Information Administration
Room 4713 HCHB
Constitution Avenue, NW
Washington, DC 20230
Re: Notice and Request for Comments on Deployment of Broadband Networks and Advanced Telecommunications.
Dear Ms. Scarlett:
RCN Corporation (“RCN”) respectfully submits these comments to the National Telecommunications and Information Administration (“NTIA”) in response to the Notice and Request for Comments on Deployment of Broadband Networks and Advanced Telecommunications, issued November 14 and published in the Federal Register on November 19, 2001, at 66 Fed. Reg. 57941 (“Notice and Request”). In the Notice and Request, the NTIA solicited input on a broad range of topics pertaining to the deployment of advanced services. RCN appreciated the opportunity to address many of these issues in person to Assistant Secretary Nancy Victory and the NTIA staff present at the agency’s October 12, 2001, forum on broadband deployment issues. In these comments, RCN will elaborate on several issues addressed in the Notice and Request that are of special concern to RCN as the nation’s first and largest facilities-based competitive broadband provider of bundled phone, multi-channel video, and highspeed Internet services. Specifically, RCN will address in these comments: 1) local rights-of-way access problems, which are perhaps the greatest impediment to the deployment of broadband facilities, and 2) the current proposed tax credits for new broadband facilities, which, although designed to create an incentive, will in fact grossly tip the balance in favor of incumbent providers and therefore deter the deployment of competitive broadband infrastructure.
I. About RCN
RCN is the pioneer bundled service provider, and a veritable “poster child” for broadband competition. RCN has negotiated cable television and open video system (“OVS”) agreements with some 80 localities. The company is certificated as a competitive local exchange carrier (“CLEC”) in numerous states. And, unlike the vast majority of competitive telecommunications providers, RCN is focused on bringing competitive services to the residential market. RCN currently is providing phone, multi-channel video, and highspeed Internet service in the Boston, New York, Philadelphia, Chicago, San Francisco and Washington, D.C. metropolitan areas, in competition with the incumbent local and long distance telephone companies and the incumbent cable television providers in those markets. RCN’s infrastructure at the beginning of 2001 passed 1.45 million homes; it will reach many more by year’s end.
From its position as the foremost provider of competitive phone, multi-channel video, and highspeed Internet services to residential customers, RCN represents precisely the kind of competitive provider Congress sought to enable when it opened the telecommunications market to competition in 1996. It is important to note, however, that for RCN to become a viable competitor in the marketplace has required, and will continue to require, a vast investment in broadband infrastructure, which can only begin to yield revenue as RCN’s plant becomes operable and customers make the switch from the incumbent’s service to RCN’s. Thus, it is essential that the statutory and regulatory environment for broadband deployment continue to recognize the fundamentally different challenges facing incumbents – who, although their infrastructure may be outdated, nonetheless enjoy entrenched market share and an ongoing revenue stream – and those facing competitors – who must finance and build out their infrastructure, then capture market share, before beginning to see profitability.
II. Access to Local Rights-of-Way as a Barrier to Broadband Deployment
As Congress recognized when it enacted the Telecommunications Act of 1996 (“1996 Act”), access to local public rights-of-way at reasonable cost, nondiscriminatory treatment of providers in granting access, and the removal of local barriers to market entry, all are critical to the deployment of competitive telecommunications infrastructure. This is especially so in the case of creating broadband infrastructure, which requires, by definition, the widespread deployment of new, state-of-the-art fiber optic networks.
In Section 253 of the 1996 Act, codified at 47 U.S.C. §253, Congress expressly prohibited state and local statutes, regulations, or other legal requirements that “may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.” The purpose of this section, as Congress made clear in the House and Senate Conference Report on the 1996 Act, is “to remove all barriers to entry in the provision of telecommunications services.” Recognizing, however, that localities need to retain their traditional police power authority to manage the physical use of local rights-of-way so as to protect the public health, safety, and welfare, and to be compensated for the costs of such rights-of-way management, Congress also provided in Section 253 that: “Nothing in this section affects the authority of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way on a nondiscriminatory basis, if the compensation required is publicly disclosed by such government.” Unfortunately, many localities have used their control over essential public rights-of-way to extract unlawful concessions from competitive broadband providers and to impose regulation that goes beyond simple rights-of-way management.
The Federal Communications Commission and the federal courts, in subsequent decisions interpreting and applying Section 253, have reviewed the legislative history and concluded that Congress meant, in the exception quoted above, just what it said: that localities retain the limited authority to manage their rights-of-way, but are not empowered to regulate telecommunications providers generally. According to the FCC, permissible rights-of-way management includes coordinating construction schedules, regulating the time and location of excavation in public streets, requiring the placement of facilities underground instead of overhead (if consistent with the requirements imposed on other utility companies), requiring fees to recover from each telecommunications company a proportionate share of the increased cost of street repairs and paving necessitated by excavations, enforcing zoning rules and building codes, and appropriate insurance, bonding, and indemnification against any claims of injury that might arise from a company’s excavation, and keeping track of various networks in the rights-of-way to prevent interference among them. See In the Matter of TCI Cablevision of Oakland County, Inc., 12 FCC Rcd. 21,396, at ¶ 103 (rel. Sept. 19, 1997); In the Matter of Classic Telephone, Inc., 11 FCC Rcd. 13,082, at ¶ 39 (rel. Oct. 1, 1996).
Nonetheless, despite these precedents and the clear intent of Congress, many localities, under the guise of rights-of-way management, continue to impose onerous, discriminatory franchise requirements and excessive fees wholly unrelated to use of the public rights-of-way. Like a great many other CLECs and competitive providers of video distribution services, RCN has experienced a wide variety of difficulties in seeking access to local rights-of-way. These difficulties have ranged from excessive delays, to the attempt to extract excessive concessions, to refusals to treat incumbents in the same fashion as proposed for RCN, to local efforts to regulate interstate telecommunications, and, not least, to a wide variation in local policy and practice. These factors have materially slowed RCN in the build-out of its state-of-the-art fiber optic plant, added substantially to its overhead and construction expenses, and impaired the design and construction of integrated or unified systems in multi-jurisdictional settings such as that in the Washington, D.C. metropolitan area. In the most egregious cases – and there are many – localities demand, as a condition of granting rights-of-way access, that providers contractually waive their right under the 1996 Act to sue to gain the localities’ compliance with the Act’s terms! For example, the City of San Francisco required RCN, over RCN’s strenuous objection and as a condition of receiving a cable franchise from the City, to execute language stipulating that RCN: “Agrees that this Franchise was granted pursuant to processes and procedures consistent with Applicable Law, and that it will not raise any claim to the contrary, or allege in any claim or proceeding by Grantee against the City that any provision, condition or term of Applicable Law or this Franchise at the time of its acceptance was unreasonable, arbitrary, or void, or that the City had no power or authority to make or enforce any such provision, condition or term . . . [and] Releases, waives and discharges forever, to the maximum extent permitted by Applicable Law, any and all claims, demands, rights, and causes of action against, and covenants not to sue, the City and its Agents, under any present laws, statutes, or regulations, arising out of any acts, omissions, or matters relating to this Franchise as of the Effective Date.” Although RCN explicitly disagreed with the City that the City had authority under federal law to demand certain concessions contained in the franchise, including the waiver of rights clauses quoted above, RCN had no choice but to waive its rights, or undertake lengthy and expensive litigation to obtain a franchise without the offending terms.
1. Rights-of-Way Access Problems Encountered by RCN
The problems that RCN has experienced in seeking access to local public rights-of-way to deploy its broadband facilities fall into the following broad categories.
A. Inaction or Delayed Action
In many cases, the principal problem has been that local authorities vested with the responsibility and obligation to grant access to local public rights-of-way do not know how to proceed with respect to competitive telecom or video distributors. Their prior experience has not encompassed the issues presented by numerous carriers seeking access to the public rights-of-way. These issues include coordination of numerous carrier requests, the need for rapid determinations, and the need to assure equality in establishing access rights. In some instances, the incumbent telephone and cable providers historically have worked with the city on an informal basis to gain approval of their construction projects as needed, so there are no formal procedures in place for processing rights-of-way access requests. The result is often substantial delay, while local decision-makers think about how to deal with competitors’ requests and contemplate what they would like to get in exchange for access; occasionally such delay amounts to inactivity altogether. Some localities – fully aware that delay is exceptionally costly to new entrants, because, as discussed above, they will have no revenue until they can get their facilities built – also use delay as a strategy to gain competitors’ acquiescence to discriminatory terms and conditions. In the current market, where capital is scarce and speed to market is key to competitive providers’ survival, providers often have little choice but to accept a locality’s terms in order to commence construction, even where the terms violate the 1996 Act.
B. Excessive Access Fees
Many local authorities appear to believe that the competitive telecommunications industry is an appropriate source from which to extract substantial revenues. While some jurisdictions have accepted the notion that fees should be based only on the costs to the local government of supervising access, providing the requisite support, maintaining records, or repaving streets, others ask for access fees, both in cash and in services, which grossly exceed any conceivable cost to the government and which are, pure and simple, revenue generators.
The equality of access issue arises most commonly in the context of a new competitor wishing to have use of the public rights-of-way to compete with the incumbents who, of course, already are using such public rights-of-way ubiquitously. Because the cost of installing distribution plant is one of the major elements of a new entrant’s cost structure, it is crucial that access to public rights-of-way be established on an equitable basis. If the incumbent’s plant uses public rights-of-way without making any payments therefor, or if such payments are nominal, then competitors should not be asked to pay more. Some local authorities take the position that they would like to charge the incumbent as much as they propose to charge the new competitor (although virtually never that the new competitor should have access at the same nominal level as the incumbents), but cannot do so because existing law or practice precludes increasing charges to the incumbent. See, for example, the Comments of the Department of Information Technology and Telecommunications of the City of New York, filed in FCC Docket WT 99-217 on August 13, 1999. Furthermore, in many instances, RCN has been asked to use underground ducts rather than aerial distribution for aesthetic reasons. At the same time, existing providers, with whom RCN competes, are allowed to continue use of the less expensive aerial routes and even, in some cases, to use poles for expansion while RCN is asked to construct its new facilities entirely underground. In many of its cable and OVS agreements, RCN has been required to agree to meet aggressive build-out schedules that far exceed the speed with which incumbent providers were required to build out their original, monopoly networks. These and other inequities in the treatment of new entrants clearly violate Congress’ intent to create a level competitive playing field.
D. Variations In Local Practice
In addition to the foregoing, the enormous variation in local practice creates substantial burdens, delays, and costs for the new competitor. A carrier like RCN, which seeks to provide service in hundreds of locations, must deal with an equal number of local authorities, essentially each of which has its own procedures, priorities, and approaches to setting rates, terms and conditions. Understandably, such variation is endemic to the geographical diversity involved in establishing a wide-spread system, and total uniformity cannot be expected. But the variation which does exist is so substantial that it has become a significant barrier to the rapid and effective deployment of facilities and development of competition. Not only does wide variation in policy and practice lead to differences in the time required to secure access to public rights-of-way, but in many instances contiguous communities, by requiring RCN to follow wholly dissimilar procedures, have delayed the inauguration of service not only in their own communities but in neighboring ones as well.
E. Unnecessary Or Burdensome Application Procedures
In many jurisdictions, RCN has encountered efforts to secure information or obtain concessions from an applicant for public rights-of-way access that go well beyond any legitimate connection to rights-of-way management. Review of information such as corporate history, the types of service to be provided, other service areas being served and the like, is simply irrelevant to a public rights-of-way access request. RCN recognizes that certain inquiries are legitimate: local government is entitled to solicit information on the basis of which it can inquire about whether the applicant has previously been found responsible with respect, for example, to performing excavations or following standard safety procedures. The scope of such inquiries, however, must be carefully defined by rule and broader inquiry prohibited. While these inquiries may seem innocuous, responding to them in each of the many localities through which RCN’s networks travel, then waiting through lengthy review periods, is both burdensome and adds to already excessive delays. Similarly, RCN often is asked to agree to terms and conditions taken from traditional government contracts involving the expenditure of public monies, such as local hiring requirements, use of minority- and woman-owned subcontractors, and so on. Such requirements are wholly inappropriate when imposed in connection with rights-of-way access agreements, where no public monies are being expended (and, in fact, RCN is paying the locality a huge fee). Moreover, such obligations, however laudable in principle, are unwieldy when each of multiple jurisdictions through which a single network pass attempt to attach their own unique government contracting requirements to the project.
Again, because a single broadband network typically must traverse multiple local jurisdictions, the provincial concerns of one can delay broadband access for many. Many localities require city council approval by ordinance as a pre-requisite to allowing a provider to access local public rights-of-way. Thus, a small group of recalcitrant council members or a single local mayor can hold up construction of an entire network. A similar problem can occur when local authorities retain outside consultants or counsel who provide improper advice. In one such instance, involving a number of municipalities in the Bucks County region to the northeast of Philadelphia, RCN was unable to build out to communities in which it already had obtained franchises, because an attorney retained by several other towns along the planned network route advised those jurisdictions to demand a unlawful franchise term to which RCN could not, and would not, agree, namely: payment of a recurring 5% of gross revenues franchise fee on the provision of broadband Internet services. Unable to reach an agreement with the towns demanding this blatantly unlawful payment, RCN could not gain access to essential rights-of-way and, therefore, was forced to abandon that entire portion of its route. This example illustrates the huge impact that overreaching local regulation in connection with control of the rights-of-way can have in deterring the deployment of broadband services. Although it may seem incredible that a locality would deprive its constituents of the opportunity to have access to additional broadband services in favor of clinging to unreasonable compensation and other demands, Prince George’s County is one such well-documented case. When Prince George’s County enacted its over-reaching local franchise ordinance, Bell Atlantic – having the time and resources that only incumbency can provide – brought suit in federal court under Section 253 of the 1996 Act, challenging the County’s requirements. The District Court struck down the ordinance, but the Fourth Circuit reversed, holding that the District Court should have looked first to state law, before preempting the County ordinance under Section 253. On remand, the District Court again found that the ordinance exceeded the County’s authority, this time applying Maryland law. Through all of this litigation, over the course of several years, the County has not budged from its initial position and, in consequence, the vast majority of competitive broadband providers have simply elected to construct their networks elsewhere.
2. Suggested Remedies
The problems discussed above are real, and there is no question that these problems, which virtually every competitive telecommunications carrier has experienced, are inhibiting the deployment of broadband infrastructure. As the capital available for construction of new infrastructure has contracted, so too have providers' build-out plans, and companies like RCN are increasingly electing to simply bypass those communities that have made accessing local rights-of-way too difficult or costly.
To remedy the rights-of-way access problems discussed above, RCN urges the NTIA to support legislation and/or regulations to clarify and reconfirm the limited scope of local rights-of-way management, and provide federal-level guidance to localities on appropriate rights-of-way management policies, consistent with the 1996 Act, that will foster uniformity, streamline and speed up the approval process, and eliminate excessive and discriminatory fees and other access requirements. Specifically, the matters appropriate for local rights-of-way management regulations, delineated in various FCC and federal court decisions and summarized above, should be catalogued in an amendment to the 1996 Act or new federal regulations. Although there is a significant body of decisional law on the limited scope of local regulatory authority under Section 253, localities often are heard to contend that the cases are ambiguous, inconsistent, or do not constitute binding precedent in their jurisdiction. Further litigation will not remedy this problem; a clear, national policy statement is required. That policy statement, whether in statute or regulations, should adopt from the relevant decisional law the following elements:
· localities are only authorized to regulate – and therefore are only empowered to impose application, approval, and access terms related to – the physical use and occupation of public rights-of-way, and localities may not condition rights-of-way access on unrelated terms and conditions;
· an application for rights-of-way access should be contingent only upon the provider’s agreement to abide by the locality’s reasonable rights-of-way management regulations, and should be approved within a reasonable time frame of no more than thirty (30) days;
· in the interest of making broadband ubiquitously available at competitive prices, localities should recover no more than their actual rights-of-way management costs from telecommunication providers, and should not look to telecommunications providers’ use of public rights-of-way as an opportunity to raise general revenues; and
· the terms, conditions, and fees associated with access to public rights-of-way should be the same for competitive as for incumbent providers, and should be consistently applied.
These simple principles, if applied nationwide and consistently enforced, will greatly reduce local barriers to entry based upon localities’ control over the public rights-of-way, and will greatly speed the deployment of broadband infrastructure throughout the country.
III. Tax Credits Will Inhibit, not Promote, the Deployment of Competitive Broadband Facilities
RCN certainly does not oppose economic incentives to foster the rapid and ubiquitous deployment of broadband to consumers. Indeed, as the major competitive provider of bundled broadband services to residential customers, serving low, middle, and high income customers alike, RCN has been a leader in increasing broadband availability. It is critical to the success of competition, however, that any economic incentives for continued broadband deployment not favor incumbents to the detriment of competitors, or one class of providers or service modality over another. It is in this regard that the current legislative proposals to incentivize broadband deployment fall short. Each of the pending bills has as its centerpiece tax credits for the deployment of equipment and facilities. Tax credits, of course, offset taxable income, and income is what new entrants, by definition, do not have. Because of the cost-intensive nature of constructing facilities-based broadband networks, even the most successful competitive broadband providers are unlikely to see significant taxable income in the near-term. Although some proposals would allow the transfer of tax credits through the sale and lease-back of facilities, such proposals assume the involvement of a third-party – the facilities lessor – who is unlikely to pass the full benefit of the tax credits it would receive back to the lessee competitive broadband provider. In this scenario, competitors would receive a much-reduced benefit as compared with profitable incumbent providers. Moreover, the long-term success of competitive broadband providers will depend upon their ownership and control of their own broadband networks, and will potentially be undermined if competitors are required to rely upon leased facilities owned by others. Of far more use to competitive providers would be amendments to the tax code, currently proposed, that would allow for the sale of net operating losses for cash.
The competitive broadband industry is at a critical juncture. Administration policy on local rights-of-way access, incentives for deployment, and the other issues under consideration by the NTIA and addressed in the Notice and Request will significantly impact whether, as the national economy recovers, competitive broadband emerges as an engine of economic growth, or a casualty of entrenched interests. RCN appreciates the NTIA’s excellent work to date on these issues, and the opportunity to have input as the NTIA considers its agenda for the coming months. If we can be of further assistance in providing background on the issues presented in these comments, or otherwise, please do not hesitate to call upon us at any time.
Senior Vice President
Regulatory & Government Affairs
cc: Assistant Secretary Nancy Victory 392868.1