SMART BUILDINGS POLICY PROJECT’S RESPONSE TO

NTIA REQUEST FOR COMMENT ON DEPLOYMENT

OF BROADBAND NETWORKS AND

ADVANCED TELECOMMUNICATIONS SERVICES

These comments are submitted by the Smart Buildings Policy Project (“SBPP”) in response to the “Request for Comments on Deployment of Broadband Networks and Advanced Telecommunications Services” issued by NTIA.

The SBPP is a coalition of telecommunications carriers, equipment manufacturers, and other organizations that support nondiscriminatory telecommunications carrier access to tenants in multi-tenant environments (“MTEs”). The SBPP was formed after many telecommunications carriers found that building access posed a very serious barrier to facilities-based competition. (Detailed information on the serious problems that competitive carriers face in accessing MTEs is contained in SBPP’s submissions to the Federal Communications Commission (“FCC”). The attached June 21, 2000 filing describes briefly, among other matters, why the marketplace alone cannot alleviate this problem.)

Subjects to be Addressed:

The SBPP comments focus solely on the issue of building access.

In Part I.A. of these Comments, the SBPP addresses “G”, in which NTIA asks about the status of competitive deployment of loop facilities (among other subjects), what market characteristics must exist to make those investments, and whether competitors can deploy their facilities in ways that minimize costs and facilitate efficient network design. In Part I.B. of these Comments, the SBPP addresses briefly the question raised in “F”, to the extent relevant to the building access issue, concerning whether it is“feasible” to draw a line between “legacy ‘non-broadband’ facilities and/or services and new ‘broadband’ facilities and/or services.” Finally, in Part I.C., we also address briefly “N”, whether these issues can be resolved under existing authority or whether legislation is required.

In Part II.A. of these Comments, the SBPP addresses “M”, in which NTIA inquires about impediments to the provision of service to federal customers, buildings and property. In Part II.B., we again touch on “N”, whether these issues can be addressed under existing authority or whether legislation is required.

I.A. (“G”): Loops, Efficiency, Building Access and the Bell Monopoly Legacy

The Bell companies and other local incumbent carriers against whom competitive carriers seek to compete typically have facilities in -- and serve -- virtually every building in their service areas. These incumbent carriers typically enjoy this access free of charge. The breadth of access these incumbents enjoy to virtually every building in their service area is partly what is meant when the industry talks about incumbents providing broadband and other telecommunications service “in-region.”

This free and ubiquitous building access is one of the important legacies of monopoly that gives the Regional Bell Operating Companies (“RBOCs”) and other incumbent local exchange providers (“LECs”) a tremendous economic advantage over competitors for broadband and voice services and creates a significant barrier to facilities-based competitive entry. Competitors sometimes are excluded altogether from multi-tenant buildings by building owners or managers. In other instances, building access for competitors is delayed, or eventually permitted only on costly, discriminatory and burdensome terms.

The Bell companies and other incumbents are major beneficiaries of this discriminatory behavior by building owners, while competitive LECs ultimately are prevented from offering facilities-based competition. This building access barrier protects the incumbents’ market share and imposes much higher costs on competitors who seek to connect new networks to customers in multi-tenant environments. In spite of proclamations by regulators and other policymakers of the central importance, desirability and value of facilities-based competition, the competitors willing to invest in new networks often receive little more than sympathetic words from regulators and policymakers concerning this fundamental issue.

The building access problems faced by potential competitors to the incumbent LECs play a serious role in preventing facilities-based competition, such as the creation of new loops, and ultimately curtail customer choice among a variety of providers. All customers suffer as a result of this building access problem, not only those customers who are denied access to their preferred carrier completely or for a lengthy period by the building owner. Many facilities-based carriers, i.e., those who have provided their own loops, switches, and other facilities, such as Teligent and Winstar, are in bankruptcy. Two things these and other predominantly facilities-based competitors have had in common are: first, the costly and relentless efforts made to win the cooperation of landlords to allow these competitors to reach their customers, and; second, the extensive and persistent effort made to bring the building access barrier to the attention of regulators and legislators to obtain meaningful pro-competitive relief.

NTIA wisely asks about efficiency in the provision of loops and other competitive network facilities. The building access issue raises costs and impedes significant efficiencies of facilities-based competition.For example, the network efficiency of competitors suffers greatly due to building access problems. Generally, when competitors are designing their network, they do not know which buildings they will actually succeed in accessing. This makes it very difficult to determine where they need capacity, and compounds the difficulty of designing, building, and operating an efficient network. Teligent would invest in a base station (a very costly part of the fixed-wireless network) that had the necessary line-of-sight and space to serve many buildings, and arrange substantial backhaul capacity from the base station to the Teligent switch. But instead of gaining access to all of the buildings with potential customers to which the base station had excellent line-of-sight, Teligent sometimes would succeed in gaining access to only 1/3 of the surrounding buildings in which it hoped to compete. It could not use its investment efficiently.

Difficulty in securing building access increases the complexity of competition to the point where facilities-based competitors attempting to deploy voice and broadband services are almost in a different and more costly business than the incumbents. Unlike the RBOCs, the competitors who rely on connecting their own networks to customers need to coordinate and build (or sometimes contract with) a significant organization—involving substantial cost and effort—to work to secure the permission of landlords to allow access. The competitors must begin soliciting buildings to provide access well before they actually intend to serve a particular market and often before other areas of their planning is completed, because it often takes 6-18 months of sustained effort to sign a building access agreement. In some cases, in spite of repeated and costly efforts, the competitors cannot obtain access to a building. In a few cases, after persistent and costly efforts to obtain building access, competitors discover that they cannot provide service to the building as expected, perhaps because the location for an anticipated base station providing line of sight could not be leased or due to some other business or engineering development. “Successful” efforts to secure access to a building may generate lengthy, costly and complex leases that impose many unreasonable limitations, burdens and significant monthly costs on the competitor and require that payment begin immediately.

Some building owners, for example, attempt to extort a percentage of telecommunications gross revenues from competitive LECs that wish to enter their buildings before the carrier is granted building access or is even permitted to market to the tenants in the building. In addition, certain garden apartment complexes require that the competitive provider pay twice to access an apartment building.First, the carrier must enter into an agreement with the entity managing the common space and pay an access fee; then the carrier must negotiate with the particular coop or condo building management for access to the individual building. Moreover, building owners sometimes attempt to raise the price significantly, impose other burdens, or threaten termination when a competitive LEC’s building access arrangement must be renewed to continue to serve the building. The incumbent LECs are not subject to these access fees or threats.

Because securing building access is often time consuming and must begin well before deployment in a market, competitors are unable to offer service to their customers in a timely manner, consequently placing them at a competitive disadvantage vis-à-vis the incumbent LECs. If competitive LECs market to customers before gaining building access, they may not be able to serve that customer at all or may lose the customer in the often lengthy period before building access can be secured.

The time consuming building access process also compounds the probability that some building owners will grow dissatisfied with competitive LECs, exposing them to threats of cancellation of their building access agreements. Building owners sometimes complain that competitors are not serving a building in spite of having been granted the right to do so (although rent is paid anyway). That is a situation, however, that results directly from the attempts by competitive LECs to cope with the grossly flawed market—replete with lengthy but unpredictable delays in securing building access-- created by landlords. Inevitably, some of the building access agreements will be signed before the competitive LEC can offer service to the building. This is especially likely to occur when an owner of buildings in several markets—some where the competitive LEC provides service and others where service will not be provided for some time-- signs an agreement with the competitive LEC authorizing building access to the owner’s entire portfolio of buildings. Often times, however, the competitive carrier is ready and waiting to provide service and does so soon after a building access agreement is signed. This reflects the complexity and inefficiency caused by building access uncertainties. By contrast, the incumbents-- when they are ready and it is convenient for them-- typically enter without a license agreement and for free the buildings competitors struggle to enter at all.

Moreover, competitors must also create costly lease administration, accounting, payment and tracking systems to implement and satisfy the requirements of thousands of complex and burdensome lease or license agreements-- most leases or licenses vary in cost; competitive providers must pay and track these varying fees on a monthly basis; competitors must take steps to renew licenses or send notices at times specific to each lease or license; and competitors must track and comply with other restrictions and obligations that are specific to particular leases and buildings. By contrast, the incumbent carrier usually has no lease or license (and rarely ever a comparable one), virtually no accounting and payment requirements relating to building access, and expends proportionally little effort on this issue.

Additionally, discriminatory or prohibitive building access practices result in competitors losing the efficiency that comes from selling, marketing and provisioning a service throughout a particular geographic territory. Competitors cannot readily sell or market broadly over a geographic area because they will only have access to some buildings. A competitor must find ways to ensure that the sales force is selling only in those buildings where access is available (or where the company is willing to gamble that it will be available shortly) or the competitor will not be able to provide facilities-based service to the customer. The competitor also must create a system to trigger sales and marketing efforts in buildings to which access later becomes available. Finally, competitors cannot arrange to install or deploy service as efficiently—rather than systematically install service to all of the buildings on a block at one time, they will have to bring installation crews to the same block again and again as they eventually gain access to buildings where they sought building access for a long time.

Nor do the problems competitors have in gaining building access end after the carrier provides service to tenants in the building. The entire negotiating process can begin again with all of the attendant perils to competition when the access agreement nears the end of its initial term and must be renewed. Competitive carriers have experienced problems retaining building access at all or on reasonable terms.

The discussion above reflects just some of the challenges, coordination demands, and costs imposed on competitors as a result of discriminatory behavior by building owners. A competitor must create an organization to secure building access agreements, devise costly systems, and coordinate effectively with deployment, sales, marketing and other organizations.The inefficiency and the myriad opportunities for problems, mistakes and failure, are evident.

I.B.(“F”) New vs. Legacy Facilities

In “F”, NTIA asks about distinguishing between “new” broadband and legacy facilities. The prior discussion illustrates that incumbent LECs benefit from discrimination by building owners in securing building access; that this discrimination provides incumbent LECs with significant cost, marketing, sales and efficiency advantages in deploying “new” broadband facilities; and that this discrimination poses a serious barrier to competitors’ network deployment. Enjoying the benefits of discrimination in building access, as the incumbent LECs do, is a legacy of monopoly— not an economy of scale and scope. This discrimination by building owners in providing building access and the advantages it conveys to incumbent LECs, as well as the barrier to competition it represents for competitors, also means that incumbents would have a lower cost of capital than competitors.This is because there is less risk and cost associated with incumbent deployments because discrimination in building access helps them and hampers their competitors.

In short, to the extent that these “new” broadband facilities connect to multi-tenant buildings, incumbent LECs often will be able to do so quickly and for free while competitors cannot connect at all or must pay substantial sums to the building owner to do so. Moreover, these “new” broadband facilities can be connected in rights-of-way and to buildings by employees or contractors routinely permitted access by building owners. Thus, these “new” broadband facilities are not “new” in important senses. “New” broadband facilities deployed by the incumbent LECs benefit enormously from discriminatory building access and incorporate the legacy of monopoly. Relying on the distinction between legacy non-broadband and “new” broadband facilities as the basis to draw an important regulatory dividing line would entrench the advantages derived from monopoly that the incumbent LEC enjoys in deploying broadband facilities.

I.C. (“N”) Existing Law or New Legislation

Finally, NTIA asks whether these issues can be addressed under existing authority or whether new legislation is necessary.

The SBPP has made great efforts to demonstrate to the FCC that the FCC has the power under existing law to address this issue. These submissions to the FCC are in the public record. Thus far, the FCC has expressed concern about the issue and has taken some positive steps. It is clear, however, that much more sweeping and effective steps are necessary and that some facilities-based competition may not survive unless and until those steps are taken. The authority of the FCC to take necessary and more effective action under existing law, and the constitutionality of that approach, was outlined to the FCC, by then-Georgetown Professor and now Assistant Attorney General for the Office of Legal Policy in the US Department of Justice, Viet Dinh. Professor Dinh explained that the FCC had ample authority under its governing statutes to act and that doing so would not constitute a taking without just compensation under the Constitution of the United States.

Certainly, however, new federal legislation could eradicate any uncertainties concerning the FCC’s authority and responsibility to act to assure that competitive carriers obtain non-discriminatory access to MTEs. Such legislation was introduced in the House of Representatives in the prior Congress. The SBPP would certainly welcome Administration encouragement of such legislation.

A national solution to discriminatory behavior by building owners against competitive carriers is preferable for many reasons.Significantly, it would eliminate the ability of landlords to circumvent state laws and rules that require building owners to provide nondiscriminatory access.Currently, building owners often refuse to sign multi-state building access agreements until the negotiating carrier effectively agrees to relinquish its right to nondiscriminatory treatment in a particular state that has favorable statutes or rules concerning building access.However, given the limited federal action taken thus far to address these barriers to competitive entry, some states have undertaken the task. In fact, NARUC has twice passed resolutions urging regulatory and legislative action to ensure that consumers can secure building access for the carriers of their choice on reasonable and nondiscriminatory terms.

Some states have taken legislative action to prevent discriminatory access to MTEs. President Bush, as Governor of Texas, for example, signed the most pro-competitive legislation in the country addressing this issue, assuring that consumers and businesses in multi-tenant environments in Texas could gain access to the carriers of their choice on reasonable and nondiscriminatory terms. The Texas Public Utilities Commission has taken pro-competitive steps in implementing this statute. Connecticut has adopted a statute that is similar to the Texas law.

In other states, such as Nebraska and California, the relevant public service commission has taken some steps to promote non-discriminatory building access using their general powers and authority.

II.A.Access to Federal Buildings and Customers (“M”)

The events of September 11 help to make abundantly clear that businesses, as well as tenants with public interest and public safety responsibilities such as the federal government, should seek diversity and redundancy in telecommunications network facilities. Harvey Pitt, Chairman of the SEC, emphasized this point to businesses: “[W]herever possible, business continuity planning should seek to avoid reliance on single points of failure in critical systems.Single points of failure can occur in ways that are unforeseen, and even odd.The lines of competing telecom providers may all lie side by side in old, obscure conduits."[1] Similarly, officials of the Federal Technology Service (“FTS”), which is part of the General Services Administration (“GSA”), have begun to acknowledge the importance of these considerations to government tenants: “Agencies are looking at having two different companies using two different technologies to make sure they can stay operational even if one of the telecommunication companies’ systems is damaged,” said Associate Director Frank Lalley.